Building New Revenue Streams Fast
- Waste way more time and money than you need to on finding out what works;
- Take way too long to realise that an idea is simply not going to work; or
- Never really get started because it all seems too hard!
The Lean Canvas
There’s a simple way to tackle these issues, as detailed in the book Running Lean. And the starting point is a tool called the Lean Canvas.
The purpose of the Lean Canvas is to help you quickly (in 15 minutes or so!) get a business plan written down, structured and start the process to validate it. In this case, ‘business plan’ refers to the business model rather than all the steps you’ll take to build the business itself. Most importantly, it forces you to consider that your product is not the business model. It’s just one part of the business model. If you’re considering doing something new or different, then chances are that other parts of your business model need to change too. It might be your ideal customer, your marketing channels, how you distribute the product, your cost structure. Or, you might be taking on a different set of competitors and need to think differently about your value proposition. All of elements need to come together to form a business model. Get it wrong and the likelihood is that you’ll end up with a product that people don’t want, or worse still, come to the realisation way too late that you have an unprofitable business. These are the steps in the process.
1. Document your Plan A – Spend some time filling out the elements of the Lean Canvas to capture the business model around your new product idea.
2. Identify the riskiest parts of your plan – Is it about getting the product right aka Product Risk? Is it about building a path to your customers aka Customer Risk? Is it about the business viability aka Market Risk? As Ash Maurya succinctly points out “Your objective is to find a model with a big enough market you can reach with customers who need your product that you can build a business around”. The diagram below highlights the common categories of product, customer and market risks. For whichever is the ‘riskiest’ – which might help from a trusted second set of eyes to figure out – you then start working through validating each piece of the puzzle.
3. Systematically test your plan. Running Lean promotes the importance of interviews with your target market to answer some key questions:
- Problem – can you validate that there is a problem/need that people will pay for a solution to? By the way, many business owners assume that because they’re selling a commodity item, such as food, then the idea of a solving a ‘problem’ or ‘need’ doesn’t apply to them. If you’re in this camp, I recommend watching the Job of a Milkshake talk by Clayton Christensen.
- Solution – what does your target market think about the solution that you’re proposing? Does it actually meet their need?
- Validate qualitatively with a Minimum Viable Product solution – how can you demonstrate a solution to your target market that meets their need and involves the least possible resources (time and money) from you?
- Validate quantitatively – what people say and what they do are often very different. What does the data actually tell you about whether your idea is a sound one?
A key insight here is that your idea is most quickly validated with your ‘early adopters’. These are the subset of people in your target market you are most in need of a solution and prepared to tolerate your solution while you iron out the issues.
Pivoting a gym to online.
Let’s take the example of how to pivot a gym online. COVID-19 restrictions may mean that can’t deliver in-person classes, so you consider trying to deliver group training over Zoom. You document your Plan A and realise that your biggest assumption is that people will happily continue to pay for a membership to undertake classes at home. This would be considered Product risk. You start the process to test your idea, using the process to explore Product risk:
- Problem – your interviews with existing customers validate that people still want to keep fit and healthy. And this is even more of a challenge during extended stays at home during lockdown or working from home for extended periods.
- Solution – the market invalidates your hypothesis about simply transitioning to Zoom for online group classes. Your customers say they’re fatigued from screens, and although they want to stay healthy, they don’t want to do that in front of a screen. Your interviews identify that customers want the freedom to switch things up as they like, but help to stay accountable for keeping active.
- Minimum Viable Product – with a handful of your past customers that have ended their membership since restrictions began, you test a ‘trainer in a box’ membership. This membership model provides some basic equipment, a printed training guide, links to training videos demonstrating technique and also a weekly call with a personal trainer to check in, see how they’re going and overcome obstacles to training.
You keep things really simple to start with – one program, just the required equipment and a 15-min weekly call. The feedback is great and you proceed to market the membership option to a wider group… The early adopter concept is so vital to consider here. You need to be pitching the right solution to the right problem to the right customer. In the above example, your new membership option is probably not a good fit for your most committed members who have the self-discipline and experience to adapt their training regime during lockdown. But it might be a much better fit for the semi-committed member who has just had a health scare and whose motivation for a solution is high. Don’t pitch the right solution to the wrong customer – or vice versa.
Ideas are a dime a dozen. The challenge is typically how to execute effectively on the best idea and do so with enough rapid learning and momentum that you can sow the seeds of success. The Lean Canvas, in conjunction with a systematic process to validate the risks in your idea, is a fantastic way to keep you focused and save a lot of time and effort finding out what works. The quicker you can validate your ideas and learn what works, the faster you’ll be able to build new revenue streams.