Business Model Basics

Business Model Canvas

  1. Customer Segments – All the people and organizations for which you are creating value. This includes simple users and paying customers.
  2. Value Proposition – For each customer segment you have a specific value proposition. These are bundles of products and services that create value for your customers.
  3. Channels – Touchpoints through which you are interacting with your customers and delivering value.
  4. Customer Relationships – Outlines the type of relationships you are establishing with your customers and describes how you are acquiring and retaining them.
  5. Revenue Streams – Describes how and through which pricing mechanism your business model is capturing value.
  6. Key Resources – Infrastructure required to create, deliver and capture value. Key Resources show which assets are indispensable in your business model.
  7. Key Activities – Things you really need to be able to perform well.
  8. Key Partnerships – Partners required so you can leverage your business model because you probably won’t own all the required Key Resources and won’t be able to perform all Key Activities.
  9. Cost Structure – An idea for your business model cost structure given the required infrastructure required for the value proposition.


Value Proposition Canvas – can be divided into two parts.

  1. Customer Profile
    1. Customer Jobs – jobs your customers trying to get done. Jobs can be:
      1. Functional – like getting from point A to point B
      2. Social – like impressing friends and colleagues
      3. Emotional – like gaining peace of mind
    2. Customer Pains – pains that annoy customers when they are trying to get the jobs done. Pains and negative outcomes that customers hope to avoid like dissatisfaction of existing solution and challenges, frustrations, risks or obstacles related to performing a job.
    3. Customer Gains – Describes how customers measure the success of a job well done. Gains are positive outcomes that customers hope to achieve like concrete results, benefits, and even aspirations.
  2. Value Map
    1. Products and Services – list of product and services your value proposition builds on.
    2. Pain Relievers – Describe how your product and services eliminate, reduce, or minimize pains customers care about, making their lives easier.
    3. Gain Creators – Describe how your products and services produce, increase or maximize the outcomes or benefits your customers desire or would be pleasantly surprised by.
  • The Value Proposition Canvas is based on 2 elements of your business model, the customer segment and the value proposition. With the Value Proposition Canvas, you can map out both in more granularity and show the fit between what you offer and what customers want.
  • The Customer Segment (Profile) is broken down into customer jobs, customer pains, and customer gains.
  • The Value Proposition (Map) is broken down into products and services, pain relievers, and gain creators.
  • You can directly access the Value Proposition Canvas in Strategyzer to design great value propositions.

Why Business Models Fail?

  1. Solving an irrelevant customer job
  2. Flawed Business Model (Example: CAC > CLV)
  3. External Threats
  4. Poor Execution
  • Failure Types include solving an irrelevant customer job, flawed business model, external threats, or poor execution.
  • Key Questions: Are you helping customers do a job they care strongly about? Do you have the right business model that’s profitable, and scalable? Is today’s context the right environment for your business model? Is your business model designed to excel in that context? Does your team have the right skills to execute your business model and make it a reality?


Business Model Innovation in Existing Companies

  • Improving existing business models and inventing new ones require different skills, thinking, and organizational structures.
  • One end of the spectrum is focused on execution of a proven business model, using forecasting and planning. Inventing new business models is focused on the search for a business model that works and relies on experiments, learning, and iterations.


Competing on Business Models

  • Level 0: The Oblivious — Competing only with Value Propositions.
  • Level 1: The Beginners — Using the business model canvas only as checklist.
  • Level 2: The Masters — Mapping a coherent business model “story” where all building blocks reinforce each other.
  • Level 3: The Invincible — Building new business models pro-actively and thus becoming very hard to beat.


Business Model Environment

  • 1st environmental force: Industry forces (e.g. competitors).
    • Does your model have a competitive edge today? How about tomorrow?
  • 2nd environmental force: Market forces (e.g. customer segments).
    • Is your model prepared for emerging trends?
  • 3rd environmental force: Key trends (e.g. technology and legal trends).
    • Is your model in line with evolving customer needs?
  • 4th environmental force: Marco-economic forces (e.g. economy).
    • How will your model adjust to macro-economic shifts?


Business Model Theater

  • There is a “front stage” that people see — like the right side of the canvas.
  • There is a “backstage” that people don’t see — like the left side of the canvas.
  • The front stage is where you interact with clients, customers, and users.
  • The backstage is responsible for making everything on the front stage possible.
  • The front stage is what creates value and what people are willing to pay for.
  • The backstage is what is required to enable the front stage and what costs money.