Business Model Generation

(Osterwalder & Pigneur)

This guide breaks down Business Model Generation into its core parts, explaining each
concept, building block, pattern, and process in plain language. We use the book’s own
definitions and examples (citing the provided PDF) to ensure accuracy, and add practical
business examples and insights. The structure follows the book’s sections: the Business
Model Canvas, Patterns, Design, Strategy, and Process. Each section is organized with
clear headings and bullet points for easy navigation.

Business Model Canvas (Section 1: Canvas)

Definition of a Business Model

A business model describes how a company creates, delivers, and captures value
file-dvezmt7sm2l38vbvsepvsi . In other words, it’s the rationale of how an organization makes
money and satisfies customers.

Osterwalder & Pigneur emphasize that a good model explains the logic of a business.
It is like a “blueprint” or map of how the company works: what customers it serves,
what it offers them, how it makes money, and what infrastructure it needs
file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi .

Because companies are complex, the authors break a business model into nine
building blocks (each answers a key question) and organize them on a visual canvas.

The Nine Building Blocks

The Business Model Canvas arranges these nine blocks into four areas (customers, offer,
infrastructure, and financial) file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi . Below is a concise
explanation of each block, with examples:

Customer Segments – Who are our customers? These are the different groups of
people or organizations the business serves file-dvezmt7sm2l38vbvsepvsi . Segments must
have distinct needs or behaviors. For example, a software company might have two
segments: individual users and corporate clients. One segment could be “mass
market” (a broad group like all smartphone users) or “niche” (e.g. urban cyclists).
Other patterns include “diversified” (serving unrelated segments) or “multi-sided” (two
interdependent groups, like credit cards connecting merchants and cardholders)
file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi . (Tip: A company should tailor its model to
each segment’s needs.)

Value Propositions – What value do we deliver? This block describes the bundle of
products and services that create value for a specific Customer Segment
file-dvezmt7sm2l38vbvsepvsi . In essence, it is why customers choose you. A value proposition
solves a customer problem or satisfies a need. It might be a novelty (e.g. an iPhone
was novel in 2007), performance improvement, customization, design, cost
reduction, risk reduction, accessibility, or status file-dvezmt7sm2l38vbvsepvsi . For instance,
Apple’s iPod+iTunes created value by simplifying how people buy and enjoy music.
Each value proposition is unique to its segment; e.g. one segment might value “low
cost” while another values “premium design.”

Channels – How do we reach customers? Channels are the ways the company
communicates with and delivers value propositions to customers file-dvezmt7sm2l38vbvsepvsi

. They include marketing, sales, distribution, and delivery channels. For example, a
retailer might use both a company website (online channel) and physical stores
(offline channel) to reach customers. Effective channels raise awareness, help
customers evaluate offerings, allow purchases, deliver products/services, and
provide after-sales support file-dvezmt7sm2l38vbvsepvsi . For example, Amazon.com uses an
online portal (owned digital channel) plus distribution partners to sell books and
goods. Companies must choose channels that match how customers want to buy –
such as a mobile app for millennials or retail outlets for local shoppers
file-dvezmt7sm2l38vbvsepvsi .
Customer Relationships – What kind of relationship do we establish? This block
describes the type of relationship the company fosters with each Customer Segment
file-dvezmt7sm2l38vbvsepvsi . It can range from personal one-on-one service to automated
self-service or communities. For example, a luxury hotel may offer personal
assistance (concierge, dedicated staff), while a commodity web service might rely on
self-service (customers serve themselves via the website). Other modes include
dedicated personal assistance (e.g. a banker for high-net-worth clients) or
communities (customers help each other). The chosen relationship affects customer
experience and loyalty. For instance, online banks often emphasize automated,
automated services with minimal human contact, while high-end boutiques invest in
personal sales staff file-dvezmt7sm2l38vbvsepvsi .

Revenue Streams – How does the business earn money? This block lists the ways
the company generates cash from each Customer Segment file-dvezmt7sm2l38vbvsepvsi .
Every customer segment must pay for something, whether it’s a product, service, or
subscription. Examples of revenue streams include asset sales (one-time sales of
products, like selling a gadget), usage fees (pay-per-use, as in telecom per-minute
charges), subscription fees (periodic payments, e.g. Netflix monthly fees), licensing
(fees for use of intellectual property, like software licenses), brokerage fees
(commissions for intermediating a deal, as credit card companies take a cut of each
transaction), and advertising (selling ad space, as newspapers or Google do)
file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi . Revenue can be one-time (transaction-
based) or recurring (ongoing, like subscriptions) file-dvezmt7sm2l38vbvsepvsi . For each
segment, the company should ask: “What value are they willing to pay for, and how
do they prefer to pay?” file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi . Example: Amazon
primarily uses asset sales (books, electronics) and has expanded into subscription
(Prime membership) and licensing (AWS services).
Key Resources – What assets do we need? These are the key assets required to
deliver the value proposition, reach markets, maintain relationships, and earn revenue
file-dvezmt7sm2l38vbvsepvsi . Resources can be physical (e.g. manufacturing facilities,
buildings, distribution networks – think Walmart’s warehouses), intellectual (brands,
patents, customer databases – e.g. Coca-Cola’s brand), human (skilled teams – a
consultancy’s expert staff), or financial (lines of credit, cash – e.g. Tesla’s funding to
build factories). For instance, Netflix’s key resources include its proprietary streaming
technology and content library, while Uber’s key resources include its software
platform and brand.

Key Activities – What do we do daily? These are the most important things the
company must do to make its model work file-dvezmt7sm2l38vbvsepvsi . They might include
production (manufacturing products), problem-solving (R&D, consulting, custom
development), or platform/network management (running online marketplaces or
networks). For example, Sony’s PlayStation business focuses on platform
management (maintaining the gaming ecosystem), while McKinsey’s core activity is
problem-solving (consulting expertise). A tech startup’s key activities could include
software development and user acquisition.

Key Partnerships – Who are our partners? This block describes the network of
suppliers, partners, and alliances that make the business model work
file-dvezmt7sm2l38vbvsepvsi . Partnerships exist for various reasons: optimizing operations
(e.g. airlines outsource maintenance), risk reduction (sharing risk by partnering), or
acquiring resources (outsourcing manufacturing to suppliers). Partnership types
include strategic alliances between non-competitors, joint ventures (co-ownership of
a new business), or buyer-supplier relationships. For example, Nike partners with
manufacturing firms (partners) and retailers (channels) to make and sell shoes.
Another example: Chip manufacturers like ARM license technology to phone makers
(key resource partnerships).

Cost Structure – What are the major costs? This block lists all significant costs to
operate the model file-dvezmt7sm2l38vbvsepvsi . Costs arise from creating/delivering value,
maintaining relationships, and running operations (resources, activities,
partnerships). There are two broad cost approaches file-dvezmt7sm2l38vbvsepvsi

file-dvezmt7sm2l38vbvsepvsi :
 Cost-driven (leanest costs) – focusing on minimizing expenses (e.g. no-frills
airlines like Ryanair), using low-cost value propositions, automation, and
outsourcing file-dvezmt7sm2l38vbvsepvsi .

Value-driven (premium offerings) – less focus on cost, more on high value (e.g.
luxury hotels with personalized service) file-dvezmt7sm2l38vbvsepvsi .
Cost structures have elements like fixed costs (e.g. rent, salaries) and variable
costs (dependent on volume) file-dvezmt7sm2l38vbvsepvsi . For example, a subscription
software company (like Netflix) has high fixed costs in servers (scale costs) but
low incremental cost per additional user.

Each of these blocks answers critical design questions (e.g. “Who are our customers?”,
“What do we offer them?”, “How do we earn revenue?”). The Business Model Canvas
integrates all nine to give a holistic picture. It’s often drawn on a large sheet with sticky
notes so teams can sketch, discuss, and iterate together file-dvezmt7sm2l38vbvsepvsi

file-dvezmt7sm2l38vbvsepvsi . This visual tool fosters understanding and creativity. Figure: A

canonical Business Model Canvas shows the nine blocks arranged in a template
(Customers – right; Offer – center; Infrastructure – left; Finances – bottom)
file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi . (In practice, teams write one key idea per sticky
note, use colors, etc., as per Visual Thinking techniques below.)

Example: Apple iPod (Illustrating the Canvas)

To ground these concepts, consider Apple’s early 2000s iPod+iTunes model. Customer
Segment: Music listeners (digital consumers). Value Proposition: Easy-to-use MP3 player
+ huge song catalog. Channels: Apple Stores and online iTunes store. Customer
Relationships: Part self-service (online store) and personal (Apple Store staff). Revenue
Streams: Asset sale (iPods) and per-song sales (digital downloads). Key Resources:
Apple’s brand, design patents, software platform, retail stores. Key Activities: Product
design, software development (iTunes), marketing. Key Partners: Record labels (content
providers), suppliers (manufacturers of components). Cost Structure: R&D costs,
manufacturing, licensing fees to labels, retail store costs. Understanding each block
helped Apple innovate the consumer music market. (This example is consistent with the
Canvas analysis in the book.)
Business Model Patterns (Section 2: Patterns)

Patterns are common configurations of business models observed across industries.

The book highlights five patterns. Each pattern shows how a company changed its
business model for strategic advantage.

Unbundling – Separate integrated models into distinct focus areas. Some

corporations historically combined multiple activities (e.g. product development,
manufacturing, sales, support) into one model. Unbundling splits these into
specialized units, each with its own model file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi .
The theory (Hagel & Singer) is that businesses have three core types: customer
relationship businesses (focused on customers/brand), product innovation
businesses, and infrastructure businesses. Trying to do all three in one model
causes conflicts (trade-offs).

Example: Traditional Swiss private banks used to integrate wealth management,

investment product creation, and back-office processing. Changing conditions
(e.g. new tech, outsourcing) led firms like Maerki Baumann to spin off the
transaction platform (Incore Bank) and focus solely on advisory services
file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi . Pictet, in contrast, remained integrated
and had to balance all parts.

Example: Telecom companies separated network infrastructure from service

front-ends. Bharti Airtel in India spun off its tower operations (Telecom Infra) and
focused on branding, customer service, and handset sales file-dvezmt7sm2l38vbvsepvsi .
Mobile carriers also create separate content arms (apps/music services) apart
from network operations.

Insight: By unbundling, each new entity can excel on its core. For instance, an
infrastructure model can optimize for scale and low costs, while a customer-
facing model can prioritize marketing and service. This avoids the compromises
of a single, “one-size-fits-all” model.

The Long Tail – Serving many niche markets rather than a few mass markets. Coined
by Chris Anderson, the Long Tail arises when online distribution and search reduce
the cost of offering many products file-dvezmt7sm2l38vbvsepvsi . Instead of a hit-driven model
(few bestsellers), companies serve a vast number of niche customers with
specialized products.
 Key drivers: Production democratization (anyone can create content),
distribution democratization (online stores, print-on-demand), and reduced
search costs (recommendation algorithms) file-dvezmt7sm2l38vbvsepvsi .

Examples: Netflix and Amazon sell thousands of niche DVDs or books that
traditional stores wouldn’t stock. eBay enables selling nearly any collectible.

Book examples: Lulu.com – a self-publishing platform. It “turned traditional

publishing on its head” by enabling anyone to publish file-dvezmt7sm2l38vbvsepvsi . Lulu’s
model serves a Long Tail of niche authors: books are only printed on demand, so
unsold copies incur no cost file-dvezmt7sm2l38vbvsepvsi . The more niche authors it
attracts, the more content (and sales) it gets, even if each title sells few copies.

LEGO – known for mass-market toy sets, it embraced co-creation via LEGO
Factory. Users design custom sets which LEGO will produce on demand. This
taps the Long Tail: customers create (and buy) “niche” sets outside LEGO’s
official themes file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi . Although each fan-
designed set may have small sales, together they significantly broaden LEGO’s
offering.

Insight: The Long Tail model often uses an online platform (see the multi-sided
pattern below) to match many niche sellers/creators with niche buyers, profiting
from aggregate volume. It’s ideal when inventory or distribution costs are low
(digital goods, print-on-demand, drop shipping).

Multi-Sided Platforms – Connecting interdependent customer groups. A multi-sided

platform (also known as a two-sided or multi-sided market) brings together two or
more distinct groups of customers that need each other but couldn’t easily reach
each other without the platform file-dvezmt7sm2l38vbvsepvsi . Value is created by facilitating
interactions between the groups, often with cross-side network effects (the more one
side uses it, the more valuable to the other side).

Definition: “Two or more interdependent Customer Segments” that a platform

serves simultaneously file-dvezmt7sm2l38vbvsepvsi . For example, credit card companies
connect cardholders (buyers) and merchants (sellers); console manufacturers
connect game developers and players; app stores connect developers and
smartphone users.
 Chicken-and-egg challenge: A platform must attract all sides at once. Often one
side is subsidized (e.g. free or low price) to seed the network. Then the other
side is charged. For example, newspapers are free to readers but sell ads to
businesses. Visa offers free cards to consumers (side 1) to attract merchants
(side 2) who pay fees.

Examples:

TV networks: connect viewers and advertisers. The network draws viewers

by offering free or cheap content; advertisers pay to reach the audience.

Operating systems: like Microsoft Windows (connects PC users and

software developers) or iOS (users & app developers). Often, the OS is free
(subsidized) to users, and platform owners make money by taking a cut of
apps or licensing.

Marketplaces: eBay connects buyers and sellers, Uber connects riders and
drivers. Both must solve the “chicken-and-egg” by driving early adoption on
both sides (Uber initially gave drivers incentives, Dropbox gave extra space
for referrals, etc.).

Insight: The Business Model Canvas for platforms must consider multiple
segments on one side (e.g. advertisers) and how changes to one side (value
proposition, pricing) affect the other side’s willingness to participate
file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi . Often, success comes from winning one
side first, then scaling the other.

Free as a Business Model – Making something free to attract customers, and

monetizing in other ways. “FREE” here means offering a product/service to at least
one segment at zero price while earning revenue elsewhere. Osterwalder & Pigneur
note that offering something free is very attractive to customers (demand at price
zero is huge) file-dvezmt7sm2l38vbvsepvsi . The question is how to still be profitable. Common
strategies (patterns) include:

1. Advertising (Multi-Sided FREE): Like a two-sided platform, one side gets a free
offering to draw them in, and the other side pays. Classic example: Metro
newspaper (free to readers, supported by advertisers). Metro distributed free
papers in subways, then sold ad space to advertisers file-dvezmt7sm2l38vbvsepvsi

file-dvezmt7sm2l38vbvsepvsi . Google Search is another: users pay nothing, advertisers

pay to appear.
 2. Freemium: Provide a free basic service with optional premium features for a fee
file-dvezmt7sm2l38vbvsepvsi . The large base of free users acts as a sales funnel: a small
percentage (<10%) convert to paid accounts file-dvezmt7sm2l38vbvsepvsi

file-dvezmt7sm2l38vbvsepvsi . Example: Flickr – free accounts have limited storage; power

users pay for “Pro” accounts with unlimited space file-dvezmt7sm2l38vbvsepvsi . Spotify
(free ad-supported listening vs paid ad-free tier) and many SaaS products follow
this model.

3. Bait-and-Hook (Razor-and-Blade): Sell the initial product cheaply or free (the

bait), then charge recurring fees for refills/consumables (the hook). Example:
Gillette gives cheap razors but charges for blades. Printers vs ink cartridges.
Disney might offer a free promo on a toy and profit on game app purchases.
(The book mentions it but focuses on the first two above).

Other considerations: Digitalization amplifies “free” because marginal costs can

be near zero (e.g. streaming a song costs little) file-dvezmt7sm2l38vbvsepvsi . Bands like
Radiohead or Nine Inch Nails have given away music to boost concert/CD sales
file-dvezmt7sm2l38vbvsepvsi .

Insight: When using FREE, identify which customer segment(s) get something at
$0 and how each other segment pays. Often, being free is itself a value
proposition. Key is ensuring alternate revenue streams (ads, premium fees, etc.)
cover costs. Many internet startups (Dropbox, LinkedIn basic vs premium) have
used freemium successfully, but conversion rates and costs must be carefully
managed file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi .

Open Business Models – Leveraging external ideas and internal assets. Based on
Henry Chesbrough’s “Open Innovation”, open business models involve collaborating
beyond company boundaries file-dvezmt7sm2l38vbvsepvsi . Two directions:

Outside-In (Inbound Open Innovation): Acquire ideas, technologies, or business

models from external sources. For example, a company might license a
patented technology from a university or partner with startups. Procter &
Gamble famously used ideas from outside (InnoCentive contests, licensing
external R&D) to expand its product pipeline.
 Inside-Out (Outbound Open Innovation): Let other companies use your internally
developed IP or assets, creating value and revenue. For example, a
pharmaceutical firm might license out under-used patents. Open source
software is a well-known form: Red Hat packaged free Linux code (open source)
and sold support subscriptions file-dvezmt7sm2l38vbvsepvsi . Apple’s iOS allows
developers to build on its platform under license.

Book examples: The pharma case: many biotech firms “copied” big pharma’s
closed model, but some partner with external research or allow others to use
their IP. GE’s MRI machines (knew to outsource R&D), crowdsourcing
(InnoCentive), user-innovation communities.

Insight: Opening a model can create new value networks. It relies on sharing
instead of hoarding knowledge. Successful open models find business by
orchestrating an ecosystem. (For instance, Android gives away the OS, but
Google profits via related services and apps.)

Business Model Design (Section 3: Design)

This section covers how to innovate business models. It borrows from design thinking:
gaining customer insights, brainstorming, prototyping, and storytelling to develop new
models.

Customer Insights (Ch. Customer Insights) – Understand customers’ real needs, not
just ask them. Henry Ford’s quote ("If I had asked people what they wanted, they
would have said faster horses”) shows that customers may not envision
breakthrough products file-dvezmt7sm2l38vbvsepvsi . Instead, identify the job-to-be-done: What
are customers really trying to accomplish? What problems or pains do they have?
What outcomes do they desire?

Techniques: The book suggests asking pointed questions from the customer’s
perspective: e.g. “What job do they need done? How are they currently solving it?
What frustrates them? For what would they pay?” file-dvezmt7sm2l38vbvsepvsi . Also, use
tools like the Empathy Map: chart what customers see, hear, think/feel, and
say/do, plus their pains and gains (possibly using frameworks like XPLANE’s
map).
 Example: Zipcar succeeded by understanding that urban customers wanted
occasional car access without ownership hassles. Traditional car companies
asked “How to build a better car?”, whereas Zipcar asked “What do city drivers
need? How do they prefer to pay?” Zipcar found customers valued convenience
and hourly pricing over owning a vehicle, and designed its model accordingly.

Insight: Direct research (interviews, observation) is vital. Look beyond existing

customers: new segments or non-consumers often hold clues to innovation. For
instance, targeting underserved segments (like budget travelers – see easyJet)
can reveal new model opportunities file-dvezmt7sm2l38vbvsepvsi .

Ideation (Ch. Ideation) – Generate and develop new business model ideas. This is a
creative brainstorming phase. The goal is quantity of ideas, even outrageous ones,
before refining. Key principles from the book file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi :

Think expansively: Challenge assumptions and orthodoxies. Don’t be confined

by existing industry logic. E.g., Nintendo looked beyond typical console specs to
focus on innovative control (Wii) instead of raw power file-dvezmt7sm2l38vbvsepvsi .

Use structured techniques: The authors mention approaches like “What if?”
scenarios (e.g. “What if we gave this product away?”) or starting from extremes
(disrupt the status quo). Creative tools like mind maps or analogies can spark
ideas.

Diverge, then converge: First generate many possible business model sketches
(using canvas, sticky notes). Then select the most promising by combining or
discarding.

Example: Swiss innovator Elmar Mock (of Swatch) reportedly gathered diverse
people to reimagine watchmaking from scratch. A team from different
backgrounds might imagine a low-cost watch not as “cheaper luxury” but as a
new fashion accessory (which is what Swatch became).

Insight: Ideation should involve cross-functional teams (mix of marketing,

engineering, operations, even outsiders) to spark novel combinations. Avoid
starting with competitors’ models; instead, ask “What existing business patterns
(like those above) could we apply to our industry?” file-dvezmt7sm2l38vbvsepvsi .
Visual Thinking (Ch. Visual Thinking) – Use visuals (sketches, diagrams, sticky
notes) to explore and communicate models. Words alone are often too abstract for
complex models. The authors stress that drawing or sketching the business model
helps teams see how pieces fit file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi .

Sticky notes and Canvas: Writing each element on a sticky note (one idea per
note) allows the team to quickly rearrange and iterate the model
file-dvezmt7sm2l38vbvsepvsi . For example, put one note for a customer segment, another
for a channel, etc., then visually map them. This makes “tacit” assumptions
explicit and spurs discussion.

Simple drawings: It’s powerful to draw icons or simple graphics (e.g. a little
factory for Key Resources, arrows for revenue flow). This engages the brain
differently than text. Even simple stick figures (customer, product box, money
symbol) can clarify ideas file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi .

Tip: Use thick markers, limited text on notes. Team members should feel free to
sketch on a whiteboard or flipchart. This “war room” approach encourages
creativity and alignment.

Insight: Visual models are easier to share and get feedback on. When presenting
to stakeholders, a diagram of the canvas conveys much more than slides full of
text.

Prototyping (Ch. Prototyping) – Create a “rough draft” of the business model to test
assumptions. Just as products are prototyped, business models can be prototyped
in simple form file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi . A prototype might be a role-
play, a mock sales pitch, a trial with minimal functionality, or a spreadsheet model.
The point is to make the idea tangible and stress-test it.

The authors encourage an iterative, experimental mindset: build multiple

prototypes at varying fidelity file-dvezmt7sm2l38vbvsepvsi . For instance, sketch one bold
idea on a napkin, then refine the best ones on a canvas, then pilot small-scale
with real customers.

Fail fast to succeed sooner: The text argues against delaying innovation (“we
don’t have time” or “we only do market research”). Instead, low-fidelity prototypes
allow early learning without massive commitment file-dvezmt7sm2l38vbvsepvsi

file-dvezmt7sm2l38vbvsepvsi .
 Example: If a retailer imagines a subscription model for clothing, a prototype
could be offering a limited “try-and-buy” plan to a small group of customers,
rather than building full logistics.

Insight: Prototyping business models reduces risk. It reveals hidden hurdles (e.g.
“customers won’t take a subscription” or “this channel is too expensive”).
Iteration can pivot the model before large investments. This aligns with lean
startup principles of build–measure–learn.

Storytelling (Ch. Storytelling) – Use narrative to explain the business model to

others. Even a brilliant model can be confusing if poorly explained. The authors insist
that stories make new models compelling file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi .A
good story engages people emotionally and logically, helping them see how the
model works in a concrete context.

Why stories? Humans process narratives more easily than abstract plans. To a
skeptical boss or investor, a story about “Jane, an urban mom who happily uses
our service” is more convincing than dry stats. For employees, a tale of how the
new model solves customer problems gets buy-in. Research shows listeners
“suspend disbelief” in a story and imagine themselves in it file-dvezmt7sm2l38vbvsepvsi .

How to do it: Choose a protagonist (customer, employee or founder) and walk

through a typical experience. For instance, an employee-observer story might
follow a sales rep frustrated by outdated systems, who is then delighted by the
new model’s efficiency file-dvezmt7sm2l38vbvsepvsi . Or a customer journey story could
illustrate how someone goes from problem (e.g. “I need a custom X”) to solution
(“I use our service and it solves it”) along the new channels and value props.
Keep it simple and vivid.

Example: When Nokia pivoted to smartphones, they told a story of “Tom, who
carries one device for email, calls, and music,” to justify an all-in-one phone
(versus separate gadgets).

Insight: Storytelling is crucial during the implementation phase (to train teams)
and pitching (to investors or partners). It crystallizes the business model’s value
in people’s minds. The Canvas itself can be seen as a visual story framework.

Scenarios (Ch. Scenarios) – Develop future scenarios to test and refine models.
Scenarios are detailed narratives about how things might play out, used in two ways:
 1. Customer Use Scenarios: Describe specific, vivid situations of customers using
your offering file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi . For example, the book
gives scenarios for a mobile location service: a tourist lost in a city, a farmer
tracking crops, a pizza delivery driver. Each scenario highlights different needs
(e.g. one-time info vs daily tracking) and influences choices of channels, pricing,
and value proposition. By walking through these scenarios, designers ask: Does
one model fit all, or do we need variants? (The book’s table of guided questions
shows how each scenario leads to different questions about value and cost.)

2. Future Business Environment Scenarios: Map out possible future trends (e.g.
technological changes, economic shifts) and imagine how they would impact
your model file-dvezmt7sm2l38vbvsepvsi . This aligns with the “Business Model
Environment” chapter: you might consider a scenario where a new regulation
bans current practices, or one where a new technology emerges. Then ask how
your model survives or adapts.

Insight: Scenarios help “make the abstract concrete.” They force specificity (who,
where, when) and surface hidden assumptions. They also prepare the
organization for multiple futures. In practice, building multiple models and
testing them with user feedback (including fictional ones from scenarios) is part
of a robust design process.

Business Model Strategy (Section 4: Strategy)

This section focuses on strategic analysis and planning around business models.

Business Model Environment (Ch. Env.) – Analyze the external context. Every
business model operates in a broader environment of market conditions,
competition, trends, and macro forces. The authors urge creating a “design space”
map of the environment file-dvezmt7sm2l38vbvsepvsi . They group external influences into four
areas:

1. Market Forces: Customer needs, segment attractiveness, switching costs,

revenue potential file-dvezmt7sm2l38vbvsepvsi . For example, how price-sensitive are
customers or how lucrative is the market segment?
 2. Industry Forces: Competitors, new entrants, substitute products, suppliers, and
complementors file-dvezmt7sm2l38vbvsepvsi . Use tools like Porter’s Five Forces to map
competitive intensity (e.g. how fierce is rivalry? Are suppliers powerful?). In the
pharmaceutical example, questions include: will biotech disrupt traditional
pharmas? Are digital platforms changing drug sales?

3. Key Trends: Technological, regulatory, social, cultural, and economic trends

file-dvezmt7sm2l38vbvsepvsi . For instance, trends might be rising smartphone use, open-
source movements, or demographic shifts. These trends can create design
drivers (e.g. new tech enabling innovation) or constraints (e.g. regulations).

4. Macroeconomic Forces: Global economy, capital markets, inflation,

infrastructure, raw material prices file-dvezmt7sm2l38vbvsepvsi . E.g. a crash in credit
markets or a change in trade policy could affect how a model works.

Environmental Scanning: The book emphasizes ongoing “continuous scanning”

because change is constant file-dvezmt7sm2l38vbvsepvsi . Map your own model’s ecosystem –
what opportunities or threats are emerging? For example, if ride-sharing is a core
channel, a trend toward autonomous vehicles is a key trend to monitor. They suggest
even using scenarios of future environments to spark new ideas file-dvezmt7sm2l38vbvsepvsi .

Insight: Treat the environment not as a fixed backdrop but as part of your strategic
design space. Innovative models can in turn reshape the environment (e.g. how Uber
changed city transportation norms). Use the Canvas to see how external forces
influence each block (e.g. new tech might reduce key resource costs, or changing
regulations might demand new partnerships).

Evaluating Business Models (Ch. Evaluating) – Regularly check the health of your
model. The authors liken this to an annual check-up: assess whether the current
model is still competitive and profitable file-dvezmt7sm2l38vbvsepvsi . If issues are found (e.g.
margins are shrinking, a competitor beats you), it may prompt adjustments or full
innovation.

They describe two approaches:

 1. Big-picture assessment: Look at the overall model (market position, growth,
profitability) and consider strategic moves. The book gives the example of
Amazon in 2005. Amazon’s strength was its enormous customer reach and
selection; its weakness was low margins from selling mostly low-value
items file-dvezmt7sm2l38vbvsepvsi . To address this, Amazon launched Amazon Web
Services (AWS) and Fulfillment by Amazon in 2006 file-dvezmt7sm2l38vbvsepvsi .
These new initiatives leveraged its logistics and tech strengths but targeted
underserved markets (developers and sellers), with higher margins
file-dvezmt7sm2l38vbvsepvsi .

2. Building-Block (SWOT) assessment: Use SWOT (Strengths, Weaknesses,

Opportunities, Threats) on the overall model and on each of the nine blocks
file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi . For example, ask: “What are our
value proposition’s strengths? What are our revenue streams’ weaknesses?
What external opportunities exist for each block? What threats (like
competitors or substitutes) loom?” Combining SWOT with the Canvas gives
structure (SWOT alone can be vague) file-dvezmt7sm2l38vbvsepvsi . The book
provides checklists of questions for each block (not quoted here for brevity).

Insight: The goal is to surface potential pivots before crisis. Small weaknesses in
one block (e.g. weak channels) may hurt others. Regular evaluation can lead to
incremental improvements or seed a new model initiative. For instance, Netflix’s
move to streaming came from recognizing declining DVD margins. The case of
Apple (iPod) also shows pivoting from hardware to services (iCloud) when
evaluating strength of their ecosystem.

Blue Ocean Strategy (Ch. Blue Ocean) – Create uncontested market space through
value innovation. Blue Ocean Strategy (by Kim & Mauborgne) complements the
Canvas by focusing on making competition irrelevant file-dvezmt7sm2l38vbvsepvsi . Rather
than fighting over existing markets (red oceans), companies seek “blue oceans” –
new industries or market segments created by differentiation plus low cost. Key
ideas:

Value Innovation: Simultaneously pursue differentiation (raise value) and cost

reduction. This rejects the trade-off between value and cost file-dvezmt7sm2l38vbvsepvsi .
 Four Actions Framework: To systematically innovate, ask for each industry
factor: Eliminate, Reduce, Raise, Create file-dvezmt7sm2l38vbvsepvsi . For example, Cirque
du Soleil eliminated live animals and star performers (eliminate), reduced “thrill &
danger” (reduce), raised venue refinement and theme, and created artistic
music/dance (raise/create) compared to traditional circuses. This reshaped the
circus industry.

Integrating with Canvas: The Canvas’ right side (Value Proposition & Customers)
aligns with “value” in Blue Ocean, and the left side (Infrastructure & Costs) aligns
with “cost” file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi . You can apply the Four
Actions to each block: e.g. for your Value Proposition, ask “What features to
eliminate? What new features to create?” and then trace how that changes costs
or resources on the left side file-dvezmt7sm2l38vbvsepvsi .

Example: Nintendo Wii redefined consoles by eliminating “top-tier graphics”

(reduce) and creating motion controls (create), thereby appealing to a non-
gamer market (families) at a lower price.

Insight: A Blue Ocean view pushes you to question every element of your model
against conventional wisdom. The Canvas helps visualize the trade-offs: if you
cut a cost (left side), what must you boost on the value side to attract
customers? Used together, SWOT-Canvas-Blue Ocean becomes a strong
strategic toolkit.

Managing Multiple Business Models (Ch. Multiple Models) – Many large

organizations juggle more than one model. This could be different business units,
products, or market segments, each with its own model. Managing multiple models
creates potential synergies (shared resources) but also conflicts (competing for
attention or cannibalization) file-dvezmt7sm2l38vbvsepvsi .

Key tension: Integration vs Autonomy (the 2x2 diagram in the book): Separate
models can either share resources (integration) or operate independently
(autonomy). Companies must balance these. Too much integration can cause
internal conflicts (one model’s needs hurting another), while too much
separation may waste opportunities for efficiency.
 Swatch Example: In the 1980s, Swiss watchmaker SMH (now Swatch Group)
faced Japanese competition in low-end watches while dominating high-end.
CEO Nicolas Hayek decided to serve all three segments (low, mid, high) under
one group. He launched Swatch, an affordable Swiss watch, to compete at the
low end file-dvezmt7sm2l38vbvsepvsi . This risked cannibalizing mid-range sales (e.g.
Tissot), but it allowed SMH to reclaim low-end market share. They gave Swatch
autonomy on product and marketing, but centralized manufacturing and R&D for
efficiency file-dvezmt7sm2l38vbvsepvsi . The result: Swatch became a huge success
(millions sold) without destroying the higher-end brands. SMH managed multiple
models by carefully structuring autonomy and shared functions.

Insight: If you introduce a new model (e.g. a radically different product line or a
spin-off), decide whether it lives within the company or as a separate entity.
Preserve strong branding and customer focus by giving teams autonomy, but
also look for synergies (shared tech or supply chain). Monitor internal conflicts
(e.g. sales forces competing) and coordinate where beneficial.

Business Model Process (Section 5: Process)

This section outlines a practical process for designing or innovating a business model. It
has five phases: Mobilize, Understand, Design, Implement, and Manage
file-dvezmt7sm2l38vbvsepvsi . Importantly, the process is iterative: understanding and design
overlap, and one often loops back to earlier phases.

1. Mobilize – Set the stage. Build awareness and alignment for why you need a new or
improved model file-dvezmt7sm2l38vbvsepvsi . As a team, agree on objectives and establish a
common language (often using the Canvas terminology). Assemble the right team
and commitment from leadership. Explain the motivation (e.g. market threats, growth
goals). This phase is about preparation: gathering stakeholders and defining scope.

Activities: Frame the project, define goals, and ensure resources (time, budget)
are in place.
2. Understand – Research and immerse. Deeply study the context: customers, industry,
trends, internal capabilities file-dvezmt7sm2l38vbvsepvsi . This aligns with scanning the
environment and customer insights. Collect data from market research, customer
interviews, expert opinions, and competitor models file-dvezmt7sm2l38vbvsepvsi . Map the
current business model (the “as-is”) to reveal strengths and weaknesses. Identify
customer segments, their jobs/pains/gains, and technical or regulatory constraints.

Activities: Conduct interviews, surveys, and desk research. Sketch the existing
Canvas (often in workshops) to get a baseline. Use tools from earlier chapters
(Empathy Maps, scenario narratives). Avoid over-analyzing to paralysis:
demonstrate progress with early outputs (e.g. a canvas sketch)
file-dvezmt7sm2l38vbvsepvsi .

Goal: Gain “knowledge capital” – a deep understanding of the problem space

file-dvezmt7sm2l38vbvsepvsi . This knowledge will inform creative leaps later.

3. Design – Ideate and prototype. Using the insights gathered, generate many new
business model options file-dvezmt7sm2l38vbvsepvsi . Sketch these on canvases and refine
them. Prototype the most promising models (see Prototyping above) and test them
for feasibility and desirability file-dvezmt7sm2l38vbvsepvsi . Use visuals and team creativity to
converge on a shortlist of candidates.

Activities: Brainstorm creative models, use Blue Ocean Four Actions on Canvas,
build low-fidelity prototypes (e.g. trial offerings, pitches, storyboards). Engage
internal teams and maybe some customers for feedback.

Goal: Select the most satisfying model design (or designs) for a pilot.

4. Implement – Launch the model. Turn the prototype into reality. This may involve a
pilot program, a new organizational unit, or a business launch. Execute the plan:
allocate budget, define new processes, train staff, and roll out channels. The Canvas
can guide the operational plan (e.g. ensure Key Activities and Resources are in place,
Partners contracted).

Activities: Develop detailed business and financial plans, build or integrate

required infrastructure, run a pilot or phased rollout. Coordinate marketing to
attract customers under the new model.

Goal: Put the business model into practice and start generating results (sales,
users, etc.).
 5. Manage (Evolve) – Monitor and adapt continuously. The process doesn’t end at
launch. In today’s fast-changing environment, even successful models have limited
lifespans file-dvezmt7sm2l38vbvsepvsi . Set up metrics and feedback loops to evaluate
performance of each Canvas block (e.g. are Customer Segments engaging? Are
costs under control?). Adjust the model components in response to market feedback
– for instance, tweak pricing, add/remove partners, or explore additional revenue
streams.

Activities: Regularly review KPIs, revisit the Canvas, and be ready to iterate.
Encourage a culture of experimentation (test new revenue streams, channels,
etc.). Plan for eventual renewal or replacement of the model.

Goal: Sustain competitiveness by evolving the business model over time.

Throughout all phases, the Business Model Canvas itself is the organizing framework.
Table in the book (p. 248) links each phase to tools/chapters (e.g. “Understand” uses
Canvas, Patterns, Customer Insights, etc.; “Design” uses Ideation, Prototyping, Storytelling;
“Manage” uses Evaluation and Blue Ocean) file-dvezmt7sm2l38vbvsepvsi .

Insight: This process emphasizes action and collaboration. It’s not a static plan but a
cycle: as soon as you prototype (Design), you may need more customer research
(Understand) and so on. In practice, cross-functional teams hold workshops at each
phase, using the Canvas on walls, sticky notes, scenario checklists, etc. Avoid long inert
planning; instead do quick iterations and keep leadership informed with visual progress.

Sources: The above explanations are based directly on Business Model Generation
(Osterwalder & Pigneur, 2010), as provided in the uploaded PDF. Key definitions and
insights are cited from the book’s text file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi

file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi file-dvezmt7sm2l38vbvsepvsi . Industry examples are

illustrative extensions to help apply the concepts in real-world contexts.

Citations

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