Improving the Business Model Canvas

In 2008, Alexander Osterwalder introduced his Business Model Canvas. It’s a simple, visual tool which effectively describes almost any company’s business model on a single sheet of paper. Over the years, I’ve both used this tool myself, and have gifted more than a dozen copies of his book to colleagues.

Business Model Canvas

(Note: this post is directed mostly to those already familiar with this model; I don’t explain the original model any further).

The canvas is a handy checklist, albeit with a fortune cookie level of granularity, which describes what a company does, for whom and how they do it. It’s simple, yet complete.

But for all its merits as a simple descriptor of business models, it’s not of much use as an analyser or predictor of the same. In my view, its main weakness is that it is divorced from context.

Two identical business models, operating in different contexts, could have radically different outcomes. And if that’s true, all we’re left with is an aesthetically-pleasing articulation of a business model, but without any tools to figure out if it’s actually any good.

While I’ve long “hacked” the model to suit my own needs (basically, adding a lot of stuff to it), I’ve now had go at updating the actual canvas, while trying to respect the zen-like simplicity of the original model.

The goal was to add the most utility possible, with the least amount complexity possible.

Contextual Business Model Canvas

That’s not too horrific, right?

Here are how I propose using the four added boxes:

Financial Context: While you can use the existing Revenue & Cost Structures boxes in the original BMC to understand a P&L or unit economics, the Balance Sheet & Cash Flow are missing.

Is there trade financing available to bridge revenue converting to cash? Is there enough capital or debt available in the market to finance a loss-leading market share grab (ala Grab)? Does the payment ecosystem actually allow consumers to pay for your digital goods easily? Can the banking infrastructure facilitate international trade? Are interest rates or ForEx rates important assumptions for a business model?

Regulatory Context: What key set of rules does a business have to play by in order to operate… be they governance, accounting, environmental, safety, or industry regulation? Is a market corruption-free enough for the business model to work without “greasing the wheels”? Are there data-protection or consumer privacy regulations which are going to impact the model? Are labor unions a factor? Are you a crypto-company where possible regulatory changes are a material operating risk?

Market Dynamics: This may be the most glaring omission in the original BMC. What is the competition? Is a business model describing a new market entrant, an established player in a competitive space, or a defensible monopoly? Does the market already understand your value proposition, or are you landing a UFO on their front lawn?

Which macro- or micro-economic conditions matter? For example, you have a HR SaaS solution which saves 50% human labor by automating payroll. What’s that labor being saved worth in each market? Does your business model require economies of scale or network effects? If so, are you going to be able to achieve them in these market dynamics? Does the viability of your new oil rig assume a certain crude price per barrel to make sense?

Brand Equity: Is there any value your brand is adding to (or subtracting from) the business model? Is there brand recognition? Are partner relationships established? Do people trust you?

Does your brand equity support the price point and margins required for the business model to work? For example, the entire model might be different if your brand name is Louis Vuitton, than if it’s Theo Sanders (for anyone who know my sense of style, this truth will be self-evident.)

How to Use the Contextual Business Model Canvas

Because these are context layers, rather than content layers, you need to analyse and ask questions about each box them in relation the business model content they surround.

Let’s say your business is contemplating an international expansion into a new market. I would start by updating the context layers to reflect the new operating environment. And then going into the analysis to predict which bits of the business model need to be risk-mitigated as potential failure points.

For example, if market dynamics dictate your revenue structure is going to have to change in the new market in order to be competitive, the odds are your cost structure will need to change too. And how do you achieve that? Well, probably by re-examining your value chain for that market. Maybe that premium, 24/7 customer support you offer in the U.S. needs to be re-thought to become the market leader in Zimbabwe?

If context were to change, which parts of the business model need to change with it?

Hope this helps some of you make the Business Model Canvas a little bit more… practical.