Business Model Canvas: Should Startups Use It?
Are you excited about putting a great business idea into action but don’t know how to start? A business model canvas could help turn your vision into something concrete and actionable. Read on!
The concept of a business model canvas is simple: visualizing an idea. Humans are visual creatures. It is usually easier for people to understand something when they can see it.
Programmers, for example, use flowcharts. This helps them identify the steps they should take to get to the desired result. A business model canvas does the same. It shows what is necessary to make a business work in a concrete way. One could argue it should be the first step in creating a business plan.
So what is it, and should startups use it?
What is a business model canvas?
A business model canvas is not a business plan. Instead, it is a breakdown of the elements of a business model. This can help with formulating a business plan.
The basis for the business model canvas is a dissertation by Swiss business theorist Alexander Osterwalder. His argument is the advent of Information and Communication Technology (ICT) has disrupted the market. ICT-based businesses operate differently from traditional companies. As a result, new business models that account for these differences might be necessary.
To this end, the paper established vital elements that all businesses share. The goal was to describe and modify any business model using a common language. This would make it easier for everyone to understand the business concept.
The paper came out in 2004. Today, anyone can download a business model canvas template. Entrepreneurs are especially enamored with the business model canvas because it:
- Focuses on business drivers
- Allows for tweaking and trying out new ideas
- Engages team members and encourages buy-in to the vision
The benefits are there. However, is it necessary for startups?
When should a startup use it?
A would-be entrepreneur with a great new idea learns the need for a business plan. That can be a bummer because business plans are quite detailed and lengthy. It takes a lot of time and work to put together.
On the other hand, the canvas is a single page. It takes as little as 20 minutes to complete. Everyone on the team can and should have a hand in filling it out.
That said, just because it is easier does not mean it is better. The main goal of the canvas is to get a big-picture representation of the business. You will see all parts of the business and their relationships and help you make decisions.
There are four scenarios where it would be useful for a startup.
- A business opportunity comes up that needs a quick decision
- You have a great new idea and want to be the first to bring it to the market
- You want to make a quick assessment to identify potentially fatal flaws with your idea
- Outside funding is not a consideration
In the first three scenarios, the time element is the main deciding factor. The fourth scenario touches on the fact that a canvas will not get you external funding. If you need investors, you will need a business plan. If you are flush with cash, doing a canvas will show you quickly if the business will fly or not.
It is important to note that the canvas is just the starting point for startups. A business plan is still necessary for setting up the business. Some established companies might use it to tweak their existing business model. However, that is another story. For startups, working out the details is crucial, whether external funding is a consideration or not.
What are the elements of a business model canvas?
It does not matter where you get a business model canvas template. They all follow the same layout and have the same elements. You can make your own on a large piece of paper, or you can download it. Below is the basic canvas template.
The reason for this layout is the canvas is a visual tool. It groups the internal elements (key partners, key activities, key resources, and cost structure) on the left. On the right are the external elements (customer segments, customer relationships, channels, and revenue streams).
They then converge on the value proposition. This represents the exchange of value. The value exchange typically means money paid for products received or services rendered.
When filling up the canvas, keep in mind that this is a big-picture type of exercise. You want to stick to the most critical factors of each element.
- Key partners: Suppliers, partners, affiliates, and other third parties necessary to do business (e.g., PaaS for financial SaaS)
- Key resources: Things or people necessary to run a business (e.g., software developer)
- Cost structure: Expenses necessary to start and sustain a business (e.g., PaaS purchase cost)
- Key activities: Actions necessary to deliver the value proposition (e.g., software development)
- Value proposition: Product/service offerings to meet customer needs or solve customer problems (e.g., mobile app); differentiation from competitors (e.g., a mobile app with 2FA)
- Customer segments: Groups of people or businesses to benefit from business offerings (e.g., financial institutions)
- Customer relationships: Interactions with customer segments (e.g., online support)
- Channels: Methods of contact to market and deliver products/services to customers (e.g., self-service)
- Revenue streams: Ways of earning money from the business (e.g., data storage fees)
If the whole concept of the business model canvas seems simple, it is because it is. The point of canvas is to help entrepreneurs quickly visualize their business idea. Startups can benefit from it by acquiring a big-picture perspective of the business without a business plan. However, while a canvas can jump-start a business plan, it cannot replace it. With that in mind, follow the template above. It will help you make great business decisions quickly.
Full Scale can supply you with key resources you can put in your business model canvas. We specialize in providing developers, software engineers, and subject matter experts for businesses. Our goal is to help startups and small to medium enterprises acquire tech maturity. We have years of combined entrepreneur leadership at the helm in founders Matt DeCoursey and Matt Watson. They know how to achieve success, so you are in good company.
Contact us and get the show on the road!