How to Make a Business Model Canvas for Your App Idea
May 14, 2017
“Unless you have tested the assumptions in your business model first, outside the building, your business plan is just creative writing.” ー Steve Blank
The business model canvas is a lean startup technique for developing new or documenting existing business models. It’s a visual chart that describes your product’s value proposition, infrastructure, customers, and finances. The business model canvas provides entrepreneurs an actionable step-by-step process on how to move from idea to product market fit.
Writing out a complete business plan has its time and place, but if you haven’t tested your assumptions in the real world, it will serve little to no use during the early stages of your app startup. So before you write out a comprehensive 15-page business plan from scratch, start with a business model canvas first to lay out the foundation of your company.
In this article, we’ll be using Udacity’s video course “How to Build a Startup,” to illustrate and explain each box in the business model canvas. We’ll also walk through a real world example of the BMC by using the wildly popular app Instacart as an example.
Eric Ries, author of “The Lean Startup,” says that startups turn into businesses once they find a repeatable and scalable business model. Otherwise known as how your company makes money. How will your product be distributed? What are your company’s cost structures? What value are you creating for your customers? Understanding the flows of your business is imperative.
If you’re a startup and don’t know what your business model isーyou need to find it. That’s where the business model canvas comes into play. The canvas lets you repeatedly iterate your plan until you have a working business model that has been validated by outside forces.
Before this tool was proposed by the business theorist, Alexander Osterwalder, startups believed that the “5-year business plan” and execution were all they needed to be successful. We now know this is not the case because no plan survives first contact with customers. This means that the life of a startup is very unpredictable and anything could go wrong or right at anytimeーwhich is something a concrete business plan does not account for.
Today, lean startups use this hands-on template to layout what they want to achieve and how to achieve it, by encouraging engaging conversations and brainstorming around strategy. Startup teams can get all of their thoughts on paper and keep a focus on their main goals as they complete all of the blocks on the canvas.
The idea is you put notes in each box of what you assume will work for your business. Then you run small scale tests (typically by talking to people) that will help you validate whether or not your assumption was right. You keep iterating on every box until you have validated everything, and then you move forward.
After you have filled out the nine blocks in the business model canvas, you can go back to each element and fine-tune as much as you want. You can start by analyzing each section, express the core assumptions you have and create a way to test those assumptions. Your business model won’t be successful if your core assumptions are invalid. Questions such as who is your customer? What problem are you solving? And what is your solution? Need to be addressed and answered before hand.
When you’re just starting out, your main priority should be to test these assumptions by just talking to potential customers. Here’s a video by Steve Blank that explains step-by-step how of the startup’s he was coaching underwent this process.
Disclaimer: It’s important to note that Instacart did not initially start out with this business model canvas. After validating and iterating on their assumptions, they decided the business model canvas (BMC) below was scalable.
In the following sections, we include a quick video from Steve Blank’s How to Build a Startup course, an explanation of what Instacart put in each box, and some advice about how to apply this to your app.
Instacart’s business model may be more complicated than yours, but it’s the same concept! For example, there are three groups of people in the “customer segments” they are servicing: people buying groceries, shoppers delivering groceries, and stores selling groceries.
For each customer segment, there is a different value proposition.
Instacart uses this section to outline the archetypes of each group of people involved with the app.
Their users are the people that get value from door-to-door grocery delivery. The types of people most likely to get value from this are people who don’t like shopping, people who don’t have a car, and elderly people.
The shoppers are the people who are delivering the groceries. The most common archetypes are people who have a smartphone and a car, people who love shopping, and people who want to work as a freelance shopper.
The typical store that would be interested in being a part of Instacart’s business model would be the ones looking to increase their sales and their potential reach.
Instacart reaches people through their website and their mobile app一 Android and iPhone.
When it comes to mobile app businesses, your channels are often pretty limited to current mobile operating systems (Android and iPhone).
Instacart gets, keeps, and grows their customer relationships through social media outreach/advertising and personalized customer service.
Many mobile app companies focus too much on the “get” aspect of customer relationships. Overlooking things like customer service can be a costly mistake; it’s always cheaper to get an existing customer to buy from you than acquire a new one.
Instacart makes money through charging users a delivery fee or a membership fee for using the platform. They also add a surcharge to the prices stores charge for their items.
Not sure what the best revenue stream is for you? Check out our recent article: What Monetization Method is Right for Your App?
To succeed as a business, Instacart needed partnerships with many local stores, a fast shopper workforce, and the technology for their platform.
If you are selling physical items, you need to work with manufacturers, get warehouses, establish distribution routes, create retail outlets, and more. That’s why one if the biggest benefit of starting a web or mobile business is the lack of physical resources needed to succeed.
Instacart needed partnerships with both local stores and financial institutions.
Some web and mobile businesses may not need any partnerships to get off the ground. That being said it’s much easier to work with an established business for things like product sourcing than build them all up yourself. Instacart would never have gotten off the ground if they were committed to creating their own grocery stores instead of partnering with established ones.
The key activities they focus on are:
Instacart’s costs include:
For your app business the first two of Instacart’s costs will likely be applicable. Infrastructure and hosting is a necessary cost for you, but luckily the pricing of those services often scale up as you do.
Just starting up your mobile app business? Use the BMC. The business model canvas is the perfect tool to use for visual thinking, collaboration and iteration. All of which are needed to build the foundation of your business.
Download your own business model canvas here!