How to use the Business Model Canvas: Best Practice and Tips

Business Design: Why It’s Relevant for Companies

Many companies today have no shortage of ideas for new products or services. But it is a long way from idea to innovation. An idea must have relevance for a specific customer segment. An idea must be feasible, in general, but also for the specific company. And an idea needs a convincing revenue mechanism. And it is precisely with these questions that the topic of business design comes into play.

When people outside our industry think of design, they still often think of visual design or the design of physical products. In the meantime, due to digitalization, many also think of the design of user experiences. All of these are also important disciplines, no question. However, today we can also look at design in a much more holistic way, as the design of systems that contain all these components and also help shape the economic context of an innovation. Business design is thus becoming one of the most important design disciplines today. It is about innovating the business model.
 

Sustainable Business Models with Strategic Design: Read more in our White Paper

There are many ideas, but only a working business model turns them into innovations.
Michael Geiss

How Future-Proof Is Your Business Model?

Identify, Analyze, Optimize Business Models With the Business Model Canvas

It surprises many people, but we’ve actually only been using the term “business model” since the turn of the millennium. It only began to gain currency between 1998 and 2001. “A business model describes the rationale of how an organization creates, delivers and captures value,” is how Alexander Osterwalder defines it. So, first and foremost, it is about creating value in the eyes of others. If this succeeds, this value generates a willingness to pay on the part of the customer. Only when the potential customer pays something does value arise for my company.

First the good news: Potential business models are plentiful. When we talk to customers about them, for example, we can draw on a total of 55 tried-and-tested basic patterns that have already been systematized in science. These then serve as inspiration and we can test their applicability together with the customer. The Business Model Canvas developed by Alexander Osterwalder offers a great basis for this – if you know how to use it correctly. The fifty-five basic patterns serve to make you think anew about your own economic actions. For example, how would you earn money if the core service of your company were free? Questions like these allow us to look at business models from a new perspective. Not only do they encourage creative thinking, but they also work great in combination with the Business Model Canvas.

As a model, the Business Model Canvas goes back to Alexander Osterwalder and Yves Pigneur. Here is a short explanation in the video:

In Practice:

The Business Model Canvas is known as a clear diagram that can be used to systematically visualize and explain business models. You can print it out, hang it up and then discuss it excellently in a group. Post-its can be used to fill in the individual sections of the picture and thus grasp the interrelationships.

The most important thing is to tell a convincing story with the help of the Business Model Canvas. The story with which you convey the central aspects and mechanics of your business model. A good business model is always simple at its core. The tool also works so well because you can avoid using technical language and thus discuss the mechanics of the business model with very different people from the organization. This often opens up ideas that you wouldn’t have thought of before.

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The Elements of the Business Model Canvas

1. Customer Segments and Value Proposition – one cannot exist without the other.
   

   For which customer segment does its value proposition create value? Does it solve a relevant (future) problem so well that your customer would be happy to pay for it? If not, is the VP not (yet) good (enough)?

2. Revenue streams and costs – how does the revenue mechanic work and what does it cost?

   What is the value proposition worth to customers? Does it only generate transaction revenue or do you also have continuous cash flow? What other revenue streams are there? Which ones have you possibly never thought of? How scalable is the VP? And conversely, what does it cost to create the value proposition? Are the revenues higher than the costs over time? When?

3. Channels and customer relationships – conventional or innovative?

   How does our value proposition actually get to the customer and what relationship does it require? What does it cost to maintain these relationships? Do they fit coherently with the rest of the business model? Is there possibly something new, special or unique in them?

4. Key resources, key activities, key partners – what do you need to provide the value you aim for?

   Do you need to build something special or do something special to create the value proposition? Do you have partners that can help you with this?

    

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This Is How You Can Apply the Business Model Canvas Without Repeating Some “Classic” Mistakes

Experience has shown that the ease of use of the Business Model Canvas invites people to simply print it out, get the team together and get started. However, we would urge caution and thoughtfulness in this context. Because when working with the Canvas, it is just as easy to lose sight of what’s important.

Simplicity, not completeness: Google’s business model can be explained using just 6 post-it.
Michael Geiss

Focus On What Matters

Many business model canvasses are so full of information after they have been processed that the crucial mechanics of the business model are no longer recognized. In such cases, the discussion may have become lost in details instead of remaining at the strategic level. For example, anything that is incidental or that simply needs to be executed properly is not strategic.

When working with the Canvas, on the other hand, it is usually sufficient to concentrate on the few areas that are decisive for success in a specific case. What matters is not completeness, but focus. For example, you can explain Google’s business model with no more than six post-its. The important thing is to understand the core, the actual mechanism of action, of the business model. Otherwise, especially in group discussions, you quickly run the risk of getting caught up in implementation issues. At first, however, only those aspects are relevant that are critical for success and for which it is not yet certain whether or how they will be solved.

With Business Design to a Successful Business Model

Transformation Needs Strategy

The successful identification of a business model still does not mean that it will be easy to implement it. As a business designer, I see my task as providing valuable impulses on such topics, which can contribute to the innovation of a company. This is exactly what I wanted to do with this short statement on the Business Model Canvas; because, with the right application, the path from the initial thought process to implementation is often shorter than one might think.

Sustainable Business Design

Learn More

You can read more about our business design approach and how it fits into strategic design here:
 
Business Design at Iconstorm