The Business Model Canvas — Nine Key Drivers

A Guide to Startup Businesses

Are you fed up with lengthy business models, where you forget the beginning at the time of reaching the end page? Every business needed to have a holistic business model which includes the strategy of the business, financial projections, marketing & Sales, customers & suppliers, and funding requirements, etc. The traditional ambiguous business models have little relevance to the current dynamic environment. As a solution for this the ‘Business Model Canvas’ was introduced and it’s a straight forward model with flexibility and transparency.

What’s Business Model Canvas?

The Business Model Canvas includes all the aspects to be concerned for a business. It provides an overall understanding of the business, suppliers, customers, distribution, etc. The business model canvas has nine key drivers and understanding each is important to prepare a business model for own business.

To elaborate the each of the Nine Key Drivers, two examples were taken. One example is a startup product named ‘Fine Fettle’, which provides healthy foods together with expert advice on a healthy lifestyle. This is a hypothetical business and developed to explain the model. The other example is a well-known brand “Coca-Cola”, which served in every country except Cuba and North Korea. This multinational business was taken to familiarize the model as it’s easy to digest a popular brand.

Nine Key Drivers

Though all nine key drivers are equally important, the numbering suggests the order to follow. Therefore, the first most important segment of the business model canvas is the customer.

1. Customer segment

Customer is the key to any business. Hence, identifying the customers is the first driver to sustain the business. This includes all the people who will be potential buyers to what we offer. In our new business ‘Fine Fettle’ the targeted customers are the health-conscious people who are on special diets or doing regular exercises. Therefore, potential customers intended to improve the health, through this product. The possible customers can be found in gymnasiums, walking paths, and hospitals.

For a well-known business as Coca Cola the customer segment would be larger retail outlets, small retails shops, and restaurants. More the gathering of people, the more the sales for Coca-Cola. Hence, wherever there is a gathering of people, there will be a potential customer base.

You need to decide the precise customer base for your product or service as the first step of the business. The inability to identify the customer base will hinder the sustainability of the business as the initial boost through the marketing campaigns won’t enable the business continuation.

A good example can be given from phone manufacturers Blackberry. Initially Blackberry was successful with its phones, as most of the businessmen used it as a professional phone. However later they introduced the same range of products to teenagers with little changes to the product appearance. As the company changed the customer base suddenly, the initial customers of wealthy professionals also moved out. This is one reason Blackberry lost its market share lately. Therefore, it’s essential to identify the customer base clearly without proceeding to the next steps.

2. Value Proposition

After identifying the customers, the next question to solve is why those customers buy our products. What is the uniqueness? For our healthy food business of “Fine Fettle”, the value proposition is the healthy and nutritious fast food. The customers buy our products as they believe the product will improve their health while providing essential nutrition. Apart from that the product is recommended by consultants, where the customers can rely upon, and provide value for money for the customers. Hence, the value proposition of the new business of “Fine Fettle” is healthy and nutritious fast food.

If we think about a company like Coca Cola, the value proposition of the product is quenching the thirst. It is a familiar taste and it refresh yourself and all of these provide the value proposition for the product.

Every new product or service needs to have its value proposition and without a unique value proposition, it’s not advisable to proceed with the product. If it doesn’t own a value proposition it needs to have some other unique feature.

A good example is Kinder Joy. The value proposition is not only chocolate but also the toy. The purpose of buying the product is not mere chocolate but also the toy in it.

Can you define a strong value proposition for your product as well? If not it’s time to rethink and reengineer the product or service.

3. Distribution Channels

The distribution channel solves the issue of how are you going to bring the value of the product to the customers? There needs to be a method to distribute and sell the products. For our new business of “Fine Fettle” the product is available in restaurants and can be bought online as well. The restaurants are located closer to health and nutrition-conscious atmosphere like stadiums, walking paths, and hospitals.

For a global brand like Coca Cola, there are many distribution channels like Supermarkets, stores, vending machines, and restaurants. Since the brand name is well recognized it’s easy to open many channels of distribution.

Having a unique product or service is not enough, and there should be a solid method of undisrupted distribution. Failing to distribute the product will fail the entire business operation. Therefore, it’s essential to distribute as and when the customer place orders. ‘Toys ‘R’ Us’ was a popular business before its bankruptcy. The successful business lost billions as it was unable to improve its distribution to its competitors. It reveals the importance of the strong distribution channel.

4. Customer relationships

Managing the relationships with the customers throughout the life cycle of the product is the next important driver to concern. For a startup product like “Fine Fettle,” more awareness needs to be created at the inception and promotion techniques like product promotions, obtaining customer feedback and social media interactions can be recommended.

For a well-known brand like Coca Cola advertising is usually done through the mass media like TV, Radio as it’s sufficient to maintain the customer base. The Coca-Cola Company uses interactive, colorful advertisements to catch the attention. From 2009 the company used the tagline of “Open Happiness” and most of the advertisements were themed on that. Therefore, the customer relationship of the brand is to make people happy.

The Tagline of The Disney company goes as “To make people happy”. Hence, the customer relationship of the business is something intangible that’s happiness. The main objective of the business is to make people happy. Similarly, the product or service you are providing needs to have a relationship with the customer which can be identified separately. Without a good customer relationship, a new business will face difficulties to sustain.

5. Revenue Streams

A start-up like “Fine Fettle” can focus on the sale of healthy food, service fees for delivery, and consultancy fees from special customers, as its revenue streams. Initially the revenue generation of a start-up will be minimal and therefore need to focus on a few revenue streams. In the long run a one lucrative stream needs to be continued.

However, a popular brand like Coca Cola can solely depend on the fixed price of the bottle. Since the brand is well established the company is usually recording a 16% year on year growth of the revenue. However, the company has moved into new product developments and also have invested in water business as future revenue streams.

For a startup business, it’s essential to identify the source of revenue and it is better if there are few revenue sources to cover up the fixed costs initially. The revenue sources needed to be adjusted and adapt based on the market competition and innovations accordingly.

6. Key Activities

The next question to solve is ‘What are the key things to be done to run the daily operation of the business?’. For a start-up company like “Fine Fettle’ preparation for healthy food, deliver the foods, and promoting a healthy lifestyle can be mentioned as its key activities. To continue a smooth process, the business needs to improve its key activities.

Large-scale business-like Coca Cola needs to focus on three things, namely the production, distribution, and marketing. Though it sounds simple, it’s needed to ensure the quality of each bottle as one bottle can ruin the reputation of the entire business. Hence, the continuous innovation, technologically improved machinery, and knowledge need to be implemented to cope up with the competition in the market.

For any start-up business there are few crucial key activities. Identifying them and improving them is important to survive in the industry. As an owner of a business, having an in-depth understanding of the key activities enable the management and improvement of the activities.

7. Key Resources

The key resources, highlight the unique strategic assets of the company. In the “Fine Fettle” the unique recipe of the food makes a difference. Therefore, it can be mentioned as the key resource of the business.

Similarly, for Coca Cola, the secret formula of the drink is the utmost valuable key resource of the business. Apart from that they have technologically improved factories, global presence with franchises, and strong marketing capabilities as the key resources.

Every business needs to keep a unique resource with them to differentiate in the market. If your business is something common like selling books it also needs to have some key resource. A good example is Amazon. Though the start-up was initially sold books, the key resource they had was the online strength. The business went beyond the traditional book stall and introduce an online book store that latterly grew to a billion-worth business.

Hence, for your new business also there needs to be a key resource. If the product is not unique, it needs to come up with at least a function or a channel that can be introduced as a unique segment. It’s not required to come up with a brand-new product. But it’s essential to introduce something unique and innovate, that customers would want to buy.

8. Key Partnerships

The key partners for ‘Fine Fettle’ can be known as consultants, suppliers, delivery services, IT services, and landlords. These are the people needed to continue the business and a good relationship needs to be established to continue the business.

For Coca Cola, the key partnerships can be mentioned as bottle suppliers, agency distributors, and customer distributors. As Coca-Cola is a multinational business, despite the bargaining power of the business, it needs to have good relationships with the partners as the reputation of the business will be damaged otherwise.

It’s essential to keep a good relationship with the key partners as the short supply of the ingredients disrupts the production cycles. Even for a startup business keeping the partnership with good terms is essential for continuity of the business. Therefore, identifying key partners and maintain a good relationship is essential for the business.

Foxconn, human rights violation can be mentioned as a good example to understand the importance of the partner relationship. Foxconn is one of the largest factories of Apple in China and the factory was accused of exploiting the labor force. Some workers in the factory were forced to work overtime and their working conditions were not up to the standard. Though Foxconn is a partner of Apple, there was a huge backlash for the company reputation. Hence, the Apple responded and promised to solve the disputes at the Foxconn. This reveals the importance of managing the key partners of the business, who have direct relationships with the business.

9. Cost structure

Identifying and managing the cost drivers is also an important aspect of a business. For our start-up business of ‘Fine Fettle’ ingredient costs, manufacturing costs, staff costs, and finance cost can be highlighted as the cost streams.

For the large-scale business of Coca Cola marketing, advertising, staff, and overhead costs can be mentioned as the cost structure. It needs to control the costs and reduce the non-essential expenses. The advanced technologies need to be implemented to control the cost and improve the quality of the output.

At the initial stages controlling cost is essential as the revenue generation is at its lowest. When the business is growing, the cost needs to be scrutinized as the unwanted expenses will drive the company out of control.

These are the nine key drivers of the Business Model Canvas. As the name says the importance of Business model canvas is that, all the above information can be taken to one page as a canvas. The one-page presentation of the model is easy for users to understand the business and enable them to make the changes instantly.

A developed Business Model Canvas is depicted in Figure 01 to the new business of “Fine Fettle”.

The advantages of the business model canvas are it is easy to understand and enable to focus on the most important aspect at any given time. At the same time, it is flexible as this can be improved and update as per the requirements. However, the challenge of the business model canvas is that it does not provide further details of each proposition, which will make disputes at the practical application.

If you have a business idea, to develop a product or service, it’s advised to develop a business model canvas, before moving into a lengthy business plan. If you are struggling with even one dimension out of the nine drivers, it’s worth revising the product or service with improvements.

The Business Model Canvas is developed by Alexander Osterwalder and had used by many successful modern businesses. If you need further understanding of the model it’s advised to take popular products and try to implement the business model canvas for each of them. Businesses of Amazon, Google, and Facebook can be given as good examples to implement the model.

Since the Business Model Canvas is a proven method to use, it’s good to give a try for your product or service. Let’s fill the blanks to connect the dots of your business idea, to bring the product or service to the market, which can be the next disruptive innovation of the century. I hope this will be helpful to start the sketch of the product or service and Good Luck with your new business idea!