Foundations of Entrepreneurship

RMSoEE

Business Model
Canvas
Concepts Covered:

 Business model definition & generation

 Business model template

 Business model template canvas

 Example
 Business Model: Definition
• A business model is an opportunity for a business with all its
features including risks, advantages, complexities, customer
segment, market structure & potential, competition landscape,
socio-political challenges and opportunities, commercial
attractiveness, environmental challenges, techno-economic
feasibility, profitable sustainability, growth potential, legal tenability
and the execution plan.
• A business model describes the rationale of how an organization
creates, delivers, and captures value – Alexander Osterwalder
Business Model and Business Plan

Business plan is a document containing the detailed plan of execution

of a Business Model, its unique strengths, weaknesses, opportunities,
threats, the complementary skills of the team, operation plan,
marketing plan and the financial projections, demonstrating how the
company acquire, retain and grow customer base, create value for
customers and other stakeholders, derives competitive advantages,
sustain and grow in the long run.
 Business Model
• Starting from identifying the pain point, Business Model innovation
includes developing solutions, sustaining profitable growth and creating
value for companies, customers, and society.
• It is about innovating new products, process, services, and businesses
replacing outdated models.
• Apple created an innovative new business model with its iPod digital
media player and iTunes online music store.
• Skype brought us cheap global calling and free Skype-to-Skype calls with
an innovative business model built on peer-to-peer technology.
• Grameen Bank, in Bangladesh, is promoting social entrepreneurship and
alleviating poverty through innovative microlending to the poor.
 Business Model Template

• Thankfully for us, a template is available for business model.

• It has been propounded by Alexander Osterwalder.
• It is known as Business Model Canvas.
 Business Model Canvas
• Alexander Osterwalder has presented nine building blocks for
describing business model.
• These blocks are arranged in a canvas, called Business Model
Canvas.
• The heart of the canvas is the Value Proposition and the Customer
Segment blocks.
• Any business is related to customers and customers are there for
the value provided to them through the product or service and
they would provide profit to the company .
Business Model Canvas
Book: Business Model Generation by
Alexander Osterwalder, 2010

Efficiency
Value
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Efficiency Value
Value Proposition

• The Value Propositions Building Block describes the favorable

features of products and services that would be perceived by the
customers in the targeted segment as superior value for money.
• The Value Proposition provides reasons to customers why they
would buy product of one company over another.
• Customers would consider the bundle of features and the price to
be paid vis-à-vis with those of competing products.
Efficiency
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Market Segment

• Market segmentation is the act of dividing a broad consumer or

business population into sub-groups of consumers based on some
type of shared characteristics relevant for marketing particular
product or service.
• Dividing the market for common characteristics such as shared
needs, common interests, similar lifestyles or even similar
demographic profiles.
• Identify high yield segments – that is, those segments that are
likely to be the most profitable or that have growth potential.
More About Segment

• Distinct groups with common needs, common behaviors, common

taste or other attributes. A business model may define one or several
large or small Customer Segments to meet their specific needs.
Customer groups represent separate segments if:
• Their needs, behavior, and conveniences are unique and they are
ready to pay the extra price (or revenue) justifying additional cost
to meet them.
 More About Segment
The features of the products or services include newness,
performance, customization, ‘getting the job done’, design, price,
brand, cost reduction, risk reduction, accessibility, convenience,
usability and such (Osterwalder 2010).
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Efficiency 3
 Channels
• The Channels Building Block describes how a company communicates
with and reaches its Customer Segments to deliver a Value Proposition.
It includes:
• creating awareness among customers of the value proposition.
• Helping customers evaluate a company’s Value Proposition.
• Facilitating easy purchase of the product or service by the customers.
• Delivering the product or service conveniently to customers.
• Providing after-sale customer support as part of value proposition.
• Allowing to return in case of mismatch. Some exchange of old with new
may also form part of the strategy.
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 Customer Relationships
• The Customer Relationships Building Block describes how the
company would build and maintain relationship with targeted
customers on a sustainable long-term basis.
Motivations:
• Customer acquisition
• Customer retention
• Acquiring more customers for sustainable & profitable growth.
• Making profit from life-time-value of customers.
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 Revenue Streams/Model
• The Revenue Streams Building Block represents the cash a company
generates from each Customer Segment
• If customers comprise the heart of a business model, Revenue
Streams are its arteries.
• A company must ask itself, For what value is each Customer
Segment truly willing to pay?
• Successfully answering that question allows the firm to generate
one or more Revenue Streams from each Customer Segment.
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 Key Resources
• The Key Resources Building Block describes the most important
assets required to make a business model work
• These resources allow an enterprise to create the Value Proposition.
• Depending on type of business, different Key Resources are needed.
• A E-car manufacturer requires batteries, whereas a battery
manufacturer requires materials such as lithium, cobalt, nickel,
manganese, graphite, copper and aluminium.
• Key resources can be physical, financial, intellectual, or manpower.
Key resources can be owned or acquired from key partners.
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Key Activities

• The Key Activities Building Block describes the important processes

or actions through which it delivers the value.
• For a car maker, Key Activities include manufacturing and supply
chain management. For a software consultancy firm, Key Activities
include problem solving.
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Key Partnerships

• The Key Partnerships Building Block describes the network of

suppliers and facilitators who provide key resources.
• Companies create alliances to optimize their business models,
reduce risk, or acquire resources.
• Key Partners include key suppliers of inputs, funding, consulting,
manpower providers, investors.
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Cost Structure

• The Cost Structure describes all costs incurred to operate a business

model.
• Cost to be incurred in creating and delivering value, maintaining
Customer Relationships, and generating revenue.
Book: Business Model Generation by
Alexander Osterwalder
 for taxi aggregator

• Individual car • Manage booking • Easy booking Segment by

• Optimize vehicle • • Security
owners Easy payment profession
logistics • Feedback
• Transport • Direction • People
• Maintain • Loyalty bonus
operator • Safety commuting
customer • Fidelity bonus
• Digital wallet • Competitive daily
companies registration, rate • Working
• Technology travel record (transparent) people
provider • Schedule tour • Tourist
• Advertisement in advance Segment by age
• Phone App
agencies • Hardware • No waiting • People above
• Computer
• Driver • Software • Pickup from 18 and below
• Call center
association • Contract with home 70
• Google advert
• Hardware key partners • No parking
• Sponsor event
provider • Key employees • Good interior
• Hardware cost • Pay per ride
• Software maintenance cost • Registration fee, hardware rent
• Employee cost • Advertisement on the App
• Network / hosting / database • Advertisement on taxis
server cost • Event contract
Criticism of Business Model Canvas

• It does not have any reference to exogenous forces.

• It focuses mostly on economic value and not environmental and
social value.
• How to create competitive advantages, entry barrier, scaling
business and such.
• Overly simplistic and narrow in terms of diversity of business
challenges.
References:
 Osterwalder, A., & Pigneur, Y. (2010). Business model generation: a handbook for
visionaries, game changers, and challengers. John Wiley & Sons.
 Bocken, N. M., Short, S. W., Rana, P., & Evans, S. (2014). A literature and practice review
to develop sustainable business model archetypes. Journal of cleaner production, 65, 42-
56.
 Toro-Jarrín, M. A., Ponce-Jaramillo, I. E., & Güemes-Castorena, D. (2016). Methodology
for the of building process integration of Business Model Canvas and Technological
Roadmap. Technological Forecasting and Social Change, 110, 213-225.
Conclusion:
 Business model canvas explains how a business creates and delivers values.
 Clear understanding of business model is critical for success of a business.
 Business model canvas is almost like a ready reckoner for conceiving various
aspects of the business.
 However, business model canvas is only a part of the understanding of challenges
and opportunities of a business.
Thank You