From Validation Board to Lean Canvas

Erkko Autio

Professor Erkko AutioImperial College Business School

From the Validation Board to Lean Business Canvas

Erkko Autio

Anyone remember this?

http://www.slideshare.net/eautio/validation-board-animated

Erkko Autio

Validation BoardTrack Pivots Start 1st Pivot 2nd Pivot 3rd Pivot

Customer Hypothesis Tip: One sticky note per box

ProblemHypothesis Tip: For two-sided markets,

validate the riskiest side first

Solution Hypothesis

Tip: Do not define a solution until you have validated the problem

Project Team Leader

Core AssumptionsAny assumption that, if invalidated, will break the business

Riskiest Assumption

Method

Minimum Success Criterion

Design Experiment Results

GET OUT

OF THE BLDG

Validated

1 2 1 2

3 4 3 4

5 6 5 6

Which assumption is the most uncertain?

What is the easiest way to test the assumption?

What is the minimum outcome still considered as validation?

If validated, explore the next riskiest hypothesis

Only put the riskiest assumption from an experiment in these boxes.Record data and insights separately

Template from www.validationboard.com

HERE I LIST MY HYPOTHESES FOR THE

INITIAL IDEA (separate

for customers, problem, solution)

HERE I LIST MY CORE ASSUMPTIONS (DERIVED FROM HYPOTHESES)

HERE I LIST MY ELABORATED HYPOTHESES FOR EACH ROUND OF PIVOTING

IF A CORE ASSUMPTION GETS INVALI-DATED, I NEED TO PIVOT

If invalidated, pivot at least one core hypothesis

InvalidatedTip: clear all post-its from this area aftereach experiment is complete

IF MY ASSUMPTION IS VALIDATED, I MOVE TO THE NEXT CORE ASSUMPTION

Start Here!

TWEAK A NEW SET OF HYPOTHESES FOR EACH PIVOT. REPEAT THE CYCLE UNTIL DONE

HERE I LIST LESSONS AND INSIGHTS FROM MY HYPOTHESIS TESTS

GET OUT

OF THE BLDG

THE RISKIESTASSUMPTION GOESHERE FOR TESTINGHERE I DEVELOP

A WAY TO TEST THE ASSUMPTION

HERE I DECIDE HOW A SUCCESSFUL EXPERI-MENT LOOKS LIKE

Erkko Autio

Validation BoardTrack Pivots Start 1st Pivot 2nd Pivot 3rd Pivot




Solution Hypothesis


Project Team Leader


Riskiest Assumption

Method



GET OUT

OF THE BLDG

Validated

1 2 1 2

3 4 3 4

5 6 5 6









This is where I keep track of my problem, customer, and solution

ideas and pivots

This is where I design

and manage my experiments

This is where I keep track of my insights

and lessons from experiments

Erkko Autio

Case: Trevor’s Scooter Business

https://youtu.be/yBA4y-78e2A

Erkko Autio

Trevor’s lean experimentsTrack Pivots Start 1st Pivot 2nd Pivot 3rd Pivot

Customer Hypothesis

ProblemHypothesis

Solution Hypothesis

Project Team Leader

Core Assumptions

Riskiest Assumption

Method



GET OUT

OF THE BLDG

Validated

1 2 1 2

3 4 3 4

5 6 5 6


Invalidated

UNIVERSITY STUDENTS

COMBUSTION ENGINE SCOOTERS ARE NOT ECO FRIENDLY

ELECTRIC SCOOTERS

IMPORTED FROM CHINA

PEOPLE WANT ECO FRIENDLY SCOOTERS

TRY TO SELL ELECTRIC SCOOTERS

MANY SOLD SCOOTERS

STUDENTS WANT ECO FRIENDLY

VESPA BUYERS

OIL IS BAD

CARE ABOUT ENVIRONMENT


FAKE AD TO GET TO TALK TO VESPA BUYERS

7/10 CARES ABOUT THE ENVIRONMENT


DIFFICULT COMMUTE

NO EXPOSURE TO SCOOTERS

VESPA FRIEDNS

DIFFICULT COMMUTE

FRICTION TO LIFESTYLE

NO EXPOSURE TO SCOOTERS

NO VESPA FRIENDS

TALK TO PEOPLE

MANY PEOPLE UNAWARE OF THE IDEA

TRIAL RENTING MODEL

PAY $250 PER MONTH

PITCH

PAY $250 PER MONTH

15 SIGN UP

PAY $250 PER MONTH

Erkko Autio

Trevor’s final MVP

Erkko Autio

Is Trevor now business ready? Why or why not?

Erkko Autio

A great product idea does not yet a business make!

Erkko Autio

Ask yourself…Is this a product or a business?Can I turn this into a business?How would this business actually operate?What is my unique and distinctive strength?Will this be a sustainable business?Can I earn a sizeable profit?

Erkko Autio

A great idea demands a great business concept

Product or service

idea

Value creation operations

Value delivery

operations

Value proposition

Cost model Revenue model

Erkko Autio

A business model operationalises the great idea

A framework that describes how a business creates, delivers and captures value

http://youtu.be/QoAOzMTLP5s

Erkko Autio

From Validation Board to Lean Canvas…

Validation Board: Validate the product or service concept

Lean Canvas: Validate the business concept

Erkko Autio

The Validation BoardTrack Pivots Start 1st Pivot 2nd Pivot 3rd Pivot




Solution Hypothesis


Project Team Leader


Riskiest Assumption

Method



GET OUT

OF THE BLDG

Validated

1 2 1 2

3 4 3 4

5 6 5 6









Pinpointing the customer

Narrowing down on the problem

Evolving the solution

Erkko Autio

The Lean Canvas Company nameDate

Iteration #1

Cost Structure

Customer Acquisition costsDistribution costsHostingPeople, etc.

R€venu€ $tream$

Revenue ModelLife Time ValueRevenueGross Margin

Problem

Top 3 problems

Solution

Top 3 features

Key MetricsKey activities you measure

Unique Value PropositionSingle, clear, compelling message that states why you are different and worth paying attention

Unfair AdvantageCan’t be easily copied or bought

ChannelsPath to customers

Customer SegmentsTarget customers

PRODUCT MARKET

Start by inserting

your validated customer hypothesis

here

Validated problem

hypothesis goes here

Solution description goes here

Here we have the upstream operations

of the business, which describe the problem, solution,

and how much bringing the solution to the customer costs

Upstream operations describe how we

create value

Here we have the downstream

operations of the business, which

describe the customer, delivery channels, and how

we generate revenue

Downstream operations describe

how we deliver value

Here we describe our

unique, compelling

value proposition

which gives us a competitive advantage

https://youtu.be/FjB_e7UO1hc?t=2m23s



Erkko Autio


Iteration #1

Cost Structure


R€venu€ $tream$


Problem

Top 3 problems

Solution

Top 3 features






PRODUCT MARKET

A value proposition

defines:- Customer

pains- Customer

gains- Customer jobs

Erkko Autio

A value propositionCustomer gains: enhancing the

positives (benefits, positive emotions, conveniences, status)

Customer pains: relieving the negatives (costs, complications, negative emotions, embarrassment)

Customer jobs: what do we actually do for the customer?

Erkko Autio

TrainTrickCustomer pains: Filing compensation claims is

complex and time consuming and makes me angry and frustrated

Customer gains: Making claiming easy and effortless, makes me feel good (charity)

Customer jobs: Processing compensation claims, securing outcomes

Erkko Autio


Iteration #1

Cost Structure


R€venu€ $tream$


Problem

Top 3 problems

Solution

Top 3 features






PRODUCT MARKET

A value proposition

defines:- Customer

pains- Customer


How do we reach, communicate with, sell to, interact with, and get feedback from our customers?

Erkko Autio

TrainTrick customer channelsApplication access: Google Play, AppleStorePublicity: leveraging Southern Rail debacle

(remember the story…)Interaction: making the app so simple to use

that interaction needs are minimisedFeedback and co-development?

Erkko Autio


Iteration #1

Cost Structure


R€venu€ $tream$


Problem

Top 3 problems

Solution

Top 3 features






PRODUCT MARKET


R€venu€ $tream$


Where do we generate revenue from and how?What is our revenue model?

Erkko Autio

TrainTrick revenue modelInitial: revenue share with customers

(commission model)Then: revenue share from donations to charity

(note how links with customer gains)

Current: unclear

Erkko Autio

Revenue modelsAsset sale: I sell goods and services to my customer Commission: I help my customer gain benefits and receive a commission (e.g.,

eBay)Licensing: customer pays license fees for the use of my offeringSubscription: customer buys a renewable licenseRazor blade: I sell my printer dirt cheap, charge for ink cartridgesAdvertising: I give my app for free, generate revenue from adsThird party: I sell my user data to third partiesShareware: my customer pays if she really loves my productEtc…

Erkko Autio


Iteration #1

Cost Structure


R€venu€ $tream$


Problem

Top 3 problems

Solution

Top 3 features






PRODUCT MARKET

R€venu€ $tream$



What are our cost drivers?

What are our fixed and

variable costs?

How large are my upfront

costs before I generate

revenue?

Erkko Autio

TrainTrick cost structureFixed: line rental, website hosting, premisesFixed: developers (2 – may choose not to

take salary)Sunk: any pre-firm development costs of app

development (may have been bootstrapped)Variable: handling claims (likely to be small

since largely automated)

Erkko Autio


Iteration #1

Cost Structure


R€venu€ $tream$


Problem

Top 3 problems

Solution

Top 3 features






PRODUCT MARKET



variable costs?



revenue?

How do I monitor my progress?What are my key milestones?When do I need to pivot?

Note: key

metrics are

closely linked to

your revenue

model!

Erkko Autio

TrainTrick key metrics (commission model)Application downloadsNumber of compensation claims madeNumber of repeat compensationsCumulative amount of compensation paid

Erkko Autio


Iteration #1

Cost Structure


R€venu€ $tream$


Problem

Top 3 problems

Solution

Top 3 features






PRODUCT MARKET


Note: key

metrics are

closely linked to

your revenue

model!

Can I prevent others from copying my business model?

Erkko Autio

Unfair advantageExclusivity rights (the only one allowed

to operate on campus)Unique skillsUnique brandUnique combination of skills, assets,

location, concept…Intellectual Property rights (patents,

copyrights, trademarks, design patents)

Network externalities (think Google)

Erkko Autio


Iteration #1

Cost Structure


R€venu€ $tream$


Problem

Top 3 problems

Solution

Top 3 features






PRODUCT MARKET

Start by inserting

your validated customer hypothesis

here

Validated problem

hypothesis goes here

Solution description goes here

Can I prevent others from copying my business model?



variable costs?



revenue?




A value proposition

defines:- Customer

pains- Customer





Erkko Autio

The Freemium modelProduct is offered for freeIt is typically used in service-based businesses This model is increasingly popular with Internet services The core free offering then acts as a gateway to the paid service

Erkko Autio

The Franchise model

You buy a working business model in a particular industryYou pay royalties for the privilege but get access to a winning recipe, a support network and an established brand

ORYou sell the right to use the business model in exchange for a percentage of revenues

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The Premium modelOffer high-end products that appeal to brand-conscious consumers

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The Cheap chic modelMarketing of stylish but inexpensive merchandise

Typically allows for high margins because merchandise sells at low price points but has an expensive feel

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Game time!

Find the Business Model each brand uses!

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Game time!

Freemium Model Franchise ModelPremium Model Cheap and Chic Model




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Game time!




Erkko Autio

Lean canvas - eBayThe world’s largest online auction website

Global market share 5.6%157 Million active buyers $8.59 Billion revenue

Founded in 1995Founder: Pierre Omidyar (B2C – C2C)1997 VC: 22% equity + $4.5 m + 1 CEOWent public in 1998Paypal (2002-2015), Skype (2005-2011)

Free to commission model2004 Virgin Mary Toast : $28,000

Erkko Autio

The Lean Canvas Date

Iteration #1

Cost Structure


R€venu€ $tream$


Problem

Top 3 problems

Solution

Top 3 features






PRODUCT MARKET

Online market platform with auction model

Commission model: Insertion fee: $0.30 +Final value fee: 10%

Internet• Ebay.com• Mobile app

Total active usersTotal salesTotal Listings, Number of page views…

Hard to trade with buyers and sellers globally 24/7

Trust and safety concerns during transaction

Hard to get desired price

Mass MarketBuyersSellers

Online auction and shopping communities

Antique and collectiblesmotors

- Pains: taking time and effort to find trustful buyers and sellers

- Gains: making trading more convenient, accessible and safer

- Jobs: providing a trading platform and securing transactions

Two-way market dynamic

Globally known brand

Sales and Marketing: 43%

Product Management:

20%General and

Administrative: 24%




Erkko Autio

Quote from eBay founder"I never had it in mind that I would start a company one day and it would really

be successful. I have just been motivated by working on interesting technology.“

-Pierre Omidyar

Erkko Autio

AirBnBAirbnb is a peer-to-peer nightly room rental network

Founded in 2008 by Brian Chesky, Joe Gebbia & Nathan Blecharczyk HQ in San Francisco, California

2 mln listings, 60 mln guests, 191 countries

“Trust is what makes it work”

Erkko Autio

The Lean Canvas Date

Iteration #1

Cost Structure


R€venu€ $tream$


Problem

Top 3 problems

Solution

Top 3 features





PRODUCT MARKET

GUESTS:People who love to

travelPeople who want to

stay comfortably at

a cheap place

Commission from HOSTS upon every booking (10%)

WebsiteMobile apps from android and iOS

HOSTS:People who own a house and want to earn extra moneyPeople who want

to meet new people

Commission from GUESTS upon every booking (3%)


Have built a large community of users

worldwideSelf-reinforcing

network

HOSTSP: Trust and safety

Spare rooms/propertiesG: Extra income

InsuranceJ: Publish ads

Manage online

GUESTSP: Trust and safetyExpensive hotels

G: More options to stayCheaper than hotels

Unique local experience

J: Book easily w/ verified hostsManage online

HOSTSOffer insurance

Verification processProf. photo-shoots

GUESTSCan check hosts’

profiles and ratingsOffers, promo

codes

HOSTSDo not trust their

properties to random guests

Do not have attractive pictures of the

properties to advertise

Number of bookingsNumber of listingsCommissions earned

GUESTSDo not trust the property owners

Might switch back to hotels (retention

issue) PHOTOGRAPHERS

Technological set up and running costsSalaries to permanent employeesPayments to freelance photographers


Erkko Autio

What did we learn today?

Validation Board is excellent for validating product or service ideas

However, to operate as a business, a great product or service idea needs to be wrapped in a functioning business model

Lean Canvas can be used to build and validate business models in an iterative fashion

The Lean Canvas covers: (1) upstream activities (value creation); (2) downstream activities (value delivery); and (3) cost and revenue models (value capture)

There are lots of different kinds of business models and revenue models out there

From Validation Board to Lean Canvas

Small Business & Entrepreneurship

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