Lean Canvas is an adapted version of Alex Osterwalder’s Business Model Canvas. Entrepreneur Ash Maurya developed the Lean Canvas to simplify, ease, and speed up the process of generating and evaluating business ideas.
Source: Running Lean
The Lean Canvas is:
- It is a lightweight version of the Business Model Canvas.
- It is a one-page, “back of a napkin” diagram that visualizes the key components of any business model.
- It is better suited to quickly sketching multiple business models in very little time. It can give us a very basic understanding of the feasibility of any business idea.
When compared to traditional business plans and other business modeling tools, Ash Maurya believes the Lean Canvas offers three distinct advantages.
It is fast. It’s very easy to try out a number of business concepts within a short timeframe. Business modeling can be greatly accelerated by sketching a Lean Canvas.
It is concise. We have to be brief and get to the point without equivocation when we use the Lean Canvas. We will be able to communicate our ideas faster and more effectively. It can be a major advantage in today’s world of information overload.
It is portable. As changes arise, they can be easily shared and updated without wasting time and breaking down communication.
Business Model Canvas versus Lean Canvas
- Business Model Canvas is a general-purpose tool for startups and well-established businesses.
- A Lean Canvas is better suited to early-stage startups. In comparison to any other tool, it is the easiest and fastest way for entrepreneurs to sketch their ideas as early as possible.
- It should be remembered, however, that our canvas is not final. Using Lean Canvas, our business model can be rapidly changed based on customer feedback.
The Anatomy of a Lean Canvas
1, 2. Problem and Customer Segment
Problem and Customer Segments hypotheses are perhaps the most critical components of the Lean Canvas.
Together, these two building blocks form a strong foundation. Products exist because they solve a problem or fill a need. Customers’ problems can be articulated and analyzed using a variety of tools and frameworks. Some of these include Clayton M. Christensen’s Jobs to be Done theory, Steve Blank’s Problem Recognition Scale, and other widely used approaches.
3. Unique Value Proposition (UVP)
In a great Unique Value Proposition, the organization articulates how it is different from any of its competitors. This is usually a brief and clear statement that explains why customers should care and why the product is worth buying.
In addition to demonstrating your position in the market, it also demonstrates the unique value you are able to offer your customers.
The main reason customers will buy from you is your proposed solution to their problems. Entrepreneurs can often be tempted to focus exclusively on the solution they envisioned. Ash recommends, however, not getting carried away with our solution. In the course of gathering feedback and validating our assumptions with prospective customers, it is very likely that it will change over time.
Solution hypotheses won’t change only in extreme cases. You will sell your solution anyway when you develop the cure for cancer or build the first time machine, for instance. In most cases, however, your solution will differ significantly from your initial idea.
Channels refer to the ways in which you reach your customers. Channels include both physical distribution channels as well as communication channels with your customers.
6. Unfair Advantage
What is your 10x advantage?
“A real unfair advantage is something that cannot be easily copied or bought”.—Jason Cohen, A Smart Bear blog
One can think of the Unfair Advantage as the source of competitive advantage. An analysis of the competitive landscape is essential before launching a venture. Traditional strategy tools, such as SWOT and PESTLE analysis can also be used to consider the competitive landscape of your future company.
A few sources of competitive advantage, according to Ash, are:
- Insider information
- The right “expert” endorsements
- A dream team
- Personal authority
- Large network effects
7. Key Metrics
If you don’t know where you are going, you might wind up someplace else.—Yogi Berra
It is crucial for every business to accurately measure progress. It’s important for every business owner to have several indicators that tell them how well their business is doing.
There are a variety of methodologies and frameworks that can help us determine whether or not we’re making progress.
- A useful tool is Dave McClure’s Pirate Metrics, which identifies five distinct elements of building a successful company (acquisition, activation, retention, revenue, referral).
- According to Eric Ries, every company has different “engines of growth” that require different metrics and measurements. In the Lean Startup he explained this concept in detail.
- Benjamin Yoskovitz and Alistair Croll recommend identifying the single most important metric at a given time. They call it OMTM (One Metrics That Matters). As a result of it, everyone in the organization can focus on one activity that is most beneficial for making progress. The use of this simple tool can help us create alignment and boost efficiency.
8, 9. Revenue streams and Cost Structure
In order to determine the company’s financial viability, these two factors are crucial. It is important to keep in mind that the pricing and revenue model are dependent on other parts of your business model. Therefore, it would be a good idea to complete these two briefs following the completion of the other segments of the business model.
Start With the Riskiest Assumption
When you sketch your first business model, it is mainly based on hypotheses. You need to gather customer feedback and validate every single idea with people who will actually buy your product in order to turn these guesses into hard facts.
Your riskiest assumption should be your starting point. Startups involve significant risk and uncertainty. Every entrepreneur faces the challenge of systematically “de-risking” their startups over time and reducing these factors of uncertainty. This way it is much easier to build a viable company, one that is built on solid foundations.
An effective business model tells the story of how you intend to build a profitable company. It all begins with potential customers (Customer Segments Hypothesis) and the problem (Problem Hypothesis) they are trying to solve or the need they are trying to fill. Then your organization proposes a possible solution (Solution Hypothesis) for customers’ problems, explaining why customers should care about your solution, and why it is different and worth buying (Value Proposition). Startups should have tools by which they can measure progress in identifying a significant problem. The advantage of a viable startup is its ability to distinguish itself from other organizations, a unique characteristic that is hard to copy or purchase (Unfair Advantage). Last but not least, startups explain how they will make money and how much capital they need to operate.