The Business Model Canvas

As a product manager or founder, it is crucial that you have a solid business model for the development and marketing of your products. The Business Model Canvas (BMC) will help you with this. This method comes from the book 'Business Model Generation', which was developed by Alexander Osterwalder, and enables you to build and optimize your business model in a structured way.

So that you can use the tool like a pro, we'll explain everything you need to know today - including practical tips, advice and case studies. This will put you ahead of 99% of all users!

The Business Model Canvas is a strategic tool developed by Alexander Osterwalder and Yves Pigneur. With its help, you can visualize and analyze business models on the canvas.

It consists of nine building blocks that represent the entire business model. These building blocks are

1. Customer segments
2. Value proposition
3. Communication and distribution channels
4. Customer relations
5. Key partnerships
6. Key activities
7. Key resources
8. Cost structure
9. Sources of income

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Business Model Generation - Bring your business idea to life

The book Business Model Generation shows how you can quickly and easily generate, change and adapt business ideas using the canvas. This helps you to think through new ideas or change existing ones. Since everything is done on a canvas with post-its, the business model canvas is much lighter and faster than a business plan.

Why is the Business Model Canvas better than a business plan?

Thanks to methods such as Lean Startup, Design Thinking and Jobs-to-be-Done, our approach to building new business models has also changed. In the past, an idea was developed and a detailed business plan was drawn up, which was then implemented. The problem with this was that over 75% of these ideas failed and there is not a single company in the world that has developed exactly according to plan.

Nowadays, we accept that the world can develop differently than planned and therefore already take possible changes into account. It no longer makes sense to create an extensive business plan of 50 or 100 pages. Instead, we use the Business Model Canvas, which is lighter and faster. On the BMC, we record our most important assumptions about how the new business model should work. This allows us to develop and optimize the business idea by applying the Business Model Canvas.

The structure of the business model canvas

As mentioned above, the BMC consists of nine building blocks. We will now take a closer look at these.

1. customer segments

In order to create a successful business model, founders naturally need to know who their customers will be. This basic knowledge influences further insights and decisions in subsequent building blocks. The key question at this point is:

For whom do we create value?

The following key questions will help you answer this question in as much detail as possible and take a close look at your customer segments:

1. Who am I solving the problemfor?
2. Who are the people who will appreciate my value proposition? Are they companies, individuals, families, etc.?
3. What are the characteristics of this target group? This often has to do with the situation. Let's take an example: a company has grown considerably and now has around 100 employees. Because the organization is getting too big to know everyone, it needs a personnel management system.
4. How do I recognize my customers and what distinguishes them from customers who choose a competitor's product?

Ideally, you have already developed a value proposition canvas for your customer segment. Then you simply transfer the information to your BMC.

When do you have several customer segments and how do you deal with them at BMC?

There are many business models that have several customer segments. Typically, these are represented with different colored post-its on the business model canvas.

With the following business models, you have several customer segments:

• Platforms or double-sided market: Certain companies serve several interdependent segments. Airbnb, for example, needs people who want to offer an apartment and people who want to rent rooms. Google needs people who search on Google.de and companies that pay for ad placement on Google. In such a case, you need to work out both segments - and create a value proposition for each in the next building block.

• Diversified companies: Companies with a diversified customer business model serve unrelated segments with different needs and problems. An illustrative example is Amazon with its web store (B2C) and cloud business (B2B). Or a restaurant that has customer business in the store (B2B) but also offers catering for companies (B2B).

• B2B2B or B2B2C business models: Here, too, there are several customer groups involved. Let's take a yogurt manufacturer that produces white label products for a supermarket. The supermarket is the direct customer (B2B), but the product is eaten by the consumer at the end of the day (B2C).

• Buying group: A buying group in the sales process refers to a group of people or decision-makers within an organization who decide together on the purchase of a product or service. For you, this means there are multiple decision-makers who all need to see value in buying the product. The simplest but most common buyer group is when the user and the buyer are not the same person.

• Potential customer groups: If you are working in a start-up or developing a new product, there are often different ideas about which customer groups will buy the product later. In this case, the standard procedure is to list all potential customer segments and start the business model validation with the segment that has the highest probability of success.

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How do you segment and describe the segments?

There are various approaches to segmentation:

• Personas are often created for each segment . You use fictitious customer profiles to better understand the needs and behaviors of customers. In product management, however, there are different opinions on the effectiveness of personas.
• Our alternative method is segmentation based on the customer's situation and job-to-be-done . A segment here consists of a homogeneous group of customers who are in the same situation and have similar goals that they want to achieve.

Instead of focusing solely on demographic characteristics such as gender, marital status or age, we think it makes more sense to define segments based on their goals and tasks. The Value Proposition Canvas helps you to identify these segments and better understand their specific needs.

We also explain this approach in our article on jobs-to-be-done interviews. By focusing on the customer's tasks and goals, you can develop relevant value propositions and specifically address the needs of the segments.

2. value proposition

The value proposition - or value proposition - is the reason why customers buy from you and not from the competition. What makes your product special? Why is it preferred by customers? Is it faster, cheaper, better?

The value proposition describes your solution.

The following list can serve as inspiration for you to identify your services and unique selling points:

1. Improving performance: Improving the performance of products or services is a traditional way of adding value, be it faster machines or better processing in less time. This applies to both physical products (e.g. faster production through automation) and digital products (e.g. faster image processing, faster mining).
2. Personalization: By adapting products and services to the specific needs of individual customers or customer segments, you create added value. In consumer markets, this is known as "mass customization". However, the personalization of existing processes is also important in the B2B sector.
3. Design: Excellent design can set a product apart and add to its value, especially in industries such as fashion and consumer electronics, media, websites and apps.
4. Brand/status: Some customers attach importance to using and displaying certain brands, as this is a sign of wealth or social status for them. Such a value proposition works mainly for established brands that enter a new market with greater appeal.
5. Price: Offering a similar value at a lower price appeals to price-sensitive customer segments. However, this has an impact on your entire business model. You have to design your entire structures accordingly for low costs.
6. Cost savings: Another way of adding value is to help your customers reduce their costs.
7. Access to products: Providing products and services to customers who previously did not have access to them creates a larger customer base, and thus value. You can achieve this access through lower prices (e.g. Henry Ford T Model), easier handling (e.g. website builder vs. programming yourself) or new technology.
8. Usability: If you can make things more convenient or easier to use, you can create considerable value. Apple offers numerous examples here: the mouse on the computer, the iPod and iTunes in the area of MP3 players and perhaps soon the Vision Pro headset.
9. New value proposition: Some value propositions fulfill completely new needs that were not previously offered to customers. These are usually related to technology. The cell phone has made mobile telephony possible and created a new market. With Spotify, we can play almost any song in the world from anywhere in the world. The Apple Vision Pro will make things possible that were simply not possible before.

With a strong value proposition, you can attract customers and set yourself apart from the competition. Address the specific needs and problems of the target customer segment while offering a compelling bundle of features, products or services.

3. communication and distribution channels

The factors of communication, distribution and sales channels form an interface between your company and your customers.

Ask yourself the following questions to define this BMC element:

• Communication channels

• How do I reach my customers?
• Where are my customers?
• Are they on social media? Which media do they use?
• Do I reach them via Google Adwords or rather on Instagram or TikTok?
• Are they driving and listening to the radio or the subway and are on Spotify?
• Are you at an event or conference?
• Which channel has the highest volume?
• Which channel is the cheapest?

• Sales channels

• What is my point of sale?
• Where do I sell?
• Is it my own channel or are there partners?

Demographic data is interesting for marketing and communication. This allows you to achieve better targeting and create the basis for more sales.

You can also find a good overview of possible channels in the book "Traction" by Gabriel Weinberg and Justin Mares. In it you will learn more about these 19 traction channels:

• Viral Marketing
• Public Relations

• Unconventional PRSearch Engine MarketingSocial & Display AdsOffline AdvertisingSEOContent MarketingEmail MarketingEngineering As MarketingBusiness DevelopmentSalesAffiliate ProgramsExisting PlatformsEventsSpeaking EngagementsCommunity BuildingTargeting BlogsTrade Shows (incl. Virtual)

What should you bear in mind with different channel types?

Own vs. external channels:

• Own channels: These include your own sales force, a company website or retail stores owned and operated by your company. This usually gives you higher profit margins, but you should also expect considerable upfront and operating costs.
• Third-party channels: They help to scale your product and increase your reach. However, the margins are often lower as part of the revenue flows to your partner.

Direct vs. indirect channels:

In recent years in particular, many brands have emerged that have become successful with a direct-to-customer (D2C) model . For example, Horizn Studios shook up the established suitcase market and Tesla shook up the automotive market. These brands have built direct customer relationships and sales channels rather than relying on indirect options such as wholesale distribution, retail partnerships or working with partner websites.

How does the customer journey affect your channels?

Customers typically go through various phases, in particular from awareness to evaluation to the purchase decision. Such a customer journey is also mapped in the next building block, Customer Relationships. The aim is to describe how someone becomes a customer and makes a purchase. The channels can also be arranged one after the other .

Dave McClure's AARRR Pirate Metrics , which outline the most important steps on the way to a customer, are often mentioned in this context:

• (A) Acquisition - Acquisition (or awareness): How do people discover my product or company?
• (A) Activation: Do these people perform the actions I expect them to perform?
• (R) Retention - customer loyalty: Will my activated users stay with the product?
• (R) Referral: Do users like the product so much that they tell others about it?
• (R) Revenue: Are my personas willing to pay for this product?

Even if the "Sales" item is a separate building block in the business model canvas, the framework shows nicely that the activities discussed here in the channel block should lead to sales and thus turnover as effectively as possible .

For new products and start-ups, we recommend testing the channel with the product before the product is built. You can find out more about business model testing in our article on the Experiment Tracker.

4. customer relationships

In the area of customer relationship, you usually pursue the goal of building customer loyalty and encouraging repeat purchases (retention) or expanding the business relationship (upsell). You describe how you want to do this in this field of the BMC:

Which channels and tools are used to keep the customers you have acquired at a high price?

The interaction points are typically mapped in a customer or user journey.

The following questions will help you to better describe customer relations:

1. Where and how do I interact with my customers?

1. personally
2. online
3. at events
4. by newsletter
5. on the phone
6. in an app
7. About contractual partners
8. etc.

1. What kind of relationship does each customer segment expect from me/my company?
2. What customer relationships have we already established?

Examples of customer relationships

Let's take a look at some examples and best practices from companies to shape the customer relationship:

1. Build a long-term relationship: These relationships focus on building long-term connections with customers by encouraging recurring interactions and engagements over time. Hotels are trying very hard to establish this, for example with loyalty programs.
2. Personalized customer support: This relationship is based on human interaction, where customers can communicate with customer representatives to receive support during the sales process or after the purchase. This can be done through on-site assistance, call centers, email communication or other channels.
3. A long-term, personal relationship (key account): In this type of relationship, individual customers are assigned specific account managers, creating a deep and intimate relationship that often develops over a long period of time. Classic key account management can be found in industry, private banking or FMCG, for example.
4. Self-service: In self-service relationships, companies provide their customers with the necessary tools and resources so that they can serve themselves without having to contact company representatives directly. This can be done both online, for example with a web configurator, and offline, for example in restaurants.
5. Automated services: This type of relationship combines self-service with automated processes. Personal online profiles can be used to offer customized services and information. Automated services can simulate a personal touch by making recommendations based on customer characteristics and previous interactions.
6. Transactional, short-term relationships: These are one-time, transactional interactions with customers without a deeper connection. Think of a souvenir store or a kiosk at an airport.
7. Communities: In this variant, the company provides a platform through which customers can help each other. Thanks to such user communities, companies can not only easily get in touch with customers, they also make it easier to build connections between community members, share knowledge and solve problems. This allows companies to better understand their customers and foster a sense of belonging.

5. key partnerships

In this module of the Business Model Canvas, you deal with the question:

Which external partners and resources do I need to operate the business model?

This includes describing the network of suppliers and partners you work with to make the business model successful. The following questions will help you gain a better understanding of the key partnerships :

• Who are my key partners?
• Who are my most important suppliers?
• What key resources do I obtain from my partners?
• What key activities do my partners carry out on my behalf?

We have found that users often ask themselves whether they are a partner or not. Two questions typically help here:

• Is the resource internal or external? One example of this is Georg Clooney at Nespresso. Many would describe him as a key resource. However, he is not an internal resource of the company and he is paid by the company for his advertising. He should therefore be considered a partner.
• Do I have an intensive relationship with the provider that goes beyond a standard agreement? A telephone provider with whom you have concluded a contract on the Internet is not a partner. However, if you act as a reseller of mobile phone tariffs and purchase a contingent, the telephone provider is your partner.

What types of partnerships are there?

Key partnerships play a central role in some business models. They enable companies to optimize their processes, reduce risks and access valuable resources.

Four types of partnership can be distinguished:

1. Strategic alliance between non-competitors
2. Coopetition as strategic partnerships between competitors
3. Joint venture to develop new business areas
4. Relationships between customers and suppliers to ensure a reliable supply

What are the reasons for partnerships?

There are various reasons for forming partnerships. We summarize them in the following three areas:

1. Optimization and economies of scale: Partnerships or customer-supplier relationships are often entered into to optimize resource allocation and activities. It is impractical for a company to own or execute every aspect of its business model. The automotive industry, for example, has suppliers for almost every part that goes into a car and does not manufacture any parts itself. This is often referred to as vertical integration .
2. Purchase of specific resources and activities: Many companies rely on external providers to provide certain resources or carry out certain activities described in their business models. Partnerships are formed to acquire knowledge, licenses or access to customers. Such a sharing of responsibility can often be found. For example, numerous mobile phone providers rent from operators of radio masts, electricity providers rely on network operators and cell phone manufacturers rely on licensed operating systems.
3. Focus on core competencies: By forming key strategic partnerships, companies can more easily upgrade their capabilities, access valuable resources, reduce costs and mitigate risks. Conversely, this means that the company can focus on its core competencies and utilize external expertise for its success.

6. key activities

The key activities module outlines the essential measures, or core activities, that your company must take to ensure the success of the business model and work effectively.

The following questions will help you to explore this block in more depth:

• What do we need to do and what are we particularly good at in order to

• fulfill our value proposition?
• to support our sales channels?
• build, maintain and expand our customer relationships?
• increase our sales?

The key activities vary depending on the type of business model. For example, Adobe's key activities revolve around software development, while Amazon's webshop business focuses primarily on logistics and warehousing.

What groups of key activities are there?

There are typically three groups of key activities:

1. Production: These activities include the development, manufacture and supply of products in large quantities and/or of high quality. Manufacturing companies rely heavily on production activities as the basis of their business model.
2. Problem solving: This type of activity involves the development of new solutions to individual customer problems. Service companies such as consulting firms and hospitals are primarily engaged in problem-solving activities. Their business models require activities such as knowledge management and continuous training to deliver effective solutions.
3. Platform/network: Business models that center on a platform or network as a key resource have key activities in the area of platform or network management. This can include the management of online networks, matchmaking, software or brand platforms. Other activities include the provision of services and the promotion of the platform.

7. key resources

Key resources are the most important resources for your business model to function and be successful. Like the key activities, the key resources are also linked to the other fields in the business model canvas.

To gain a deeper understanding of your key resources, ask yourself the following questions:

• What key resources are needed to:

• support our value proposition?
• develop, operate and expand our sales channels?
• Build and maintain customer relationships?

• Key Resources often answers the question of "why us":

• What are we particularly good at?
• Where do we have a strategic advantage?
• Where are we better than others?
• What access to data, information, distribution networks, knowledge, etc. do we have that others do not?

In what form can the resources appear?

In contrast to the Key Activites, these are not things that you have to do, but things that you have. They can be of a physical, financial, intellectual or human nature . It doesn't matter how the ownership or possession is structured. The key resources can be owned, leased or acquired through strategic partnerships.

Let's take a closer look at typical categories of key resources:

• Physical resources: These include physical assets such as production facilities, buildings, vehicles, machinery, systems, point-of-sale systems and distribution networks. Companies such as Walmart and Amazon rely heavily on physical resources as they have extensive global networks of stores, warehouses and logistics infrastructure.
• Intellectual property: This includes brands, proprietary knowledge, patents, copyrights, partnerships and customer databases. They are playing an increasingly important role in modern business models. Brands such as Rolex or Nespresso stand for value and can generate a higher sales price for customers.
• Human resources: Personnel are essential for every company, but certain business models place particular value on people. Knowledge and development-intensive and creative industries are highly dependent on employees. However, there is also a trend towards ever larger companies getting by with fewer employees. WhatsApp, for example, was able to serve a customer base of 800 million users with 40 employees - and was sold to Facebook for 17 billion euros.
• Financial resources: Some business models require financial resources or guarantees, such as cash, credit lines or stock option pools.
• Data: Existing companies or founding teams often have a special insight into a market and special access to data. Access to training data is essential, especially for AI-driven business models.

8. cost structure

The cost structure includes all expenses associated with the operation of your business model. In addition to creating and providing value, this includes maintaining customer relationships and generating revenue. Your first look should therefore always be towards key activities, resources and partners in order to identify the main cost drivers.

Ask yourself the following questions to gain a deeper understanding of your cost structure:

• What are the most important costs associated with my business model?
• Which key resources contribute the most to expenditure?
• Which key activities are the most costly?

Cost orientation vs. value orientation

Note that some business models are more cost-oriented than others. There are therefore two central categories of cost structures:

• Cost orientation: Cost-oriented business models focus on minimizing costs at every opportunity. They keep the cost structure lean by offering low-cost value propositions, maximum automation and the use of extensive outsourcing options. Low-cost airlines such as easyJet, Ryanair and Southwest are examples of this.
• Value orientation: Some companies are less concerned about the cost implications of their business model and instead focus on value creation. They are characterized by first-class value propositions and a high level of personal service. Luxury hotels with their lavish facilities and exclusive services fall into this category.

Which parameters influence your cost structure?

Cost structures can be characterized by the following four properties:

1. Economies of scale: This refers to cost advantages that companies enjoy when they expand their production. For example, larger companies benefit from lower bulk purchase prices, resulting in lower average costs per unit as production volumes increase.
2. Economies of scope: These are cost advantages resulting from a broader scope of activities. In a large company, the same marketing activities or sales channels can support several products, which saves costs.
3. Fixed costs: These costs remain constant regardless of the quantity of goods or services produced. Examples include salaries, rent and physical production facilities. Manufacturing companies in particular have a significant proportion of fixed costs.
4. Variable costs: These costs fluctuate in proportion to the volume of goods or services produced. At music festivals, for example, the proportion of variable costs increases with the size of the event.

If you understand your cost structure, you can manage it more easily and remain financially sustainable. This is also the basis for optimizing profitability later on. This makes it easier for you to identify cost drivers and options for increasing efficiency. This will help you to improve your competitive position and achieve long-term success.

9. sources of income

The revenue streams, or rather monetization models, describe how your business model generates money from each customer segment. Ask yourself:

• What do customers pay for at the end of the day?
• Which monetization model do I choose?

You can choose from different types of monetization , in particular the following seven models:

1. One-off purchase price (pay per transaction): This source of income results from the sale of ownership rights to a physical or digital product. Examples include the purchase of a house, a car, but also digital assets such as NFTs. In the past, software licenses were often sold with a one-off purchase price, such as the Microsoft operating system on CD. Today, however, many are switching to subscriptions, as described in point 3.
2. Usage fee (pay as you go): This is how your revenue is generated through the use of a specific service. You charge your customers fees based on the amount or scope of their usage. For example, we pay for electricity depending on consumption and in hotels depending on the number of nights. Revenue for software is also often volume-based. For example, the prices for cloud services such as Microsoft Azure depend on traffic.
3. Subscription: With this monetization source, you sell continuous access to a service through subscriptions. Just think of all the software-as-a-service companies like Microsoft 365, Adobe Suite, Calendly, etc. that sell monthly or annual subscriptions for access to their facilities.
4. Rental/leasing/leasing out: This income stream arises when you grant temporary access to an asset for a fee. For example, lighting and sound systems are rented out for events and trade fairs, and excavators and cranes for construction work. Mobility services such as Tier or ShareNow allow customers to rent cars, bicycles or scooters by the hour.
5. Licensing: For a license fee, you can allow customers to use protected intellectual property. This model is often used in the media industry to generate revenue from their intellectual property.
6. Referral fee: This type of monetization comes from referral services that you provide on behalf of two or more parties. Examples include marketplaces like Airbnb or eBay, which earn a percentage of every sales transaction between merchants and customers. Real estate agents, who receive a commission for successful real estate transactions, also use this model.
7. Auction: Your customers can bid for a specific product or service and the highest bidder wins. Auction platforms such as eBay or Christie's use this model to generate revenue from participants' bids. Such auctions are possible for both physical products and digital goods such as works of art or domain names.

The choice of monetization model can have a significant impact on the success of your business. Therefore, try to align your pricing strategies with your customers' preferences and offer compelling value propositions. This way, you can maximize your revenue and become more profitable in the long term.

Business Model Canvas using the example of Amazon

Amazon has changed and expanded its business model over time. Today, the company has established many different business models. Amazon started out in 1995 with a relatively simple business model: an online store for books

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Jeff Bezos specifically chose books, as this is the category with the most items : there are around 5 million books worldwide. However, the largest bookstore at the time "only" had 5,000 books. So he had the idea of opening the largest bookstore in the world.

In 2000, Amazon changed its business model. From a specialized bookstore, it became an "Everything Store " - a store where you can buy anything. Since no company can hold such a large amount of goods on its own, Amazon turned its website into a platform and gave third parties access to its customers.

Today, Amazon also operates other services such as AWS (Amazon Webservices) or FBA (Fulfillment by Amazon). These business models are based on Amazon making internal resources and processes available to its customers.

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In the video, we discuss more background information on the various business models. So feel free to take a look!‍

How do we use the Business Model Canvas?

The BMC is flexible and can support you in various situations. We use it not only in the development of new business models, but also as a communication tool, for scenario analysis or ideation.

As a dashboard for start-ups or new business models

For start-ups or new business models, the BMC acts as a kind of dashboard. All post-its are initially just assumptions. We use them to describe how we think our future business model should work.

We then test these assumptions step by step in a systematic process. We follow the order of the business model canvas and initially focus on the elements customer, value proposition and channel. For an effective validation process, we use the Experiment Tracker as well as the methods and principles of Lean Startup. This approach allows us to learn continuously, make adjustments and optimize the business model step by step.

For the communication of existing business models

With existing business models, the main thing is to describe what already exists. In this case, the BMC is an excellent communication tool. You can use it to easily show the connections between the business model and tell a story:

• How does the existing business model work?
• Where are the strengths and weaknesses?
• Where is the potential?
• How will trends affect the business model?
• etc.

For what-if scenarios to change existing business models

Of course, you can also go one step further and consider how you can change your business model. We often use business model patterns for this. In other words, we look at typical business models and transfer them to our existing business model.

It's very simple: you take a well-known business model, such as Airbnb, and try to apply the key components to your business model. Then you take another one, for example that of IKEA, Red Heat, Wikipedia or Evernote, and transfer its elements to your business model. Some examples will not produce a sensible result, others will inspire you.

Essentially, you are asking yourself and your team a question:

• What does my business model look like when it...

• would be a platform business?
• would be a freemium product?
• etc.

You can find a pattern list here!

Ideation of trends with the help of Business Model Environment

Another way to revise and improve your business model is to take a look at the environment in which you find yourself. Alexander Osterwalder calls this the business model environment. Here is an illustration from his website:

Source: Strategyzer

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Based on developments in the individual areas of your environment, you can consider which trends could prevail or develop. These ideas will in turn give you clues for adapting your business model.

• The Business Model Canvas is a strategic tool for visualizing, analyzing and communicating business models.
• It consists of 9 building blocks: customer segment, value proposition, communication and sales channels, customer relationships, key partnerships, key activities, key resources, cost structure and sources of revenue.
• You can use the Business Model Canvas for various purposes:

• Dashboard for the development of new business models
• Communication of business models
• Analysis of scenarios
• Ideation of trends

Business Model Canvas templates: Download template

• Business Model Canvas as png template
• Business Model Canvas PDF Template
• Business Model Canvas Google Slide Template
• Business model canvas Canva Template

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