A great idea isn’t a business…yet
You started with an idea–a good one, maybe even a great one. You tinkered with it in a garage, a basement, a lab, or maybe a laptop. You showed it to friends and family. Now you think your idea may have wings.
If you’ve never built a company before, it can be daunting to know where to start. Even if you have built a successful company before, every new venture has its own unique challenges.
That’s why Launch NY’s free entrepreneur mentorship program uses the Business Model Canvas. Whether you’re pretty green or pretty seasoned in the business world, it keeps you focused on the right things as you build your startup, before you try to raise the funding you need.
What is the Business Model Canvas (and why should I care)?
This one’s easy. The canvas is a one-page worksheet that illustrates 1) the value your business creates for your customers, 2) how you deliver that value, and 3) how you generate revenue.
We didn’t invent it–Alexander Osterwalder and Yves Pigneur did, at a university in Switzerland more than 20 years ago. They were trying to simplify business models to make them easier to understand and easier to use. By the end of this blog, you’ll be able to see the results with your own eyes.
Each of the nine blocks on the canvas work together to help you build a business that has a real chance to succeed:
- Value Propositions
- Customer Relationships
- Customer Segments
- Channels
- Key Partners
- Key Activities
- Key Resources
- Cost Structure
- Revenue Streams
The secret to the canvas is a focus on what the customer actually wants. That’s why the Value Propositions box is smack dab in the center.
Instead of building your startup around what feels right to you, the canvas helps you work backward from what your customers want to how you can profitably provide that to them.
That means you only build products or services people will actually pay for. And you only build parts of your business that support the delivery of those products or services. This early in the game, you can’t afford to waste any time or resources.
[Graphic from an official Strategyzer template]
Let’s break down the nine blocks on the canvas
We’ll start in the middle. The biggest block on the canvas is Value Propositions. Here you spell out what problem you’re trying to solve and what benefit your solution provides. A lot of businesses fail because they’re trying to solve a problem that just isn’t a priority for their customers.
Take the now-defunct Segway as an example. It was billed as a new way for pedestrians to travel quickly, an alternative to cars or public transportation. But it ended up only being used by staff and security in large commercial campuses like malls, airports, and theme parks. The commuter revolution never happened, because it wasn’t wanted.
If we move to the right on the canvas, you’ll find more customer-facing boxes. Customer Segments defines who has the problem. The Segway thought its “who” was huge, commuters everywhere. It turned out to be very small. The Channels box answers the very practical questions of how customers will discover what you do, purchase your products or services, and how you deliver what they’ve purchased. Finally, Customer Relationships answers how you attract, support, and retain the customer segment you’re targeting.
All of this isn’t simply product or service features. It’s about the final outcome for your customers. Who are you serving? Why should they care? If you provide reparative or preventative services, for instance, like an IT service, you’re providing peace of mind to your customers. They don’t care about the bells and whistles. They care about how much more they can focus on something else.
How do I deliver what the customer wants?
Now that you have a better grasp of what your customer actually wants, how do you deliver it? The left side tries to answer that question. Fill in the Key Activities box with the things your business must do exceptionally well to provide the desired experience to your customer. Key Resources answers what personnel, technology, equipment, knowledge, and capital you will need to accomplish that.
That’s internal. The next box, Key Partners, answers what partners, suppliers, or collaborators your business will need to provide an exceptional product or service to your customers. You’ll need outside help to succeed as well.
After you’ve determined who you’re serving and what they want, then how to build your business to actually provide that, you’ve got to figure out the literal million-dollar question: how to profit from all of it.
Can your business make money?
The bottom of the worksheet is the foundation for your business: your financials. “If it’s so important,” you might ask, “why build it last?” It’s a good question. But if nobody wants what you’re selling, financials don’t matter. If you can’t reliably build what people actually want, financials don’t matter.
Once those two pieces are in place, figuring out how to profit from it just becomes the final piece of the puzzle. The Cost Structure box answers how and why money goes out of your business. That includes the cost to develop the products or services, the recurring operating costs, and all costs concerned with delivering your products or services to your waiting customers.
The Revenue Streams box answers how money comes in to your business. Who will pay you, for what, and how much are they willing to pay (and maybe how often)? If this box can’t grow to exceed the other one, your business will fail.
Going through each box thoughtfully and deliberately makes success much more likely. Each box complements the others as well as puts tension on them. A realization in one area can lead you to change your assumptions in another.
Now you actually fill the canvas out
- Start with the customer and their problem
- Don’t start with your preferred solution
- Where is there friction? What frustrates your customer?
- Map out all your initial assumptions for the other boxes
- Note what you know vs. what you guess
- Don’t overthink it, this is just a first pass
- Talk to potential customers
- No, seriously, actually talk to them
- Ask open-ended questions to get their true feelings rather than fishing for the answers you want to hear
- Look for patterns in the answers
- Revise your canvas
- Look at your initial assumptions and compare to the answers you received
- Make new guesses as needed
- Repeat steps 3 & 4 several times
- Cycle as many times as you need to sharpen your canvas
You’re not just trying to have a nicely filled-out business model canvas. You’re getting real answers about whether your perception matches reality before you’re putting a ton of money behind it.
Why bother with the Business Model Canvas?
Maybe your idea is so good it can’t fail. Maybe you’ve built several businesses before and know how to make them succeed.
The canvas is a tool that asks very little of your time, but can provide enormous value in challenging your assumptions and clarifying your best ideas.
Using the canvas, you can avoid some expensive mistakes. The most obvious mistake is building your whole company around a product or service your customer doesn’t actually want or need. The canvas was built to prevent that.
The business model canvas can help highlight your most valuable ideas and assets. Until you’re forced to list everything at your disposal, particularly in the light of what your customers want, you can overlook essential pieces of your business puzzle.
The canvas allows you to make informed decisions. It helps take much of the guesswork out of questions like “what do my customers want?” “What do I have to offer them?” “How much will it all cost?” “What do I need to charge for my products or services?”
Lastly, the business model canvas helps you build a stronger foundation for sustained, highly-scalable growth. Many of the questions it answers are ones that would have hit you like a freight train mid-growth otherwise. There’s nothing so bad as getting some real momentum, then having to stop because you missed an important detail in your business plan.
You’re not done yet
The canvas isn’t a “business success checklist.” It’s a tool for truth discovery that will help you build your business in a better way. It helps prevent errors, but doesn’t guarantee success.
The discovery part of the Business Model Canvas will give you lots of useful information, but it’s only one part of the Launch NY mentorship process. If the end goal is getting your startup successfully funded and growing fast, you’re going to want help.
Launch NY has the expertise, resources, and industry network you need to take your best shot at a highly-fundable, scalable business. To see if you’re a fit for our free program, apply here.
We’d love to help you build your startup from Upstate NY.
FAQs
Is a Business Model Canvas the same as a business plan?
No. A traditional business plan provides more extensive operational, financial, and strategic detail than a canvas. The canvas itself is more helpful for getting your assumptions on paper, critiquing them, and focusing on the right questions. The canvas can help inform a business plan.
Should I complete a Business Model Canvas before launching my startup?
Ideally, yes. It can help you identify untested assumptions and important questions before you make major investments. It’s also useful for startups already operating.
How do I know if my Business Model Canvas is accurate?
Test its assumptions against evidence from potential customers, real purchasing behavior, cost estimates, and market research. A completed canvas is not necessarily a validated one.
How often should I update my Business Model Canvas?
Revisit it whenever you learn something significant about your customers, product, pricing, operating costs, or market. Early-stage startups may need to update it frequently.
Where can I find a free Business Model Canvas template?
The template is available through Strategyzer. You can print it or work from a digital copy.