Ask a leadership team how their business makes money and you’ll usually get a long answer, a slide deck, or an awkward silence. The Business Model Canvas fits the answer on one page.
It’s one of the most useful tools in management, and one of the most misused. People fill it in like a form, file it away and never look at it again. Used properly, it shows you how the parts of your business depend on each other, where the model is weak, and what changes if you go after a different customer.
Here’s a complete guide, as a set of questions and answers, with a worked example and three figures, two of which you can click.
What is the Business Model Canvas?
A one-page template for describing how a business creates, delivers and captures value. It splits a business model into nine building blocks, from who your customers are to where your money comes from and where it goes.
Alexander Osterwalder proposed the nine blocks, based on his PhD work at the University of Lausanne, supervised by Yves Pigneur. The two of them turned it into the book Business Model Generation in 2010, written with contributions from 470 practitioners in 45 countries (Wikipedia). Strategyzer now calls it the most used tool in the world for innovation and entrepreneurship.
Their company, Strategyzer, offers the official canvas as a free download, and it’s shared under a Creative Commons licence, so anyone can use it to model a business. The canvas drawn on this page is our own version of the same nine-block layout.
What are the nine blocks?
Click any block to see what it covers and the questions to ask. The numbers show a good order to fill them in.
The canvas, block by block
The layout is part of the idea. The right-hand side is the market: who you serve, how you reach them, the relationship you have with them and what they pay. The left-hand side is everything it takes to serve that market: what you must do, what you need and who helps you. The value proposition sits in the middle, connecting the two. The bottom row is the money: the costs that come from the left side and the revenue that comes from the right.
Here’s each block in more detail.
1. Customer segments
The groups of people or organisations you serve. A segment is a group with the same needs, reached in the same way, that values the same thing. “Small businesses” is usually too broad. “Small UK manufacturers exporting for the first time” is a segment.
Some businesses serve a mass market, some a niche, and some several segments at once. Some serve two segments that depend on each other: a credit card company needs both cardholders and the shops that accept the card. In B2B, also ask who pays and who uses it, because they’re often different people.
2. Value propositions
What you offer each segment that solves a problem or meets a need well enough to choose you. It’s the reason a customer picks you over a competitor, or over doing nothing at all.
Write it from the customer’s side. “We cut the time it takes to launch in a new country from three months to three weeks” says far more than a list of products. The more a customer can put a number on the value, the stronger it is.
3. Channels
How you reach customers, sell to them and deliver what you offer. That includes how they first hear of you, how they evaluate you, how they buy, how they receive the product, and how you support them afterwards. Channels can be your own (a sales team, a website, a shop), a partner’s (distributors, resellers, marketplaces), or a mix.
4. Customer relationships
The kind of relationship each segment expects. It ranges from self-service and automated service at one end, through communities and personal assistance, to a dedicated account manager at the other. The right choice depends on how much the customer is worth and what they expect, and every option has a cost that shows up in the bottom row.
5. Revenue streams
How you earn money from each segment, and how they pay. The common types are selling an asset, charging for use, subscriptions, renting or leasing, licensing, brokerage fees and advertising (Wikipedia). Ask what customers really value enough to pay for, and how they’d prefer to pay. A change in how you charge can change a business as much as a change in what you sell.
6. Key resources
The most important assets the model needs: people, technology, intellectual property, brand, data, physical assets and money. The interesting question is which of them are hard for a competitor to copy, because that’s where the advantage lies.
7. Key activities
The most important things you must do well to deliver the value proposition. For a manufacturer it might be production and supply chain. For a consultancy, solving clients’ problems. For a platform, keeping the platform running and growing. If you’re excellent at something that doesn’t appear here, ask whether customers care.
8. Key partnerships
The suppliers and partners you rely on, and why. Companies partner to reduce cost, to reduce risk, or to get resources and activities they don’t want to own. Ask what would happen if your most important partner let you down.
9. Cost structure
The most important costs the model creates. Some businesses are cost-driven, competing to be the cheapest. Others are value-driven, spending more to deliver something customers will pay a premium for. Note which costs are fixed and which rise with volume, because that decides how the business behaves when sales go up or down.
In what order should you fill it in?
Start on the right, with the customer, and work left. A common order is customer segments, value propositions, channels, customer relationships and revenue streams, then key resources, key activities, key partnerships and, last, the cost structure. Figure 1 numbers the blocks in this order.
The reason is simple. Everything on the left exists to serve the right. If you start with your resources and activities, you’ll end up describing the company you already are. Strategyzer makes the same point: the costs and revenues at the bottom only hold if the blocks above them are right (Strategyzer).
Two exceptions are worth knowing. If you’re redesigning a business around a new technology or asset, it can make sense to start from that resource and ask who would value it. And if you’re mapping an existing business, start wherever the team has the clearest view, then check the rest against it.
What does a finished canvas look like?
Here’s a worked example for a fictional translation company, Northlight. The company and its details are made up, but the shape will be familiar to anyone in the language industry. Try switching the customer segment.
One company, two business models
This is the most important lesson the canvas teaches. Northlight might think of itself as one translation company. In fact it runs two quite different business models. Small exporters want speed and a fixed price, buy online and pay by card. Global companies want one partner for every language, an account manager, contracts and security audits.
Each model needs different people, different technology and different costs. A company that tries to serve both from one canvas usually ends up too expensive for the small customers and too thin for the big ones. Draw one canvas per business model.
How do the blocks depend on each other?
Every block is connected to others, and that’s where the canvas earns its keep. A few connections to look for:
- Value proposition to segment. Does what you offer actually solve this segment’s problem? This is the fit that matters most, and it’s where the Value Proposition Canvas comes in (below).
- Segment to channel and relationship. Do your channels and relationships match how this customer likes to buy? Enterprise buyers rarely buy from a web form; small firms rarely want a quarterly business review.
- Relationship to cost. A dedicated account manager is expensive. The revenue from that segment has to pay for it.
- Activities and resources to cost. Whatever you list on the left shows up in the cost structure. If a big cost doesn’t support anything on the right, ask why you’re paying it.
- Revenue to value. You can only charge for value the customer recognises.
How does it connect to the Value Proposition Canvas?
The Value Proposition Canvas zooms into two blocks: customer segments and value propositions. Osterwalder and his colleagues set it out in Value Proposition Design (2014).
Zooming into two blocks
On the customer side you describe the jobs the customer is trying to get done, the pains that get in the way, and the gains they want. On your side you map your products and services, how they relieve those pains and how they create those gains. The aim is fit: an offer that answers the pains and gains the customer cares about most.
This is the subject of the book I’ve written with Mark Davies and Dr Sue Holt, Creating Customer Value Propositions with AI, out from Kogan Page in May 2027.
How do you run a Business Model Canvas workshop?
The canvas works best as a group exercise, on a wall, with sticky notes.
- Print it big. A0 or A1 on the wall, so the whole team can stand around it. A digital whiteboard works for remote teams.
- Use sticky notes, not pens. You’ll move things around, and that’s the point. One idea per note, a few words each.
- One canvas per business model. If you serve very different segments, draw a canvas for each. Use a different colour of note for each segment if they share a canvas.
- Start with the customer. Fill the right-hand side first, then the value proposition, then the left, then the money.
- Describe today first, then design tomorrow. Map the current business on one canvas, then design the future one on a second. The differences between the two are your strategy.
- Mark the assumptions. Highlight anything you believe but haven’t proved. Those are the things to test before betting money on them.
- Date it and keep versions. A canvas is a snapshot. Redraw it as you learn.
Half a day is enough to map an existing business properly. Designing alternatives takes longer, and that’s where most of the value is. My ten ideas for corporate workshops and guide to planning a workshop cover running the day.
What are the most common mistakes?
- One canvas for the whole company. A canvas describes one business model. A company with several needs several canvases.
- Listing products instead of value. “Software” isn’t a value proposition. What problem does it solve, and for whom?
- Vague customer segments. “Everyone” or “SMEs” won’t tell you anything. Be specific enough that you could find and phone one.
- Starting on the left. You end up describing your organisation chart rather than your customers.
- Treating it as a plan. A canvas is a set of claims. Strategyzer’s own advice is to treat it as a claim rather than a plan, date it and redraw it as evidence comes in (Strategyzer).
- Forgetting the outside world. The canvas looks inward. Critics point out that it says little about competitors, the industry or the wider environment, and nothing about how the model changes over time (Wikipedia). Pair it with a PESTLE analysis for the wider environment, and a look at your competitors.
- Filling it in and filing it away. If the canvas doesn’t lead to a decision or a test, it was an expensive way to fill a wall.
What about the Lean Canvas?
The Lean Canvas is Ash Maurya’s adaptation of the Business Model Canvas for start-ups, set out in his book Running Lean (Wikipedia). It keeps the overall layout but swaps several blocks for ones that matter more when nothing is proven yet, such as the problem you’re solving, your solution, the key metrics you’ll track and your unfair advantage.
Use the Lean Canvas when you’re testing a new idea and don’t yet know if anyone will pay. Use the Business Model Canvas when you’re describing or redesigning a business that already has customers.
How can you use it with key accounts?
This is my favourite use, and one most people miss: draw the canvas for your customer.
When you map a key customer’s business model, you see where their money comes from, what they must do well, what it costs them, and what’s under pressure. Then you can ask the questions that matter in an account plan. Which of their blocks do we help? Do we reduce their biggest costs, strengthen a key activity, open a channel, or help them win a customer segment? If you can’t point to a block, your value to them may be weaker than you think.
It pairs well with a PESTLE for the same customer, which shows what’s changing around them, and with the 3-12-6 plan for what you’ll do about it.
Can AI help?
Yes, with care. An AI assistant can draft a first canvas from a company’s website and annual report in minutes, suggest alternative business models, or play devil’s advocate on your assumptions. That’s a useful start for a workshop.
What it can’t do is know your customers. Treat anything it writes as a first draft full of assumptions, and test them with real customers before you act on them.
Where should you start?
Pick one business model, ideally the one that earns most of your money. Map it as it is today, with the team, on a wall. Then ask the question the canvas was built for: if we changed one block, what else would have to change, and would the customer pay for it?
Sources: Wikipedia, Business Model Canvas; Osterwalder, A. and Pigneur, Y. (2010) Business Model Generation, Wiley; Osterwalder, A., Pigneur, Y., Bernarda, G. and Smith, A. (2014) Value Proposition Design, Wiley; Maurya, A. (2012) Running Lean, O’Reilly; Strategyzer, The Business Model Canvas.