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

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.

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. What’s more important than the canvas is the process designed for it. This process involves making assumptions and then either iterating or validating them based on customer interviews. When done the right way, the business model canvas is a great framework for going from idea to product market fit.

In this article, we’ll be using excerpts of Steve Blank’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 popular mobile app Instacart as an example. At the end, we explain more about the process that you can use to apply the BMC to your own startup.

Introduction to the Business Model Canvas

Source: Strategyzer

Eric Ries, author of “The Lean Startup,” says that startups turn into businesses once they find a repeatable and scalable business model. At its core, this type of business model is nothing more than a set of steps that you can follow over and over that generates revenue.

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. In reality, this doesn’t hold up. It is simply impossible to predict how the market will react to a brand new business model. This is the reason behind the often quoted dictum “no plan survives first contact with customers.

Instacart

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) above was scalable.

The Boxes

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.

Customer Segments

 

 

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.

Value Proposition

 

 

For each customer segment, Instacart has a different value proposition.

  1. Customers can shop for groceries through the app and get delivery within two hours.
  2. Shoppers can have a flexible working schedule similar to Uber and Seamless.
  3. The stores increase their number of customers and sales.

It’s important that you are providing value to every segment of people that is involved in your business. Otherwise, they have no motivation to be involved.

Channels

 

 

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).

Customer Relationships

 

 

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.

Revenue Streams

 

 

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?

Key Resources

 

 

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.

Key Partners

 

 

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 building 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.

Key Activities

 

 

The key activities they focus on are:

  1. Creating the technological infrastructure
  2. Managing partnerships with local markets
  3. Managing the shopper workforce
  4. Customer service

If you’re building a physical system like Instacart or Uber you may have very specific key activities like “managing the shopper workforce”, but generally the technological infrastrucuture will be your primary key activity.

Cost

 

 

Instacart’s costs include:

  1. Technological set-up running costs
  2. Salaries to permanent employees
  3. Commission based payments to shoppers

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.

How to Use the Business Model Canvas

Start with putting sticky-notes in each box of the canvas with 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.

At the end of the process, your business model canvas should look significantly different than when you started. It’s easier to understand this from an example. Here’s a video of how a company called JerseySquare went through this process after being coached by Steve Blank.

Conclusion

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!

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