6 Problems with the Business Model Canvas
The Business Model Canvas (as shown below and improved based on this article’s recommendations) is famously the “ultimate” tool for business transformation, having been taught in business schools from the US to India for the past 15 years.
The “classical” canvas one finds on Google or Wikipedia is however not without its faults, which have to be taken into account when using this tool to innovate or create a business model. Without being aware of what the framework is missing, an inexperienced entrepreneur could make a major tactical mistake, or miss out on specific advantages within their industry or environment. To avoid this, below are a few pointers to keep in mind when creating a business model canvas.
1. Strategy is not taken into account
Consulting companies have the habit of making young graduates do case study interviews to assess their abilities to become strategy consultants. One of the very first things we look for in a candidate is if they ask “what is the client’s “definition of success”?”.
There is a reason things are done this way : by answering this before anything else, we are able to better inform and frame later discussions around a company’s strategy, as all its actions will (should!) be brought back to the original objective.
Yet, this key aspect is not represented in the “classical” Business model canvas framework. Indeed, the usual BMC will define how a start-up creates and captures value for itself and its stakeholders, but does nothing to define and describes an entrepreneur’s goals, dreams and ambitions.
What the canvas is missing is a section at the top which defines the start-up’s mission statement, to give an idea of the priorities and objectives the entrepreneur has set for themselves; some people are happy to barely break-even, while other seek to indefinitely increase profitability. Others will want to do right by their stakeholders and/or society at large. No good strategy would be complete without these elements.
2. There can be more to profits than costs and revenues
Put very, very simply, profit is equal to revenues minus costs. There is however more to the story. A time dimension, for example; by having revenues come in faster than costs are paid, a virtuous circle is created wherein a company has more money in hand in reality than in theory, allowing for larger investments, and more advantageous bank loans.
This is only one aspect of the profit mechanism : it’s also important to know what to do with any potential profits. Larger companies don’t have much of a choice, as legal obligations force them to redistribute dividends to shareholders. Smaller companies and entrepreneurs, however, don’t have the luxury of such clear-cut choices. Should they give their CEO/ founder a higher salary? Re-invest that money directly into the business? Donate it to a good cause? These are all things a clear profit strategy that goes beyond revenues minus costs would answer.
By putting a “profit mechanism” between costs and revenues, we ensure that this strategic aspect does not go unanswered.
3. It is not in the right order.
We are inherently simple people (some more than others). We are used to reading left to right, and that is exactly what we will do when presented with any new document (many exceptions apply, but my readership is mostly Westerners who aren’t big manga readers…).
That’s a problem when it comes to the business model canvas. The one that shows up on Google whenever anyone types “Business Canvas” or “Business Model Canvas” (below) is in the worse order possible to be read left to right, as most people will.
You see, starting with “partners” makes absolutely no sense. When we talk about strategy, we start with WHO the business will serve (the customers), then WHAT will be sold (a product or service), followed by HOW this product/service will be sold to this specific customer. That means that the value proposition goes first, followed by customer segments… and so on.
Putting the cost structure before revenues raises similar issues : costs of doing business parallel revenues (to sell an item you must first have spent money to create it), and it’s impossible to define a cost structure before having first defined revenue streams. This sounds like nit-picking until you organise a workshop and see executives struggling to remember the exhaustivity of their costs because they tackled this box before the revenue one. It's fun for a while, then it gets sad.
Switching them, as I have, makes everyone’s lives easier.
4. It does not show any interconnections
The order of the strategic decisions made also matters because some variables will strongly impact others. These connections do not necessarily appear in the BMC as it is taught in most business schools.
Choosing a specific B2B customer segment, for example, will restrict the tactical choices available to the entrepreneur : the customer relationship will be more important, selling in a store becomes all but useless… Though the definition of a potential business' value proposition is unrestrained, everything that comes next will exist through the prism of that original choice! Obviously, some connections are much stronger than others : while the customer segment chosen has a high impact on customer relationship, resources have little to do with partners (directly, at least), and so on.
It is very difficult to make this appear on a single page, but from experience a couple of small arrows do the trick just fine.
5. It does not acknowledge the company’s role within its ecosystem
No company is born in a vacuum. Through the rise and fall of entrepreneurs and CEOs alike, communities and the environment can either thrive or be destroyed. Obviously, this does not appear in the traditional BMC. Obviously.
Enter the Triple Layer Business Canvas, created in 2015 to encourage the creation of more sustainable business models. As its name indicates, it relies on three canvases : the traditional economic canvas, the environmental canvas and a social/stakehodler canvas.
Though its creators argue that sustainable businesses are their work's key target, I’d argue that we could go further by saying that the Triple Layer Business Canvas is essential to any business, whether they see themselves as sustainable or not. Over the past 20 years, we’ve strayed far enough from Friedman (and his ideals which have created untold misery) to know that Production, Distribution and Social Value are ALL essential to any and all businesses.
This is way I’d advise adding the following to any business model reflection
Environmental business model Canvas
Supplies & Outsourcing
Social business model canvas
Scale of outreach
Beyond the obvious benefits of such a framework (pure air and drinkable water, anyone?), I’ve found that adding restrictions and additional concepts in innovation workshops tends to elicit more creativity.
6. Competition, history, and other external factors are absent
I’ve said it before, and I’ll say it again : no company is born in a vacuum. Business models exist only in relation to an industry, its historical context, and a multitude of other external factors. To be honest, it isn’t rare for those external factors to have more of an impact on business model definition than any other conscious decision from executives.
The “classic” business model canvas doesn’t warn you about this. Hell, it doesn’t even mention it. One could argue that this is why we use other models and frameworks such as the PESTLE analysis and Porter’s 5 Forces, but not everyone knows about them, or how to best use them. Additionally, major change drivers (as shown below) are not included in those concepts.
This is why I believe it is important to make SOME external factors appear in the Business Model Canvas. Specifically, the Political, Social, Economic and Technological environment is something every entrepreneur should keep a watchful eye over, for fear of being left behind in an hyper-innovative economy. Below is a picture of what this should look like.
Though this way of completing the canvas does not take competition into account either, it encourages entrepreneurs to think outside of their known boundaries, which is the closest thing we have to acknowledge the outside world without resorting to Porter (which entrepreneurs and executives should very much do).
Entrepreneurship is hard. If my years as a consultant have taught me anything, it’s that frameworks are key to approaching challenges head-on, in a logical manner. It is however paramount that we question these frameworks regularly, lest we keep reproducing the errors of the past and pass on an opportunity to innovate. The (humbly) innovated business model canvas I propose in this article allows one to do just that.
Make good use of it, and good luck out there.