What is Business Model Canvas? Definition, importance, and FAQs.

Table of contents:-

===========================================

What is a Business Model Canvas?

A business model canvas refers to a short summarized report including the basic details of the strategy on how to introduce any product or service to the market. The contents of the canvas can change based on the type of business and market but still, there are some components identified broadly. Since the canvas is generally short and in the form of a summary, it is likely to be a visual representation.

A business model canvas offers a chart describing a company’s or the product’s value proposition, functionality, infrastructure, customers, and finances. It was originally designed by Alexander Osterwalder in 2005 with inspiration from his own work on ontology.

What forms a Business Model Canvas?

The parts of a business model canvas are mostly strategic and aspirational in nature. They must not attempt to portray fine details of a company’s overarching goals. Ideally, the canvas should describe a broad image of the customers and the product including the value proposition. Essentially, the canvas acts as an outline of how the product will benefit the customer.

Importantly, the canvas must contain a description of how the business could generate the maximum profit from the marketplace, i.e., how the product aims to make money. 

Along with all this, in the summary, there will be a description of various pathways through which the product would be distributed in the marketplace and sold thereafter. The canvas should also identify individuals and groups that could play a role in the product’s success.

The activities happening within the business internally must also be documented as well as the budgets, resources, and individuals required. 

At last, a summary of all the expenses at every stage of the product development must be included, i.e., production, circulation, marketing, and sales.

The entire summary is typically contained in a single page and some kind of schematic, hence each element of the product’s story must be dealt with concisely. The entire outline is a refined work to the basic requirements of the product. This step is key because the canvas must always be an intelligent description of various interlaced themes.

Why should you use a Business Model Canvas?

There are a plethora of reasons, but for starters, you could imagine the business model canvas as a mission statement for your product roadmap. It acts as a handy reference point to make sure that you always stay right on track and achieve all the strategic goals described in the roadmap.

Quicker and easier roadmaps

The canvas approach generally takes only a few hours. Hence, by this method, rather than writing every single intricate detail about the product beforehand, you can just mention the highlights and then get started with translating the canvas to the product roadmap.

More agility

A major drawback of the old way of documenting business models was that it always became almost inaccurate as soon as the author had finished drafting it.

The plans generally included detailed cost estimates and revenue projections going far into the future, and even long-term plans on how the staff can grow. Obviously, these things can remain accurate for some time but not for much longer.

Putting it in product terms, the canvas can be understood as a business plan resembling the MRD – long, detailed, and mostly untrue by the time it is finished.

But only because the canvas can be put together so quickly, it becomes much more accurate while reflecting your strategic plans and company’s current status. And if anything changes, it will be easier than adjusting a long and detailed plan.

Room to pivot as needed

If something happens during the development process that forces you to re-prioritize or pivot your product, it will be much easier to update this short, high-level document than updating a long, exhilarating MRD or some business plan to tear apart and update.

With this one-page business model canvas acting as a guide to your business roadmap, you will always be able to quickly spot any plans that might need updating whenever the priorities of the company change or some new data comes to light that demands a different approach to what you were doing till then.

How can a Product Manager use Business Model Canvas?

The role of a product manager is crucial in introducing the product to the market. How the product manager chooses to use the Business model canvas can play a pivotal role in what the product ends up looking like, the timeline of its release, and how the audience receives it. 

Sometimes, the traditional business model canvas may be replaced by a ‘product canvas’ and it may also be sometimes that the latter is contained in the former. Either way, it is up to the product manager on how to use those terms and what purposes they ought to serve.

The canvas acts as a thorough guide on the product for a product manager. It contains the costs, budget projections, resources projects, product release, sales planning, and many other key aspects thus acting as a robust document that can help the Product Manager at any time in keeping the product on the right track. 

A canvas requires a lot of background work hence it can be said easily how much the product manager values the document.

In any complex or intricate development process where multiple dependencies may be active and resources may be limited, the business model canvas serves as an idea for providing the right directions and making correct decisions. 

The canvas may also help the PM take notice of any time constraints and the pressure to meet any deadlines. Competing priorities having only a subtle difference between them can be looked into in just a glance using the canvas as a reference. 

People with short attention spans and people who can be easily distracted may find the canvas extremely useful without being overly encumbered by all the pressure.

Hence, for a Product Manager, the canvas forms a universal language in product development and helps find solutions to problems and resolve all misunderstandings. Even the workforce throughout the company can look into the canvas and analyze how their roles and responsibilities affect the final delivery of the product.

FAQs

Q: What does a business model canvas explain?

A: A business model canvas is used to visualize the basic building blocks of a product at the start of its development. It describes the product’s or sometimes a company’s value proposition, functionality, infrastructure, customers, and finances.

Q: How do you create a business model canvas?

A: Generally, the teams work on a business model canvas by answering various strategic questions about the product and the target users. For example, who will use this product? How will they use this product? How does it affect their lives? How will the product be marketed or distributed when it is ready? Many of these templates are also available online to help you out.

You may also be interested in:

Crafting great product requires great tools. Try Chisel today, it's free forever.