We Love the Business Model Canvas (and so should you!)

The Business Model Canvas is a one-page map of how a company creates, delivers and captures value. Its nine blocks, from customer segments and value proposition on the market side to resources, activities, partners and costs on the internal side, let a leadership team debate strategy in a shared language and keep it alive as conditions change.

Imagine the chief executive of a family-owned manufacturer who gathers her management team to discuss why growth has stalled. The sales director blames pricing, the operations director blames capacity, and the finance director blames the cost of credit. Each has a convincing argument, and each is describing a different business. After two hours the group has produced a long list of complaints and no common picture of how the company actually makes money. A facilitator then hangs a large printed canvas on the wall, hands out sticky notes, and asks everyone to write what they believe about customers, offer, channels and costs. Within forty minutes the disagreement has a shape, and for the first time the team can see which assumptions differ.

That scene explains why the Business Model Canvas became one of the most widely used strategy tools in the world. The original version of this article reported that in 2008 Alex Osterwalder developed a tool to facilitate the analysis, mapping and visualization of the business models of a company. We keep that date as the author's statement and add some context. Osterwalder's doctoral work on business model ontology dates from 2004, and the canvas reached its popular form with the book Business Model Generation, written with Yves Pigneur and published in 2010, as Strategyzer explains on its page about Business Model Generation. In any case, the idea is simple and durable. The canvas is a summary, about the size of a page, of the strategic details that a company needs to generate, deliver and capture value. It is divided into nine blocks that keep the focus on the most important strategic elements of the business. Strategyzer describes the tool in its library page on the Business Model Canvas.

The concept of a business model itself has an authoritative treatment in Harvard Business Review. In Reinventing Your Business Model, Mark Johnson, Clayton Christensen and Henning Kagermann argue that a business model consists of a customer value proposition, a profit formula, key resources and key processes, and that successful companies reinvent their models when circumstances change. That is a useful reminder that the canvas is not an academic exercise. It is a way to examine, in one view, the same elements that determine whether a company earns its living. We explore the topic in our own articles on what a business model is and why it is important and on the Osterwalder and Pigneur canvas and its alternatives.

Why should leadership teams use the Business Model Canvas?

The author of the original article lists several benefits, and each speaks to a problem that executives know well. The first is that the canvas promotes teamwork by generating a common language for conversations about strategy. In many companies the word strategy means something different in each department, and the canvas gives everyone the same nine headings. When the sales director says customer segment and the operations director says key resource, they are pointing at the same diagram.

The second benefit is a visual representation, on a single page, of what the company needs to do to generate and maintain a competitive advantage. A one-page view makes trade-offs visible. If a team wants to add a new customer segment, it can see at once which channels, relationships, resources and costs would have to change. The third benefit is that the canvas promotes innovation, by making it easier to design new business ideas while also showing the existing business. Teams can draw the present model and a proposed one side by side and examine the differences. The fourth is that it promotes strategic discipline, since it is a living document that has to be updated constantly. A canvas that was drawn three years ago and never touched is a poster, whereas one that is reviewed every quarter becomes a management instrument.

These benefits are the author's assessment, and they match the experience of consultants who use the tool. It is worth adding a caution. The canvas shows what a business model is, but it does not prove that it works. Each box contains hypotheses, and the discipline lies in testing them against evidence from customers and from the numbers. Our article on how to create a business model canvas and our step-by-step guide help with that.

How do you prepare a Business Model Canvas workshop?

The original guide begins with previous activities. It recommends printing the canvas on a plotter at 841 by 1189 millimeters, which is the A0 paper size, pasting it on a wall, and buying markers and sticky notes. The scale is deliberate. A large canvas lets several people stand around it, write at once and move ideas without a screen mediating the conversation. For remote teams the same logic applies to a shared whiteboard, with each participant adding notes in real time.

The author adds that because the canvas is an intellectual property tool of Strategyzer, the company of Alex Osterwalder, the formats should always be printed with the legend. The practical conclusion is correct, which is to keep the attribution line on every copy you print or share. On the legal detail we could not open the license terms, and Strategyzer publishes its position on the page usage of our tools, so anyone distributing the canvas commercially should read that page and follow the terms stated there.

How do you fill in the canvas, block by block?

The Business Model Canvas contains nine categories that answer important questions about the business. The author recommends dividing the canvas into two large units of analysis, the right side, which is the market, and the left side, which is the internal analysis of the company. Before filling anything in, the team should analyze the environment, taking into account the forces of the industry, the market and the key trends. This step prevents a common mistake, which is to draw a model that would have worked five years ago.

The recommended starting point is the right side, because that is where the innovation of the model occurs. It begins with customer segments, which the author defines as a group of customers for which the company creates value or solves a problem. To analyze this block, the author suggests relying on other methods such as the Value Proposition Canvas, the buyer persona, the empathy map and others. Our articles on the Value Proposition Canvas, the buyer persona and empathy maps explain how.

Next comes the value proposition, which is the value offered to each customer segment or, in other words, how the problem is solved. The author lists the Value Proposition Canvas, Jobs to Be Done, customer experience journey maps and Blue Ocean strategy as aids for this block. Then come channels, the means by which the company reaches its segments. Channels can be the company's own or belong to third parties, and in the latter case the author advises analyzing the third party as a segment and understanding what value it obtains from the product or service. Three moments should be considered in the channels. These are the means used to make the value proposition known to the segments, the way the value proposition is delivered, and the ways in which customers evaluate and give feedback.

Relationships with customers describe how the company maintains its relations with current and potential clients, from personal assistance to automated service and communities. Revenue streams define how the company will generate income. The author recommends writing down all the feasible options and then experimenting with them, to refine the way of payment as the willingness to pay of the client becomes known. That advice deserves a leader's attention, since many companies copy the pricing model of their sector without ever testing alternatives such as subscriptions, usage-based fees or bundles.

Once the team knows how value is generated, delivered and captured, it moves to the left side to align the internal part of the company so that the right side is performed efficiently. Key resources are the physical, financial, human or intellectual assets required to carry out the activities of the company, and the author notes that the scarcer a resource is, the greater the chance of armoring the company against competition. Key activities are the core activities of the company, those that must be performed exceptionally well to generate value, and the author advises considering subcontracting for anything that is not fundamental to the contribution of value. Key alliances are the partnerships needed to execute the business model, which can also strengthen the value proposition. Finally, the cost structure is reviewed after analyzing activities, resources and partnerships, so that the company reflects on the costs it actually has. The sequence matters. Costs are the consequence of the choices made in the other blocks, not the starting point.

What tips make the mapping more useful?

The original article ends with practical tips for mapping a business model, and they are worth following. Use sticky notes, so that the canvas stays flexible and ideas can be moved when needed. Write one idea per note, using words, images or a mix of both. Define a color code, for example different colors for each customer segment, for the difference between the present state and the desired state, and for the difference between proven facts and unproven assumptions. That last distinction is perhaps the most valuable, because it shows the team how much of its model rests on evidence and how much on belief.

The author also recommends avoiding orphan elements, since every idea in one block should be connected to ideas in the others. A customer segment with no channel, or a value proposition with no key activity behind it, is a sign that the model is incomplete. The final tip is to keep it simple. Avoid crowding many different ideas into a single canvas, because it becomes confusing, and use several canvases if required, for instance one per customer segment or one for the present and one for the future.

What mistakes should teams avoid?

Three mistakes appear again and again in workshops. The first is filling the canvas with intentions and not with evidence, for instance writing that the company serves everyone, which is the same as serving no one. A useful segment is specific enough that the team could name ten real customers who belong to it. The second is treating the canvas as a one-time deliverable. A poster that is admired in the meeting room and never revisited cannot guide a decision, so the review date should be set before the session ends. The third is to confuse a list of products with a value proposition. Customers do not buy features, they buy progress on a problem, and the proposition should be written from their point of view. When a team notices any of these patterns in its own canvas, it has learned something valuable about how it thinks, and that is a good reason to run the exercise again with fresh eyes.

What does this mean for the C-level?

For senior executives, the canvas is a tool for conversation more than for documentation. Its value appears in the debate that happens while it is built, and in the decisions that follow. Three uses stand out. The first is to diagnose, by mapping the current business honestly and finding the blocks that are weak, contradictory or untested. The second is to explore, by sketching alternative models for a new market, product or channel before committing capital. The third is to align, by giving the leadership team and the board a common picture against which investments can be judged. When a proposal arrives, the question is which block it changes and what it implies for the others.

The canvas also connects strategy with operations. A model that promises fast delivery but has no key resources for logistics is a contradiction that the canvas exposes at once. Our articles on what an operating model is and on the alignment of business and operating models describe the step from the canvas to the way the company actually works. Finally, the canvas should be revisited as conditions change. The ten signs that it is time to update your business model, which we describe in this article, are a good prompt for a review.

How can a director start next Monday?

Book a two-hour session with the six or seven people who best understand the business, from sales, operations, finance, product and customer service. Print the canvas large, hand out sticky notes and start on the right side with customer segments, giving each person five minutes to write on their own before the group compares. Use two colors, one for facts that can be proven and another for assumptions. When the nine blocks are filled, circle the three assumptions that carry the most risk and assign each to someone who will test it in the next thirty days with customer interviews, a pricing experiment or a small pilot. Schedule the next review for the next quarter, and keep the canvas where the team can see it.

How does ICX help?

ICX Consulting facilitates business model work with executive teams, from the first workshop to the testing of assumptions and the translation of the model into an operating model and a roadmap. If you want to run your own session, we recommend our Business Model Canvas Toolkit. We chose it for this topic because it provides the canvas template and the guidance for filling in each block that this article describes. You can also learn more about our business model consulting practice.

Frequently asked questions

Who should take part in a Business Model Canvas session?

A small group of six to eight people who together know the customers, the operation and the economics of the business. Include people from different areas so that assumptions are challenged, and keep decision makers in the room so that the results can lead to action.

Where should we start, on the market side or the internal side?

The author recommends starting with the right side, the market, because that is where the innovation of the model occurs. Once you know how value is generated, delivered and captured, align the internal side to deliver it efficiently.

How often should we update the canvas?

Treat it as a living document and review it at least every quarter, or whenever something significant changes in your market, your customers or your costs. A canvas that is not updated stops being useful.

What is the difference between the Business Model Canvas and the Value Proposition Canvas?

The Business Model Canvas describes the whole business in nine blocks. The Value Proposition Canvas zooms in on two of them, customer segments and value proposition, to check that the offer fits what customers need.

A business model that is drawn, discussed and tested gives a company the clarity to decide where to invest and what to stop doing. If you would like to review your own model with an outside view, request a diagnostic with an ICX consultant and we will review it with you.