http://practicetrumpstheory.com/2010/08/businessmodelcanvas/

Lean Canvas – How I Document my Business ModelWritten by Ash Maurya

The validated learning loop is the fundamental feedback loop that drives a lean startup:

Even though, this diagram shows “CODE” as the artifact of BUILD, I subscribe to a much looser interpretation of BUILD that applies to anything you create for the purpose of learning from customers. So, a problem presentation, landing page, and even components of your business model are all examples of BUILD artifacts.

The most significant goal of a startup is finding a scalable and repeatable business model and the process for doing so follows the same validated learning loop. You start by documenting a set of business model hypotheses, then systematically validate those assumptions against reality and make course-corrections, or pivots, along the way.

It is really important that you write these hypotheses down. As Brant Cooper and Patrick Vlaskovits point out in their book: “The Entrepreneur’s Guide to Customer Development”, storing them just in your mind is a “subconscious rationalization” trap.

I’ve experimented with a number of different ways now for documenting my hypotheses and this is how I go about doing it:

Start with worksheets

Steve Blank’s book was my first introduction to customer development and I followed the worksheets at the end of his book as my starting point.

4 Steps to Epiphany Customer Development Worksheets:

1. Product Hypothesis2. Customer Hypothesis3. Channel/Pricing Hypothesis4. Demand Creation Hypothesis5. Market Type Hypothesis6. Competition Hypothesis

The worksheets go into very specific detail on each hypothesis – some may or may not apply to your type of business since they were written for a specific type of business – enterprise software. Steve’s intent was not to create a universal set of questions but to get you started in thinking about the types of questions you need answered for your business.

Brant/Patrick simplify these hypotheses to an even smaller set, where they have you first thinking in terms of the customer-problem-solution, and then they layer in the business model details.

1. Customer-Problem-Solution Hypothesis2. Business Model Hypotheses– Business Assumptions– MVP Assumptions– Funnel Assumptions

I tend to outline my own initial hypotheses along 3 big questions: WHAT, WHO, HOW:

All

these worksheets more or less tackle the same set of questions with slight variations in approach. However, you choose to answer these questions, the point of this exercise is to free form your answers. Then it’s time to get it down tighter.

Create a Business Model versus Business Plan

You could take your hypotheses and blow them up into a 30-50 page business plan or go the other way and shrink them down to a 1 page business model. As convincing as your hypotheses might sound to you, it’s important to recognize that they are still largely untested guesses that will almost certainly change.

Writing a business plan, at this stage (or ever?), is a form of waste – You can capture the same level of information in a 1 page business mode and have it be more portable and accessible. But more importantly, it’s a lot harder to distill the essence of your business down to a single page which is great practice for articulating your hypotheses – whether you’re pitching a customer or investor, you only get a tiny slice of time to make your case.

Business Plan: A document investors make you write that they don’t read.Business Model: A single diagram that describes your business.- Steve Blank

The Business Model Canvas

I particularly like Alex Osterwalder’s 1 page canvas approach to business model generation. It visually captures the essential components of a business model and looks something like this:

I do find some of

Osterwalder’s blocks a bit too general for a lean startup and specifically my type of business – web

apps. For instance, before product/market fit, I need to see more emphasis on Problem/Solution than key partners or a customer relationship model.

Rob Fitzpatrick created a great adaption of Osterwalder’s canvas that better captures the “4 Steps of Epiphany” type of hypotheses. You can create these hypotheses online at http://thestartuptoolkit.com. Rob’s goal is to version each update so you get an automatic way for tracking the evolution of your model/pivots.

However, after using the Rob’s Startup Canvas, I found it unfortunate that he left out a few critical blocks like the cost/revenue pieces which make up the foundation of the business model.

So I decided to iterate on this one more level and created a version that looks like this:

There’s a clear delineation down the middle, on PRODUCT versus MARKET and here’s a brief description of each block and the order in which I like to think/validate them:

1. Problem: A brief description of the top 3 problems you’re addressing

2. Customer Segments: Who are the customers/users of this system? Can they be further segmented? For example, amateur photographers vs. pro photographers. If I have multiple target customers in mind, for example, graphic designers vs. lawyers, I will create a separate canvas for each. More than likely a lot of the other pieces like problem, solution, channels, etc. will be different too.

3. Unique Value Proposition: What is the product’s tagline or primary reason you are different and worth buying?

4. Solution: What is the minimum feature set (MVP) that demonstrates the UVP up above?

5. Key Activity: Describe the key action users take that maps to revenue or retention? For example, if you are a blogging platform, posting a blog entry would be a key activity.

6. Channels: List the FREE and PAID channels you can use to reach your customer.

7. Cost Structure: List out all your fixed and variable costs.

8. Revenue Streams: Identify your revenue model – subscription, ads, freemium, etc. and outline your back-of-the-envelope assumptions for life time value, gross margin, break-even point, etc.

9. Unfair Advantage: I left this for last because it’s usually the hardest one to fill correctly. Jason Cohen, a smart bear, did a great 2 part series on competitive advantages. Most founders list things as competitive advantages that really aren’t. Anything that is worth copying will be copied. So what is a competitive advantage:

Unfair Advantage: Something that cannot be copied or bought.- Jason Cohen, A smart bear

You may initially have to leave this box blank but the reason it’s here it to have you really think about how you can both make yourself different and make your difference matter.

UPDATE:My adaptation of the canvas is now an online tool called Lean Canvas.Visit: http://LeanCanvas.comdankhan • 3 years ago

38 comments

dankhanHi Ash,

I put together a real simple online implementation of your canvas here: http://bit.ly/9fUDGiHope you don't mind, might be a useful resource.

Cheers,-Dan

jmdelpinobCool!

I was opening Powerpoint already :)It would be awesome if you could add the following:

- Saving generates a pdf file- Allow to give a version name manually- Allow to change status of each box to Hypothesis validated /not yet validated (with a color change maybe?)- A second canvas below the actual one, with the same structure, but thought as the place to document the "next" experiment you're going to run to validate or invalidate your hypothesis (to include the "drill down" idea of Dave Churchville).

Thanks! jmdelpinob I just did an adaption of your Canvas for PowerPoint, check it out: http://bit.ly/aVOQTy danielgonzalez I've got to tell you, you really created something awesome there with your power point. It's really cool. Thanks I'm definitely going to use this. Frederico Guth Awesome! Loved it! My vote for one feature for your next version MVP is:- please, let me name the versions!

Thanks dankhan Thanks for the feedback - haven't worked on it for a while, but will add it to the queue.-Dan danielgonzalez Great tool. It would be nice if you could export and stuff. I haven't looked in tremendous detail but its really sweet. Thanks for making this.

Renato Nobre Hello Ash, i tried to find the link with a downloadable format (xls/doc) of the CustDev 4 Steps (Appendix B worksheets), do you still have that file ? Could you share that ? Thanks from Brazil, Renato

Dave Churchville Great post, Ash. A couple of comments:

I've been trying to figure out how to mesh some of these ideas with the concept of "dashboards" for hypotheses (from Randy Komisar's Getting to Plan B).

To summarize my main takeaway from that - document your hypotheses in each major area (the ones you have above look good), but beyond that, document the "next" experiment you're going to run to validate or invalidate your hypothesis.

So "top 3 problems" in your photo sharing service might be: "parents too busy to learn other photo sharing services", "too difficult to share with other services that make your relatives signup to see pics", "can't upload videos as well as photos", or whatever.

Then you'd have to come up with an experiment to prove/disprove these. Like "Talk to 10 people to see if they actually have these problems - if 6 or more agree, continue" or "Run a survey with parents to see if they strongly agree or disagree with these problem statements, if 60% or more agree, victory" , etc. The key is that the experiments have to be measurable somehow, so it's harder to trick yourself into creatively analyzing the results.

That gives you more of a basis to make "pivot" decisions, or to share your logic with other team members (or investors in Randy's case).

So maybe a dashboard like yours above, with a drill-down into the latest experiment in any area that's still unknown/unproven. Keeps you honest and on top of the next important validation to do.

Ash Maurya I really like the drill-down idea. A few more points in the same vein that I forgot to highlight:

- Date your canvases so you have a history of pivots.- There is an order to validating boxes - Problem/Solution Fit first (customer discovery), then Product/Market Fit (customer validation).- Yes, experiments must be clearly defined for each and results clearly documented too.

Arthur KlepchukovI was just going to comment on how the dashboarding process from Randy Komisar's Getting to Plan B was missing from this post. Thanks for beating me to it and elaborating on why it matters! Raul Denis Hi Ash,Great Post!Question: Why have a customer segment section on the lean canvas if you are building a separate canvas for each customer segment?

Jack_kum10 Its really difficult for us to carry our important documents everywhere. Specially when it comes to HR. My HR in the company has lots of works to do apart from managing documents. So I heard about a company providing a fab service. Compnay name is Kleeto. It digitize all the documents and give you 24*7 access to them online. Now thats wonderful. I calculated it as well and found that the cost they are charging is less then what we invest in keeping our very important documents safe. Do check this: https://www.kleeto.in/Inhouse_.... its a calc provided by company . Arjun Kumar Hi AshQuick question : Why have a customer segment section on the lean canvas if you are building a separate canvas for each customer segment?

imran send me informationimran_462001@yahoo.com

George D. I believe Toyota dominated with "Lean Thinking" because the toughest thing for a company to change is their own 'thinking', a.k.a. company policies/values/beliefs. Especially in the automotive segment, where there is a rich, some would say pedantic, tradition that makes it difficult to innovate from a policy perspective.

To put it simply, how do you convince a company that has been successful in business for a 100 years that they need to change to beat the competition? The short answer was, you couldn't at least not for 20+ years and the pain of lost market share/revenue became so great they were willing to try anything---even "Lean" principles.

George

Andrew Deal The most valuable part of this post for me, after a couple tested iterations of cellecast have sputtered, is the point you made about rationalization traps. Some new note taking is in order here.

Noname So, is being “Lean” a competitive advantage? What do you think?

I attribute lean as a operational effectiveness - getting more out of your resources. Competitors can easily copy your improvements in quality and efficiency.

example - Compare Hyundai today and Hyundai 10 years ago.

Toyota today is a lean company with quality issues.

Jeff Magnusson Ash, do you think there are any times in a company's growth that expanding to a full business plan is a good idea, or "only when absolutely required by an investor"?

Ash Maurya

Personally, I think it's never a good idea especially since the same level of information can be captured in a 1-page business model. The 1-page business model not only forces the startup to be concise, but is also a lot more portable and accessible which means it will probably be read by more people and be more frequently updated.

Sure details can and need to be captured elsewhere like dashboards, spreadsheets, etc. But a 60-page business plan document is just too rigid.

BillSeitz While I might start with some problem/solution ideas, I start real documentation with the customer segment, because that's what creates the context for everything else.

BillSeitz What if your idea involves creating a new marketplace. Do you treat each party in the market as a separate Segment and do a separate Canvas for each?

alex Thank you Ash!Here is a GoogleDocs template for those who are interested.http://docs.google.com/preview...

Erik Larsson Thanks for the great post Ash. I just finished completing my first canvas based on 10 in-person problem presentations I held some weeks ago. I concentrated on the Problem/Solution Fit and I think I have that covered, my question is Customer segmentation.

Potentially my product is directed to all persons consuming personal development literature but that to me seems to be a bit of a big scope?

How could I narrow it down? Or should I keep it big?

Thank youErik

Ash MauryaErik -

You definitely want to narrow it down as much as possible (at least initially). It makes positioning and messaging a lot more focussed. Do you see any patterns yet where a particular type of customer ranks the problem higher (must-have) than others, is easier to reach, or more willing to pay?

10 is a great start and somewhere before 30 these patterns start to surface. As an example from CloudFire, I started with parents and finally honed in on first-time moms with kids under the age of 3.

Hope that helps.

Erik Larsson Thank you Ash.

I have detected one pattern which already helped me discard a feature I believed to be important.

I am conducting my interviews with the readers of my blog which have quite a big reader-base, the blog is already niched in the personal development category buy as you say, maybe I should narrow it down more, I will conduct more interviews to see if that will help me.

Thank you.Erik

dankhan Great post Ash; this has given me a good starting framework past 4Steps for evaluating and documenting my next startup idea based on web apps.

joeagliozzo I agree with Jason that the only real unfair competitive advantage is knowing the customer extremely well - meaning being as close to your customer base as possible. That is true "inside information" that can't be duplicated - because it is constantly changing as customer wants and needs change. Then you constantly tweak your product or service to make sure it is something the customer always needs (or is to hard to move away from for another similar product - you want them to say "why bother to switch?").

Wes Winham My guess is that just as all startups are lean and all software development is agile, all founders are smart and probably hardworking/motivated/experienced. Sustainable competitive advantage is hard.

Jason CronkhiteAsh, could you post the deck from last night or email it to me?

Jason Cronkhite Ash, can you post the entire presentation from last night or email it to me?

Ash Maurya Jason - Link to presentation is here: http://www.slideshare.net/ashm...

You can also download from there.

Cheers!

Nigel McNie Lean can be copied - so nope. All startups are "lean" these days (if you believe them).

Which raises the next logical question - are "smart founders" a competitive advantage? Ash Maurya I agree that lean can be copied but as with any process or methodology, there are varying degrees of execution/refinement as well as outright resistance from incumbents. How come Toyota dominated with Lean Thinking for so long when it was out there for others to copy?

Nigel McNieI conceed that, all other things being equal, someone executing Lean Thinking correctly is likely to outperform someone else.

Does that make it an unfair advantage? I think it does if only you know how to do it right. There's a lot of startups out there, many doing lean, few doing it as well as you are. You have an advantage there over your competition that is hard to copy. But I think this comes back, at least in part, to the "smart founder" idea. You're doing lean properly because you're smart, you're not smart just because you're doing lean.

To me at least, doing lean properly is just a side effect of being smart - which I feel is the underlying "unfair advantage". Smart founders know how much tech to use, who to talk to, how to market and where the risk is - and use lean to help combat that. A smart founder would also choose a different methodology if lean didn't suit what they were trying to do (I can't think of one off the top of my head - maybe something in genetics - but I think that's just a failing of my imagination).

Kurt Sussman It's not raw intelligence, but the wisdom to listen to the data and make smart choices based on that data. Being smart isn't sufficient when you refuse to accept and respond to the information your target market is giving you.

Being lean and data driven does reduce the risk in a startup, but that doesn't guarantee success just as you can't make money solely by reducing expenses.

Nigel McNie Agreed - I should have explained what I mean by "smart founders". Not just intelligence indeed.

Saidi Smeenk For sample, lean is reading this blog. And then reading the comments, and sharing your google docs stuff. Making that better and giving it back to this community. That means, ash got a tribe what is working. That means we are leaner then 99% of the webentrepeneurs. So we provided each other wisdom. How many percentage of webentreneur will read the blog, comments and react on it? the lean one does. ;)