What is Business Model Canvas?

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business model canvas

What Is a Business Model Canvas?

Business Model Canvas Definition

“A business model canvas is the visual representation of the actual business model. It highlights all the critical strategic factors of a business. Components of a business model canvas are the overview of the company’s customers, its workings, revenue streams, and so on.”

A business model canvas refers to a short summarized report including the basic details of the strategy for introducing any product or service to the market. 

Pro tip: Product management software like Chisel gives you a fantastic platform to craft products, create roadmaps and get feedback from team members. 

The contents of the canvas can change based on the type of business and market. However, 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. 

Alexander Osterwalder originally designed it in 2005 with inspiration from his work on ontology.

What Forms a Business Model Canvas?

The parts of a business model canvas are primarily strategic and aspirational. 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.

Notably, the canvas must describe how the business could generate the maximum profit from the marketplace, i.e., how the product aims to make money. 

There will be a description of various pathways through which the product would be distributed in the marketplace and sold. 

The canvas should also identify individuals and groups that could play a role in the product’s success.

Companies must also document the activities happening within the business internally and the budgets, resources, and individuals required. 

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

The full summary is typically on a single page and some 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 critical because the canvas must always be an intelligent description of various interlaced themes.

Why Should You Use a Business Model Canvas?

There are many reasons, but you could imagine the business model canvas as a mission statement for your product roadmap. Use product roadmap software for a better experience!

It acts as a handy reference point to ensure 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 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.

In product terms, the canvas can be understood as a business plan resembling the MRD – long, detailed, and mostly untrue by the time you finish it.

But only because you can put the canvas together so quickly it become 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

Suppose something happens during the development process forces you to re-prioritize or pivot your product. 

In that case, 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 spot any plans that might need updating quickly.

You will have to update 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.

What Are Some of the Business Model Canvas Examples?

Let’s look at the business model canvas example of McDonald’s.

McDonald’s business model canvas 

McDonald’s key partners: delivery providers: uber eats and door dash, suppliers

McDonald’s key activities: payment processing, delivery, innovation, and implementation, product sale

McDonald’s value proposition:

for buyers: quick and affordable food, service with consistency in quality

Franchisees: have become more successful than the brand itself.

McDonald’s customer relationships

Social media, customer, and community services

McDonald’s customer segments

Buyers: it is for the people who wish to buy products like fries, burgers, etc.

Franchisees: restaurants that want to increase their profit, using MacDonald’s name

McDonald’s cost structure:

Salaries, marketing, payment processing, and administration and operations

McDonald’s revenue streams

Royalties, license fees, and rent fees

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 looks like, the timeline of its release, and how the audience receives it. 

Sometimes, you may replace the traditional business model canvas with a ‘product canvas,’ and it may also be that you may contain the latter in the former. 

Either way, it is up to the product manager 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 releases, sales planning, and many other key aspects.

Therefore it acts as a robust document to help the product manager keep the product on track. They must also use product manager tools to guide them. 

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 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 burdened 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. 

The workforce in 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: Companies mainly use the business model canvas to visualize the basic building blocks at the start of their 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.

Q: Is business model canvas a strategy tool?

A: Absolutely, the business canvas model is a strategic management tool. The purpose of the business canvas model is to let businesses visualize and assess their ideas.  

Q: Do you see any limitations of the business model canvas?

A: The three main disadvantages of a business canvas model are:

  • The business model is limited to well-established businesses and does not include businesses in the early stages of development
  • The business model canvas does not take strategy into account
  • Thre are no interconnections
  • The business model canvas denies the role of a company within its ecosystem

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