Objective
A student team building a start-up must find away to communicate the value proposition and how it plans to deliver this value. Although a business model may allow the team to use a short-hand to share the essence of how they will monetize the product/service and deliver value (e.g freemium, subscription, platform and others), it cannot communicate all the essential elements such as channels, relationships, cost structure and more. A business plan may help communicate these details. However, a business plan may be too lengthy and not allow opportunities for brainstorming and collaboration. A business model canvas fills this gap by providing a way to capture the critical elements in a structured manner. This page describes the business model canvas and how it can be beneficial with some examples.
Terminology
In the start-up ecosystem, you will hear different terms that you will need to differentiate and use, such as the following:
- Business Model: Appropriate for identifying how you will serve market needs, and engage with customers - communicated with a label to describe the monetization strategy (~2 pages).
- Business Model Canvas: Appropriate for explaining, graphically, several key elements such as channels, resources, activities - useful for discussion (~1 page, following the template) - this page.
- See also: Lean Canvas (Business Model Canvas tailored for Start-ups) - this page.
- Business Plan: Appropriate to describe several elements for stakeholders and investors, and align your team. A well-specified business plan will often run between 20 to 40 pages (a broad estimate).
The best way to explore the Business Model Canvas idea is to consider a simple example. We used a lemonade stand as an example in our discussion of Business Models. Let's use the same example to construct a business model canvas. Here is a snapshot. See also the link that will take you directly to an online tool (Paradigm) where you can edit the business model canvas (Try to create different versions of the business model canvas for the variations we suggested as part of the discussion about business models).
Business Model Canvas
There is no dearth of resources about the "business model canvas" idea. Credited to Alexander Osterwalder, who developed the concept as part of his doctoral work (supervised by Yves Pigneur) the idea has been extended, built upon, and refined. In addition, the authors (and others) have developed multiple tools for clarifying the Value Proposition, the Organizational Culture Map and others. The Wikipedia page describes the Business Model Canvas (BMC) thus:
- "a strategic management template used for developing new business models and documenting existing ones. It offers a visual chart with elements describing a firm's or product's value proposition, infrastructure, customers, and finances, assisting businesses to align their activities by illustrating potential trade-offs" (Wikipedia).
This is an interesting description. It does not make an explicit reference to start-up ventures. Instead, it offers an approach to generate a concise graphical description, which can bring together a team to understand the big picture, and more importantly, explore alternatives and trade-offs. The BMC has been adopted and used by a very large number of businesses (Google, ChatGPT and other LLM's will explain it to you and you can also find several consultants offering courses, including the original authors). Here are the elements that are part of a BMC:
- Infrastructure (1 Key Partners / 2 Key activities / 3 Key resources) - This makes the left side of the BMC
- Offering ( 4 Value proposition) - This is the core of the BMC
- Customers (5 Segments / 6 Channels / 7 Relationships) - This is the right side of the BMC
- Finances (8 Cost Structure / 9 Revenue Streams) - This appears as the base of the BMC
The key takeaway for you, as a team interested in building a start-up venture would be to use the model to drive discussion, explore alternatives, and yes, identify the areas that you must build to make your start-up a real business. Here are several resources to lean more about BMC.
Resources and References
- Osterwalder, A. 2008. What is a business model? https://web.archive.org/web/20080906034734/http://business-model-design.blogspot.com/2008/07/what-is-business-model.html (Note that the title of this blog post mentions "business model" instead of "business model canvas" - which emphasizes the close relationship between the two. The post explains the importance of the key elements that must be identified, implemented and executed to run the business model of your choice).
- Original template for specifying the Business Model Canvas: https://www.strategyzer.com/library/the-business-model-canvas
- Several examples of how to design a Business Model Canvas:
Let's continue with the same tactic. The best way to explore the Lean (Business Model) Canvas idea is to consider a simple example. We will continue to use the lemonade stand example in our discussion of Business Models, and for the Business Model Canvas (in the adjacent Tab on this page). Here is a snapshot of the Lean Canvas. See also the link that will take you directly to an online tool where you can create your own Lean Canvas.
You can find a template for the Lean (Business Model) Canvas at Boardmix.
Lean (Business Model) Canvas
The core ideas behind the Lean (Business Model) Canvas are explained by its designer, Ash Maurya, in terms of its appropriateness for a start-up (i.e. focused on entrepreneurial activities), where conditions of extreme uncertainty are the norm. Maurya's original post, now available on LinkedIn and elsewhere, describes the Lean (Business Model) Canvas thus:
- "My main objective with Lean Canvas was making it as actionable as possible while staying entrepreneur-focused. The metaphor I had in mind was that of a grounds-up tactical plan or blueprint that guided the entrepreneur as they navigated their way from ideation to building a successful startup." (Post available on LinkedIn)
The narrative offered by Maurya in this post acknowledges the the Lean Canvas is adapted from the Business Model Canvas. However, it emphasizes and prioritizes problem-solving and validation of assumptions in uncertain environments. It is designed specifically for startups and entrepreneurs and acknowledges the requirements of speed and iteration in developing the business model.
Another important inspiration for the design of the Lean Canvas is the Lean Startup Methodology (see "The Lean Startup" by Eric Ries, available in the Library in the Somers Garage). It is described as a systematic approach to building businesses and products under conditions of extreme uncertainty. The methodology emphasizes rapid experimentation, validated learning, and an iterative build-measure-learn loop to minimize waste and increase the chances of startup success. This loop consists of the activities (a) Build: Create a Minimum Viable Product (MVP) — a simplified version of the product with just enough features to test your key assumptions, (b) Measure: Gather data and feedback from real customers, and (c) Learn: Analyze the data to validate or invalidate your hypotheses, and adjust your product or strategy.
Resources and References
- Maurya, A. 2015. Why Lean Canvas vs Business Model Canvas? https://www.linkedin.com/pulse/why-lean-canvas-vs-business-model-ash-maurya/
- Reis, E., 2011. The lean startup. New York: Crown Business.
- Lean Canvas Template available at Boardmix.
- Several examples of (how to design) a Lean (Business Model) Canvas
Differences between the two Templates
Some of us may be more familiar with the Business Model Canvas (or at least may have heard of it before). This comparison provides a simple guide to understanding the similarities and differences between the structure of the two templates: Business Model Canvas and Lean (Business Model) Canvas:
New Sections in Lean Canvas
- Problem: Identifies the core problems your target audience faces (Replaces: Key Partnerships)
- Solution: Outlines the solution to the identified problems (Replaces: Key Activities)
- Key Metrics: Highlights critical metrics to track business performance (Replaces: Key Resources)
- Unfair Advantage: Identifies what makes the business uniquely difficult to replicate (Refines: Customer Relationships)
- Unique Value Proposition: Describes the unique value that the start-up will bring for the customer (Refines: Value Propositions)
Comparison between the two templates
| Business Model Canvas (BMC) | Lean Canvas |
|---|---|
| Key Partnerships | Replaced by: Problem |
| Key Resources | Replaced by: Key Metrics |
| Key Activities | Replaced by: Solution |
| Value Propositions | Refined to: Unique Value Proposition |
| Customer Segments | Retained: Customer Segments |
| Channels | Retained: Channels |
| Customer Relationships | Replaced by: Unfair Advantage |
| Cost Structure | Retained: Cost Structure |
| Revenue Streams | Retained: Revenue Streams |
This page is a summary of important considerations and jump-off point for additional exploration, not a comprehensive reference.