How to Develop a Business Model for Your Startup

A step-by-step guide to creating a business model canvas

Image by Arek Socha from Pixabay

Porter’s five forces model, a 40-year old business model developed by a revered business expert, Michael Porter, is a tool that I use today. Along with another contemporary model — the Business Model Canvas (BMC).

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This article is about the BMC, a practical walkthrough with real-world examples.

The Business Model Canvas

The BMC was created by Alexander Osterwalder and Yves Pigneur. An innovative tool designed for leaders, business founders and entrepreneurs to visualize all the building blocks of a new business venture.

A business model describes how an organization creates, captures, and delivers value.

Dr Alexander (Alex) Osterwalder is a leading innovation expert. An Author, leader, speaker, and entrepreneur. His work has influenced the way Startups and established companies "do business and how new ventures get started."(Strategyzer, 2020).

Dr Yves Pigneur, a professor at the University of Lausanne, earned his PhD at the University of Namur in Belgium. He invented the Business Model Canvas with Osterwalder and authored an international bestseller in 2010 "Business Model Generation", selling over 10 million copies.

In 2012, Ted Greenwald said in Forbes that "your business model can make the difference between world-leading success and dismal failure", in his article about the Business Model Canvas (Greenwald, 2012).

The Building Blocks

There are nine building blocks that make up the BMC, as illustrated below. Blocks that Pigneur and Osterwalder identified as critical dimensions for every business venture

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Using the BMC is a wonderful way to brainstorm multiple elements of your new or existing venture.

How to Play

Let me describe how I use this tool. First, make sure you have the following items to hand:

• A printout out of the BMC, ideally an A1 copy
• A stack of post-it notes, different colours work best
• A selection of pens or markers, again different colours work best

I’d highly recommend doing this physically, but you can also use a digital template.

Personally, I start with a blank BMC template, post-its, and pens before transcribing to a digital template to share virtually, see copy below.

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Once everything is in place, I follow these steps:

1. I place 9 different colour post-its in front of me.
2. Then I write a different building block heading on each of the 9 post-its, corresponding to the headings of the BMC, from 1 to 9.
3. I brainstorm each building block and play around with them until I have an initial list for each.
4. I then take each post-it and expand on each point listed, transcribing one by one onto its own post-it, with more detail, before attaching it to the relevant block on the BMC template.

Creating your own BMC works best in a team environment unless you’re a solopreneur. As you work on each block it's important to ask lots of questions. Here are some examples:

№1 — Customers Segment

1. Which consumer segments are you planning to create value for?
2. Who are your most important customers, your ideal persona?

№2 — Value Proposition

1. What is your core value proposition?
2. What do you deliver to the consumer?
3. What customer needs are you meeting or exceeding?

№3 — Distribution Channel

1. What channels do you need to reach your customers?
2. What channels does your customer prefer or reside in?
3. What channels work best?
4. What do they cost? and,
5. How can they be integrated into your customers’ routines?

№4 — Customer Relationships

1. What relationship does your target customer/audience expect from you?
2. How can you integrate this into your business cost and format?

№5 — Revenue Stream

1. What value are your customers willing to pay for?
2. Where, when and how can they pay?
3. How do your customers prefer to pay?
4. How much does each revenue stream contribute to your overall revenues?

№6 — Key Resources

1. What resources do you need to deliver your value proposition?
2. What resources are the most important in customer relationships, distribution channels and revenue streams?

№7 — Key Activities

1. What are your key activities that deliver your value proposition?
2. What activities are the most important in customer relationships, distribution channels and revenue streams?

№8 — Key Partners

1. Who are your partners or key suppliers?
2. What’s the motivation for this relationship/partnership?

№9 — Cost Structure

1. What are the costs for your business to operate?
2. What activities and key resources are the most expensive?

As you walk through each block new ideas and connections unfold. It’s a dynamic process that can evolve over time, best described by Osterwalder in his video tutorial below.

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BMC Examples

To better understand the Business Model Canvas I’ve put together a selection of three examples:

1. A well known social media brand
2. A Successful Startup
3. A new business venture

1. Social Media Brand

The LinkedIn platform is used by millions of professionals across the globe. Thanks to Strategyzer, below is an example of what their BMC might look like for LinkedIn.

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Although this example was shared by Strategyzer, existing companies have adopted the BMC as a tool to explore new ventures.

2. Successful Startup

The example below is one that I created for a growing business in the eCommerce space.

The approach taken for this canvas was from a Sales and Marketing perspective, demonstrating the BMC’s flexibility.

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The BMC can be used across different business verticals or departments. In effect, it becomes a single source of truth that everyone understands.

3. New Venture

This was shared by Entrepreneur, Phil Winston. While working on his startup project, Phil mapped out his idea for a digital press MVP, as shown.

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As you can see Phil took a different approach, adding lots of images and colours to his BMC as opposed to post-its. This is fine, but I’d recommend starting out with post-its before pimping up your digital version.

Final Thoughts

Since its inception, the BMC has spawned variations, extensions with an array of tools that Osterwalder and Pigneur put together. All of which are available online.

Your customers are the judge, jury, and executioner of your value proposition. They will be merciless if you don’t find fit! — Alexander Osterwalder

Writers can also use the BMC, its adaptability is endless.

On that note, allow me to recap on the benefits of the Business Model Canvas. So here are five reasons to use the BMC for your venture:

1. Clear visual — The BMC captures your business model, plan, and strategy all in one place, in a single visual.
2. Simplifies your Startup — Steve Jobs said: "simplicity is the ultimate sophistication." The BMC reflects that ethos, breaking down every element into simple bite-size chunks.
3. Captures crucial business dimensions— The BMC forces founders, leaders, and entrepreneurs to cover each block, in the context of all the others, in great detail.
4. Reduces the risk of failure — Benjamin Franklin said: "If you fail to plan, you plan to fail." Therefore, having a plan is the starting point for any Startup or business venture. If nothing else it weeds out what works and what doesn't, saving money and time down the line.
5. Dynamic and flexible — Bruce Lee said: "Be like water", nothing is fixed, the business world is no different. It’s fluent, ebbs and flows just like a river. The BMC means that you can quickly adapt to economic changes, adding or removing elements so you can pivot with ease.

The Business Model Canvas covers key dimensions of any business model and does so on a single page.

With nine functional building blocks, the canvas clearly highlights the interrelationships between each element.

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Anyone can use this incredible tool, regardless of whether you’re a Fortune 500 company with thousands of employees, or simply testing the feasibility of a Startup with one or two employees.

All that said, the BMC is just a tool.

Nothing can replace people — you — the creative minds that bring ideas to life.

Ideas with a healthy dollop of hard work of course.