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Tool For Designing Innovative Business Models

Your business model can make the difference between world-leading success and dismal failure. Just ask the people behind the Xerox 914. In 1959, the first dry-process, plain-paper copier was a potential game-changer — but it cost six times the price of alternatives. Potential partners wouldn’t touch it. So the company developed a new business model. Rather than selling the machine, they leased it for $95 a month and charged a few cents per copy for copies in excess of 2000 a month. Thanks to the 914’s speed and convenience, customers soon were making tens of thousands of copies in the same period, and the copier that couldn’t be sold suddenly became a huge revenue generator.

Alexander Osterwalder wants to encourage that kind of thinking, and he has developed a handy way to do it. His Business Model Canvas is a simple graphical template describing  nine essential components: Customer segments, value propositions, channels, customer relationships (such as self service or personal assistance), revenue streams, resources, activities, partnerships, and costs. The individual elements prompt consideration of a business’ full scope, while the layout encourages thought about how the pieces fit together. You can fill in the canvas on a whiteboard; Osterwalder’s book with Yves Pigneur, Business Model Generation, explains how. Or you can play with it interactively using the Business Model ToolBox app for the iPad.

I first heard about the Business Model Canvas from serial entrepreneur turned Stanford/Berkeley/etc. professor Steve Blank, author of the classic marketing manual The Four Steps to the Epiphany. Recently I had the privilege of meeting Osterwalder at Blank’s Northern California coast-side ranch, where the two were collaborating on a new book.