Making sense of the Business Model Canvas

The Business Model Canvas, devised by Alexander Osterwalder and Yves Pigneur is a huge success with over 5 million downloads of the canvas graphic and over a million book sales in 36 languages. Part of its success is its simplicity and the way it makes intuitive sense.

What is less widely commented upon is the rigour of the thinking behind it and the way the canvas is constructed.   Alexander Osterwalder referred to the canvas as having three zones: desirability, feasibility and viability.

I’ve never been too keen on his labels but I think the three zones are genius. Here’s my take on them.  The business model canvas is actually comprised of models of three distinct aspects of business performance: marketing, operations and finance.

The market model shows how a value proposition matches the needs of customers, how customers get to know about the value on offer (via customer relationships) and how that value is offered and delivered (via channels). The operating model shows which activities are key to meeting the needs of the market model and how these activities come about, through key partnerships and use of key resources. The financial model shows how delivering value to customers in this way is financially sustainable, given the costs and revenues involved.

This rigour and logic is probably what makes the business model canvas so intuitive and so powerful. Indeed, it is probably this power that has led to it having been adapted and modified so often to suit different needs and situations. Some of these adaptations fit well with the design and logic of the original version, some less so.  Here are three examples.

Firstly, Steve Blank worked with Alexander Osterwalder to develop a variant of business model canvas for military / intelligence applications, where the objective was not to generate revenue but to complete a mission. This was achieved by simply re-labelling some of the original components (show in red below).

Secondly, the CASE Knowledge Alliance developed the Sustainable Business Model Canvas to integrate sustainability into the core of a business and optimise its environmental and social impact.

This is achieved by expanding the bottom of the business model canvas to evaluate environmental and social costs and value alongside economic costs and revenue.

The third example of an adapted business model canvas is one that I struggle with. It is a canvas for designing and evaluating charities, something that could do great good for the world if charities ended up being run more efficiently and effectively.   My struggle is that whilst its graphical presentation clearly resembles the original business model canvas, its design and content is so radically different that it loses most of the value coming from the business model canvas principles.

Here are my main issues with it:

  1. It is a lot more complicated – this has 18 elements compared to only 9 in the original business model canvas;
  2. The notion of value proposition, that is so central to the original, is missing.  What value is the charity providing?
  3. It features ‘key cause differentiators’ which form part of value proposition thinking – how do I make sure my particular value proposition remains distinctive? This key cause differentiators element is on the left of the canvas, an area that, in the original canvas was focused on operating model. Cause differentiators are, however, clearly part of the marketing model, although that clustering is lost in the charity model canvas.
  4. ‘Customers’ in the original business model canvas are replaced with ‘audience’. That’s fine because a key issue for many charities is that the audience for their messaging is different from their beneficiaries. The charity model canvas, however, makes no mention of beneficiaries – surely something that must be at the heart of any charity model.
  5. In the original business model canvas, costs were on the left of the model and revenue was on the right. This is logical because costs will be more related to operations (also on the left of the canvas) and revenue more related to the market (which are also on the right of the canvas). In the charity model canvas, however, the position of costs and revenue have been reversed, for no apparent reason.
  6. And finally, income streams are broken down in the charity model canvas into values for year 1, year 2 and year 3. This appears to be out of place in a business model canvas.  The purpose of producing a canvas is to ensure the key elements of a business (or charity) are aligned and coherent. If they are, the business (or charity) would appear (on paper at least) to look viable and the organisation can then move on the more detailed business planning, such as revenue growth, cash flow and investment requirements, all of which are much better modelled in a spreadsheet than squeezed into a charity model canvas.

My point here is not to ‘have a go’ at Manifesto, the team who produced the charity model canvas. It is to make a much more general point that frameworks such as the business model canvas have a lot of knowledge or wisdom ‘baked in’ and it is often not at all clear why elements of the framework have been designed the way they have. More relevantly to this particular discussion, it is also not clear which bits of business model canvas are safe to alter and customise to meet particular needs and which ought to be left as they are. The business model canvas was published in the book Business Model Generation in 2010, yet, as far as I can see, it wasn’t until 2017 that Alexander Osterwalder pointed out that the elements of the canvas clustered into three zones (desirability, feasibility and viability), as mentioned above.

Business model canvas is a wonderful tool but it needs to be used wisely and modified cautiously.

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