What is the Business Model Canvas?
A business model canvas provides a high-level, comprehensive view of the various strategic details required to successfully bring a product to market. The typical use case for this tool is to outline the fundamental building blocks of a business, but it can be used effectively for individual products as well. The exact ingredients may vary, but these are some of the typical components included:
- Customer segments—Who is going to use this product?
- Product value propositions—What is this going to do for the customer to make their life/job better?
- Revenue streams—How will the company make money from this product?
- Channels—How will the product be sold or distributed?
- Customer relationships—What is the success and support strategy for new customers?
- Key partners—What other companies or individuals are part of the development and go-to-market strategy?
- Key activities—What must happen internally to release this product?
- Key resources—What people, materials and budget are required to pull this off?
- Cost structure—How much will it cost to develop, manufacture, distribute, and support the product?
Asking and answering these questions should be de rigueur for any new product, but this particular framework is useful for distilling the supporting business case down into something easily digestible. By forcing everything to be on a single page, each question must be answered succinctly, which often cuts through any grandstanding to illustrate whether each area is truly addressed and viable.
How do product managers use the business model canvas?
The business model canvas serves two primary purposes for product managers: focusing their thinking during its creation along with expediting and framing the conversation when communicating with others.
Because the business model canvas is a comprehensive summary of what the product will do, who will use it, why they’ll use it, how it will happen, and how the money works, it requires a lot of thinking and homework to put it together. This exercise is very helpful for product managers to fully understand the market opportunity and refine their story while uncovering potential problem areas and fully vetting their impact. Plus the process of boiling everything down to a single page ensures that what is included is as truthful and well supported as possible.
The business model canvas can serve as a continually referenceable touchstone for the product development process and beyond, essentially serving as a mission statement for the product. As conditions on the ground change and more is learned about the product’s market reception and usage, the canvas can be updated to accurately reflect the latest information; reviewing the canvas periodically is a worthy activity in and of itself.
As a communication tool, the business model canvas is an ideal document for our short attention span world and is as useful with the executive team as it is with a junior developer. Since it only contains the most salient and relevant information, the audience won’t be drowning in details or distracted by supporting evidence or non-sequiturs. The canvas can also create a universal vocabulary for the product and get everyone using the same language and concepts going forward.
And because the canvas covers every aspect of the product—from sales and marketing to customer experience to implementation and support—it relates to everyone in the organization. They can see what applies to their roles and how their work contributes to the overall effort of building, releasing, selling and supporting a new product.
Tips for using the business model canvas
Here is how to make the most of the business model canvas and the process of creating and maintaining it:
- Note assumptions and challenge them—Since a business model canvas is developed while a product is still “theoretical” there is often a lack of actual facts to rely on. Instead, educated guesses, informed opinions and assumptions are utilized to build it out. While there’s often no escaping these, anything in the canvas that is an assumption versus a proven fact should be called out, with every effort made to both challenge the assumption and anticipate the impact if the assumption turns out to be incorrect.
- Bounce it off a virgin audience—Fellow employees and even board members will approach a business model canvas with a trunkload of inherent biases. To truly test the veracity and completeness of a canvas, allow some outside parties to validate it independently. It should be a self-explanatory document, so allowing them to review it and provide feedback without any dialogue or explanations is a great test of its worthiness and thoroughness.
- It’s easy to update, so keep it current—Unlike longer, weightier documents, the single-page nature of the business model canvas means there’s no excuse for it to languish and fall behind the business’s current line of thinking or newly gathered information. Reviewing it on a regular basis and maintaining its accuracy enhances its usefulness and is a helpful process to note when assumptions or plans have changed.
- An ever-present reminder—Thoughts, plans, goals, and assumptions were laid out succinctly in the canvas with great care and deliberation. Going forward the canvas can be continually referred to for guidance, inspiration, and level setting as folks become swept up in the momentum of product development, sales, and marketing.
- Present it in pieces—Sure, the entire business model canvas fits on one piece of paper, but there is a lot of things on that 8 ½ x 11 inch page. When presenting it, discuss each piece individually, gradually revealing the entire contents. This will prevent information overload and allow the team to convey things narratively instead of an information dump.
- Reference all the evidence—Any hard data should be clearly referenced (if not included) in the canvas to give the arguments and statements as much legitimacy as possible. Reviewers will be trying to poke holes (as they should), so firm things up whenever there’s a chance.
- Be specific—No one needs a business model canvas to understand fundamental business case elements; it is intended to tell the story and rationale for this particular product. Cut out anything generic and make it as relevant to this exact opportunity as possible. In particular, link individual customer segments with their respective value propositions, since a product won’t be all things to all people.
- Create multiple canvases—During the early phases, generating more than one business model canvas based on divergent assumptions, target markets, or value propositions can be a useful tool for exploring different directions the product could head. After the plans are firmed up, multiple canvases can still be employed, this time to see how different scenarios pan out when key factors change… it can be used as a wargaming tool to prepare for different potential outcomes.
- Who, what, and why first. How and how much second—Although a business model canvas includes everything from a value proposition and personas to implementation costs and resources, everything should be driven from the market opportunity and rationale for bringing a product to market. If those aren’t solid, spending cycles on technology and costs is a waste of time.
Creating a business model canvas puts new product ideas under the microscope and pulls together disparate sources of intelligence, opinions, hunches and research into a single piece of paper. It forces critical thinking and analysis of assumptions and guesses and provides an excellent reference point for the entire organization.
Once the canvas is approved and productization begins, the canvas can also serve as a straw man for the product roadmap, lining up future features and functionality based on the priorities laid out in the document to achieve market success.