Are you eager to drive social change and address some of the growing global challenges through projects within the water and climate sectors? Great! This factsheet will help you understand how to develop and use creative and sustainable business models that provide you guiding lines to overcome the most challenging bottlenecks you are going to face when developing your project. Concretely, this factsheet will present the Sustainable Business Model Canvas (BMC) tool and its main components.
Understanding The Business Model Canvas (BMC)
The Sustainable Business Model Canvas (hereafter BMC) is a tool that you can use to visualize, assess, and adapt your project’s blueprint (business model) in a clear and structured way while considering the project’s social and environmental impact. Using such a tool will allow you to have clear insights into how to create and deliver value for your target groups and how to capture it for your own project objectives, whether those are to make profit while contributing to environmental sustainability, being recognized as an influencer or a public figure, or simply doing something good for the planet and your community.
Although a number of Sustainable BMCs approaches and editions have been developed over the last few years, the most popular one to date is Osterwalder and Pigneur’ 2010 edition. It is a user-friendly and comprehensive tool that helps the entrepreneur adopt an environmental and social lense while designing and implementating a project. This factsheet will use Osterwalder & Pigneur’s 2010 Sustainable BMC publication as a starting point.
A Business Model Canvas tends to be comprised of 9 fundamental fields. In Osterwalder and Pigneur’d publication, an additional two fields are added: 1) the social impact of a project and 2) the environmental impact of a project (both highlighted in a red rectangle in Figure 1). The Sustainable BMC focuses mainly on two main directions, Positioning (right side of the canvas) and Operation (left side of the canvas).
- The positioning section: illustrates the position of your project within your target market, the added value it brings to the target groups, to society as a whole and to the environment. The fields included in the positioning section include: Customer Segments, Customers Relationships, Channels, Value Proposition, Revenue Streams, and Social and Environmental Benefits.
- The operational section: illustrates the operational plan of your project including all the involved stakeholders and the financial aspects of your project. The fields included in the operational section include: Key Activities, Key Resources, Key Partners, Cost Structure, and Social and Environmental costs.
It is important to remember that the sustainable BMC (and any BMC for that matter) reflects the changes and characteristics of an organisation and of the context it operates in and should therefore be treated as a living organism which is subject to change and which should undergo continuous revision, maintenance, and updates according to both current and future specifications of the project and market/s (figure 2).
Figure 1: Sustainable Business Model Canvas (OSTERWALDER & PIGNEUR 2010)
The main goal of this section is to assist you in positioning your project within your target market and increase your profit by creating a sustainable added value for your project and your target groups. Six main components in the sustainable BMC are designed to help you achieve this:
Your target groups are the most important element of your business model. Without having well-defined target groups and a clear understanding of the problems they are facing, and their contexts and needs, you will not be able to achieve the goals of your project. Understanding your target groups allows you to tailor your project and value proposition to their needs, expectations, and context which is essential to maximize your project’s success potentials.
The Customer Segments field in the Sustainable BMC is utilized to define the different target groups of your project. You can organise and categorise them in your Sustainable BMC as you see fit. For example, you can break them down into sub-segments, if needs and expectations within a customer segment vary and therefore need different solutions and treatment. A great way to get started is by developing an Empathy Map for each segment and sub-segment. This tool will help you visualise and understand the various needs, situations, and expectations of your target group/s.
Are you interested in learning more about developing relevant profiles for your project’s target group/s? Great! Check our factsheet and worksheet under module “3.3 Developing Innovative Solutions” and learn more about Empathy Maps and how to create needs-oriented solutions.
Value Propositions (VP)
The value proposition field is the foundation for any project or product being developed. It illustrates the ongoing value exchange between you and your target groups. The Value Propositions may be quantitative (e.g. price, speed of service) or qualitative (e.g. design, target groups experience).
This field is closely linked to the customer segment field since the the value of your product or service depends entirely on your customers. You may think that you have added value to your product or service but real value only exists if you manage to get your customer to see it. Value Proposition supports you to highlight the special features, aspects, and added value of your product or service when communicating with your target group/s. It can help you showcase the uniqueness of your project and how it compares to the competition.
Take a reading break and download our worksheet to learn how to analyse your project characteristics and define your unique value proposition through the Value Proposition Canvas.
Ok, now that we have learned about value proposition and your Customer Segments, it is time to learn about establishing good and lasting relationships with your target groups.
The Customer Relationships field is all about defining how you will interact with your target groups, from initial outreach to turning them into loyal customers. You must choose the most beneficial and viable way to reach your different customer segments, whther this is through a face-to-face meeting/event, cold calling them or employing a third party as a contractor to initiate conversations? Is it best to reach through through selling products/services online, or are you offering more personalised selling services? …etc. The possibilities are endless when it comes to building a relationship with a target group, yet it is crucial to note that the strategy you choose will influence the experience that your target group has, including the trust, loyalty, and commitment they develop for your product/service and your company as a whole.
Now that we learned the importance of understanding your customer segments and sub-segments and how to build solid relationships with them, we need to address one crucial detail: how do we reach them?
In order to establish long lasting relationships with your target customers you have to invest in ongoing customer relationship building strategies. It is not enough to have a few initial exchanges. You must introduce appropriate channels that regulate these relationships and interactions according to a specific plan that suits and corresponds with your project goals. You should makes sure that your communication channels correlate with your marketing and sales plans. Keep in mind that the channels you use to promote your product/services and connect with your target groups can vary greatly. You can use social media, email marketing, events, one-to-one meetings, phone calls, billboards, tv advertisement, established networks, apps, community building etc. It is therefore crucial to pick the channels that are suitable for your unique project goals and put a solid strategy in place that corresponds with the interests, habits, and contexts of your target groups.
Revenue Streams capture the financial gain your project converted by providing your Value Proposition to your Customer Segment. This field is all about identifying how much your target groups should pay to obtain your solution. Your pricing should be determined by your ultimate goals and business models and by the expectations and purchase abilities of your target groups. It is important also to note, that revenue streams have two main types, regardless of your business model:
- Revenues are generated by form one-time payments.
- Recurring revenues are generated from on-going payments.
The last field of the Position section is reserved to the Social and Environmental Benefits of your project on the communities and environment. Keep reading to find out more.
Social and environmental benefits are the external benefits that your project produces for the communities and the environment in which it operates. It is crucial to consider the benefits of your project on these communities and environments to:
- position yourself as a project that has a positive social and environmental impact
- enriches/strengthens the credibility of your project’s value proposition to the target groups
- attracts financial support from governments, donors or impact investors that may support you taking your project to the next level
Now that we understand the characteristics and roles of the different fields within the postion section, let’s now look into the attributes of the fields in the operation section of the Sustainable BMC.
This field describes the main activities and actions that your project undertakes to make your identified business model work. These activities address all the pending tasks of a project such as providing a value proposition to the target groups, identifying and maintaining the relationships with the target groups, use of channels, and the management of the revenue streams. The Key Activities field is therefore vital to operate and manage your project. For example, the more resources you invest in producing and preparing your project’s value proposition, the more comprehensive the channels need to be and the more personal-oriented the customer relationships are, the more activities you will have.
Identifying the key activities of a project alone will bring you nowhere without having and deploying the right resources. What are the key resources of a project and how do you utilize them? Keep reading to find out.
While the key activities describe the most important activities of a project, the Key Resources field describes the most important assets a project must have to guarantee the overall success of its business model. This includes all the physical resources (such as building, vehicles, …etc.), intellectual resources (such as partnerships, knowledge, brands, …etc.), human resources (such as employees, experts, consultants, …etc.), and financial resources (such as cash, credits, …etc). Some resources will be owned in-house and some will be external resources which can be rented, bought, or used for a specific period. It is therefore crucial to reflect on the needs of your project when deciding the resources that you need to invest in. For example, the less in-house resources you need, the lower the investment costs will be.
Having the right partners on your side can often be a useful way to speed up and secure project success. How and why? Keep reading to learn all about key partnerships and their role in any given project.
The Key Partnerships field describes the network of external individuals, universities, companies, suppliers and parties that a project needs to partner with in order to achieve the identified activities/objectives and deliver the value proposition to the target groups. These identified entities have the resources that are needed to carry out project activities better, faster, and/or more cost-efficient. In order to maintain these partnerships you will need a solid partnership management system in place which will require allocating substantial resources. To avoid investing unnecessary resources in this field of your BM you should only create partnerships that introduce specific and much-needed added-value to your project. It is also important to note that there are different types of parterships and you must find the one that works for your specific need. These can include strategic alliances between non-competitors, strategic partnership between competitors, joint ventures to develop new businesses, and buyer-supplier relationships. In summary, only form partnerships that make the most sense for your project’s business model, activities and value proposition.
Implementing and maintain the key activities, resources, partners, channels, relationships of our projects does not come for free. Let’s look into the nitty gritty part of the BMC: the Cost Structure of our projects!
The Cost Structure field is all about describing the monetary costs of operating and implementing a project. In essence, it captures all the costs incurred to achieve all the other above-described fields in your Sustainable BMC. Preparing and maintaining a realistic and an updated version of your project’s cost structure is highly important to understand the actual and potential costs of designing, implementing, and maintaining your project and to be aware of what the main and secondary drivers of these costs are. This field should include all tangible and intangible costs that your project comes across such as rent, materials, overhead, operation, communication, infrastructure (electricity, internet, water, …etc), administration, personnel, cars, …etc.
If you are focusing on designing and implementing a sustainable project, you must also account for the social and environmental costs of your project. How do you do this? Let’s find out.
The social and environmental costs are additional external costs that result from the impact that your project activities could have on the surrounding environment and communities. Identifying and accounting for these costs is crucial when designing and implementing your project to create a balance between the financial aspirations and social and environmental consequences and, therefore, achieve comprehensive sustainability of your project.
Figure 2: Sustainable BMC Dynamics
Business Model: is considered the blueprint of a project or business. It is a structure that outlines the logic behind a project, the way a project is to be run, the people and steps involved, the market in which the project is to be operational, and the financial plan anticipated for this project. In other words, it is all about describing how your project creates sustainable long-term added-value for your company, your target groups, and society as a whole.
Business Plan/strategy: is considered the roadmap of a project or business in a specific period. It is a formal written document that illustrates all aspects of your project including the strategy, vision, goals, marketing plan, financial aspects, and operational, management, and organisational plan.
Cooperative model for financially sustainable municipal solid waste composting (NAWACOM, Kenya) - Case Study
The IFC publications provides hands-on insights and checklists for developing a safe water business. The theoretical information is illustrated by examples and a case study in Kenya.International Finance Cooperation (IFC) (2013): Water Business Kit Kenya: A guide to starting your own water treatment and vending business. Washington, D.C.: URL [Accessed: 09.08.2018]
A business model is a conceptual framework to describe how a social enterprise, start-up or NGO creates, captures and delivers value. The Business Model Canvas (BMC) developed by Osterwalder and Pigneur (2010) serves as hands-on tool to design truly customer oriented business models to meet needs in the market. However, it also covers the aspects of customer segmentation, customer relations, and revenue streams etc. to translate a business idea into a practical business model.
The business model development factsheet provides you with an overview on how to apply the Business Model Canvas. In order to conceptualize an in-depth business model, a broad range of tools from the blueprint and validate phase factsheets are available that have also to be taken into consideration.
What is a business model and why is it important for your business?
The term business model is widely used in theory and practice and reflects core aspects of a business as such. Osterwalder and Pigneur describe it as “[…] the rational of how an organization creates, delivers and captures value” (2010, p.14). To translate these 3 core tasks into concrete building blocks they developed the Business Model Canvas. The Business Model Canvas comprising of customer segments, value propositions, (distribution) channels, customer relationships, revenue streams, key resources, key activities, key partnerships and cost structure. This method can help safe water businesses to capture the strategy of how to create value for specific target groups, called customer segments and how to reach these customer segments with safe water or household water treatment solution (HWTS) at what price. An important dimension at an early stage is to determine the revenue streams so that the business can become cost-covering or profitable. In a next step, business model covers the aspects of what resources are needed, how to finance the business, with whom to collaborate in order to make the business work etc. When reflecting on your existing business or defining a new idea it is crucial to address these topics, specifically when you are working in the complex BoP market.
For whom is business model development essential?
Developing a business model is essential for profit and socially oriented safe water firms who are starting to concretise a business idea. It will help to assess and refine the business idea as well as reflecting and improving the model of a current business. It is applicable for profit-oriented operations as well as for not-for profit oriented ones.
How to create a new business model or refine an existing one?
With the help of the prominently used Business Model Canvas (BMC) (OSTERWALDER & PIGNEUR 2010), a company can refine, reflect or define its business model and take strategic decisions on how to proceed and implement its developed ideas. The goal of the BMC is to assist water entrepreneurs in understanding their business idea and how the business operates to encourage discussions, foster analysis and leverage creativity to design a business model that works.
A thorough explanation of the different building blocks of the Business Model Canvas can be found here.
To further explore the core elements of your business model, we refer to the other tools of the blueprint phase of this toolbox: value proposition, value creation, simple vs. complex business models, innovative ways to reach non-users and retailers and mobile sales force.
But first comes first: developing a business model in practice:
During workshops, gathering different stakeholders, you can discuss how your business model can be developed/improved to create a unique business model by using the BMC:
- See here how it can be done.
- Use this extensive step-by-step description of how to identify the different building blocks of the BMC in 20 minutes here.
- An online template version to work with can be found here.
- Interesting information about business model creation here.
- Gain inspiration with the toolkit for particular water and sanitation business development:
Having brainstormed and filled out the BMC for your company is the first step towards a successful business. But having a BMC is not the end of the work, rather the work starts now: You have to prototype and validate your business ideas to see how they perform in the real world and adjusted to the needs of your customers (see tool on human centred design).