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A Thought or Two on the Business Model Canvas

9 boxes arranged in a rectangle. each box conforms to one area of business that a startup needs to figure out. The boxes are labeled Key Partners, Key Activities, Key Resources, Value Proposition, Customer Relationships, Channels, Customer Segments, Cost Structure, and Revenue Streams
Business Model Canvas

I’ve been teaching the business model canvas for a while, both to students and to people actually starting businesses. From time to time there has been a question about where to put some specific piece of information or hypothesis, and I’ve been kind of lax in my understanding and explanation of where various bits of info go. The area labeled channels is where the confusion started for me. In business we typically talk about distribution channels and marketing channels, so it seems that this box has to do double duty. At least that was my logic, and that led to making other assumptions, such as your employees could be part of your cost structure as well as key resources and key partners. I discussed this for just a few minutes with Dr. Michael Chambers recently, and he corrected my thinking so gently I almost didn’t notice that he was doing it. I was explaining to him how I handled channels, and through our conversation he got me to realize that although in business we talk about marketing channels, when we’re starting a new business (and probably thereafter) it is more appropriate to think of marketing as communication with the customer, thus part of the the customer relationship. (I believe that this flaw in my logic stems from my inherent mistrust of marketing communications.)

After we had this conversation I starting thinking about other situations where I allowed students to categorize a fact or a hypothesis in more than one place, and I think I’m coming to agree with Benjamin Franklin “a place for everything, and everything in its place,” at least when it comes to the business model canvas. Take the earlier example of employees. Their salary is certainly part of the cost structure, maybe other expenses associated with them, but they themselves are not part of that structure. They are also not key partners. The company literature may say that. They may even be called partners, but I think a better characterization of their role, if they are central to the success of the organization, is a resource, and if they are not, then they don’t really show up on the canvas at all. If they were not employees, then they would be partners. I’ve gone though example after example in my head, and if I think about it deeply and clearly, I am able to fit each and every hypothesis into a single box.

I think accurate categorization is important because there are often important differences in how you test hypotheses, according to how they are categorized. Confirming a hypothesis (academics forgive me) for a distribution channel involves determining how you will get your products into that channel, and whether or not your customers will use that channel to purchase your products. Testing a customer relationship involves attempting to reach the customer and determining the hypothesis’s effectiveness in strengthening the relationship and/or generating a purchase.

I’m sure my thinking on this will evolve further as I use and teach the business model canvas, but I believe I’ve made a leap forward in understanding that will hopefully help lots of people.

P.S. If you’re one of my students and I gave you less than stellar advice using my previous approach to the business model canvas I apologize. I do stand behind my previous statements that testing is better than not testing, and capturing the information is good, even if it’s not precisely correct. I’m not sure if this is where people say sorry/not sorry, but I’ll just say if you feel like you could use some help with an ongoing project, or to understand this process better, just get a hold of me.

1 Comment

  1. Your writing is always interesting. 🙂 Honest, thoughtful, modest, intelligent, and well-educated. A pretty good mix of qualities.

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