Beyond-Profit Business Models

The application of the Canvas is in no way limited to for-profit cor- donors to Oxfam, a large U.K. non-profit organization, help finance
porations. You can easily apply the technique to non-profit organiza- its efforts to end poverty and social injustice. Third parties rarely
tions, charities, public sector entities, and for-profit social ventures. expect to receive direct economic benefits from the exchange, unlike
Every organization has a business model, even if the word “busi- advertisers—who are players in for-profit business models which
ness” is not used as a descriptor. To survive, every organization that also feature third party financing.
creates and delivers value must generate enough revenue to cover its One risk of the third-party enterprise model is that value creation
expenses. Hence it has a business model. The difference is merely a incentives can become misaligned. The third-party financer becomes
matter of focus: the for-profit business’s goal is to maximize earnings, the main “customer,” so to speak, while the recipient becomes a
while the organizations discussed in the following pages have strong mere receiver. Since the very existence of the enterprise depends on
non-financial missions focused on ecology, social causes, and public contributions, the incentive to create value for donors may be stron-
service mandates. We find useful entrepreneur Tim Clark's suggestion ger than the incentive to create value for recipients.
that the term “enterprise model” be applied to such organizations. All this is not to say that third-party funded enterprise models
We distinguish between two categories of beyond-profit models: are bad and recipient-funded business models are good. Conven-
third-party funded enterprise models (e.g. philanthropy, charities, tional businesslike selling of products and services doesn’t always
264 government) and so-called triple bottom line business models with a work: education, healthcare, and utility services are clear examples.
strong ecological and/or social mission (“triple bottom line” refers to There are no simple answers to the questions raised by third-party
the practice of accounting for environmental and social, as well as finan- financed enterprise models and the resulting risks of misaligned
cial, costs). It is mainly the source of revenue that distinguishes these incentives. We must explore which models make sense, then strive
two, but as a direct consequence they have two very different business to design optimal solutions.
model patterns and drivers. Many organizations are experimenting
with blending the two models in order to exploit the best of both.

Third-Party Funded Models

In this type of enterprise model, the product or service recipient is VP CR CS
not the payer. Products and services are paid for by a third party, mission “donor”

which might be a donor or the public sector. The third party pays the product or “recipient”

organization to fulfill a mission, which may be of a social, ecological,

service
Ch
or public service nature. For example, government (and indirectly,
taxpayers) pays schools to deliver education services. Likewise,
R$ free
donation

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 Villagers in Bangladesh were too poor
to afford phones, so Grameenphone
partnered with Grameen Bank, the
microfinance institution, to provide local
women with microloans to purchase
mobile phones. The women sold calling
Solving the big issues of
services in their villages, repaid the loans,
earned income, and thereby improved our generation requires
bold new business models
their social status.

Triple Bottom Line Business Models

Earlier we shared the story of how Iqbal Quadir, an investment
KP KA VP CR CS
manage banker in New York, set out to build Grameenphone. His goal was to
network

grameen bank income village phone provide universal access to telecommunications services in remote,
opportunity ladies
network
consortium
KR CH rural areas of his home country of Bangladesh. He achieved his aim
(telenor) mobile villagers
communication grameen bank
network
with a for-profit model that had a profound, positive impact on rural
village phone
ladies
Bangladesh. Grameenphone eventually provided over 200,000
women in rural areas with income-earning opportunities, raised their
C$ R$
network communication income social status, connected 60,000 villages to a mobile phone network, 265
reached 100 million people, turned a profit, and became the Bangla-
social and environmental costs social and environmental benefits
“universal access”
deshi government’s biggest taxpayer.
income for women and To accommodate triple bottom line business models, we can
better social status

extend the Canvas with Blocks illustrating two outcomes: (1) the
social and environmental costs of a business model (i.e. its negative
impact), and (2) the social and environmental benefits of a business
model (i.e. its positive impact). Just as earnings are increased by
minimizing financial costs and maximizing income, the triple bottom
Grameenphone went beyond establishing line model seeks to minimize negative social and environmental
near universal access to telephone service
and earning a profit. It also had substan- impacts and maximize the positive.
tial social impact by providing “village
phone ladies” with earning opportunities
and improved social status.

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 Computer-Aided Business Model Design

Mike, a senior business analyst with a large financial group, wraps up support could make creating, storing, manipulating, tracking, and
the first of a two-day workshop he is facilitating with a group of 24 communicating business models far easier. Such support would
executives. He collects the business model prototypes and ideas that seem to be almost a requirement for collaboratively working on busi-
participants sketched on large Canvas posters and hurries to his office. ness models with geographically disparate teams.
There, Mike and his team enter the ideas into a collaborative Doesn’t it seem strange that we can design, simulate, and
computer-aided business model design program to further develop build airplanes or develop software across continents, yet we can’t
the prototypes. Other business analysts working overseas add manipulate highly valuable business models outside of the board-
resource and activity cost estimates, as well as calculations of room and without paper and pencil? It’s time to bring the speed and
potential Revenue Streams. The software then spits out four dif- power of microprocessors to the development and management of
ferent financial scenarios, with business model data and prototype new business models. Inventing innovative business models certainly
diagrams for each plotted on large posters. The following morning requires human creativity, but computer-aided systems could help us
Mike presents the results to the executives, who have gathered for manipulate business models in more sophisticated and complex ways.
the second day of their workshop to discuss the potential risks and An example from the field of architecture is helpful in illustrat-
rewards of each prototype. ing the power of computer-aided design. In the 1980s so-called
266 This scenario doesn’t yet describe reality, but it soon will. A Computer-Aided Design (CAD) systems started becoming more
Business Model Canvas printed on a large poster and a big box of affordable and slowly were adopted by architectural firms. CAD
Post-it™ notes are still the best tools for triggering creativity and made it much easier and cheaper for architects to create three-
generating innovative business model ideas. But this paper-based dimensional models and prototypes. They brought speed, integration,
approach could be extended with the help of computers. improved collaboration, simulation, and better planning to architec-
Turning a prototype business model into a spreadsheet is time- ture practices, Cumbersome manual tasks, such as constant redraw-
consuming, and each change to the prototype usually requires a ing and blueprint sharing, were eliminated, and a whole new world
manual modification of the spreadsheet. A computer-aided system of opportunity, such as rapid visual 3D exploration and prototyping,
could do this automatically and make possible lightning-quick, opened up. Today paper-based sketching and CAD happily co-exist,
comprehensive business model simulations. Furthermore, computer each method retaining its own strengths and weaknesses.

Prototype of a computer aided business

model editor: www.bmdesigner.com

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 In the realm of business models, too, computer-aided systems tory of business model patterns and off-the-shelf building blocks,
could make many tasks easier and quicker, while revealing as-yet enable distributed business model development and management,
unseen opportunity. At the least, CAD systems could help visual- simulate models, or integrate with other enterprise systems (e.g.
ize, store, manipulate, track, annotate, and communicate business ERP or business process management).
models. More complex functions would involve manipulating layers Computer-aided business model design systems will likely evolve
or business model versions, or moving business model elements in step with interface improvements. Manipulating business models
dynamically and evaluating the impact in real-time. Sophisticated on wall-sized touch screens would bring computer-aided design
systems might facilitate business model critiquing, provide a reposi- closer to the intuitive paper-based approach and improve usability.

Paper-based Computer-aided

•  Paper or poster-based Canvases can be easily created Easy to create, store, manipulate, and track business models 267
and used just about anywhere •  Enable remote collaboration
Advantages

•  Paper and poster-based Canvases impose few barriers: •  Quick, comprehensive financial, other simulations
no need to learn a specific computer application •  Provide business model design guidance (critiquing
•  Very intuitive and engaging in group settings systems, business model database, pattern ideas,
•  Fosters creativity, spurs ideation when used on large surfaces control mechanisms)

•  Napkin sketches to draw, understand, or explain •  Collaborative business model design with remote teams
Applications

business models •  Complex manipulations of business models (navigation,

•  Collaborative brainstorming sessions to develop business model layers, merging models)
business model ideas •  Deep, comprehensive analysis
•  Collaborative assessment of business models

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 Business Models and Business Plans

The purpose of a business plan is to describe and communicate a Financial Analysis

for-profit or non-profit project and how it can be implemented, either This is traditionally an important business plan component that
inside or outside an organization. The motivation behind the busi- attracts much attention. You can make pro forma calculations based
ness plan may be to “sell” a project, either to potential investors or on your Canvas Building Blocks and estimate how many customers
internal organizational stakeholders. A business plan may also serve can be acquired. Include elements such as breakeven analysis, sales
as an implementation guide. scenarios, and operating costs. The Canvas can also help with capital
In fact, the work you may have done designing and thinking spending calculations and other implementation cost estimates.
through your own business model is the perfect basis for writing a Total cost, revenue, and cash flow projections determine your fund-
strong business plan. We suggest giving business plans a five-section ing requirements.
structure: The Team, The Business Model, Financial Analysis, Exter-
nal Environment, Implementation Roadmap, and Risk Analysis. External Environment
This section of the business plan describes how your business model is
The Team positioned with respect to the external environment. The four external
One business plan element that venture capitalists particularly forces covered earlier (see p. 201) provide the basis for this descrip-
268 emphasize is the management team. Is the team experienced, knowl- tion. Summarize your business model’s competitive advantages.
edgeable, and connected enough to accomplish what they propose?
Do the members have successful track records? Highlight why your Implementation Roadmap
team is the right one to successfully build and execute the business This section shows the reader what it will take to implement your
model you propose. business model and how you will do it. Include a summary of all
projects and the overarching milestones. Outline the implementation
The Business Model agenda with a project roadmap that includes Gantt charts. Projects
This section showcases the attractiveness of the business model. can be derived directly from your Canvas.
Use the Canvas to provide readers with an immediate visual portrait
of your model. Ideally, illustrate the elements with drawings. Then, Risk Analysis
describe the Value Proposition, show evidence of customer need, In closing, describe limiting factors and obstacles, as well as critical
and explain how you will reach the market. Use stories. Highlight the success factors. These can be derived from a SWOT analysis of your
attractiveness of your target segments to pique the reader’s interest. business model (see p. 216).
Finally, describe the Key Resources and Activities needed to build
and execute the business model.

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 BUSINESS PLAN

executive summary
KP KA VP CR CS the team
•  Management Profile
•  Why We Are a Winning Team
KR Ch the business model
•  Vision, Mission, and Values
•  How Our Business Model Works
•  Value Proposition
C$ R$ •  Target Markets
•  Marketing Plan
•  Key Resources and Activities
financial analysis
•  Breakeven Analysis
•  Sales Scenarios and Projections
financial spreadsheets
•  Capital Spending
•  Operating Costs
•  Funding Requirements 269
external environment
•  The Economy
environmental analysis •  Market Analysis and Key Trends
•  Competitor Analysis
•  Competitive Advantages of Our Business Model
implementation roadmap
implementation roadmap •  Projects
•  Milestones
•  Roadmap
risk analysis
SWOT and uncertainty analysis •  Limiting Factors and Obstacles
•  Critical Success Factors
•  Specific Risks and Countermeasures
conclusion
annexes

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 Implementing Business Models in Organizations

We’ve laid out the fundamentals of business model innovation, Processes

explained the dynamics of different patterns, and outlined tech- Each business model demands different processes. Operations
niques for inventing and designing models. Naturally there is much run under a low-cost business model should be lean and highly
more to say about the implementation that is critical to a business automated. If the model calls for selling high-value machines, quality
model’s success. processes must be exceptionally rigorous.
We’ve already addressed the question of how to manage multiple
business models (see p. 232). Now let’s turn to another aspect of Rewards
implementation: turning your business model into a sustainable Different business models require different reward systems. A reward
enterprise, or implementing it in an existing organization. To illus- system must use appropriate incentives to motivate workers to do
trate, we’ve combined the Canvas with Jay Galbraith’s Star Model to the right things. Does your model require a direct sales force to
suggest aspects of organizational design you may want to consider acquire new customers? Then your reward system should be highly
when executing a business model. performance oriented. Does your model depend heavily on customer
Galbraith specifies five areas that should be aligned in an organi- satisfaction? Then your reward system must reflect that commitment.
zation: Strategy, Structure, Processes, Rewards, and People. We place
270 the business model in the middle of the star as a “center of gravity” People
that holds the five areas together. Certain business models call for people with particular mindsets. For
example, some business models call for particularly entrepreneurial
Strategy mechanisms to bring products and services to market. Such models
Strategy drives the business model. Do you want to grow 20 percent must give employees significant leeway, which means hiring proac-
in new market segments? Then that should be reflected in your tive, but dependable, free-thinkers.
business model in terms of new Customer Segments, Channels, or
Key Activities.

Structure
The characteristics of a business model determine the optimal
organizational structure for its execution. Does your business model
call for a highly centralized or decentralized organizational structure?
If you will implement the model in an established business, should
the new operation be integrated or spun off (see p. 233)?

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 Direction
What are your strategic goals? How do
they drive the business model?
Skills/mindset
Power
What kinds of people with what skills
does your business model require? What What type of organizational structure
type of mindset is needed? does your business model require?

KP KA VP
strategy CR CS

KR
people Ch structure

C$ R$
271
rewards processes

Motivation Information
What reward system does your business What information flows, processes,
model require? How can you motivate and workflows does your business
your people? model require?

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 Aligning IT with Business

Aligning information systems and business goals is fundamental Authors Weill and Vitale propose another interesting way to
to the success of an enterprise. Chief executives officers ask their explore IT alignment. They pair categories of IT infrastructure service
chief information officers (CIOs), Do we have the right IT? How do with business models. Weill and Vitale propose aligning business
we know? How can we best align our business with our technology models with application infrastructure, communications manage-
systems? ment, data management, IT management, security, IT architecture,
Information technology research and advisory firm Gartner channel management, IT research and development, and IT training
highlights this issue in a report called “Getting the Right IT: Using and education.
Business Models.” Gartner asserts that the Business Model Canvas On the opposite page we’ve brought these elements together in
is a powerful tool that helps CIOs quickly grasp how a business a graphic to help you pose some fundamental questions regarding
works without getting bogged down in operational details. Gartner business and IT alignment.
recommends that CIOs use the Business Model Canvas to align IT
and key business processes. This helps them align business and IT
decisions without diving too deeply into tactical issues.
We find it useful to pair the Canvas with an Enterprise Archi-
272 tecture approach. Many of the various Enterprise Architecture
concepts describe the enterprise from three perspectives: the busi-
ness perspective, the applications perspective, and the technology
perspective. We recommend using the Canvas to guide the business
perspective, then align the business with the applications and tech-
nology perspectives.
In the application perspective, you describe the portfolio of
applications that leverage aspects of your business model (e.g.
recommendation systems, supply chain management applications,
etc.) and you describe all the business model’s information require-
ments (e.g. customer profiles, warehousing, etc.). In the technology
perspective you describe the technology infrastructure that drives
your business model (e.g. server farms, data storage systems, etc.).

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 KP KA VP CR CS

KR Ch

C$ R$

strategy
business model Business
operational models

Applications
How can IT support the processes and Where in my business model does 273
workflows required by my business security play an important role and
models? how does that influence my IT?
Technology
What information do I need to capture, Do I need to invest in IT training
store, share, and manage to improve my and education to leverage my business
business model? model?

How does my application portfolio Could investments in IT research

leverage the specific dynamics of and development improve my business
my business model? model in the future?

How will IT architecture, standards,

and interface choices limit or leverage
my business model?

Which technology infrastructure is

required and crucial to the success of
my business model (e.g. server farms,
communications, and so on)?

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 Context INNOVATING key audience

WhERE
visionary and
2004: Alexander Osterwalder com-
the model
pletes a Ph.D. dissertation on the topic Alexander and Yves decide they can’t game changing . . .
of business model innovation with credibly write a book about entrepreneurs /
Professor Yves Pigneur at hEC Lausanne, business model innovation with-
consultants /
onsultants /

DID ThIS
Switzerland. Fast forward. 2006: The out an innovative business model.
approach outlined in the dissertation They ditch publishers and launch the executives
ecutives
hub, an online platform to share their
starts being applied around the world
writings from day one. Anybody with
based on Alexander’s business model an interest in the topic can join the

BOOK
blog, notably in companies such as 3M, platform for a fee (initially u.S. $24,
Ericsson, Deloitte, and Telenor. During which is gradually raised to u.S. $243 to
a workshop in the Netherlands Patrick keep the platform exclusive). That this
van der Pijl asks “why is there no and other innovative Revenue Streams
finance the book production in advance
book accompanying the method?”

COME
itself is an innovation as well. It breaks
Alexander and Yves take up the chal- the format of conventional strategy and nd
lenge. But how does one stand management books in order to create
out in a market where countless more value for readers: it is co-created
274 strategy and management books highly visual, and complemented by

FROM?
are published every year? exercises and workshop tips.

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