I’ve been a fan of the Business Model Canvas as a strategic enabler for organizations that seek business model innovation, or for entrepreneurs who want a simple but powerful way to describe a new business concept. But as I note below, this approach has not gotten the attention it deserves within the Northwest tech community. Thanks to a forthcoming enhancement, the Business Model Canvas is now poised to become a formidable tool for business innovators.
Critics point to the Business Model Canvas’ lightweight treatment of the central value proposition — the underlying rationale that fuels future revenues — how and why specific offers will satisfy the needs of defined customer segments. Ironically, where the canvas is most weak lies at the epicenter of what drives entrepreneurs to go without pay or sleep, mortgage their homes, and risk their most important relationships in order to build a business.
Enter the Customer-Value Canvas to address that challenge, as a conceptual “plug-in” for the Business Model Canvas.
The Business Model Canvas itself is based on groundbreaking work by Alex Osterwalder and Yves Pigneur, with crowd-sourced contributions from hundreds of business leaders. Their approach is described in a delightfully illustrated book, Business Model Generation, which I highly recommend. (I also recommend Osterwalder’s blog.)
Outside the time– and money-starved tech community, the Business Model Canvas has been acclaimed by many forward-thinking businesses. Here’s why.
Business Model Canvas Overview
The Business Model Canvas enables entrepreneurial teams to collaborate on a new business concept that can then be presented on a single page. The canvas itself is a 9-box framework, encapsulating the key dimensions of a holistic business model.
Structured Brainstorming
The canvas provides an effective means to structure collaborative thinking, discussion and brainstorming about the most important aspects of a proposed business model. Via a brainstorming process (online or in-person workshops), people capture their ideas using sticky notes that they place within the appropriate box. Constraining ideas to sticky notes enforces high-level thinking… Constraining those notes to fit within the boxes requires the team to set priorities.
Each box represents 1 of the 9 most important components of a holistic business model (e.g., customer segments). Each note outlines a single idea, an aspect of their proposed business concept. The team must ensure there’s an internal logic to the model — each sticky note (or idea) must be conceptually linked to other core drivers of the business model.
The 9 Components of a Business Model
Osterwalder and Pigneur, the proponents of this framework, define the 9 most important aspects of a business model as:
- its value proposition
- customer segments to be served
- customer relationships (how the organization will interact or deal with its customers)
- the channels to be used
- the organization’s key activities to be performed
- the key resources to be utilized
- the partners needed to fill in key gaps (e.g., gaps in channels, critical activities or resources)
- the cost structure
- the revenue streams to be generated
See Business Model Generation for more information on how “visionaries, game changers” and entrepreneurs are using this approach to envision innovations that can be designed and then developed into action plans.
“Yes, But…” Say Tech Firms
This approach has been proven as an effective innovation resource, when adopted via facilitated workshops that bring out the best thinking of the innovation team. In fact a worldwide consulting industry has emerged to deliver workshops and follow-on services leveraging the Business Model Canvas. (Just search on #bmgen to see the many tweets from practitioners.) The European business community has been especially enthusiastic about this approach.
But when proposing this framework to tech clients here in the Pacific Northwest, I often encounter resistance due to its lightweight treatment of the value proposition and customer needs. Clients criticize its lack of focus on the value prop’s implications for segment-specific product/service offers, or the rationale for those offers.
When this model fails to resonate with what tech entrepreneurs care about most, they often overlook the value of the BM Canvas as a means to structure or draw out their thinking in more productive and holistic ways.
As a stopgap I’ve developed some approaches to bridge this conceptual gap; however, that has entailed rough links to customer development, lean startup and other frameworks for entrepreneurship and innovation. Clients find this obvious mash-up of models to be too confusing…
Fortunately, the creators of the Business Model Canvas have now begun work on a supplementary canvas that focuses squarely on the customer-value proposition linkage — the sine qua non of a business model that can actually create value for all stakeholders.
Linking Customer-Value to the Business Model Canvas
Alex Osterwalder, one of the core architects of the Business Model Canvas, is now prototyping what he calls the “Customer-Value Canvas.” Calling it a “plug-in” to the Business Model Canvas, he is testing and refining it via client engagements.
This new Customer-Value Canvas should help innovators focus attention on what matters most when crafting a value proposition — the key drivers that respond directly to the pains and desired gains that surround a customer’s unmet needs.
Osterwalder recommends framing those needs in terms of the jobs-to-be-done, a proven model for less risky innovation that’s based on research and practice by Harvard’s Clayton Christensen, Mark Johnson of Innosight and others. He also reinforces Steve Blank’s call for real-world, “out of the building” observation of customer needs, rather than basing a business on what the founders assume to be true.
Here’s the customer-centered component of Osterwalder’s Customer-Value Canvas; this drives focused thinking on the most important aspects of the customer’s job-to-be-done, and the pains and gains associated with that customer “job.”
The Customer-Value Canvas | Observing the Customer’s Needs
Source: The Customer-Value Canvas created by Alex Osterwalder
The right-hand side of this canvas should reflect real-world assumptions about customer needs, based on “out-of-the-building” observations of what customers really care about: the jobs they need to perform in their personal or work life, and the obstacles to getting those jobs done today. (Read Four Steps to the Epiphany by Steven Blank for more insights into this process.)
It’s dangerous to base these assumptions solely on what the founders say is so, no matter how impassioned their argument…
Designing the Offer to Satisfy Those Needs
The left-hand side of the canvas shows the value proposition that will be designed in response to the customer’s job-to-be-done. This value prop comprises the core aspects of a compelling offer that will satisfy the customer’s needs — the things that will deliver on the customer’s desired gains, and eliminate or neutralize the pains they confront today. This is where the entrepreneurial team should focus its thinking on the bundle of products and services to be delivered.
Source: The Customer-Value Canvas created by Alex Osterwalder
The Business Model Canvas describes how the company will organize itself to deliver that value proposition to those customers, and how it will generate profits while doing so.
Based on the Best Thinking about Entrepreneurship
What makes Osterwalder’s proposed customer-value model even more powerful is the way it builds upon some of the best thinking for 21st century entrepreneurship:
- Lean Startup models for entrepreneurs, for continuous innovation (Eric Ries and others)
- Customer Development Process (Steve Blank)
- Seizing the White Space, a disciplined approach for innovation and execution (Mark Johnson)
Adoption of the Customer-Value Canvas should help forward-thinking tech founders and innovators clarify their thinking about the critical ingredients that power their revenue engine. If so, they will be better equipped to build smarter businesses that are less likely to fail.
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