Knowing what a business model is and what types of different models exist is great; however, to take steps towards creating the right business model requires knowledge of the essential components. Today, we will look at what these key components are and how they integrate together.

This week, I ordered a copy of the print version of Alex Osterwalder’s book, “Business Model Generation.” I was inspired by the content, vision and authenticity of his message, not to mention the fact that the business model canvas is a brilliant way to identify the essential elements of a business model.

Today, I’m going to break down the components of a business model and draw the connection between them and the overall success of the business. I will refer to Mr. Osterwalder’s business model canvas (pictured above) to identify these key components and share what I have learned about his team’s creation up to this point.

The canvas contains nine components that collectively integrate to form the entire business model, including the following:

Value Proposition: What unique value does a company’s product or service create for customers.

Customer Segments: What group(s) of customers is a company targeting with its product or service

Customer Relationships: How does a company plan to build relationships with the customers it is serving

Customer Channels: What channels does a company use to acquire, retain and continuously develop its customers

Revenue Streams: How is a company pulling all of the above elements together to create multiple revenue streams and generate continuous cashflow

The components listed above represent the right side of the canvas and combine to form the revenue generating mechanism of the business. Listed below are the components that combine to form the cost structure of the business on the left side of the canvas.

Key Partnerships: What strategic and cooperative partnerships does a company form to increase the scalability and efficiency of the business

Key Resources: What assets and knowledge does a company possess that allow it to deliver its value to customers in ways that other companies can’t

Key Activities: What activities does a company engage in that allow it to execute its strategy and establish a presence in the market

Cost Structure: What are the costs associated with each of the above elements and which components can be leveraged to reduce costs.

Example of the Android business model. Click here to see the larger canvas.

The nine components of the canvas combine to create a complete overview of how a company will go about creating a business that matters to customers. Each component represents a crucial building block in the construction of the overall business. With competition getting stiffer, customers becoming more demanding and the pace of change gaining speed everyday, it is important to see things in the big picture and build something that people get excited about.

By plotting your business on the canvas, it forces you to ask critical questions and think creatively about whether or not your business is focused in the right areas. Once you start thinking about your business on a bigger scale, it becomes easier to identify opportunities and address any areas of weakness.

+ Download a copy of the business model canvas (click here)

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