Business Model Canvas.

The model

Nine boxes, grouped into three parts.

On the right sits what faces the market: customer segments, meaning who you exist for, value proposition, what they get out of it, channels, how you reach them, and customer relationships, what the contact looks like over time.

On the left sits what’s required in order to deliver: key resources, key activities and key partners.

At the bottom sit the two that have to meet: revenue streams and cost structure.

Alexander Osterwalder and Yves Pigneur formalised it in the book Business Model Generation in 2010, built on Osterwalder’s dissertation on business models from the years before that.

How it’s used

Fill it in for the company as it looks today rather than as you’d like it to look, and do it together with two or three other people. Alone, the canvas becomes a description of the owner’s picture, which is exactly the same problem SWOT has.

Then read it in pairs, because that’s where the breaks show. Does the value proposition hold together with the customer segment, meaning are these really the customers who need precisely that. Do the key resources carry what you promise. Do the revenue streams cover the cost structure without one of the customer groups quietly subsidising another.

Two sheets, and the gap between them

This is where the canvas goes from description to tool, and it’s also the use that gives the most.

Fill in a canvas for the company as it looks today, and another for the company as you want it to look in three years. Put them next to each other and go box by box. Where they differ you have a gap, meaning a distance between where you are and where you want to be that somebody has to do something about, and every such gap is a candidate for an initiative.

What makes the method useful is that it turns the order around. Instead of starting from a list of things you’d like to do and then looking for reasons for them afterwards, the initiatives come out of a gap you can point at. Then the answer to why is already there before anybody asks.

Write out three things for each initiative: which gap it closes, why it’s worth closing, and what you should be able to see once it’s done. The third is the one most often missing, and without it the initiative becomes impossible to finish, because nobody can say when it’s done. That ties in with the consequence question in Why decisions don’t happen: an initiative with no visible outcome is in practice optional.

Two boxes should be read differently from the others. Cost structure and revenue streams change mostly as a consequence of what you do in the other seven, so a gap there is usually a result to calculate rather than an initiative to start.

One thing to be honest about: this isn’t Osterwalder’s use. He built the canvas to describe and design a business model, one at a time. Putting two side by side and working with the difference is a way of using it that we stand behind, not something the book says.

Where it usually gets misused

As a presentation surface. The canvas is a working tool and is supposed to be messy, with crossings-out and notes being moved around, and a neatly laid out canvas in a pitch deck has usually stopped being a piece of thinking.

It also gets misused when it’s filled with ambitions. A box is meant to describe what’s true, and anyone who writes in partners they don’t yet have or channels they’re thinking of starting with ends up with a model that looks complete but can’t be debugged.