Using a Business Model & Lean Canvas for Business Innovation

Benefits of Using a Business Model Canvas

A Business Model Canvas is a simple and powerful tool that can help us as leaders succinctly and visually communicate the vision of a new or dramatically different business model to those around us. It is often more effective than using a traditional business plan as it allows us to:

• Quickly sketch out our assumptions and vision onto a single sheet of paper
• Drive valuable thoughts, analysis, and discussion on a variety of options
• Talk through issues, get feedback, and align everyone on the vision before jumping head-long into development

This article will provide the who, what, where, when, and why of using a Business Model Canvas. We will also step through what a Lean Canvas and Operating Model Canvas are and cover when and how to use each one.

What is a Business Model?

It’s important to define what we mean by a business model. This definition does a nice job of explaining the concept:

In essence, it tells us how the key drivers of our business fit together.

What is a Business Model Canvas?

A Business Model Canvas is a template (originally created by Osterwalder and Pigneur) – that is used by start-ups, large corporations like P&G and Nestle, and government agencies alike – that allows us to define and communicate our strategic plan on one page. It also helps us grow our ideas into something bigger and plan out how to make our offerings real. It has the structure of a business plan, but it’s much faster to create, analyze, and change; and it only defines the essentials.

I really like how this article puts it – A good Business Model Canvas can deliver three key things:

• Focus: It helps us pare down our strategy to just the key components, cutting away all unnecessary details.
• Flexibility: It’s significantly easier to keep up-to-date and modify as needed. Further, it allows the team to map out several ideas at once.
• Transparency: It gives us a way to clearly articulate the business case and explain it to others. It’s a straightforward document to refer to and one that facilitates conversation and collaboration across the organization and ensures we’re (literally) on the same page.

It also shows a representation of how we understand the business at a specific point in time and is meant to be continually updated as we talk with our teams and customers and as we learn and validate (or invalidate) our assumptions.

When to Use a Business Model Canvas

A Business Model Canvas can be extremely helpful when thinking about new business models, reassessing or making significant changes to existing models (weighing new partnerships, etc.), considering possible mergers or acquisitions, or when looking at new products or services within an existing business model. It is a helpful tool in facilitating strategic thought and discussion, ideally at the beginning of a venture, prior to jumping into a large investment of time, money, and energy. It can also be helpful as a litmus test of sorts to assess an established business model. Regardless of the size and complexity of the organization, a Business Model Canvas gives clarity to the teams that will be executing the strategy. It helps everyone visualize the business model, the value that it provides, and how it links to the overall organizational strategy.

Who Creates the Business Model Canvas?

In a startup, the Business Model Canvas is often completed by an entrepreneur, with feedback from staff, customers, investors, etc. In a large organization, those leading the organization are typically involved (this can also include members of the organization’s “Guiding Coalition”). Having this discussion in person is ideal, however, a Business Model Canvas can be created virtually; and there are some great virtual white boards the group can use to collaborate and quickly add their thoughts using virtual “sticky notes”. On point worth noting: Leaders should not create the Business Model Canvas alone. Instead, a small team of leaders (no more than about eight) works best to discuss and agree on the model.

Business Model Canvas example from Miro. Source: Strategyzer.com

Having a facilitator involved can help move the spirited discussion forward in an effective way. Doing some initial research and collecting data on the marketplace prior to a canvas creation session can also help frame the conversation and give the team a starting point to work with. Often, leadership teams will need a few hours to get a Business Model Canvas to a good place; and at times, it helps to break up the discussion across a couple of working sessions to give the team time to think through the conversation and decisions made on the first day – and come back to the discussion after having had some time to think. Regardless, it’s helpful to go back and revise the canvas after a first pass.

Audience of the Business Model Canvas

Once the initial Business Model Canvas is completed, it should be shared with internal teams, key partners, suppliers, customers, prospects, and potential investors (though external parties may only see select pieces of the canvas). These groups can provide vital feedback on whether the business model is viable, where we have gaps or make false assumptions; and they will help improve upon the model. We will also want to find ways to test out and validate our ideas in the canvas (more on this topic later).

Structure of the Business Model Canvas

4 Key Insights

Creating a Business Model Canvas drives discussion and provides insights into the following four key areas:

• Our customers
• Our value proposition
• Our key components
• Our finances

9 Components of the Business Model Canvas

The standard Business Model Canvas has nine sections; and we as leaders can complete the canvas in whatever order we like. With that said, there is a natural flow to the order of the components (as shown in the numbered table below). Think of these components as building blocks that create a picture of our new or changed business model, structured with our Value Proposition (in grey*) squarely in the middle of the canvas. On the right hand side (in navy), we have customer-related information and external factors that may or may not be in our control. Infrastructure-related information and/or internal factors that tend to be more within our control are on the left-hand side (in orange); and cost/revenue information (in light blue) is shown across the bottom of the document.

*The colors in the table below are included to provide clarity. Don’t feel like you need to stick to this color scheme when creating your own Business Model Canvas.

Another way to think about the canvas is that, generally, revenue-related information is included on the right-hand side of the table; and cost-related information is on the left-hand side. Alternatively, the right-hand side of the table tends to focus on the customer; and the left-hand side tends to focus on the business itself. The next section will step through how to complete each of the nine sections.

Steps 1 and 2: Customer Segments and Value Proposition

The first two questions we need to ask ourselves are: “Who are the people that will buy [from us]?” and “What value can we add with our products [and services]?”

Starting on the right-hand side of the table with the “Customer Segments” component allows us to think with an outside-in focus and discuss the types of customers we intend to serve. The more we can limit the discussion to our top customer segments (no more than three), the better. This is also a great time to delve into defining customer personas and our customers’ wants, needs, and desires.

Step 2 then shifts our focus to the value we hope to provide for our customer segments. This step includes discussion around the problem we intend to help solve, the constraints we remove, and the goals we help achieve that our customers can’t (or don’t want to) do themselves. This step allows us to think about how our model actually solves a customer problem and focuses on outcomes and the result for a customer (rather than building something we hope customers will find value in – “build it and they will come” is not a good strategy).

Step 3: Revenue Streams

This step facilitates a conversation around how we intend to make money or receive value in return – and the channels by which we will make money and get our products and services out to the marketplace. This section can include information on any potential packages, freemium services, etc.

Steps 4 and 5: Customer Relationships and Channels

These steps drive us to think about how we will interact with and develop relationships with our customers and which customers can best provide feedback and/or to test out our model. Step 4 may also include information on what our messaging should look like and how we plan on getting that message out to customers and prospects (direct sales, partnerships, etc.)

Steps 6, 7, and 8: Key Activities, Resources, and Partners

In these three steps, we define the key processes, activities, and value streams needed and the suppliers, partners, knowledge, and/or capabilities to deliver on this model. The information in these steps will also help us build out our Operating Model (more on that later).

Step 9: Cost Structure

Once we understand what’s needed to deliver on our model, we can then break down what we anticipate the major costs will look like and compare them with our anticipated revenue streams (step 3). As we complete the canvas, it is helpful to draw any key relationships (using arrows, etc.) between the different sections. The table below includes several sample questions to drive discussion with the team.

After a first pass, it’s helpful to go back and ask additional questions. Here are a few examples:

• Does this model make sense?
• How could it be better?
• What are the key components or links within the model?
• Will this model make sense to others?
• Are we missing anything?
• How scalable is this model?
• How can we determine whether it’s viable?

Once these questions have been answered and the team feels good about the Business Model Canvas, the next steps are to get additional feedback and move into action planning. At this point, creating a Balanced Scorecard can help drive further discussion on how we intend to measure, improve, and innovate on our business model.

What is a Lean Canvas?

Comparing the Lean Canvas to the Business Model Canvas

A Lean Canvas, (developed by Ash Maurya) is based off of the standard Business Model Canvas template and is pictured below. It has the same number of building blocks, however, there are four key sections that are different, namely:

• Unfair advantage, which replaces Customer Relationships. This section details “something that cannot be copied or bought” and answers the question, “How will we prevent copycats from replicating what we’re doing?” Michael Porter’s “barriers to entry” and “substitute products” concepts can provide lots of great ideas when answering this question.
• Solution, which replaces Key Activities
• Key Metrics, which replaces Key Resources
• Problem, which replaces Key Partners

When to Use Each Canvas Type

The Business Model Canvas focuses more on the overall business and is better suited to have a strategic conversation, discuss our position in the marketplace, and present the overarching vision to business stakeholders. A Lean Canvas, however, can be extremely useful when mapping out our hypotheses around a specific product or service. The Lean Canvas does a nice job of focusing the conversation on the customer problem, proposed solution, and how we’re going to measure whether we’re successful. With that said, both canvas types can be extremely helpful in initial planning discussions and are worth trying out.

How are Business Model Canvases Different from Operating Model Canvases?

Business Model Canvases define the high-level vision of a new or changed business model and drives the creation of specific operating models. In short, a Business Model Canvas provides a strategic view, whereas an Operating Model Canvas provides an operational view. Operating Models are beneficial in showing how the specific pieces come together and how the organization will operate day-to-day.

If you think about what airlines do, they tend to have somewhat similar business models – they allow customers to travel by air, they manage planes and flight crews, they sell tickets to customers, etc. However, if you think about how, for example, Southwest Airlines and Delta operate on a day-to-day basis, that may look very different. The way in which tickets are issued (and whether seat assignments are issued, for that matter), how processes for customer service look, etc. can be very different at this level. When used together, Business Model and Operating Model Canvases work together to provide a more complete picture of the organization.

If you are looking to define your organization’s operating model, there are some simple templates you can use; and mapping out your organization’s value streams can be an extremely worthwhile endeavor in building an operating model canvas.

Where can I learn more about Business, Lean, and Operating Model Canvases?

This article contains loads of links to articles on all three of these topics. I highly recommend checking them out, including this article that provides some simple examples of business model canvases for companies like Google, Gillette, and Skype. Business Models, Operating Models, and Lean Canvases are also covered in the ITIL 4 book and 3-day course on Digital and IT Strategy.

Business Model Canvas: Google example.

The very best way to learn, however, is to learn by doing; and I recommend taking some time to try out each of these canvases with your team – you will invariably have some interesting discussions, find insights (and gaps), and stumble into a few great “aha” moments along the way.