Business Model Canvas

A business model describes the rationale of how an organization creates, delivers, and captures value. The business model canvas breaks the business model down into 9 building blocks that clearly articulate the intricacies of a business.

Customers comprise the heart of any business model. Without (profitable) customers, no company can survive for long. In order to better satisfy customers, a company may group them into distinct segments with common needs, common behaviors, or other attributes. A business model may define one or several large or small Customer Segments. An organization must make a conscious decisions about which segments to serve and which segments to ignore. Once this decision is made, a business model can be carefully designed around a strong understanding of specific customer needs.

• For whom are we creating value?
• Who are our most important customers?
• Who are customers that are not generating enough value?

The Value Proposition is the reason why customers turn to one company over another. It solves a customer problem or satisfies a customer need. Each Value Proposition consists of a selected bundle of products and/or services that caters to the requirements of a specific Customer Segment. In this sense, the Value Proposition is an aggregation, or bundle, of benefits that a company offers customers.

• What gain are you creating for the customer segment?
• What pain are you relieving for the customer segment?
• How can you increase the gain for the customer segment?

Communication, distribution, and sales Channels comprise a company's interface with customers. Channels are customer touch points that play an important role in the customer experience. Channels serve several functions, including:

1. Raising awareness among customers about a company's products and services
2. Helping customers evaluate a company's Value Proposition
3. Allowing customers to purchase specific products and services
4. Delivering a Value Proposition to customers
5. Providing post-purchase customer service.

Through which channels do our customer segments want to be reached?

Relationship can range from personal to automated. Customer relationships may be driven by the following motivations:

1. Customer Acquisition
2. Customer Retention
3. Boosting Sales (upselling)

• What types of relationships does each of out customer segments expect us to establish and maintain with them?
• Which ones have we established?
• How costly are they?
• How are they integrated with the rest of our business model?

If customers comprise the heart of a business model, Revenue Streams are its arteries. While the company must generate revenue I will remind you that we are following the model of conscious capitalism and seeking to capture both money and mission.

1. For what value are our customers really willing to pay?
2. How can we build mission into the business to value beyond the company?

Every business model requires Key Resources. These resources allow an enterprise to create and offer a Value Proposition, reach markets, maintain relationships with Customer Segments, and earn revenues. Different Key Resources are needed depending on the type of business model. Key Resources can be physical, financial, intellectual, or human. Key resources can be owned or leased by the company or acquired from key partners.

• What Key Resources do our...
  • Value Propositions require?
  • Distribution Channels require?
  • Customer Relationships require?
  • Revenue Streams require?

Every business model calls for a number of Key Activities. These activities are the most important actions a company must take to operate successfully. Like Key Resources, they are required to create and offer a Value Proposition, reach markets, maintain Customer Relationships, and earn revenues. And like Key Resources, Key Activities differ depending on business model type.

• What Key Activities do our
  • Value Propositions require?
  • Distributions Channels require?
  • Customer Relationships require?

Companies forge partnerships for many reasons , and partnerships are becoming a cornerstone of many business models. Companies create alliances to optimize their business models, reduce risk, or acquire resources.

• Who are our Key Partners?
• Who are our key suppliers?
• Which Key Resources are we acquiring from partners?

Which Key Activities do partners perform?

This building block 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. Such costs can be calculated relatively easily after defining Key Resources, Key Activities, and Key Partnerships. Some business models, though, are most cost-driven then others.

• What are the most important costs inherent in our business model?
• How much does it cost to produce, package and sell?
• Which Key Resources are most expensive?
• Which Key Activities are most expensive?

Vocabulary:

• Business Model
• Customer Segment
• Value Proposition
• Distribution Channels

Student Activity 1

Complete the business model canvas for Whole Foods. Go past surface one word answers and develop explanations of the specifics.

• Whole Foods Takes Over America by Beth Kowitt on Fortune

Student Activity 2

CVS Stops Selling Tobacco Products

There is an article from the NY Times attached below. Read the article and discuss how the changes would potentially alter the business model for CVS.