The Lean Canvas as described in the book Running Lean from Ash Maurya is the best way to create and evaluate a business model. By evaluating the Lean Canvas and adapt the it you document the journey to product/market fit.
The Lean Canvas is an adapted version of the Business Model Canvas from Alex Osterwalder. It is the ideal way to document and validate your “business plan. Every phase of the process you adapt the Lean Canvas till have Product/Market fit and you can scale your business.
According to Running Lean you can use the Lean Canvas to document the following meta principles:
- Document Plan A
- Identify the riskiest parts of your plan
- Systematically test your plan
Within this meta principles, the base is to have a vision. This vision you can capture as your business model hypotheses. You can see as this document your plan.
The meta principle identify the riskiest parts of your plan. The biggest risk for most startups is building something nobody wants. So there are 3 stages of identifying risks.
- Stage 1: Problem/solution fit
- Stage 2: Product/market fit
- Stage 3: Scale
In the meantime or better all the time you systematically test your plan. You will do this according the base principle of Lean Startup from the book from Eric Ries.
The principle from The Lean Statup:
Ideas > Build > Product > Measure > Data > Learn
Journey of Lean Canvases
To fulfill your journey to a scalable product/market fit, you evaluate the Lean Canvas, after finishing it. It is the base to the new Lean Canvas.
The lean canvas
In the picture you see the setup of the Lean Canvas. Below it is explained what you need to describe in every field:
Problem and Customer segment:
- List the top 3 problems
- List existing alternatives
- Identify other user rules (example Google: advertisers are customers, users are users)
- Hone in possible early adaptors
Unique Value Proposition
Why you are different and worth (buying) getting attention?
- Be different, but make sure your difference matters
- Target early adaptors
- Focus on finished story benefits: benefits (after using the product) over features
- Pick your words carefully and own them
- Answer: what, who and why
- Study other good UVPs
- Create a high-concept pitch: Bootcamp with boot
This is the part you have all the time in your head. Your solution is where it is all about (according to you). You can describe it here and discover step by step by using the Lean Canvas if your solution is a wishful thinking or it really solves problems and is the “hole in the market”.
Fill here the channels you want to use. Keep the following in mind:
- Free versus paid
- Inbound versus outbound
- Direct versus automated
- Direct versus indirect
- Retention before referral: you need to have a product worth spreading first
If you are familiar with “traditional business plans” then you recognize this one. You need to earn to run a business. Take a care about the following pricing principles:
- Price is part of the product
- Price defines your customer
- Getting paid is the first form of validation
Opposite of the revenue are the costs. The base of a business is to have more revenue then costs, unless you only want to earn with selling your business, as a company. Cost are clear, mostly you need people, an office, hardware etc. and if you don’t need this at all, it will be nice to have an income out of your business.
Metrics are important, as you can manage and grow your business by focusing on the right metrics. Some examples are the Pirate metrics by Dave McClure:
Keep in mind (via Jason Cohen) that anything worth copying will be copied, especially once you start to demonstrate a viable business model.
Examples of an unfair advantage:
- Insider information
- The right “expert” endorsement
- A dream team
- Personal authority
- Large network effects
- Existing customers
- SEO ranking
Prioritize product-, customer- and market risks
Within the Lean Canvas you can prioritize product-, customer- and market risks. You define this as follows:
- Product risk: getting product right
- Customer risk: building a path to customers, solve their pain with your product and make your customer to “buy” it.
- Market risk: building viable business, make the business scalable and sustainable.
Product risk: Getting the product right
- First make sure you have a problem worth solving
- Then define the smallest possible solution (MVP)
- Build and validate your MVP at small scale (demostrate UVP)
- Then verify it at large scale
Customer risk: Building a path to customers
- First identify the pain
- Then narrow this down to early adopters who really want your product now
- It’s ok start with outbound channels
- But gradually build/develop scalable inbound channels – the earlier the better
Market risk: building a viable business
- Identify competition though existing alternatives and pick a price for your solution
- Test pricing first by measuring what customers say (verbal commitments)
- Then test pricing by what customers do
- Optimize your costs structure to make the business model work.
Evaluate the Lean Canvases
By creating and “execute” the Lean Canvas you can mark what is good and what is not usefull in your future business. You can reconize the following phases:
- Understand the problem
- Define the solution
- Validate qualitatively
- Verify quantitatively
Rank your business models
Your objective is to find a model with big enough market you can reach with customers who need your product that you can build a business around.
- Customer pain level (Problem)
- Ease of reach (Channels)
- Price/gross margin (Revenue Streams/cost structure)
- Market size (Customer segment)
- Technical feasibility (solution)
To follow the progress it is advised to create a dashboard that includes, besides the main metrics als0 the last lean canvas and makes the evaluation visible.
More links about Lean Canvas:
Most of the lists are quoted from: Running Lean, 2nd Edition (O’Reilly). Copyright 2012 Ash Maurya, 978-1-449-30517-8
In future I will write more interesting tips and tools from the book so keep following my blog. Or if you can’t wait then better to read the book. It is worth your time…