D1.03. Business Model Canvas

Having a good idea to solve a water problem is not enough; it must be put into action to know whether it works or not. The Business Model Canvas provides entrepreneurs a chance to enhance their business or project ideas, giving them a test of coherence, adding new perspectives from different stakeholders, in the hopes of making their idea more successfully implementable. This Tool details the Business Model Canvas methodology, reviews its key elements, and provides guidance on how it can be best applied for a business or project idea in the water sector.

What is the Business Model Canvas?

The Business Model Canvas (BMC) is a methodology that focuses on the concept of “business model”, which is defined as the description of a business (project) idea and how it will create value for all its stakeholders, answering questions about customers (beneficiaries), operations (technology), and profits (social impact) (Dorf, Byers and Nelson 2019). The BMC helps entrepreneurs (organisations or individuals) to develop, improve, or adapt a business or project idea and put it into action. It provides a framework for obtaining the most amount of value from a new idea while taking an objective look at any potential risks and assumptions it carries (Open University, 2016). The Connecting Nature (2019), a consortium of European NGOs, academic institutions, and businesses working on the promotion of nature-based solutions (Tool C3.04), advocates the use of BMC for developing social ventures as it allows:

• To communicate in a simple way what the business/project idea aims and wants to do and why, who needs to be involved and how it is going to make it happen.
• To plan the basic building blocks required to build a successful long-term sustainable project.
• To identify potential new partners or beneficiaries that may be interested in getting involved in the planning, implementation or ongoing operation of the business idea.
• To explore potential sources of initial financing and/or partners who could assist with financing ongoing costs or contributing to cost reduction.

It is important to highlight that having an idea about doing something that might create economic or social value, that is, being “creative”, is not enough. To innovate in the business or social worlds requires putting ideas into action. Innovation is understood as introducing change into relatively stable systems, it is concerned with the work required to make an idea viable (Insider, 2021). Put simply, “creativity is about coming up with the big idea. Innovation is about executing the idea — converting the idea into a successful business” (Govindarajan, 2010).

Business Model Canvas Methodology

The BMC, as a business development tool, requires time to outline the business model and explore it in detail, so that the entrepreneur might be able to identify its advantages and drawbacks and can make an informed decision about whether to commit resources to taking it forward (Open University, 2016). To do so, the BMC methodology uses a graphical, one-page framework, that describes and/or challenges the business model. It consists of 9 different elements needed to give coherence to the business or project idea:

Entrepreneurs should prepare their Business Model Canvas with the help and input from other stakeholders so that the BMC methodological process to reap its full potential benefits. One common way of doing that is to conduct a multi-stakeholder workshop to collectively discuss and fill in the Canvas. Key questions have been developed to help generate ideas and detail each of the 9 elements of the Canvas:

Key partners (Who will help you?):

• Think about all the organisational relationships that are essential to the value proposition.
• A partner is anyone you work with that is essential to deliver what you deliver.

Key activities (How do you do it?):

• Focus on the most important examples of how you do what you do, rather than defining every activity within your business.
• What are the essential activities to achieving your value proposition?

Value proposition (What do you do?):

• Describe the thing that makes that business different from others and therefore offers distinctive value to customers.
• Think about the specific problem you want to address, and how your solution, be it a product or service, is valuable to the beneficiary.
• Why should donors/investors fund you for this service rather than anyone else? What makes your solution the most attractive one available?

Audience relationship (How do you interact?):

• Think about your two different audiences: beneficiaries and donor.
• What sort of relationship do you need to establish with them?
• What will their expectations be and how will you manage these?

Audience segments (Who do you help?):

• Beneficiaries: for whom are you creating the most value

Distribution channel (How do you reach them?):

• Consider which method of engagement would be most appropriate according to the beneficiaries’ needs and the resources available to the project.

Key resources (What do you need?):

• What key resources do you need in place to support the activities you have identified, and the process of bringing your value proposition to the beneficiary?

Cost structure (What it will cost?):

• Focus on the greatest and most significant costs of key activities. Good estimates will be sufficient for most situations.

Revenue stream (How much will you make?):

• For a commercial business this is the element within which to consider profit. The closest equivalent for the not-for-profit sector would be to consider how you are maximising your donor’s (or potential donor’s) value for money.
• You might be able to demonstrate shared resources, matched funding, additional revenue streams and any other measures that will help to make your project stable and its impact sustainable.

How to use the Business Model Canvas

The BMC is a useful methodology for water practitioners interested in developing a new approach for a project, improving its implementation, or taking a water technology out of the lab and converting it into a business idea. It is a first step for the successful development of a business model or project idea in the design phase. The experience of the “Safe Water Project”, a market-based approach to deliver bio sand filters and bottle refilling services to consumers in South Sudan, Uganda, and Kenya, provides a good practical example of how the BMC methodology can be applied to water projects ideas and initiatives.

It is worth mentioning that the BMC does not replace a detailed business plan, however. It is only a methodology to clarify ideas and provides structure to strategic planning process; it is not enough to constitute a financial plan in itself. Moreover, another cation to consider with BMC’s is the potential to overrate the value proposition of the idea. This can be especially tempting for the case of WASH initiatives as people can get quite excited about ideas that bring people water, i.e. the most valuable resource supporting human life and activities. Overrating ideas can happen especially if the entrepreneur invites stakeholders who might be interested in the business or project (beneficiaries/customers, suppliers/implementation partners, donors/investors, etc.) and who may therefore be biased towards only seeing its potential benefits.