A one-page strategy: The Business Model Canvas explained

The Business Model Canvas is a simple strategy for developing business plans. Created by Alexander Osterwalder, it’s a one-page chart divided into 9 building blocks. The right side relates to external (i.e. customer-focused) factors while the left side covers internal factors.

The first building block on the right side of the canvas is customer segments. What customer does your business serve? A newspaper, for example, mainly serves readers (who want to be informed) and advertisers (who want to reach a target audience).

The next building block is value propositions: the products or services meeting the needs of different customer segments. This block forms the center of the Business Model Canvas as it connects both the external and internal components of your operation.

Once you’ve identified who you’re targeting and what you’re offering, you must establish the channels that these customers want to be reached through (e.g. social media, speaking events, offline advertising, etc.).

The next building block is customer relationships (e.g. in-person, online, by phone, etc.). As a customer, for example, your relationship to Amazon is online and automated but personalized in a way that’s scalable. Maintaining these relationships is essential for business growth.

The final building block on the right side of the Business Model Canvas is revenue streams: the mechanics of converting your value proposition into financial gain. Typical models include subscription, freemium, pay-per-production, fee-for-service, etc.

Now let’s look at the left side of the Business Model Canvas and what key resources are needed to create value. Is it a factory? A brand? Intellectual property? Next, what key activities are crucial to your business model? Is marketing? Sales? Research and development?

Since you’re unlikely to be handling everything yourself, identify the key partners needed to deliver value to your customers (e.g. suppliers, third-party companies, etc.). The social gaming company Zynga, for example, built its model on the back of a partnership with Facebook.

Now that you’ve identified your key resources, partners, and activities, you can easily sketch out a basic cost structure, i.e. the financial cost of running your business model.

Once you’ve filled in every building block on the Business Model Canvas, you can step back from the chart and instantly gain a clear understanding of how every element of your business will fit together – and whether or not it’s feasible in reality.