The Business Model Canvas, Enabling a Sanity Check of the Business

In the last post I described that instead of your project operating on “knowns”, the IIoT context of your project, or other aspect might have turned one or more of the “knowns” into “unknowns”. I believe the best reaction to this possibility is to examine the high level pieces of your project, product, or business to see if the individual pieces still fit together as a workable whole. I call this a Value Checkup.

Before I write more about a Value Checkup, I want to take a slight detour to describe a concept needed to perform the Value Checkup. Many of you who are familiar with Lean Startup or Steve Blank will already know about the Business Model Canvas. It’s a surprisingly simple idea that makes it much easier for anyone to grasp the essential concepts of a particular business.

In the past, the standard advice for understanding a business would have been to build or read the business plan. A business plan typically consists of 10 to 20 pages of text with a couple of supporting spreadsheets, one a balance sheet, one an income statement. There may be other supporting spreadsheets and analysis as attachments. This is what they teach in business school, and this is appropriate for running an established business with 100s or thousands or more employees. However all this detail is also quite powerful at obscuring the essential concepts of a business.

The Business Model Canvas, invented by Alex Osterwalder and others, is a higher level simplification of a business. It consists of one sheet of paper with 9 boxes for the most essential elements of the business. Stuff like customers, channels, key resources, revenues, and the like. The author(s) of a particular Business Model Canvas will choose a handful of text bullet points summarizing the essentials of each of these elements. Sometimes there will be 2 or 3 numbers in one or two boxes to suggest quantitative measurements and goals for the most important high level concepts. Perhaps lifetime value of a customer, cost to acquire a customer … whatever is critical to the particular business. A representation of a Business Value Canvas is below. It doesn’t yet have the bullets describing the elements of any particular business, but it highlights the thinking process of how value, customer segments, customer relationships, and channels should fit together.

In situations like we are facing here, the level of detail in a typical business plan is an unnecessary obstacle to grasping the essentials of a business. A Business Model Canvas representation will reduce the hundreds numbers and hundreds of concepts in text in the business plan to the most essential 30 bullet points and perhaps a few of the most important numbers.

This simplification will dramatically change accessibility of the business essentials. With a business plan, skilled business and finance types will often need to invest hours of poring over the business plan to understand, distill, and discuss the business. For those with lesser skills, gaining such an understanding will be very, very time consuming. With a Business Model Canvas, a much wider audience of people with some business awareness can discuss the business within a few minutes of familiarization.

Learning about the Business Model Canvas

Because of the wide range of backgrounds of people who will be reading this blog post, I will provide comments and a link to more information on the web for 4 different audiences.

For each of the first three groups I recommend the following video by Steve Blank. Keep in mind that Steve describes this from the perspective of a startup, a company that wants to search to find a working business and business model. In the situation of a Value Checkup, we are approaching this from the perspective of an established business, one whose business model already works, and is expected, or assumed to work after the next product, or version, or feature introduction.

You: 1. “I have not heard of business model canvas and I’m not very familiar with business concepts.”

In addition to the video, you might want to search for info on the web or ask someone with a business background for help.

You: 2. “I have not heard of business model canvas, but I’m fairly familiar with business concepts.” and

You: 3. “I have heard of business model canvas and I’m fairly familiar with business concepts.”

The video link above.

You: 4. “I’m quite confident with using a business model canvas for thinking about a business.”

If you’re in this group, you’re all set. The advanced material covering business model canvas focuses on the most powerful usage for developing new and powerful businesses (Specifically new business models.) We don’t have such an ambitious goal here.

Our goal is to see if the business model still makes sense and fits together in a way that works … a Value Checkup

P.S You’ll find variations of Business Model Canvas on the web. Use the one that seems to keep the most important information front and center for your situation.