Everything You Should Know about Lean Canvas
What is Lean Canvas and how it helps to build start-ups.
The key to success in life is effective communication. We constantly communicate: with each other, with our communities, with companies and brands. Many of the environments we spend a lot of time in are essentially just vehicles for different types of communication, especially online. Perhaps the most essential type of communication to do well though, is with yourself.
When that first small sparkle of a product or startup idea starts developing in your mind, your first order of business is to translate it into a physical format. There, an abstract starting point can gain clarity and definition, so that your own understanding of your idea is crystalised, making it much easier to explain to others.
In “times gone by”, company leaders created elaborate business plans to achieve this clarity. These were thoroughly researched documents which took months to prepare. Obviously, startups at the ideation stage do not have the time or resources to waste on a similar approach to business plan creation.
That’s why, for the sake of startups, Ash Maurya transformed the “Business Model Canvas” by Alexander Osterwalder into the Lean Canvas.
Lean Canvas template:
What is Lean Canvas
Lean Canvas presents the hypothesis of a business model in the form of a one-page document. Additionally, Lean Canvas is a testing and validation tool for this hypothesis. A Lean Canvas consists of 9 blocks/boxes, which you have to fill in to brainstorm your possible business models, key activities, appropriate strategies, starting priorities, and ongoing learning goals. The Lean Canvas squeezes all of this info into a highly portable and easily readable format.
Lean Canvas is a problem-solution approach. It helps eliminate everything unnecessary from the very beginning. It saves time and resources and can be updated constantly. The chief purpose of Lean Canvas is to increase the success rate of the venture, as well as reduce the risk of failure.
Lean Canvas helps answer the questions of most lean startups who want to become real businesses:
- What is our product?
- Who are our customers?
- How can we make money?
The difference between Lean Canvas and Business Model Canvas
Both of these canvases map out business models.
Business Model Canvas was developed first by Alexander Osterwalder. He created it for founders and managers, who deal with business plans which quickly become outdated, and consume an enormous amount of time and resources. This Canvas cannot be applied to startups, because some of its boxes are inappropriate. It is developed for companies that already have a physical presence in the market. As it’s author said, “a business model describes the rationale of how an organization creates, delivers, and captures value.”
Lean Canvas was initially proposed by Ash Maurya in his book “Running Lean”. Lean Canvas is a simplified version of the Business Model Canvas, a so-called “little brother”. It is adapted for startups at a very early stage of their lifecycle. Lean Canvas works well with both startups and established companies.
An explainer of each block of the Lean Canvas:
Initially, you need to find a pain you are going to cure. This box drives the rest of the Canvas.
This is a prime requisite and a crucial first step. Get into the shoes of your potential customers, live their lives, get under their skin, and find out the most significant customer problems. Firstly, you need to define a problem, then identify a solution to it. Charles Kettering once said, “A problem well stated is a problem half-solved.” In this box briefly describe three top-priority problems that need solving. This box validates the existence of the market you want to enter. However, avoid the risk of inventing non-existing problems.
2. Customer Segments (CS)
Who are the people who experience the above-mentioned pain? Where do they live? Where do they work? Which products do they use? How can you make their lives easier and better? Take a closer look and gather as much specific information about them as possible. Narrow down the essential characteristics of each of your Customer Segments. Define your early adopters – they are your first market. At the initial stage, identify only one type of customer, and if you have several groups (like software developers, accountants, and designers), you’d better create a separate Lean Canvas for each of them. The Problem and Customer Segments boxes are interconnected.
3. Unique Value Proposition
In his book “The Four Steps to the Epiphany” Steve Blank said that the Unique Value proposition is “a single, clear compelling message that states why you are different and worth buying.” This box is in the dead center of the Canvas, which highlights it’s immediate importance. The Unique Value Proposition box explains why potential customers should pay money for your product. You have to distill the concentrated essence of your product here. This is what you promise to give them. Generate an initial message and test if your audience resonates with it. Make your message bold, clear, and loud.
In what way is your product going to solve CS’s problems? What product are you going to design to cure their pain? What set of services can you offer to address CS’s specific needs? How is this product going to fill the gap in CS’s life? Once you understand the pain and make a diagnosis, you can prescribe the medicine.
Find out how you are going to reach your CS, and offer them your product. Keep in mind that there are no free channels at all. Whichever route you choose, you’ll have to invest money and time. There are inbound channels (blogs, SEO, e-books, white papers, webinars), and outbound channels (SEM, print/TV ads, trade shows, cold calls). An ideal early channel is Content Marketing, as with time it turns into a tangible asset. It could even become your Unfair Advantage.
6. Revenue Streams
Think over the pricing strategy for your product. Your business is aimed at generating revenue. Elaborate on how you are going to earn money, and write down a monetization model. Your pricing model also signals your branding and positioning, as well as determining your customers. Your price is a part of your product.
7. Cost Structure
List all the operational costs for taking your product to market. How much do you need to spend on salaries? How much does your website cost? How much do you need to spend on market research and CS interviews? It will not be an easy task to calculate some expenses, like for marketing activities. As accurately as possible estimate your rough break-even point.
8. Key Metrics
What you cannot measure, you cannot control. Definitely, you need to monitor your performance. Nevertheless, it’s easy to get drowned in a sea of numbers. To avoid this, choose a few key macro metrics that matter and focus on those. Identifying the right metrics here is crucial as choosing the wrong ones can lead to chasing after the wrong goals, a surefire recipe for catastrophic failure. Make sure your metrics are linked firmly to reality.
9. Unfair Advantage
No surprise that this box is the last one. It is also the most difficult to answer. As Jason Cohen said, “The only real competitive advantage is that which cannot be copied and cannot be bought.” Think about what you can offer your customers that nobody else can, and this will be your active defense against copy-cats and competitors. On day one you can leave this box empty, but don’t forget about it.
How to use Lean Canvas
- Sketch it quickly, in one sitting. Remember, you can always add info, change it, and optimize. It’s an ongoing draft
- Learn from it
- Don’t rely much on your initial guesses, they might be wrong
- Don’t be sloppy with estimates, they might be approximate, but the closer they are to reality, the better
- Test everything
- Base your predictions on what you know for sure
- It’s okay to leave sections blank. You can always come back later
- Be customer-centric
To wrap up your ideas and commit them to paper is your sacred duty. It will help you better explain your ideas to your team and make sure they do the right things. Classic business plans don’t work with startups as they are extremely time-consuming.
Instead of taking on the daunting task of writing a business plan, leverage the actionable and startup-focused Lean Canvas. This simple but powerful blueprint can help startups navigate their way from ideation to delivery in conditions of enormous uncertainty. What’s more, Lean Canvas saves startups from making the wrong investments, be it time, money or resources.
Lean Сanvas is a one-page business plan template that helps you dissect your business idea into key assumptions to analyze it better. It is incredibly helpful when you’re starting out. It helps you envision who you are and how you can penetrate your chosen market.