As a business owner, it’s essential to think about what’s next for your business, and validating those ideas is a vital part of success. While business plans can be a helpful blueprint for the future, they can take weeks or even months to complete. Being nimble allows you to meet the fast-changing needs of customers. A business model canvas is a valuable tool that can help you explore these types of new ideas in the leanest possible way.
Developed by Swiss entrepreneur Alexander Osterwalder and Belgian computer scientist Dr. Yves Pigneur, a business model canvas is a living document that quickly shows how a business makes money. But instead of being a 40-page plan, the tool is a concise, one-page exercise that allows you to visually analyze a new stream of revenue and plan out your new direction in a scalable way.
For example, a bakery owner who is experiencing a decrease in foot traffic might use the business model canvas to test out the viability of offering bake-at-home cookie kits. Doing this drill can help determine if the business has the kind of clientele and brand necessary to support the pivot, offering a quick way to sketch out a plan to execute.
The business model canvas, explained
A business model canvas includes nine sections that work together to help you assess and facilitate new ideas. Here are the sections, along with details on how to fill each one out.
Key partners
Identify your current key partners, like suppliers, distributors, raw material manufacturers, shipping companies, and other people that help you run your business.
If you operate a coffee shop, for example, your key partners might include your bean supplier, paper goods distributor, and pastries provider. Can they give you the support you need to execute the new idea? If you’re a coffee shop owner who is considering adding fresh-squeezed juice to the menu, you may need to seek new partners who can help in ways your current connections can’t.
Key activities
List the specific activities you perform every day. For example, if you own an online toy store, your key activities might be to source new inventory for a certain demographic, market your business on Instagram, package and ship orders, and manage seasonal employees to help process orders.
Now, figure out the critical activities that need to happen to launch your new idea, and see if you have the bandwidth to do those things. If you’re looking to develop a new product lineup, key activities might be to design the product, purchase the equipment needed to create prototypes, and then test it out with customers. Looking at these new key activities, do you have time to get your new business model off the ground? If not, what can you shift to make it happen?
Key resources
Determine the resources you need to deliver on the new idea, like staff, money, time, or real or intellectual property. If you’re a yoga studio owner who is considering adding pilates classes, for example, you may need to hire a new instructor or purchase new equipment.
By understanding the key items you need, you can determine if you have the resources required to launch and sustain the new model.
Value propositions
Define the value the new products and services will deliver to your customers. You want to make sure you are addressing a real need.
For example, are coffee shop customers already asking for juice? And do yoga studio clients want to add pilates to their practice? You will need to convey the value of the new business model to customers and prospects. Identify the pain points your new idea addresses and how you will best share its benefits with customers.
Customer relationships
Once you launch the new business model, determine what customers will expect from you. For instance, do you want your clients to choose classes on their own or do you want to give them dedicated support and recommend rosters based on their needs? Once you decide on the types of relationships you want to have with your customers, assess how you will establish and maintain that relationship to sustain your new business model.
After filling out this section, you may need to add members to your support team or train employees to take on different roles, like social media or delivery.
Channels
You deliver your products and services through various channels, such as a brick-and-mortar location or online. Will your current channels support the delivery of the new idea?
You also have to ensure that the channels support how or where your customer will use your new products and services. If you’re the bakery owner, for example, you would have to determine how to get the cookie kits to customers, which could include delivery or curbside pickup.
Customer segments
Your new idea should target a specific segment of your customers. Identify who might be interested in your new offering and think through how you can reach them.
As a hair salon owner, for example, you might think that customers with young children would be interested in birthday party packages. Before you launch your new model, get feedback from this segment to measure demand and need. Consider forming focus groups to test the idea.
Cost structure
Identify the costs associated with creating and delivering your new value proposition. This might include fixed and variable expenses, like materials, employee hours, and new technology. Once you fill out the key resources, key partners, and key activities blocks, you’ll be better prepared to figure out the costs associated with your new idea.
Understanding your costs will help you with pricing and determine if your business model will have enough of a profit margin to make it sustainable.
Revenue streams
Finally, determine how much customers will pay for the value you provide them, knowing your costs will help you set your pricing. Make sure your profit margin can sustain the new model and provide a good return on investment.
Try this business model canvas template
To help you validate your potential pivot, open up this business model canvas template to help you link the blocks together.
When you’re ready to test a new idea, start at a high level, including only the most important information. The initial exercise should take about 20 minutes.
Once you believe the idea is viable, validate your assumptions by talking to existing and prospective customers. You can also walk through the model with your team to get their input. Test the concept and use the information you gather to tweak or change the model. This should be a fluid document.
When put to use, a business model canvas can offer insights and advantages to help you grow your business. The visual representation offers a way to quickly recognize potential gaps so you can modify your plan in real time. It also provides a way to understand how sections are interrelated so you can ensure that they are working together holistically.
A business model canvas is a powerful tool to have in your toolbox. The birds-eye view will help you save time and resources on new ideas that might not be worth the investment and can help green-light the new idea that helps take your business to the next level.
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