Business Model Canvas
The Business Model Canvas is a standard business model design template, particularly aimed at startups. This model is quite simple and is broken down into 9 main boxes that scan the main elements of building a business model. But as is the case with things that seem simple, they are often quite complex. To describe the Business Model Canvas (BMC), rather than engage in a theoretical exercise, we chose to create a fictitious business case and run it through a board we developed on Miro software. This detailed BMC was then shared with the Miro community and you will be able to find it directly and for free in the application’s template library (direct link here).
Business Model Canvas Example: The Planeseasub Case
Disclosure: This podcast is produced in partnership with Miro.com. Miro is a free online interactive and collaborative whiteboard application. We wrote this post with our usual focus on independence and authenticity.
What is the Business Model Canvas
Let’s start with the context. The BMC comes from the book ‘Business Model Generation: A Handbook for Visionaries, Game Changers and Challengers’, co-authored by Alexander Osterwalder and Yves Pigneur in 2011.
Magali Marbaise explains to us in her book Business Model Canvas: Building a Development Strategy. “It’s a practical model, very easy to use and directly applicable. It’s user-friendly and involves all levels of the company, but it’s more suitable for start-ups than for large companies”, she says.
The BMC matrix is based on 9 main blocks: key activities; key partners; key resources; market or customer segmentation; communication channels; customer relationship; product or value proposition; cost structure; revenue streams
This matrix is based on “the value proposition to be delivered to customers,” describes the author of the OMG book.
To take it a step further, we created a fictional startup; Planeseasub. We developed a Business Model Canvas for this company by taking the board provided by Miro in its standard templates (above) and expanding it (below).
The Business Model Canvas Step by Step: The Planeseasub Case
Here is the statement of our use case, as we have conceived it (remember again that it is a fictitious case).
Planeseasub is a Breton company based in Lorient that develops hybrid vehicles that are a mixture of seaplanes, submarines and cars. They can transport up to 5 people and cost about € 200,000 each.
Planeseasub produces these new types of vehicles. They allow the combination of several modes of transportation. They are equipped with electric motors powered by the latest generation of solar panels. These vehicles are fully autonomous and energy positive.
The Planeseasub project is not only a project to replace our traditional modes of transport. It is also and above all a set of associated services:
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- Multimodality/inter-modality with access to other modes of transportation
- Vehicle sharing
- Rental/sale
- International multimodal services
From this statement, which we recall concerns a fictitious company, we will develop each block of the Business Model Canvas. To simplify the reading of the model, we have assigned a number to each block.
Note that in the example chosen, we have chosen this as our starting point:
Planeseasub is an industrial company that aims for profitability without an immediate focus on fundraising, which is not included in this chart.
We have therefore reasoned here entirely on Planeseasub’s capacity to generate a profit and to work on classic investment formulas.
SUMMARY TO ACCESS THE DIFFERENT PARTS OF THE BUSINESS MODEL CANVAS OF THE Planeseasub CASE
- Block 3 a: Key Partners
- Block 3 b: Key activities
- Block 3c: USP – The Unique Selling Proposition
- Bloc 3d: Customer Relations
- Block 3e: Customer Segments
- Bloc 3f: Key Resources
- Bloc 3g: Distribution Channels
- Blocks 3 h and 3i: Cost Structure and Revenue Structure
- Block 4: Bonus AAA RRR model
Block 3a: Key Partners
The first block is key partners with a leading question, “Which partners are able to bring you a competitive advantage?”
Planeseasub will have to look into the different types of partnerships possible. Because there are many of them.
- Industrial partnerships (solution “complementors”) are the partners who will bring in components that will give value to the finished product.
- Marketing and/or sales partnerships that will enable joint selling.
- Cross-selling partnerships, in which Planeseasub will trade with another company (e.g. purchase of technology for Planeseasub vehicles). Lastly, strategic alliances that combine several or all of the elements below.
Points of Caution on Partnerships.
Beware of partnerships, a subject we know well at Visionary Marketing for having practised them at the highest level.
If Planeseasub hopes to sell itself by subcontracting the commercial part to third parties, the start-up is putting itself in danger. Before looking for partners, one must be able to sell oneself.
In the second phase, Planeseasub will try to complement its offer by establishing partnerships.
Block 3b: Key Activities
Key Activities are the fundamental steps that will allow Planeseasub to move forward with its clients.
The key tasks are the different actions that Planeseasub will have to implement in order to realise its project. It is advisable to proceed to this phase at the end of the structuring of the business model.
In the case of Planeseasub, a lot of housekeeping needs to be done in their CMB. As the company, they will try to attack too many markets and segments at the same time. This is a recipe for economic disaster. You can’t – with some exceptions – succeed by selling everything to everyone. Therefore, it is appropriate to narrow the scope before listing key activities.
Block 3c USP: The Unique Selling Proposition
A Unique Selling Proposition is a subject that often angers start-ups. Indeed, innovators, and probably Planeseasub’s creators are no exception to this rule. They often have a very emotional and understandable attachment to their products and services.
Planeseasub’s vision, for example, is commendable. It aims at solving several problems at the same time. A transport problem, a pollution and environmental problem, and finally an economic problem with packaged offers that allow one to travel more and better at a lower cost.
That’s a lot of problems to solve and a lot of arguments to hear from customers.
The really good question to ask yourself at this stage of building your Business Model Canvas is: What are the criteria that will make a difference in the market? Planeseasub’s founders will have to make a choice, and it’s not easy.
Many start-ups have to “rip their hearts out” by changing the way they sell their product or service. But we’ve known entrepreneurs who have become market leaders because of this.
It is better to be the leader in a lucrative niche than the last one in a huge market that doesn’t pay anything
Some Points to watch out for on the USP:
In general, the USP meets 3 criteria:
1) a sharp segment
2) a persona (a key decision-maker type)
3) A case that hits the nail on the head
In short, you must avoid spreading yourself too thin to try to sell a “Swiss Army knife” to everyone. This is the best way to sell nothing to anyone. In the case of Planeseasub, we are dealing with a real “Swiss Army knife”. The first recommendation that comes to mind, in this case, is to simplify the Unique Selling Proposition (USP).
Learn more about USP
Bloc 3d: Customer Relations
Customer relations are a vast and complex field. For example, the frequency of interaction with your customers is one of the points of vigilance that Planeseasub must take into account.
But it is not the only one, far from it.
Thierry Spencer described this in what he called “the customer relationship crossroads.” In other words, the many criteria affecting the customer relationship, from awareness to purchase/repurchase frequency.
Imagine, in the case of Planeseasub, two extreme proposals depending on the economic paths that can be chosen:
- On the one hand, a subscribed user that uses the service every day.
- On the other hand, an occasional user who would only use Planeseasub’s services once every… 2 years.
The points of view of these two users would then be quite different. The customer relationship is therefore also dependent on the distribution and purchasing modes. You will only be able to complete this Business Model Canvas blog once you have clarified these points, and in the case of Planeseasub, once you have made clear and decisive strategic choices.
Block 3e: Customer Segments
Customer segmentation is a very important topic and it is far from easy. In a launch phase, you will have to make assumptions that will vary over time (in the language of start-ups, we talk about a pivot). In any case, either you already have a good knowledge of your customer typology (because you have already made the first sales of Planeseasub for example), or you will make assumptions, if possible based on feedback from the field.
These assumptions will allow you to group your prospects in a homogeneous way. The more precise these segments are, the easier and cheaper it will be to prospect.
Some points of caution about customer segments.
Planeseasub can be sold to several types of populations:
- B2B with direct purchases by companies, but also via multimodal marketplaces that sell packages through subscriptions
- B2B if companies buy fleets of Planeseasub vehicles either for themselves (e.g., carriers) or to make this type of hybrid vehicles available to companies (e.g., professional rental companies)
- B2B2C with communities (urban communities, urban or interurban mobility services…) wishing to offer new services to their constituents
- B2B2C with companies that would resell to individuals or groups of individuals or via carriers that create a service offering (multimodality) based on a fleet of such vehicles
- B2C if Planeseasub wants to sell to wealthy individuals (mass affluents in English) or through groups of people (associations for example)
An important point of caution on segmentation.
It is not recommended to sell to everyone at once. This belief that the bigger the market, the bigger the opportunities is what Paul Millier describes as the “Big Market Myth”.
Thinking you’re going after a “big market,” in reality, you’re often making life difficult for yourself
A large market is always hyper-segmented. Therefore, talking to everyone is not very effective. It is more difficult to prospect for a large number of potential customers than a small group of potential customers.
That’s why we often find start-ups that start with a B2C business model and then pivot to B2B. Because they realise that it is easier – or rather less difficult – to sell to professionals, who are fewer in number and easier to identify.
For more on segmentation with a B2B zoom and explanations of Paul Millier’s theories, see this article.
Block 3f: Key Resources
Without resources, a project will not see the light of day. By key resources we mean the elements that “constitute the assets of the enterprise, what it relies on and which allows it to ensure its economic activity, that is to say, the proper implementation of its value chain” [Ibid].
Let’s put aside the industrial elements that are essential in the Planeseasub case to simplify, and focus on the human resources needed to make the idea a reality
Some points of caution on key resources.
Before recruiting, Planeseasub will have to work very seriously on its business model.
Let’s imagine that the startup chooses a B2B sales mode through carriers who set up multimodal offers.
In this case, Planeseasub will have to equip itself first of all with sales forces and business developers in the field of transport with knowledge in B2B and B2C. The company will not need to recruit masses of staff. A few experts are enough to start with. This is also why a B2B business model is easier to set up, it is less resource-intensive and allows for a quick start.
We can imagine that Planeseasub will focus on France by relying on the European ecosystem around air and transport. As it develops, the start-up will then be able to expand commercially. First on its own territory and then on new markets (first in Europe, from the simplest to the most complex, then beyond Europe).
The company will also have to structure itself to accompany its development. Similarly, it will have to equip itself with various resources in all areas (hardware, software, premises, storage, etc.) according to its development plan and growth.
By taking care to manage this growth as tightly as possible to avoid burning too much cash.
Block 3g: Distribution Channels
This block is dedicated to distribution channels, the best ways to reach your customers.
Some points to watch out for on distribution methods.
Anything is possible with the Planeseasub case, and that’s the problem (see our explanations on customer segments in 3e). The BMC is the perfect opportunity for the Planeseasub team to review its ambitions and take a step back. Especially since the sales method will depend on the chosen business model.
Let’s say the Planeseasub team chooses to sell B2B to large transportation companies first. This does not make sense. One can imagine, that a market study conducted by Planeseasub’s founders with YouGov showed that the most easily accessible and mature market for the young company was precisely the transportation companies that are developing new multimodal offers.
The marketing research institute considers that it is much easier to target these companies, as they are few in number, and to sell in pure B2B mode. The potential turnover is important and even if the sales cycles are long, it is easier to achieve results in such a market than to go directly to the consumer market with expensive and innovative products.
Assuming that Planeseasub chooses this path, which seems reasonable, it is likely that a “showcase” website will do the trick to start the business. Perhaps enhanced by a B2B blog focused on new modes of transport and multimodality.
Gradually, Planeseasub will have to develop an extranet that will allow its B2B customers to manage their fleets, order new devices, manage their maintenance, etc. But this will not happen immediately. Planeseasub will have time to build up its skills in this area. Because in the high end of the B2B market, this element is less fundamental in the early stages of development.
This would of course be completely reversed if the company wanted to sell Planeseasub on the Internet. But at 200 000 € HT each, we can imagine that it will not work right away.
Not everyone is Elon Musk.
Each business model will imply a preferred distribution method that Planeseasub will be able to expand as time goes by.
And that’s why the central point of the Business Model Canvas, as its name indicates, is the business model, which we will see in the next paragraph.
Blocks 3h and 3i: Cost Structure and Revenue Structure
To build our business model, we will have to combine two things. First the revenue structure (how much each Planeseasub will really bring me, this is the gross margin). And then the cost structure (how much it will cost me to sell each Planeseasub). Which will be deducted from the gross margin to give the net margin.
The Revenue Block
OMG describes this item, perhaps the most important in the matrix, as the block that determines “how much you expect to earn in a given period of time.”
To get there, an intermediate step is necessary: define how much you will earn on each Planeseasub sale. If you lose money every time you sell a device, you will not make a profit in the end. The first step to defining the potential gross margin is to determine a selling price that will allow you to make a margin.
For this purpose, two methods widely practised in the field are observed:
- 1. The method that starts with costs and after applying a minimum gross margin, will result in a profit (as long as fixed costs are less than earnings).
- 2. The method that starts from the market price (the maximum price that a Planeseasub customer would be willing to put in a device to get equipped). Again, this will depend on the chosen segment (B2B or B2C).
For the costs we will distinguish several types of costs:
- Variable costs: Those related to production. The more Planeseasubs I make, the more these costs increase.
- Fixed costs: These are incompressible and do not vary (or vary only slightly) with production. In these, we will count in particular the personnel costs.
The goal is to arrive at a complete cost of your solution. To deduct the incompressible cost (variable + fixed) linked to each production of Planeseasub devices. This is how you will know if you make money or not on each Planeseasub sold.
Some points of caution on the importance of the business model
Points 2f and 2g are the pivots of the Business Model Canvas. It is the combination of the cost structure (expenses) and the revenue structure (products) that will determine the crucial point of this Business Model Canvas which can be translated as follows:
How and when are we going to make money with this idea?
This is the most important point, as it is the one that will determine the viability of the business idea and whether it will generate money. That’s why here we have eliminated fundraising to focus on the viability of the project itself.
A project like Planeseasub will be of particular interest because of the different forms of possible business models. This is due to the fact that Planeseasub is not just a product, but a mix of products and services, B2B and B2C (or even B2B2C) and direct and indirect sales.
Thus, we will observe various cases of figures of which here are some possible combinations:
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- Possible business model by the unit (PV * Qty)
- The rental business model with recurring revenues in the manner of what is done in software (cumulative revenues)
- B2B business model with more consistent sales and revenue sharing
- Partnership business model with commissions on each sale
It is customary to say among experienced entrepreneurs that one measures a future business by its business model and not by its business plan.
While it’s easy to draw exponential curves to impress investors, it’s harder to fool them if your product or service isn’t structured to make money.
In the case of Planeseasub, a serious cleanup will be necessary to sell this idea. Too many segments, too many targets, too many sales methods and too many different business models.
Needless to say, we will have to simplify things in order to really understand how Planeseasub can become profitable and after how long (break-even point).
As a Bonus the AAA RRR model
Here we zoom in on “growth hacking”. The BMC matrix provided under license from Strategyzer.com in the original BMC model on Miro does indeed allude to a tactic known as “the hacker’s funnel”.
Growth hacking is indeed an important point to address when talking about subscription-based services. In Planeseasub, we considered selling subscriptions of intermodal services.
In this context, the Planeseasub user will subscribe to a fixed price (e.g. €500 per month for a 1-year commitment) which will allow him/her to access all the modes of transport available within the contract (Metro-RER, Transilien, Velib, Planeseasub, etc.).
Planeseasub will therefore turn into a subscription seller. A share of each of these subscriptions will go to the partners (car rental companies, Vélib operators, IDFM, etc.).
For this to work, Planeseasub will use growth hacking methods to maximise its subscriptions, just like a SaaS * publisher.
For this, the AAA RRR method of the hacker will be valuable. See the online explanation here.
* note here that we are only talking about ethical growth hacking methods, not black hat methods.
Critical Approach to the BMC Model
The Business Model Canvas is a good starting point. It allows you to ask yourself fundamental questions about your offer. A certain number of points deserve to be noted for the attention of entrepreneurs who use this method.
- One of the most common criticisms of the BMC is its limitations on the strategic view and competitive analysis.
- Personally, I find that entrepreneurial approaches often lack probing of the field. Certainly, the founder’s brilliant intuition is often a good starting point and I don’t minimise its importance.
Nevertheless, one of the most useful elements to take into account will be the confrontation of the project with the field. Both with potential customers and with opinion leaders who can advise the entrepreneur. Market research is also important. Of course, you should not trust the numbers (qualitative studies are often more important, especially at the beginning of the project), but the more you will go and get information on the field, the more you will be able to refine your BMC and make it realistic. For this, we refer you to our various articles on market research and demand analysis. - The order of some of the blocks should be questioned. Starting with partners, for example, is a bad idea. Sure, partnerships are key, but outsourcing your business is not the way to succeed. This must be done in stages. As for looking at resources before knowing what you’re selling and to whom… Adrien Book on his blog Pourquoi Pas is in tune with this.
- The Business Model Canvas can be criticised for being a bit theoretical and lacking feedback loops and links between elements.
One could still find many criticisable points in this method. To look at things positively, I would therefore advise seeing the Business Model Canvas as a good starting point to order and present your ideas. Treat it as a checklist, certainly incomplete, but useful, to launch your business.
And above all, as a way to focus on the business model itself. Which is the starting point of a successful entrepreneurial approach.
Our Miro board is available as a template accessible to all app users at https://vismktg.info/3GWbK1N
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Karla est étudiante à Arizona State University et travaille actuellement comme rédactrice junior en marketing de contenu chez Visionarymarketing.com
