How to Use the Business Model Canvas for Strategic Analysis

 

By Omodiaogbe Samuel

Last Updated: November 27, 2023

Introduction

The Business Model Canvas (BMC) is a strategic management tool to quickly and easily define and communicate a business idea or concept. The canvas is a one-page document which works through the fundamental elements of a business or product by structuring an idea in a coherent way. The right side of the BMC focuses on the customer (external), while, the left side of the canvas focuses on the business (internal). Both external and internal factors meet around the value proposition, which is the exchange of value between the business and the customers. The Business Model Canvas been a visual representation of the 9 key building blocks serves as a blueprint to help business leaders, strategist, or entrepreneurs to design and build models with a more systematic approach. The Canvas categorizes the processes into 9 separate categories. These categories represent the four major aspects of a business; customers, offer, infrastructure, as well as financial viability. Broadly speaking we can say that the elements on the left-hand side of the canvas represent costs to the business, whereas elements on the right-hand side generate revenue for the business. Essentially, the business model canvas begins with the Strategy. However, regardless of the strategic advantage you developed, what is ultimately going to dictate whether your strategy can be effectively implemented will be your ability to translate it into workable business model. Therefore, the Business Model Canvas is a simplified one-page representation of the business model that:

  • summarizes its most important components, so that they can be better understood and its interdependencies can also be visualized
  • helps identify opportunities to improve the current business model
  • allows to create a list of possible alternatives to the current business model and to assess them, before choosing the best one for implementation

                    Typical  Layout of the BMC 

The Business Model Canvas comprises 9 building blocks organized in 4 main areas: customer, offering, infrastructure and financial viability.

  • Customer comprises Customer segments, Channels and Customer Relationship.
  • Offering covers, the Value Proposition of the company to its customers (and stakeholders)
  • Infrastructure comprises the Key Partners, the Key Activities performed and the Key resources used
  • Financial viability comprises Cost Structure and Revenue streams.

The canvas is structured into 9 key building blocks with the following order:

  1. Customer Segments
  2. Value Propositions
  3. Channels
  4. Customer Relationships
  5. Revenue Streams
  6. Key Resources
  7. Key Activities
  8. Key Partners
  9. Cost structure

1 Customer Segment

The Customer Segments defines how the organizations or enterprise aims to reach and serve its customers.  Customers comprise the heart of any business model. Without (profitable) customers, no company can survive for long. The customer segment is an essential part of an organization’s business model and is key to ensuring that the product features are aligned with the segment’s characteristics and needs. To carry out an effective customer segmentation, a company must first know its customers, both through their current and future needs. Then the organization must list its customers in terms of priority, including a list of potential future customers.

Key questions to ask to determine the customer segment:

  • Who are you creating value for?
  • Who are your most important customers?
  • What do they need?
  • Are these needs similar or there are material differences among different segments of customers?
  • What do they like or dislike?
  • How large is the market you are trying to address?

2 Value Proposition

The value proposition describes the value that you deliver to each customer segment. The Value Proposition is the reason why customers turn to one company over another. Therefore, it answers the question, “why will customers buy from us.” The value proposition provides value through a number of attributes such as customization, performance, “getting the job done”, brand/ status, design, newness, price, cost and risk reduction, accessibility, as well as convenience/ usability. When creating your product’s value proposition, the first question you must ask is, what problem are you solving through the offered product or service. Then one needs to look into how the product, service or overall experience can be improved so that it provides greater value than the competition

Key questions to ask on value proposition:

  • What value do you deliver to your customers?
  • Which one of the customer’s problems are you helping to solve?
  • Which customer needs are you satisfying?
  • What bundles of products and services are you offering to the different Customer Segments to address these needs? 
  • Which specific customer pain point are you trying to solve?
  • What job are you helping customers get done?
  • How does your value proposition eliminate customer pain points?
  • What products or services do you provide that answer this specific pain point?
  1. Channels

The medium through which an organization provides its value proposition to its customer segment is known as a channel. There are various options for channels available to an organization, and the selection is based on the channel that is the quickest, most efficient with the least amount of investment required. There are two basic kinds of channels; company owned channels such as store fronts, or partner channels such as distributors. A company can opt to choose either one or employ a combination of both. Channels are customer touch points that play an important role in the customer experience.

Key questions to ask on channels:

  • How do you deliver the value proposition to your customers? Directly or via third parties? 
  • Which channel work best for effectiveness and cost?
  • Through which channels are your customers expecting to be reached?
  • How are we reaching them?
  • Are their preferences changing with regards to channels?
  • How are our channels integrated?
  1. Customer Relationships

An organization must select the kind of relationship it will have with its customer segment in order to create financial success and sustainability The Customer Relationships building block answers the question of how you get, keep, and grow customers. The customer relationships you develop depends on your business. For example, if you are a B2B business, you would have salespeople dedicated to your customers. But if you are selling online, your leads would start searching online, then they would go to your website to find more information, before eventually making a purchase.

Key questions to ask on customer relationships:

  • What type of relationship does each of our customer segments expect you to establish and maintain with them?
  • Do you interact with all customers more or less in the same way or differently?
  • How are they integrated with the rest of our business model?
  • How often do you engage with them? How much do you help them in both pre and post-sale?
  • How effective / efficient is it to maintain this type of relationship for you?
  • What is the relationship’s nature?
  1. Revenue Stream

 A revenue stream is the methodology a company follows to get its customer segments to buy its product or service. A revenue stream can be created through the following ways: asset sale, usage fee, subscription fee, lending/ leasing/ renting, licensing, brokerage fees, or advertising. This is the segment where you explain what your primary, secondary, and additional revenue sources will be. You can link your revenue streams to your value propositions and customer segments. You may want to offer customized products/solutions to certain customer segments

Key Questions:

  • For what value are your customers really willing to pay?
  • For what do they currently pay?
  • How are they currently paying?
  • How would they prefer to pay?
  • How are the expectations of your customers changing and how are they impacting your pricing and revenue streams?
  • How much will you charge for your products and services?
  • How much will each revenue stream contribute to your overall revenue?
  1. Key Resources

The key resources are all things you need to have, or the assets required to create that value for customers. It is important to begin with listing your resources. Once the final list of resources is available, the company can decide on how much it needs to invest in these key resources to operate a sustainable business. Key resources could be anything from intellectual property (patents, trademarks, copyrights, etc.) to physical holdings (factories, offices, delivery vans, etc.) right down to finances (the initial cash flow perhaps needed to start your brand), or the human capital. Key resources can be owned or leased by the company or acquired from key partners

Key questions to ask on key resources:

  • What key resources do you require to deliver the value proposition to your customers?
  • How scarce are these resources?
  • How easy or difficult to replicate are they?
  • Are these resources easier to access for you than for others?
  • Do you have preferential access/rights on them? E.g., patent, contracts, rights etc.

7 Key Activities

The Key Activities are the most important strategic things you must do to make the business model work. Key Activities should be directly relatable to your value proposition. Like Key Resources, you need to determine the most important activities you must engage in to fulfill your value propositions, to secure distribution channels, to strengthen customer relationships, to optimize revenue streams, etc. 

Key questions to ask on key activities:

  • Which key activities do you need to perform to deliver your value proposition to your customers?
  • What key activities does your value proposition require?
  • Is your company predominantly “doing” (e.g. manufacturing) or “intermediating” between partners and clients? Are these activities standardized?
  • Does it require a high degree of differentiation for each customer / customer segment? 
  1. Key Partner

Key Partners are a list of other external companies/suppliers/parties you may need to achieve your key activities and deliver value to the customer. This includes partnerships such as joint ventures and non-equity strategic alliances as well as typical relationships with buyers, suppliers, and producers. In this building block, you list the tasks and activities that are important but which you will not do yourself. Instead, you will use suppliers and partners to make the business model work.

Key questions to ask on key partners:

  • Who are your key partners? 
  • Who are your key suppliers? 
  • Which key resources are you acquiring from partners?
  • Which key activities do partners perform on your behalf?
  • How can you leverage these partners and supplier relationships to deliver more value to your customers?
  1. Cost Structure

The cost structure describes the most important costs incurred while operating under a particular business model. Creating and delivering value, maintaining customer relationships, and generating revenue all incur costs. Businesses can either be cost driven i.e., focused on minimizing investment into the business or value driven i.e., focused on providing maximum value to the customer. A realistic understanding of the costs of the business is one of the hallmarks of a good business model. After identification, it is important to list all the costs on the canvas, so they are visually present and then create plans for each cost.

Key questions on cost structure

  • What are the most important cost items of your business model?  Which are the major drivers of these costs?
  • Which key resources are the most expensive to deliver value to your customers? Which key activities are the most expensive?
  • How do costs link to your revenue streams?
  • Is your business able to achieve economies of scale?
  • Which percentage of your cost base is fixed and which are variable? Are you pursuing cost optimization? Or are you able to capture value in a different way?

                                 Case Study

                                            Footprint Institute

Addressing the Unemployment Crisis in Nigeria

There is a great crisis of graduate unemployment in Nigeria. Every year, out of over 100,000 that graduate from our tertiary institutions, only 10% end up securing gainful employment, and the rest join the unending unemployment crew. Most have stayed at home doing nothing for more than ten years, and the sad news is that the prospect of ever getting employed is remote. The problem is attributed to poor skill level, lack of jobs creation, lack of productivity, corruption and other related challenges. Graduate unemployment in Nigeria is a national crisis and government seems not to have a right answer to it, as no meaningful approach has been taken to address it. The frustration has gotten so high that as those that have graduated are lamenting the undergraduates are living in fear and uncertainty, as they cannot fathom what the future holds. The frustrations have led many unemployed graduates into crimes such as robbery, kidnapping, terrorism and other related criminal activities. As a matter of fact, if urgent step is not taken to address it, there is every possibility that it will result to uncontrollable crisis

Our Solution

This is where Footprint Institute comes in. We’re Social Venture that was setup to make graduates in my country “job creators rather than job seekers”. What we have discovered after interacting with many of them, is that most have inclination for entrepreneurship, but the challenge is the know-how. To address that, we believe setting up an Entrepreneurial Training Institution would go a long way in alleviation the problem. Some of the complaints we got when interviewing them were lack of skills, lack of capital, lack of support, and lack of knowledge of the intended industry.

To that effect, we believe the right solution can only be found in quality training, where professionals and industry players would equip the graduate students on the best approach. We also discover that most professionals and industry player would be willing to help if the right environment is created. Therefore, we have decided to create a platform for the volunteer’s trainers to reach the inspiring entrepreneurs, to equip them with right skillsets for building and running successful businesses. At the end of the day, our products would end up as job creators and not seekers anymore 

                        Business Model Canvas of Footprint Institute

                               Analysis of Footprint Institute Business Model Canvas

1 Customer Segment

We’re social venture that is determined to solve graduate unemployment in Nigeria.   To that effect, we have decided to set up a world class entrepreneurial training institute where graduates would be taught and equipped with the right skills to set up businesses on their own without waiting endlessly for jobs that are not available. Therefore, our targeted customers are graduates that have passion for entrepreneurship. Given the financial condition of the targeted customers, the program is going to be subsidize. However, for the complementary programs that are opened to existing entrepreneurs, we will charge market rates  

2 Value Proposition

Our key Value Propositions are as follows:

Training: Training program that is based on modern curriculum. Training that will give the potential students the right entrepreneurial training to enable them fend for themselves, and to ensure they are able to setup companies that would create jobs for others

Hands-on Skill Acquisition: To enable our potential students acquire trade skills in their chosen fields of interest. This would be achieved by linking them up with industries, training centers, and in government established institutes

Mentorship/Coaching:  We would make the students to go through mentorship and coaching programs from established entrepreneurs that would guide them to growth in their businesses

Funding Opportunity:  Funding is a major issue in entrepreneurship. Although the program was not setup to provide funding directly, but we will collaborate and partner with funding institutions to help the entrepreneurs secure the desired funding to kick-start their businesses 

 

3 Channels

The program is setup to have integrated physical and online training platforms. The idea is to enable us to reach large pool of unemployed graduates.  We plan to setup learning centers in the major cities in the country, as that would enable students to have real time lectures and training from the instructors and facilitators.

 On the other hand, the online platform would be available to those that could not access the physical training centers and those that are in rural areas.  We would provide an online training platform that is interactive and nationally accessible   

4 Customer Relations

Relationships with volunteers (Instructors and trainers):  Being a social venture, we are greatly going to rely on voluntary services from people of goodwill, particularly the facilitators, instructors, consultants and trainers.  To that effect, it’s imperative that we have a healthy relationship with those key stakeholders to enable us serve or students effectively

Follow-up Programs: We would not end at only providing training to the students, but would have a follow up program that would enable us to continue to assist them until they establish their businesses successful.

Help Desk: We will provide a help desks that students can visit or call when in need of any assistance in their businesses

Alumni Association: We would encourage and facilitate the formation of alumni association that would mandate every student to join upon graduation. That would provide opportunity for us to continue to engage them and for them to network among themselves.

5 Revenue Streams

Tuition: Students would be made to pay for the program, although in a subsidized rate. Being asocial venture, we don’t intend to charge students the market rate of the program, but should be sufficient to keep the program running. Also, we know they are unemployed, and therefore may not have the money to pay the market value for the program

Grants: We would tap into the government grant for entrepreneurial training in the country. The government in Nigeria give grants to institutions that provide training to students as a means of alternative source of employment.

Donations:  We are going to accept and encourage individual and organizational donations that want to foster the course of entrepreneurial development in the country. Some organizations take entrepreneurial development as part of their Corporate Social Responsibility (CSR). We would identify such organizations and partner with them.

Training Programs: We shall also setup a bimonthly training program that would be opened to existing entrepreneurs and general public where we’re going to charge the true market rates for such training

 

6 Key Resources

Rent: We would start by renting apartments for the school program in major cities. That strategy would enable us to test the water before investing in our own physical infrastructures

Human Capital: We are into social entrepreneurship, and therefore would leverage on the goodwill of volunteers. We would build a network of facilitators, instructors, consultants and trainers who would be willing to offer their free services to alleviate the suffering of the unemployed graduates in the country. However, we would still need some in-house staff that would complement the efforts of the outsiders.

Equipment:  We would need to invest in training equipment to enable our service delivery. Equipment such as projectors, multimedia technology, computers and other training facilities would be considered

 

7 Key Activities  

Teaching: This is where students are taught courses in entrepreneurship. We would have instructors teaching courses such as accounting, finance, economic, marketing, operations, strategy, and other basic courses in entrepreneurship

Vocational Skills: Apart from the theoretical knowledge, we would also have some vocational training in different areas of the student’s choice. To that effect, we would collaborate with industries and trainers in that respect.

Internship:  this is another way to expand the knowledge base of the students, particularly in the fields of their choice. We would need to collaborate with industries to absorb our students

Mentorship/Coaching: This program is to immense the students with the necessary guidance from those that have passed through the process. We would create a network of mentor and coaches from established entrepreneurs and venture capitalists to assist us in this direction

Competition: We would also organize business plan completion as part of the end program activities. There would be prize attach to winning. This would encourage them to work harder and also to realize that they are going out to face a competitive world.

 

8 Key Partnerships

Government Agency: We are going to partner with the government agency responsible for entrepreneurial development in the country. Apart from the financial grant, we would also need their technical support in capacity building and development

Industries: We would also partner with the industries for internship programs, and other technical supports

Instructors/Consultants: They remain key part of the program, and therefore we are going to partner with them as they offer their free services to youth development in the country.

Angel Investors/Venture Capitalist:  Financing is crucial for entrepreneurial venture. To that effect, we are going to collaborate with the angel investors and VCs in the area of funding their enterprises

Community: The communities where we operate would be part of stakeholders, and therefore we would need to partner with them for us to have peaceful environment

 

9 Cost Structure

Rents: Our first approach is going to be rented accommodation for the training program.  We will only invest in physical infrastructures when we have fully consolidated on the program. To that effect, we are going to spend money on rents

Online Program: The online program will enable us to reach those that could not be absorbed on the physical school.  To that effect, we are going to spent money to put the necessary infrastructure and system in place.

Salaries/Overheads: We would need to pay our full-time employee’s salaries and wages. Also, there are other costs associated with running the programs, such as overhead like electricity, water, telephone and other basic necessities for the program.

Equipment: There are major equipment we need to spend money on that would enable our smooth service delivery on the program. Particularly, we would need integrated multimedia facilities, projectors, computers and other vital equipment

Our Strategic Approach

Our strategy is based on Cost Leadership: Cost leadership is a strategic approach requires aggressive pursuit of efficient-scale in operations; tight cost and overhead control; and cost minimization in areas like R&D, service, sales force, advertising, and so on.

By adopting a cost leadership strategy, the business positions itself as a low-cost producer in your industry. To do this, you might look to reduce your operating costs, achieve better economies of scale or implement other cost reduction strategies. Essentially, from the analysis conducted above, it’s obvious that everything is targeted at cost reduction. Been a social enterprise, it means we might not have luxury of resources, and therefore we need to be efficient in our operations. Also, we have to factor-in the conditions of our target customers. They are unemployed, and therefore might not be able to afford the market rates of our services. To provide top quality services to them, we have to source revenue from other sources. But we have to be judicious with the limited resources at our disposal. Therefore, the cost leadership strategic approach will define how we structured all the elements on the BMC. Without the strategy coming first, we might find ourselves in situation of incoherence or misplaced priorities. Essentially, the whole idea is to create a strategic fit. Therefore, if you are pursuing a particular strategy, all the elements on the BMC have to fit into such strategy

 

Benefits of the Business Model Canvas

  • Easy to understand: Because the canvas on just a single page and is very visual it’s very easy to understand.
  • Focused: It removes any fluff that might have been present in a traditional business model. It’s all killer no filler.
  • Flexible: It’s quick and easy to make changes to your model and sketch out different ideas
  • Customer Focused: the canvas forces you to think about the value you’re providing to your customers, and what you need to do to deliver value to them.
  • Shows Connections: The single page graphical nature of the canvas shows how the different parts of the model interrelate to each other. This can be really difficult to ascertain from a traditional business plan.
  • Easy to Communicate: Because the canvas is so easy to understand you’ll be able to

share and explain it easily with your team, making it easier to get them on board with you

  • Visual Thinking: The tool allows for easy, visual representation for decision makers to ponder upon. The tool provides a neat breakdown of the major considerations impacting the business and also makes clear the direction the organization is taking through its business model.
  • Grasp the relationship between the 9 blocks: The Business Model Canvas allows the executive team to understand how the 9 building blocks relate to each other and the different ways these relationships can be changed to increase efficiency or effectiveness.

                                  Conclusion

By working through your business model, you have understood the clarity of how to create a strategic fit by ensuring your strategy is actually consistent. It also allowed you to formulate new strategic alternatives as tactical weaknesses are exposed. The key to all of these is the concept of fit. Importantly, you need to work through the BMC with your team, as you debate and strategize what the right fit you want to achieve. You also need to consider what the competition is doing, and therefore think strategically what you need to do to the different. It is important to note that you won’t develop your business model canvas the first try. The whole point of working with the canvas is that it allows you to manipulate potential business model in the early stages as you continue to iterate until you arrive at what is viable. At the early stage, the assumptions you include in your canvas might be tentative and could change as you continue the journey. Ultimately, It’s the marketplace that will determine whether you have the right business model or not. Therefore, you must go out there and test the model in the market, and make the necessary iterations based on the feedbacks from the customers

 

Omodiaogbe Samuel, MSc. CMC, ChMC, FIMC

Omodiaogbe is a Strategic Management Consultant, and he the Principal Consultant/CEO at Vast Thinking Consults Ltd where he help organizations and business leaders to create superior value. Omodiaogbe holds BSc. and MSc. in Economics. Also, he is a Certified Management Consultant (CMC), a Chartered Management Consultant (ChMC), and a Fellow, Institute of Management Consultants, Nigeria. He is an Instructor on Coursera, where he teaches 25 courses in Strategic Management. Omodiaogbe is one of the world’s leading MOOCs learners on Coursera and Edx with over 500 Certificates from top-ranked Universities, Business Schools, and Organizations

Contact him:
Email; somodiaogbe@vastthinking.com.ng
Visit: www.vastthinking.com.ng

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