A business model canvas is a product’s mission statement. It creates a universal vocabulary for the product by summarising information on its development lifecycle, usage, market reception, etc. This way, everyone can be in the loop and contribute to the process of building, releasing, selling, and innovating new products. Since product managers lead the product journeys, documentation and communication also fall under their purview. This blog will introduce you to some business model canvas examples, giving you a sneak peek into the job!
Table of Contents
What is a Business Model Canvas?
A business model canvas answers the following questions about a product:
- What problem does the product address?
- Who will use the product?
- How will it be developed and distributed in the market?
- What will be its cost, pricing, and positioning?
- What support would be required in terms of time, money, and people?
- How did it perform in terms of implementation, support, and customer experience?
- Which gaps can be bridged to improve the product?
The ingredients may vary, but the purpose remains to compile the most relevant information about the product and act as a referential document for everyone in the organisation, from executive teams to junior developers.
Components of a Business Model Canvas
1. Customer Segments
This section covers the details of customers. A product may cater to multiple customer segments. You could also have a multi-sided market, where two or more distinct groups value each other’s participation. For instance, eBay is an online marketplace for both buyers and sellers. Typically, product managers arrive at the segment compositions after analysing the customer base at the macro level and zeroing in on the individual personas at the micro-level. They find out through user research how the targets think, feel, and perform in your product area. At this stage, you might also chalk out the alternatives that different customers use.
2. Value Propositions (VPs)
Once you have identified the personas, the next step is to tie them to specific value propositions of your product. Here, you list down the needs your product satisfies and why customers should buy from you over the current alternatives.
In practice, product managers often jot down all the ideas on whiteboards or post-it notes, slowly winnowing out undesirable elements. After that, they map out specific value propositions according to the segments and operationalise them for customers. For instance, you have three personas. You will link a prioritised list of competitive advantages to every persona to achieve a seamless connection between Customer Segments and VPs.
Channel refers to how you deliver your products to the market. Product managers have to monitor every step involved in the promotion, sales, service, etc. and determine the modes and entities to be used. For example, an eCommerce portal is a channel for selling. Google Adwords is a channel for attracting the right audience’s attention. If you hire a third-party service for installation or other after-sales services, that is also a channel.
While selecting a channel, it is essential to pay attention to the customer journey. Does the customer interface give your product more visibility? Does it lead to long-term customer relationships? It is recommended to use the AIDA.OR (Attention Interest Desire Action Onboarding Retention) framework to address these questions.
4. Customer Relationships
Once you have an AIDA OR storyboard, a standard business model canvas example showcases how customers interact with a product through its lifecycle. Do they call? Do they prefer the web or email? Is online chat more suitable? As a product manager, you will have to investigate the answers to all these concerns. At this point, you ask some litmus test questions to determine a model, such as:
- How can you deliver the Value Propositions to the customer with the promotion, sales, and post-sales service combinations?
- Is it possible to make the numbers work with the chosen mix?
- Do you need a separate premium support product? Can you surpass the choice between different alternatives by offering personal support at a reasonable charge?
The output is a description of Customer Relationships across the customer journey. These relationships may differ between segments or among personas within a particular segment. It is best to test the model to sustain attracting new customers and retaining the existing ones.
5. Revenue Streams
In this phase, you map your Customer Segments to Value Propositions to Revenue Streams. You make these associations determine whether the product value aligns with the focal points and driving revenue with the efforts.
After compiling a synopsis of your offering and customers, you move on to the execution. By mutually joining everything to revenue, you will have created an actionable analogue for the remaining building blocks of your business model canvas.
The next four steps detail the infrastructure or ‘plumbing’ you will need to deliver on the communicated propositions.
6. Key Activities
In the Key Activities Section, you describe how you will make the business work. For a product-driven organisation, you also need to learn about new techniques for building better solutions. In the end, you should get a clear idea about which activities are core to your business.
Suppose your company serves professionals in the technology or legal space. A significant chunk of your tasks would be dedicated to creating or acquiring products that are a good fit for a particular customer segment. Maintaining expertise in different segments would be another activity.
7. Key Resources
After mentioning the key activities, you will link them to the core resources or strategic assets. In a business model canvas, there are three business types: Product, Scope, and Infrastructure. Every category tends to have similar key resources.
Critical areas of experience and intellectual property related to the differentiated product offering.
Knowledge about the sector, repeatable set of processes, infrastructure or service centres.
Various types of physical and virtual infrastructure are required for the project.
For example, Hello Bello is product-based as the company provides environmentally friendly and affordable diapers and baby products. Procter & Gamble (P&G) has a scope-based take on diapers as it offers baby-focused consumer products through retailers. DuPont falls in the infrastructure-driven category as baby diapers are another way of selling what they already make (chemicals and polymers) at scale.
8. Key Partnerships
This stage is meant to sharpen and articulate the focal points of your business. You have a list of Key Activities and Key Resources linked to your value propositions. Now you need to find out whether they are aligned with a strategy that is unique to you. Could you bring in outside help to refine some activities? The outcome is a list that denotes which partner is handling what. You may also include each partner’s relationship to the Key Activities.
9. Cost Structure
This part of the business model canvas describes how Key Activities drive costs. You test different business models to know if their costs lean towards fixed or variable. And as you tweak your model, do they increase linearly with scaling? You look at everything comprehensively and include notes on the cost structure elements’ relationship with the Key Activities.
10. Analysis and Next Steps
You have created a business model canvas. How could you make it better? Does your team understand it? Do they have additional ideas? As a product manager, you would analyse all these aspects and explain the core applications and competitiveness of the canvas. Porter’s Five Forces is an excellent way of looking at the long-term competitive advantage. Try walking through your company’s potential rivals, new entrants in the market, suppliers, customers, and substitute products. If your canvas still hangs together, you can take a sigh of relief. If it doesn’t, you might have to rework the profitability.
Advantages of Business Model Canvas
Creating a business model canvas has three significant advantages:
It is a systematic way of thinking about the business. It interlinks functions, activities, and processes and brings you closer to the strategic elements that drive growth.
It is a concise document that facilitates testing and iteration. You can validate it with existing customers and make improvements to keep the business progressive and fluid with the changing times.
3. Common Language:
It is a great starting point for discussions with internal teams and external advisors, partners, and investors. It connects the primary driving factors to the people in a transparent manner.
Every business requires iteration. And as you progress, you discover new challenges and opportunities. But with a structured business model canvas, you can be one step ahead. Aspiring product managers can follow this process for maximum benefits:
- Acknowledge and challenge assumptions; use proven facts to build the canvas.
- Brainstorm ideas and validate them by testing on third parties.
- Keep it current and updated; review it regularly.
- Present it in pieces instead of treating it as an information dump.
- Be specific, provide references and evidence to establish legitimacy.
- Create multiple business model canvases to deal with potential scenarios.
Business Model Canvas Examples
Example 1: Google
- The company makes money from online ads that appear in search results and web pages. So, advertisers form a significant customer segment. Search engine users and content owners are the other two segments; they receive a free service from Google.
- Google’s value proposition is to make information universally accessible and valuable.
- This business also has a network element, where more ad displays bring in more advertisers, attracting more content developers.
- Google must manage the existing platform’s infrastructure reliably and efficiently. So, all strategic activities are related to this requirement.
- The Key Resources include Google.com (the search platform), Adsense (for advertisers), and Adwords (for content owners).
- A large part of Google’s revenue is generated from content owners, key partners in driving business growth. Original Equipment Manufacturers, the companies that produce Google’s Android operating system, are also a significant part of the partnership matrix. They bring in more users into the ecosystem and boost revenue streams.
Example 2: Toyota
- Toyota targets the general public and freight companies worldwide with its automobile products.
- Its value proposition is reliable and superior quality cars at affordable prices.
- Toyota uses channels like dealers, showrooms, websites, social media, service centres, and resellers.
- Its customer relationships are based on reputation, quality, delivery time, personal assistance, after-sales services, etc.
- The revenue streams for automobiles, commercial vehicles, and engines come from sales (including products and spare parts), banking, financing, leasing commissions, etc.
- Manufacturers, suppliers, dealers, and distributors constitute Toyota’s key partners.
- Key activities include manufacturing, engineering, designing, assembly, supply chain, logistics, and Research & Development.
- Resources span across intellectual property, brand, human resources, facilities, and inventory.
- The cost structure is lean, comprising low operational expenses, manufacturing, and operations costs. Raw materials, distribution, staff compensation, R&D investments, and marketing are some other cost components.
Upskill with UpGrad
If you are interested in a product management career, these business model canvas examples will prove immensely useful in your work life. You can also use the above information as a gateway to creating your business communication document. Check out upGrad’s Product Management Certificate Programme to supplement this knowledge and apply your learning with industry projects!
Why do product managers need a business model canvas?
A Business Model Canvas (BMC) is a communication tool that summarises the building blocks of a company. It brings everyone in the organisation, from top executives to junior developers, on the same page. Every employee can view the product development cycle and customer journey and how their role relates to it.
What does a business model canvas include?
The first half of the BMC provides information about customer segments, the product’s value propositions, channels, customer relationships, and revenue streams. The next four sections detail the key activities, resources, partnerships, and cost structures. Typically, product managers also include explanations about the core applications and the long-term competitive advantage to facilitate continuous improvement.
How do you create and maintain a business model canvas?
Product managers create and maintain a BMC through a research-based and data-driven approach. They take an empathetic and objective view of the problems, brainstorm ideas, and validate them via testing. Another best practice is to create multiple canvases for different scenarios.