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A Business Model Canvas (BMC) is a lean startup and strategic management tool. It quickly and easily allows businesses to create a simple outline of their enterprise’s structural and organizational model. This can either replace or complement a fully formed business plan.

This type of document, which is sometimes known as the “20-minute business plan”, was created by Alexander Osterwalder in 2005. In his proposal, he aimed to create a visual template that allowed entrepreneurs and management to display the key “building blocks” that make up a company.

To help you create your own Business Model Canvas and demonstrate the value of your startup or current enterprise, this article explains what needs to go into an effective BMC. It covers all the key elements you will need to include in your final document and why you’ll find it a useful tool when developing your business.

Why to Create a Business Model Canvas

The biggest advantage of using a Business Model Canvas is that it allows readers to quickly understand what your business idea will do and how it will work. By presenting key information concisely and visually, potential stakeholders can get a clear picture of the viability of your new idea or project.

It is also a more flexible model of a business outline. As it is shorter than most Traditional or Lean Business Plans, it is easier to modify should you need to rethink any elements of your current proposal.

How Is a Business Model Canvas Structured?

Business Model Canvas templates allow managers and business owners to lay out their idea on just a single page. On that page, the structure of the plan places details about the external and internal factors affecting your company in different positions.

For example, the right side of the document is dedicated to external factors such as customers and the market. The left side of the template focuses instead on internal factors such as production, organization, and costs.

Having both sides of the document arranged in this way allows both outside parties and your own team to see immediately how the external and internal factors work with each other. Having a complete picture in this way can quickly create confidence and a firm understanding of how your idea can be turned into a reality.

What Elements Should You Include on a Business Model Canvas?

Nine key components appear on a Business Model Canvas. As you’ll see on completed examples, each of the segments quickly summarizes the core elements of a fully thought out business or project idea.

The intention of the sections is to provide the key building blocks for a new or already running company. As you’ll see, whilst each segment is concise in nature, they help to ease any doubts about the risks your business is taking by providing the essential details about your plans.

Key Partners: Explaining Who is Involved

In this first section, you need to explain who is working with your business and why. This should include any external parties that you rely upon to operate your company.

Suppliers, businesses offering their services to yours, or any other third party whose services will be essential to the successful running of your business should be listed here.

Key Activities: Detailing What You’ll Do

In this part of the BMC, you must outline what your company will produce and how it will do it. There should be a clear indication as to how your business is creating a value proposition for the eventual customer and how it will work to achieve that goal.

This part of the Business Model Canvas will need to explain the following:

  • Your unique strategy
  • The most important tasks your business will need to perform
  • How long this could take to do
  • The resources you’ll need to do so
  • The distribution channels you’ll use

Value Proposition: Answering Why Your Business is a Good Bet

One of the most important goals of creating a Business Model Plan is to create a clear value proposition for your business. People won’t take your idea seriously unless you can show clear examples as to how it creates a benefit.

To do this, you should seek to explain you will solve a problem for the customer or clients. By providing a solution to that issue you will be able to demonstrate the clear value that your company could create.

Customer Relationship: How You Will Interact With Clients

In this next section of the Business Model Plan, you need to explain how you will interact with your customers. This should detail what method of communication will be your key line between yourself and the end-user.

This could include one or more of key communication systems such as:

  • Website
  • Phone
  • Apps
  • Events
  • In-person sales
  • Third-party contractors

In addition to explaining what forms of communication you’ll use, you should also outline how this will impact the company in terms of costs and its operations. It is also wise to try to look at how it may be developed over time as your business becomes more established.

Customer Segment: Understanding Who Your Customers Are

It’s crucial to have a good idea of who you’re going to be selling your product or service to. In doing so you’ll be able to show potential investors that you’re targeting the right market and expect to get the best return on investment.

This can be done effectively by working out how big your potential market will be. A good way to do this is by categorizing your chosen target audience by the following criteria:

  • Age
  • Gender
  • Income
  • Interests
  • Values

From this, you will be able to create clear personas that you can build your strategy around. It will fundamentally help you understand who your most important customers will be and why.

Key Resources: What You Need to Operate

Just like with the Key Partners section, the Key Resources segment is externally focussed. In this case, it looks instead at the operational assets you will require to create your service or product.

You should note any important resources that will be essential to the running of your business. These could include:

  • Offices and warehouse space
  • Staff
  • Vehicles
  • Manufacturing machinery
  • Computers and software

Distribution Channel: How You’ll Get the Product to the Customer

We’ve already looked at how the business will interact with customers, we still haven’t established how the organization will make them aware that the product exists and ensure it arrives safely. The Distribution Channel section allows you to map out exactly how that will work.

The channels you detail will focus on each stage of the buyer’s journey from awareness to after-sales. It will also seek to explain how effective any current methods of reaching your customers are and where they might be best targeted.

Examples of the channels you might list could include:

  • Organic search traffic
  • Direct mail
  • Billboard advertising
  • Online advertising
  • Logistics
  • Advertorials
  • Events and shows
  • TV and radio advertising
  • Social Media
  • PR

Cost Structure: Working Out How Much the Business Will Spend

One of the most important factors you’ll need to cover is working out how much everything costs. The Cost Structure section will help you do that.

In this area, you’ll figure out what will comprise your biggest expenses and what your most important financial considerations could be. This will ultimately depend on the size, scale, and function of your proposed company. Yet, it could include any of the following:

  • Legal costs
  • Contractual obligations with partners and suppliers
  • Insurance
  • Purchasing of resources
  • R&D
  • Staffing costs

Revenue Stream: Where Will the Income Come From

Last but not least, you must include a section to explain how the company will make money from its function and value proposition. The Revenue Stream area allows you to make this clear.

You should clearly explain how you have balanced the value created from your product or service against how much customers will be willing to pay for it. It also must detail how you will charge customers for the privilege.

The revenue model you use will be key to demonstrating how effective your strategy will be. Which paradigm you use will depend on the type of business and customers, yet it could include:

  • Subscriptions
  • Fixed-price purchases
  • Referrals
  • Dividends
  • Freemium plans

Business Model Canvases make it much simpler to create a simple “big picture” view of your proposed company or project. By following this style of design you can quickly and easily show why your new idea could be a great success.

However, whilst a BMC may be a useful tool in creating initial attention you may still need a comprehensive business plan at a later date. To build your own outline from scratch, try LawDistrict’s step-by-step customizable business plan template now.

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Read more: How to write a Perfect Business Plan