Lean Canvas Business Model – How To Create A Lean Startup Business

 

The Lean Canvas Business Model is a variation of the original “business model canvas” devised by Alexander Osterwalder (thanks to its Creative Commons BY-SA license).

Extremely simple in its design, the Business Model Canvas empowers entrepreneurs to create, visualize and test business models without wasting capital or overcomplicating their approach.

Today, it’s used by startups to break new ground, as well as massive companies like GE, P&G and 3M to explore new models and keep up with the competition.

It’s also the core of the book Business Model Generation (co-authored by Osterwalder and Pigneur), which has sold over a million copies in 30 languages.

Harness the power of the Lean Canvas if you are a startup or a new corporate venture.

THE ORIGINAL BUSINESS MODEL CANVAS

It’s said that no business plan survives its first contact with customers

– Osterwalder.

The Business Model Canvas was partially born out of this need to create more flexible plans that could be tested and changed quickly to meet customer needs.

Most importantly, it standardizes the elements of business models and turns them into modules that predictably interact with and influence one another.

The Business Model Canvas is constructed out of nine building blocks? nine blocks that equip you to think of thousands of possibilities and alternatives (and find the best ones):

• Customer segments (your audiences).
• Value propositions (the product or service you provide).
• Channels to reach customers (distribution, stores).
• The type of relationships you want to establish with your customers.
• Revenue streams you generate the key resources you have to work with (capital, talent).
• The key activities you can use to create value (marketing, engineering).
• Your key partnerships (who can help you leverage your model).
• The cost structure of the business model (what you must invest).

These nine elements are arranged to show how they impact each other.

THE LEAN CANVAS BUSINESS MODEL

There are several variations, but the Lean Canvas has gained traction thanks to the lean startup movement.  The Lean Startup was made popular by the book written by Eric Ries, if you haven’t read it I do recommend it, it outlines the philosophy and methods used.

Each tool adopts takes a different approach to the original by Osterwalder based on the to the goal or the development stage of the business idea.

One of the most popular of these alternative versions is the “lean canvas” created by Ash Maurya. I’m going to walk you through how it differs from the original and show you when and how to use it.

Lean Canvas Vs Business Model Canvas

The difference between both tools lies in the alteration of the four units:

• Key Partners (Business Model Canvas) vs. Problem (Lean Canvas)
• Key Activities (Business Model Canvas) vs. Solution (Lean Canvas)
• Key Resources (Business Model Canvas) vs. Key Metrics (Lean Canvas)
• Customer Relationships (Business Model Canvas) vs. Unfair Advantage (Lean Canvas)

Lean Canvas Business Model

Who Should Use The Lean Canvas?

The Lean Canvas is designed specifically for startups; it focuses on addressing how your solution solves customer problems and what unique value you offer compared to others in the market or other possible solutions.

It fundamentally challenges you to move away from the idea that you love! and start to validate it.

On the other hand, the business model canvas was created to solve the issue of business plans being uninterruptedly outdated as soon as they are in the initial stages of development. The business model is based on assessing and strategically analyzing an existing business – both internally and competitors.

For that reason, it can be said that it was developed for existing companies, large or small, which already have established their presence in the market and got traction with customers.

However, startups don’t have a customer base and often no products or prototypes. So when they try and use the business model canvas, they aren’t able to fill all the boxes and the canvas remained incomplete.

The Lean Canvas includes also helps deal with uncertainty and risk. All startups are limited by time and resources. They urgently need to reduce risk and prove that their idea fits the market and customers will pay money for it. Of course, the hope is that then it can do this profitably.

The Lean Canvas also reflects the principles of the “Lean Startup? approach build-measure-learn.

In other words, an iterative and rapid cycle of development, testing and validating each hypothesis upon which your idea is based.

Canvas	Business Model Canvas	Lean Canvas
Suitable for	Existing Business	Startups
For use by	Senior Management, Operations, Marketing	Entrepreneurs, Founders, Investors
Basis	Value proposition, incremental and radical innovation	Idea testing, Evaluation of assumptions, Customers Focus, Value Proposition
Application	Mixed teams to develop a common strategic understanding of the existing business model and identify opportunities.	Focus on problem-solution market-fit for new entrants.

Strengths And Weaknesses Of Lean Canvas

Strengths

• Focus on the problem-solution fit.
• Includes measuring the success.
• Reflects a lean startup mindset: build-measure-learn.
• Unfair advantage helps to differentiate in the market.
• Easy to understand the elements and the structure.

Weaknesses

• Partners and value exchange between different actors is not visible.
• Defining the unfair advantage can set barriers during the early stages of an idea.
• No team or cultural aspects (only within resources).
• Missing building blocks for special usage, such as sustainable business models.

LEAN CANVAS MODEL GUIDE

Having the Lean Canvas as a visual guide made this part “communicating the model/idea” so much more effective — and I think the most valuable function of the tool. Whether you are developing a business idea on your own or as part of a team, the Lean Canvas model can help you visualise each element and challenge if it is right and fits with the other pieces.

The Lean methodology was born out of process improvement with the philosophy of eliminating waste — this includes time, processes, inventory and more. The Lean Canvas, unlike, the Business Model Canvas, is designed specifically for startups.

The problem with business plans for startups & entrepreneurs is that they’re a waste of time. Don’t get me wrong-a well-researched business plan is important but only at the right stage of your business. You still need to understand the plan of how and when you will implement your Lean Canvas.

How Do I Get Started?

The Lean Canvas uses 9 blocks suited to the needs/ purposes/requirements of a Lean Startup. The Lean Canvas is a perfect one-page format for iterating ideas and challenging assumptions. Building the business model that then looks like its a viable and sustainable business.

The blocks guide you through logical steps starting with your customer problems right through to your unfair advantage (often the hardest block to answer).

Start by the printing of several canvases and then using these to build out your idea. I’ve made some very large canvas pdf’s that are ideal for printing and then using post-it notes.

Different Ways Of Using The Lean Canvas.

One of the important things I always recommend is to keep different versions as you progress with your business model. You might find that you revert back to some ideas as you go through the process. Also, it is a good way of seeing your own progress in your ideas.

If you are using a large print out with post-it notes then simply take photos at different stages so you have a digital record of the evolution.

1. From Initial Idea to Business Launch. The Lean Canvas allows you to map out the key foundations of your startup. It prompts you to analyze and prioritize your goals during the early stages of your business. From the problem to key metrics, the Lean Business Model helps you build the logic that will help your business foundations be stronger.

2. Market and Competitor Analysis. The Lean Startup Canvas can also help you to identify your advantages over other market competitors. As part of developing your business model canvas you should compare the dominant players in the market and their model. It also generates a blueprint for your startup to identify a consumer segment based on your solutions.

3. Launch and Growth. A good practice and part of testing and pivoting in a startup are to revisit the lean canvas. As their company evolves, you can maintain the focus of real-life operations on your unique value proposition.

Step 1 (Of 10): Problem.

Each customer segment (CS) you identify will have a set of problems that need solving. In this box try listing one to three high priority problems that each customer segment has. Without a problem to solve, you don’t have a product/service to offer.

Problems can be based on complexity, time vs. ease of use, price, and quality vs. features, there are many different ways to identify problems. If you’re not sure then take time to go out and talk to customers. Also, observe them in the situation and context that relates to your idea.

Step 2 (Of 10): Customer Segments.

From practice, it is often better to focus on one set of customers to start with. For example, engineers are an identifiable segment. However, you need to get into the detail of what type of engineers and build out a persona for them. The Problem and Customer Segment boxes are intrinsically linked, i.e. You can’t think of any problems without a Customer Segment, and vice versa.

Use the Persona Canvas to really identify you’re customer segment. All too often the reason startups fail or need to pivot rapidly is because they didn’t spend enough time understanding the customer segment upon which the rest of the business model depends. Without customers, there is no business.

Step 3 (Of 10): Unique Value Proposition.

The Unique Value Proposition is situated in the middle of the Lean Canvas. A promise of value to be delivered to the customers is called a value proposition. This should be the main reason a potential customer wants to buy from you. Thinking and understanding why your product is useful to your Customer Segments and why they want to buy is the best way to understand your Unique Value Proposition.

Research your competition using multiple methods. Ask target customers about other products or services they’ve explored or used. Utilize search engines, social media and trade publications to become an authority on your industry.

The danger is to create a value proposition, and product for that matter, that is not different from the competition. Be careful to understand how your value proposition stacks up against potential competitors.

A UVP should:

1. Be easy to understand in about five seconds.
2. Communicate the benefit a customer receives from using your products and/or services.
3. Explain how your offering is different from and better than competitors’.

Identify ‘REAL’ Pain Points

Put yourself in your customers’ shoes and describe up to 3 problems they face. Try to understand their unique needs and challenges. These problems will lead to working business models.

Be Careful! Identifying the wrong problem is a problem. For instance, you might believe your SaaS platform is struggling because your logo and copy aren’t engaging, but the real issue might be that users don’t understand why they need your product. If you skip this step, you risk wasting time and energy on non-existent problems.

There are several ways you can get a more informed understanding of your problems, including:

• User Interviews
• User Tests
• Surveys and Questionnaires
• Ethnography – observing customers

Step 4 (Of 10): Solution.

Finding a solution to the problem is the goal of your startup! What you need to do is Get Out The Building — a phrase coined by the godfather of Lean Startup, Steve Blanks. And what Blank’s here is that the solution is not in your office, it’s out there in the streets. So go interview your customer segment, ask them questions, and take those learnings. Remember the Lean Startup is validated learning through a continual Build — Measure — Learn cycle.

Careful! You might think you know the best part of your product or service, but completing the previous sections of the Lean Canvas may prove otherwise. Your users will ultimately determine which aspects of your product they’re most eager to use and will subsequently find most beneficial.

Run through the main features and benefits of your product or service.  Then prioritize them. Then go to a customer and ask them to prioritize them. Consider the strengths and flaws of each and reduce your list down to the top three. You can also use other strategy exercises like using brand positioning to help define your solution.

Step 5 (Of 10): Unfair Advantage.

What will makes you stand out? This is far harder than it seems. Remember that your unfair advantage needs to be sustainable. Ideally, this is something that competitors will be hard to replicate.

What are some resources you possess that can’t be easily copied or acquired by other businesses? Here are some examples of Unfair Advantages to get you thinking about what makes you stand out:

• Inside Information: In-depth knowledge or skills that are critical to the problem domain. Basically, this means able to address the needs of customers in specialized areas better than the competition. The competition might, for instance, have generalists and you have specialists.
• Personal Authority: If you’re a scholar in a specific field, an award-winning builder of a certain product, or an expert on given services, you hold sway over competitors.
• Community: If you have a network of customers and partners at your fingertips, you’re in a good position to make big strides quickly and that can make it hard for others to catch-up.
• Internal Team. Do you have a highly-talented and unique team?
• Reputation. Have you built up a following, a name that people instantly associate with proven success? A proven and popular brand reputation is a major advantage.
• Intellectual Property: Is there a method, technology or some process that you can protect.

Step 6 (Of 10): Revenue Streams.

How you price your business will depend on the business model, e.g. whether you are offering a SaaS a physical product or a combination of services and products.

A common problem is that startups price low. This can pose a few problems. Getting people to sign up for something for free is a lot different than asking them to pay. There is also the idea of perceived value. If you price too low or even start-off free then you run the risk of undervaluing your brand.

The maximum price may render your product unmarketable but the minimum price could seriously hurt the future prospects of your business. First of all, once you start at a low price it is very difficult to raise it without losing customers.

The price model should be thoroughly tried and tested several times. I can assure you that unsuspecting factors will force you to pivot again, and again, and again until you get it right.

Some sources of revenue dependent on your type of business model:

• Asset Sales: Customers pay to purchase ownership of your product, be it a book, camera or coffee mug.
• Usage Fees: Payment for the number of uses of your product such as the number of minutes spent on a phone or nights in a hotel room.
• Subscription Fees: Consumers pay for unlimited usage of a product for a given time period like a monthly gym membership or a yearly newspaper subscription.
• Delivery or Installation Fees: Consumers pay for the installation and/or delivery of your product or service.
• Advertising: Companies pay you to advertise their product or service on your site.

Step 7 (Of 10): Cost Structure.

Try to consider all your costs of doing business. Not only the cost of sales e.g. customer acquisition, but the overall underlying costs across the board.

90% of new businesses fail because they do not properly consider the cost of launching and running their businesses.

To ensure you don’t accidentally overlook a cost, consider how each section of your lean canvas might drive business expenses. For example, what is the cost to launch your product or services? What is the cost to identify target consumers, connect with users, and keep them informed of your brand? When filling in this section, take time to reflect on all possible cost scenarios.

Separate out your variable costs (costs that vary as you scale) to your fixed costs. This way you can get an idea of what costs will increase as you grow.

Step 8 (Of 10): Key Metrics.

If you can’t measure it you can’t manage it – that saying still rings true. Every business owner needs to understand the key levers that are driving performance. These key metrics that are used to monitor daily, weekly and monthly. Moreover, they are the means by which you understand if your product-market-fit. The best way to help with this is to visualize a funnel top-down that flows from the large open top, through multiple stages to the narrow end. A good model to help with this is in the growth marketing canvas – based on AAARRR.

Step 9 (Of 10): Channels.

You will have noticed I have left channels till last. There is a good reason for this. The tendency is that people get caught up in the excitement and creativity of marketing and channels without thinking about the numbers.

How will consumers come into contact with your brand? Where will they first learn about your business? Will it be through social media? If so, which ones? Will it be through paid ads? If so, where will you advertise and how?  What are the costs of the ads? You can use the customer mapping template I’ve created to create a strong strategy to help you define what channels are best.

Once you understand your numbers you can start to investigate your channels much more realistically. What can you afford to spend on a cost per acquisition? They are ways to research channels costs and start to develop a growth strategy that works for your new business.

Step 10 (Of 10): Applications, Review & Next Steps.

The Lean Canvas template is not set in stone. Like other tools, it should be revisited and revised to check your fit to the market and your customers. Many companies revisit Lean Business Models when they are considering a new feature or adding a new service.

This helps internal teams understand and hone in on the central customer problem their updates are resolving.

The Lean Startup Summary exercise helps drive focus down to the right feature-set (solution), metrics, and customer segments which in turn aligns sales, marketing, design and development efforts.

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