THE BUSINESS MODEL CANVAS

A major mistake made by many start-ups around the world is focusing on the technology, the
software, the product, and the design, but neglecting to ever figure out the business. And by
“business” we simply mean how the company makes money by acquiring and serving its
customers”.
-Reid Hoffman

After meeting with hundreds of entrepreneurs and business owners over the years I believe the
LinkedIn co-founder and Blitzscaling author Reid Hoffman’s got it spot on.
People tend to focus on specific parts of their business, such as which software packages are
being used, which is the cheapest supplier, how to optimize internal processes…?
They get so bogged down in the details of the day-to-day running that they lose the overall
vision of their business.
Without this vision they are unable to scale, they make marginal profits, miss opportunities,
struggle to innovate, and end up running “just another” business.
Another handy metaphor in understanding this common mistake is the soldier in the trenches.
But when you do have that 360 vision you see the entire battlefield. Decisions are much clearer,
fewer mistakes are made, and progress is fast and methodical.
Fortunately, a business model framework exists that gives you both vision and clarity.

The Business Model Canvas provides entrepreneurs, business owners, and strategists with a
tool to analyze, structure, and evolve a business while always keeping the bigger picture front of
mind.

What is the Business Model Canvas?

Created by Swiss entrepreneur and Strategyzer co-founder, Alexander Osterwalder, the
Business Model Canvas is a visual representation of the 9 key building blocks that form the
foundations of every successful business. It’s a blueprint to help entrepreneurs invent, design,
and build models with a more systematic approach.

Why is it so popular within the business community?

Its simplicity. The business model canvas allows us to carry out a high-level analysis without
drilling down and getting lost in the details. You just draw out the 9 building blocks on a blank
canvas, fill them in as each concept relates to your business, and hang it somewhere everybody
can see.

It’s a visual overview of your entire business on a single canvas broken down into these 9 key
building blocks:
 Customer Segments
 Value Propositions
 Channels
 Customer Relationships
 Revenue Streams
 Key Resources
 Key Activities
 Key Partners
 Cost
How do I fill out the Business Model Canvas?

1. Customer Segments
The first block of the Business Canvas Model is about understanding who is the most important
customer(s) you’re delivering value to. Or, in other words, who are they? What do they do? And
why would they buy your product or service?
Not a single company exists without its clients, making customer segments the best block to
start with while drawing out your business model canvas.
A great exercise to define your customer segments is to brainstorm and create your
company’s buyer persona(s).
In the case of Zara, there are three distinct customer segments to whom they offer different
products.
 Men
 Women
 Children
The products created for each of these customer segments (clothing, shoes, and accessories)
are not trans-consumable. That is to say, a woman’s dress is highly unlikely to be worn by a 7-
year-old child.

2. Value Propositions
The second phase is about figuring out your company’s value propositions, and importantly,
your UVP (unique value proposition). The “what” that makes customers turn to you, over your
competitors? Which of their problems are you best at solving?
Each value proposition consists of a bundle of products or services that fulfill the needs of a
buyer persona from your customer segment. It’s the intersection between what your company
offers, and the reason or impulse customers have for purchasing.

Some popular questions to ask while determining your UVP are:

 Which specific customer pain point are you trying to solve?
 What job are you helping customers get done?
 How does your UVP eliminate customer pain points?
 What products or services do you provide that answer this specific pain point?
Zara’s principal value propositions are fairly clear. They offer various ranges of stylish men’s,
women’s, and children’s clothing and accessories at an affordable price. But there’s more to it
than that.
If we dive a little deeper we see Zara’s value propositions are more complex, which are behind
the success of the brand:
Fast fashion- Zara adds new clothes and designs to its collections every 2-3 weeks, both in its
stores and online. It keeps the brand updated, fresh, and modern while maintaining its all-
important medium price point
Great eCommerce experience
Once you enter Zara’s online store you’re presented with a clean, easy-to-navigate, and high-
end feel. The customer segments are visible on the left navigation bar with a search tab to
further aid customers with their online experience.
Localized stores
You can find a store in nearly all major retail locations (shopping malls, retail outlets, airports,
etc.) meaning accessibility is not an issue for the majority of consumers.
Flagship stores
Zara demonstrates its aesthetic evolution to customers through its flagship stores. The recent
opening of their Hudson Yards, New York City flagship is a great example of this. Customers
shop around its vivid, minimalist layout offering them an experience aligned with the brand’s
deeper, eco-friendly values.

3. Channels
The next step is to ask yourself how you are reaching your customers, and through which
channels?
This includes both the channels that customers want to communicate with you as well as how
they’ll receive your products or services.
Is it going to be a physical channel? (store, field sales representatives, etc.) Or is it a digital
channel? (mobile, web, cloud, etc.).
Zara has 3 primary channels in which they communicate and deliver products to its customers:
 Direct sales through their stores
 Online (both app and website)
 Social media

4. Customer Relationships
Once you have acquired customers, you will need to think about how you
can build, nurture, and grow those relationships.

Zara’s relationship with its customers is threefold, and lies somewhere in the middle of
transactional and personal:
 Salesperson at store
 Brand through social media
 Sentimental attachment to a product
Yes, you have the initial transactional touchpoint at the store or online, something relatively
impersonal and for many the only interaction they’ll have with the brand.
However, customers (especially in the fashion industry) are encouraged to continue to interact
with a brand through social media platforms.
As we mentioned before when discussing channels, Zara has a very effective communication
system in place. Not only can people instantly get in touch with the brand, but also engage with
new posts, images, and collections uploaded to social media.

5. Revenue Streams
Now that you’ve described how you are going to create real value for your customers, it’s time
to look at how you plan to capture that value.
At Zara, it’s extremely simple. They make their money by selling clothes and accessories either
at a store or online.

6. Key Resources
The key resources are all things you need to have, or the assets required to create that value
for customers.
This could be anything from intellectual property (patents, trademarks, copyrights, etc.)
to physical holdings (factories, offices, delivery vans, etc.) right down to finances (the initial
cash flow perhaps needed to start your brand).
Another key resource every company needs to consider is its human capital. Are you going to
need highly specialized software engineers? Or field-based sales teams?
They are relatively capital-heavy resources that need to be factored into your business model.
In the case of Zara, they are going to need a number of key resources if they hope to deliver
their propositions:
 Stock management
 A large, interconnected network of physical stores
 A strong brand
 Logistics and supply chain infrastructure
Stock is vital for both online and offline customers.
If they are unable to supply their range of products and meet customer demands, satisfaction
levels fall and they have a serious problem on their hands.
A large distribution network of brick and mortar stores combined with a strong brand name
help mitigate these factors, as well as reinforce any ongoing marketing activities and
communication efforts.
Finally, an efficient logistics process within Zara is critical, especially when you consider the
complexities involved with such a large-scale operation.
They will require the necessary technology to analyze data on inventory, storage, materials,
production, and packaging, with the staff to execute each of these stages and manage the
delivery of the final products.

7. Key Activities
The next step is to define the key activities – the areas you need to be good at to create value
for your customers.
 Design
 Manufacturing
 Retail process (point of sale and 3rd party management)
 Distribution channel / logistics
Design is a key activity as Zara’s value proposition is to provide stylish garments at an
affordable price. Their collections need to be constantly updated to follow the latest fashion
trends at the time.
To produce their collections Zara will also require manufacturing capabilities. Now Zara doesn’t
own their own factories (we will get to that in the Key Partners section) but they still need to be
involved in the garment manufacturing process.
Everything from fabric selection to pattern making, to detailing and dyeing affects the outcome
of the final product which of course they have to then go on and sell.
The effective management of the retail and distribution channels (online, offline, shipping,
and communication with providers) is also key. A breakdown in either of these activities, such as
a poor relationship with an important provider will have serious consequences for the business.

8. Key Partners
Most modern business models now require brands to build out and work with various key
partners to fully leverage their business model.
This includes partnerships such as joint ventures and non-equity strategic alliances as well
as typical relationships with buyers, suppliers, and producers.

9. Cost
The final step of the Business Model Canvas is to ask yourself, how much is it going to cost to
run this model?
This includes some of the more obvious needs such as manufacturing costs, physical space,
rent, payroll, but also areas such as marketing activities.