According to Alexander Osterwalder and Yves Pigneur, the authors of Business Model Generation<\/em>,\n a business model \u201cdescribes the rationale of how an organization \ncreates, delivers and captures value.\u201d Nevertheless, there is no single \ndefinition of this term, and usage varies widely.29<\/a><\/sup><\/p>\n\n\n\n In standard business usage, a business model\n is a plan for how venture will be funded; how the venture creates value\n for its stakeholders, including customers; how the venture\u2019s offerings \nare made and distributed to the end users; and the how income will be \ngenerated through this process. The business model refers more to the \ndesign of the business, whereas a business plan is a planning document used for operations.<\/p>\n\n\n\n Each business model is unique to the company it \ndescribes. A typical business model addresses the desirability, \nfeasibility, and viability of a company, product, or service. At a bare \nminimum, a business model needs to address revenue streams (e.g., a \nrevenue model), a value proposition, and customer segments. In \nnon-jargon English, this means you want to address what your idea is, \nwho will use it, why they will use it, and how you will make money off \nit.<\/p>\n\n\n\n A canvas is a display that would-be \nentrepreneurs commonly use to map out and plan different components of \ntheir business models. There are several different types of canvases, \nwith the business model canvas and the lean canvas being the most \ncommonly used. There are hard-copy canvases modeled after an art canvas \nas well as digital versions. The original physical canvases are meant to\n serve as visual tools, used with sticky notes and sketches.<\/p>\n\n\n\n As developed by Osterwalder and Pigneur, the business model canvas has nine components, as shown in Figure 11.6<\/a>.<\/p>\n\n\n\n Figure 11.6 The\n business model canvas can be used to map or lay out the initial concept\n of your business. (attribution: Copyright Rice University, OpenStax, \nunder CC BY 4.0 license)\n\n<\/p>\n\n\n\n Visit this site to see examples of completed Business Model Canvases for a variety of industries<\/a> for a deeper understanding of how the different categories are filled in.<\/p>\n\n\n\n Osterwalder and Pigneur wrote Value Proposition Design<\/em> as a sequel to Business Model Generation<\/em>.\n Their value proposition canvas is a plug-in that complements the \nbusiness model canvas, going in depth on activities such as encouraging \nentrepreneurs to address and tackle customer pains, gains, and \njobs-to-be-done trigger questions, and designing pain relievers and \ngains. The complementary and accompanying activities and resources can \nbe useful for a deeper dive into and understanding of customer value \ncreation in the form of value proposition, although there are other \napproaches to conceptualizing your value proposition. For Christensen, \nthe originator of the disruptive innovation and jobs-to-be-done \ntheories, a value proposition is a product that helps customers do a job\n they\u2019ve been trying to do more effectively, conveniently, and \naffordably.<\/p>\n\n\n\n Finding the intersection of your customers\u2019 \nproblems and your solutions is how you create a unique value \nproposition, according to the entrepreneur Ash Maurya, the author of Scaling Lean<\/em> and Running Lean<\/em>. In Running Lean<\/em>, Maurya offers the following formula for creating an initial value proposition in the canvas, as shown in Figure 11.7<\/a>.<\/p>\n\n\n\n Figure 11.7 Maurya\u2019s\n formula to determine value proposition considers customer needs and \npotential objections within a specific period of time. (attribution: \nCopyright Rice University, OpenStax, under CC BY 4.0 license)\n\n<\/p>\n\n\n\n Maurya deviated from the standard business model\n canvas to create the lean canvas. It overlaps the business model canvas\n in five of the nine components: customer segments, value proposition, \nrevenue streams, channels, and cost structure (Figure 11.8<\/a>].\n Rather than addressing key partners, key activities, and key resources,\n the lean canvas helps you tackle problems, solutions, and key metrics \ninstead.<\/p>\n\n\n\n Figure 11.8 The lean model canvas is a modification of the Business Model Canvas. (attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license)\n\n<\/p>\n\n\n\n Visit this site to see examples of completed Lean Model Canvases from some major companies<\/a> for a deeper understanding of how the canvas can be applied.<\/p>\n\n\n\n While the business model canvas and the lean \ncanvas are similar in format, there are differences in how they are \nused. It is generally accepted that the lean canvas model is a better \nfit for startups, whereas the business model canvas works well for \nalready established businesses. The lean canvas is simpler; the business\n model canvas provides a more complete picture of a mature business.<\/p>\n\n\n\n Watch this Railsware video that demonstrates how the lean canvas model might be applied to startups<\/a>\n to learn more. In the case example in the video, the lean canvas model \nis applied to the successful P2P ride-sharing app Uber, as if it were a \nstartup.<\/p>\n\n\n\n Both the business model canvas and the lean \ncanvas are designed for constant iterations, allowing for multiple \nversions and changes throughout the entrepreneurial process. Part of \nthat process involves customer discovery; thus, the canvases invoke \ncustomer-focused design. The target customer is integrated into the \ncanvas from the start through the use of a customer empathy map and a \nnumber of design-thinking ideation activities.30<\/a><\/sup> The customer empathy map is a portrayal of a target customer\u2014the\n most promising candidate from a business\u2019s customer segments\u2014that \nexplores the understanding of that person\u2019s condition from their \nperspective to understand his or her problems and needs (Figure 11.9<\/a>). Osterwalder and Pigneur\n used a customer empathy map as part of the design ideation phase of \ndeveloping a business model canvas. There are differing versions of \ncustomer empathy maps, but most seek to answer common questions \npertaining to the customer, such as:<\/p>\n\n\n\n Phillips, Proctor & Gamble, Microsoft, and \nYeti are examples of well-known companies that make use of customer \nempathy mapping because, according to the journal Entrepreneur<\/em>, every transaction can be turned into a meaningful and valuable customer interaction.31<\/a><\/sup>\n Once a company analyzes the results of customer mapping exercises, it \nmay very well lead to new products that serve customer needs and\/or \nwants.<\/p>\n\n\n\n For example, Philips used empathy mapping to \ndetect a high level of fear in young patients immediately before an MRI \nmedical procedure, so it invented a miniature version of the CAT scan \nequipment used in the procedure called the \u201ckitten scanner\u201d along with \ntoy animal characters that were used to dispel the fear of MRIs among \nchildren. Proctor & Gamble created a new advertisement that was \nreleased for the 2012 Olympics visualizing the trials and tribulations \nof mothers raising young athletes, demonstrating Proctor and Gamble\u2019s \nawareness that some of its customers wanted or needed empathy for the \nsacrifices they had made to help their children succeed. Likewise, \nMicrosoft has attempted to demonstrate empathy with customers\u2019 privacy \nconcerns by developing an interactive website that explains not only how\n data is stolen but also how we can better protect our own data.32<\/a><\/sup><\/p>\n\n\n\n On their company website, the now-famous Yeti \ncooler company publicly extols the value of empathy mapping, explaining \nthat it leads to better products. Yeti doesn\u2019t just create one on its \nown, it actually asks its clients to work with the company to create an \nempathy map.33<\/a><\/sup> Thus, empathy mapping for Yeti is part of its product development process.<\/p>\n\n\n\n Customer empathy maps also strive to address \ncustomer pains (in this case, fears, frustrations, and anxieties) and \ngains (wants, needs, hopes, and dreams).34<\/a><\/sup><\/p>\n\n\n\n Figure 11.9 An\n empathy map portrays the target customer in order to understand the \nmarket needs. (attribution: Copyright Rice University, OpenStax, under \nCC BY 4.0 license)\n\n<\/p>\n\n\n\n Strategyzer offers six videos outlining the business model canvas<\/a>\n that total about 12 minutes; specifically they cover the prototyping \njourney from ideation to visualization of conceptualization.<\/p>\n\n\n\n As Osterwalder and Pigneur describe it, according to Media Innovation and Entrepreneurship<\/em>,\n their business model canvas blocks include revenue streams, customer \nsegments, value propositions, cost structures, channels, key activities,\n key partners, key resources, and customer relationships.<\/p>\n\n\n\n Early on, your greatest focus should be on the right side of the canvas because:<\/p>\n\n\n\n In a follow-up to business model generation, the\n Strategyzer team created a second canvas, the value proposition canvas:\n https:\/\/www.strategyzer.com\/canvas\/value-proposition-canvas. The value proposition canvas\n is a new tool that pulls out the customer segment and value proposition\n blocks of the business model canvas, and encourages more in-depth \nexploration of those blocks to achieve a good fit between the two. The \nvalue proposition canvas tool looks at customer pains, gains and jobs to\n be done on the customer side and painkillers, gain creators, and \nproducts and services on the value proposition side.36<\/a><\/sup><\/p>\n\n\n\n Read this blog that provides a walk-through of how to fill in a value proposition canvas<\/a> to learn more.<\/p>\n\n\n\n When you peel away the language used to describe\n business models, the early startup planning stages come down to a \nseries of questions. When it comes to formulating a business model for a\n startup concept, another popular framework used in entrepreneurial \ncircles is that of desirability-feasibility-viability Figure 11.10<\/a>). This framework forces the entrepreneur to address broad questions about the startup concept:<\/p>\n\n\n\n These questions then begin to connect to form a \nnarrative about where the startup concept came from, whom it serves, why\n it\u2019s needed, how it will make money, and how it will be sustained in \nthe future.<\/p>\n\n\n\n Figure 11.10 The\n framework of desirability, feasibility, and viability form a story \nabout a company\u2019s startup. (attribution: Copyright Rice University, \nOpenStax, under CC BY 4.0 license)\n<\/p>\n\n\n\n The value propositions, customer relationships, customer segments, and channels address the assumptions that will create customer value\n (desirability). The cost structure and revenue stream blocks are aimed \nat viability, or overcoming flawed business models. The key partners, \nkey activities, and key resources are about execution and address \nfeasibility. The risk of poor execution can undermine your assumptions \nthat you chose the right infrastructure to execute your business model \n(feasibility). The risk of solving an irrelevant customer job (sometimes\n derisively labeled \u201ca solution in search of a problem\u201d) undercuts \ndesirability in your business. The risk of a flawed business model would\n hamper the financial assumption that your business will earn more money\n than you spend (viability). Adaptability is about the assumption that \nyou chose the right business model within the context of external \nfactors such as technology change, competition, and regulation.<\/p>\n\n\n\n The business model canvas is not an exhaustive planning tool by any means.37<\/a><\/sup>,38<\/a><\/sup>\n The risk of such external threats is not specifically addressed on the \ncanvas blocks. The external threats not specifically covered by the \ncanvas blocks can be designed for adaptability, that is, the business \nmodel canvas is a necessary but insufficient component of determining \nthe viability of the business idea\/concept. There are many elements not \nincluded in the canvas that entrepreneurs must address. Industry \nanalysis, including a competitive analysis, for example, falls \u201coff \ncanvas\u201d but is important nonetheless.<\/p>\n\n\n\n The lean model canvas is Ash Maurya\u2019s\n adaptation of the original business model canvas. As we noted earlier, \ngone are the customer relationships, key activities, key partners, and \nkey resources blocks. Instead, a problem block is added, because as \nMaurya explains, \u201cMost startups fail, not because they fail to build \nwhat they set out to build, but because they waste time, money and \neffort building the wrong product. I attribute a significant contributor\n to this failure to a lack of proper \u2018problem understanding\u2019 from the \nstart.\u201d Maurya next added a solution block to the lean model canvas, \nwhich corresponds well with features on a minimum viable product (MVP), which you will recall was covered in depth in Launch for Growth to Success<\/a>.\n The lean model canvas also adds an \u201cUnfair Advantage\u201d block, similar to\n the block for competitive advantages or barriers to entry found in a \nbusiness plan.39<\/a><\/sup><\/p>\n\n\n\n As you\u2019ve noticed by now, the core canvas components are common throughout the various versions. Many of the blocks of the social business model canvas are similar to those used in the business model canvas and the lean model canvas.40<\/a><\/sup> A few differences, as developed by Tandemic,\n focus on areas unique to social entrepreneurship ventures. For example,\n the new areas added include measures of what kind of social impact you \nare creating or developing, measures of surplus to address what happens \nwith profits and where you intend to reinvest them, and measures of \nbeneficiary segments, and social and customer value propositions.41<\/a><\/sup>\n These could be measures such as the number of trees planted, number of \nrefugees housed and fed, jobs created, or investments made\u2014depending on \nthe venture. Social impact\n looks at an organization\u2019s social mission beyond the bottom line. \nMeasurement can differ among social entrepreneurs, but in terms of the \ncanvas, impact measures are an effort to establish quantifiable metrics.<\/p>\n\n\n\n Social impact can be hard to measure, but nonetheless, many social entrepreneurs aim for long-lasting impact.42<\/a><\/sup>\n A 2014 report by the think tank, consultancy, and member network \nSustainAbility lists cooperative ownership, inclusive sourcing, and the \n\u201cbuy one, give one\u201d model as three forms of social impact.43<\/a><\/sup>\n In addition to the Tandemic social business model canvas, there are \nother versions of similar canvases used for social entrepreneurship. For\n instance, Osterwalder adapted the business model canvas for mission-driven organizations into a mission model canvas.44<\/a><\/sup>\n There\u2019s also a social lean canvas that adds purpose (explaining your \nreason for creating the venture in terms of social or environmental \nproblems) and impact sections (describing the intended social or \nenvironmental impact).45<\/a><\/sup><\/p>\n\n\n\n This completed social business model canvas for the popular peer-to-peer lending platform Kiva<\/a> illustrates how the business model canvas can and perhaps should be adapted for social entrepreneurship ventures.<\/p>\n\n\n\n Toms Shoes\n is perhaps one of the best-known companies for adopting a social \nentrepreneurship purpose into its business model. Part of its early \nsuccess hinged on the fact that for every pair of shoes a customer \nbought, the company donated a pair of shoes to someone in need. The \ncompany won a prize in 2006 for its innovative solution to poverty. This\n \u201c1-for-1 business model,\u201d\n sometimes commonly called the \u201cToms model\u201d after the shoe company that \npopularized it, gained traction among other companies that followed suit\n in similar fashion, seeing both the social and the financial successes \nin the Toms model. Warby Parker\n is another example of a company that does essentially the same: A \ncustomer purchases a pair of eyeglasses, and the company donates a pair \n(although Warby Parker pays a third party to procure the glasses, as \neyeglasses require an individual prescription, whereas shoes do not).<\/p>\n\n\n\n Figure 11.11 The\n Birthday Party Project helps provide celebrations to honor the \nbirthdays of homeless children. (credit: modification of “children’s \nbirthday table” by “Efraimstochter”\/Pixabay, CC0)\n<\/p>\n\n\n\n Paige Chenault\n wanted homeless children in Dallas to feel special on their birthdays. \nMany have never experienced a birthday party. So this professional event\n planner sprang into action in January 2012. She launched the Birthday Party Project\n (https:\/\/www.thebirthdaypartyproject.org\/), a nonprofit group whose \nmission is to celebrate the lives of homeless children (ages one to \ntwenty-two). The group organizes monthly birthday parties with partner \nshelters. Since its inception, the concept has spread beyond Texas to \ncities across the United States, including Atlanta, Chicago, Los \nAngeles, New York, and San Francisco. In six years, the Birthday Party \nProject has celebrated 4,800 birthdays with 30,000 kids in attendance, \neaten 40,000 cupcakes, cracked 30,000 glow sticks, and performed 1,100 \nrenditions of \u201cHappy Birthday.\u201d<\/p>\n\n\n\n<\/figure>\n\n\n\n
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Business Model Canvas35<\/a><\/sup><\/h3>\n\n\n\n
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