Developing your business model is one of the first things you’ll do when building your startup. The Lean Canvas is a great tool which makes this easy. But understanding the limitations before you start will give you a better result.
The idea of describing your entire business model on a single page is super appealing. It’s quick, flexible and really helps you structure your ideas. But the Lean Canvas is deceptively simple and people don’t often take the time to ‘read the manual’. I see plenty of entrepreneurs who’ve used the canvas to develop their business model, but simply have no idea what to do next. Or they get caught up trying to use it for things it wasn’t designed for. So here’s 5 tips to help you build a better business model.
Note: If you’re not familiar with the Lean Canvas, you can find it here. The Lean Canvas, adapted by Ash Maurya, is intended for startup businesses. For more traditional businesses, try using the Business Model Canvas.
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Define your business model – then start validating!
Defining your business model is only the beginning. The Lean Canvas is not supposed to be the tool that tells you what to do next. But it does help you articulate what problem you intend to solve, who you’re solving it for, and how – which can all be validated as a next step. This highlights the relationship between the Business Model Design and Customer Development methods, the former provides the hypotheses for testing in the latter.
Keep in mind the canvas will give you very little insight about whether your business model is a good one! In fact the more ‘blue sky’ in your idea, the less evidence you’ll have at this stage about whether it will work. And ironically, a complete and well-aligned business model can result in something that sounds very plausible, but often isn’t.
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Treat the business model as a living thing
Especially when you’re just getting started, the business model is not something that you write once and just file away. While the canvas doesn’t ‘track’ which hypotheses you’ve tested, it does lay out all the elements of your proposed business and give you a feel for the assumptions you need to test.
It’s almost certain that you’ll change your problem, customer and/or solution hypotheses at some point. And if you do, the related parts of your business model will need to updated too. The canvas can only ever represent what you think (or think you know!) at a point in time.
“The risks captured on Lean Canvas aren’t just early stage risks but morph and evolve throughout the startup lifecycle.”
– Ash Maurya
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Keep customer experience front of mind
An amazing customer experience is often the difference between those consumer startups which win versus those that don’t. Even for B2B ventures such as enterprise software, a truly innovative product is going to suffer if the customer experience (e.g. usability, customer support) is poor. Customer experience is important no matter what you’re building.
While it doesn’t explicitly appear on the canvas, customer experience weaves its way throughout the canvas. Unique Value Proposition, Unfair Advantage and Key Metrics as a start.
Case Study: YouFoodz
Let’s take Youfoodz as an example. Their business model is built upon the delivery of great tasting, pre-packaged meals that stay fresh for a week. But this is a market where it seems like a new player is popping up every week, all trying to crush the other innovators and kill off frozen meals once and for all.
If you looked at each of their business models, I expect they would all look very similar. Same problem, same customers, same solution. And they probably all have a post-it note saying ‘amazing customer experience’ in their Unfair Advantage box.
Saying it is one thing. Executing is a whole different story. And that’s the difference between the few that succeed versus the many that don’t. In the case of Youfoodz, they seem to have delivered an incredibly slick customer experience, culminating in an ‘unboxing’ moment that rivals the iPhone. Very cool.
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Be honest and open-minded when thinking about existing alternatives
Conventional startup wisdom says not to worry too much about competitors. The big players are busy doing their own thing, and the other startups chasing the same prize could stumble at any moment. Of course, it’s useful to know who you’re up against and the ways in which you can do better.
The important question is: what solutions exist to the customer’s problem? There may actually be no ‘competitor’ at all, but rather a range of options available to a customer, including ‘do nothing’. Yes, customers may feel the problem isn’t important enough to require a solution they’d pay for.
So it’s important to be honest and open-minded when considering Existing Alternatives in the canvas. You may be surprised be what customers say when you validate your hypotheses.
“Your true competition is NOT determined by who you think they are, but who your customers think they are. This is something you uncover from your customers, not through a SWOT analysis.”
– Ash Maurya
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Don’t let the canvas become a constraint
The canvas simply doesn’t try to represent everything you need to think about. And several elements of the original Business Model Canvas were replaced by things that are more relevant for startups. It’s common for founders to get stuck on the following:
- Relationship between the components – you’ll need to think about how the parts of your business model hang together and maintain these linkages as you go. For example, your business model might involve a different Revenue Stream for each Customer Segment. So as you update your hypotheses about customers, you’ll need to revisit whether the revenue streams still make sense.
- Omission of key partners, activities and resources from the Lean Canvas – Ash Maurya states that Key Partners was “the hardest one to remove and one that creates the most discussion. Yes, success for some types of products is predicated on first establishing the right key partners… but I’d argue that most products do not fall into this category.” If you do have a model that depends upon Key Partners (e.g. you plan to enter a market where there are high barriers), make sure these are factored into your model.As for key activities and resources, thinking about these is generally more useful after you’ve tested your hypotheses around the problem-customer-solution space.
- Dealing with complex models – the canvas does support complex business models, but the usual practice is to break them down logically into multiple canvases. The best example is a two-sided market, where it’s typical to develop a canvas for each side of the market. A common trap here is to focus on the side you understand the most, and neglect the other side. This is unfortunate, because it’s where the greatest risks are probably lurking…
Have you developed a business model using the lean canvas? What did you find difficult, and what tips do you have for others?