01 [EXPERT TIP from Alexander Osterwalder] “Keep your first canvases ‘rough and dirty’ when you use the Business Model Canvas to sketch out business models for new ideas or ventures. Then immediately test your early canvases in terms of desirability (will customers want it?), feasibility (can I build it?), and viability (will it be profitable?). Adapt your canvases rapidly based on what you learn from your tests. Iterate and refine your canvas with this so-called Lean Startup approach until you have sufficient evidence that your idea can succeed.”
02 You can find more on the Business Model Canvas in Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. John Wiley & Sons.
03 See #TiSDD 3.6, Business Model Canvas, for a more detailed description of this mapping.
Considering business models is an inherent part of any service design process. Any changes of organizational structures, processes, software, products, services, stakeholder relationships, or customer groups affect different parts of a business model – in return, most changes of a business model affect the employee or customer experience, and therefore shouldn’t be done without an accompanying service design process.
However, the process of writing a complete business plan to define a business model is a bad match for the quick and iterative working style of service design. Instead, you need tools to quickly visualize a business model so you can iteratively test and refine various options. These tools should not be a substitute for a classic business plan, which you often still need – for example, for investment decisions by external stakeholders. Instead, such tools can complement a business plan: prototyping and testing various scenarios can help you understand the impact of various options on the employee and customer experience as well as on the business. Based on a refined and tested business model, you can then easily detail out an extensive business plan. [01]
With the Business Model Canvas, you can quickly sketch out the business model of existing services or products, whether physical or digital, or prototype the business model of new concepts. It is intended to be used as a tool in an iterative design process. The template was developed by Alexander Osterwalder based on his scholarly work on the ontology of business models. In his PhD thesis, he compared different business model conceptualizations and identified their similarities. These became the building blocks of his Business Model Canvas: [02]
- Value Propositions: Summarizing what value a company delivers to its customers.
- Customer Segments: Describing the company’s most important customers.
- Channels: Highlighting through which channels customers want to be reached and which ones work best and are most cost-efficient.
- Customer Relationships: Visualizing what type of relationship each customer segment expects the company to establish and maintain with it.
- Key Activities: Showing the key activities that value propositions, channels, customer relationships, revenue streams, and so on require.
- Key Resources: Illustrating the key resources that value propositions, channels, customer relationships, revenue streams, and so on require.
- Key Partners: Describing the closer ecosystem in which a company operates.
- Cost Structure: Outlining the most important cost drivers of a business model.
- Revenue Streams: Identifying potential revenue sources of a business model.
The good news is, you often do not have to start from scratch. The upper seven building blocks of the Business Model Canvas are directly connected to key service design tools like journey maps, personas, system maps, prototypes, and service blueprints (see image A).
Considered a strategic management tool, the Business Model Canvas helps to connect and balance customer-centric tools with “hard facts” such as resources, revenue streams, and cost structures. Hence, this framework creates a common ground for designers and managers to talk about new service concepts within any organizational structure.
The lower blocks (cost structure and revenue streams) help you to estimate the potential financial impact of a business model. These financial blocks themselves depend on the estimation of costs related to key partners, key resources, and the key activities needed to offer a value proposition, as well as revenues derived from the value proposition when it is offered to customer segments, through channels, and in a defined customer relationship.
