LEAN CANVAS, FOR CREATING AND VALIDATING THE BUSINESS MODEL OF EARLY-STAGE STARTUPS
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The Lean Canvas is a strategic planning tool used to develop efficient and profitable business models. It was developed by Ash Maurya as a more simplified and agile alternative to Alex Osterwalder's Business Model Canvas.
The Lean Canvas consists of nine key building blocks that help entrepreneurs to focus on the most important parts of their business
- Customer segments: identification of target customer groups.
- Value proposition: the benefits that the product or service offers to customers.
- Channels: the means to reach customers.
- Customer relations: how it relates to customers.
- Sources of income: the ways in which the business generates revenue.
- Key activities: the most important actions the business must take to succeed.
- Key resources: the resources needed to carry out the key activities.
- Key partnerships: strategic relationships with other companies or suppliers.
- Cost structure: the fixed and variable costs necessary for the business to operate.
Like the Business Model Canvas (see+ TIP), The Lean Canvas is a visual tool that allows entrepreneurs to have a clear and quick understanding of their business model, as well as to identify areas that need improvement.
What are the differences and similarities between lean canvas and Business Model Canvas?
The Lean Canvas and the Business Model Canvas are business management tools used to design business models. The main objective of both is to facilitate the process of reflection and design of the key elements of a business model.
AMONG THE MAIN SIMILARITIES BETWEEN THE TWO TOOLS ARE THE FOLLOWING:
- Both focus on the key elements of a business model, including customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partners, cost structure, among other aspects.
- Both use a visual and graphical format to represent the different elements of the business model, making it easier to understand and analyse.
- Both tools are based on the methodology Lean Startup (see+), that promotes validated learning, experimentation and iteration to develop innovative and sustainable business models.
THE MAIN DIFFERENCES BETWEEN THE TWO TOOLS INCLUDE:
- The Business Model Canvas was developed by Alexander Osterwalder and focuses on the strategic planning and design of business models for existing companies or new companies seeking to innovate. On the other hand, the Lean Canvas was developed by Ash Maurya and focuses on the design of business models for startups and companies in early stages of development.
- The Business Model Canvas includes nine main building blocks to describe the key elements of the business model, while the Lean Canvas includes nine building blocks but with a more specific focus on the problems and solutions, the customer profile and the unique value proposition.
- The Business Model Canvas focuses on analysing the structure of the business model, while the Lean Canvas focuses on iteration and validated learning to improve and adapt the business model as more information is gathered.
In summary, both the Lean Canvas and the Business Model Canvas are valuable tools for business model design, but differ in their approach and application depending on the type and stage of enterprise development.
If there is one tool that has caused a sensation in the world of strategy, it is the famous Business Model Canvas, an interesting tool that helps us to design and innovate our business model in a visual way... it works well in established companies, but is it the best option for a startup?
The canvas, described in the essential "Business Model Generation" by A. Osterwalder, is a great tool for conceptualising a company's business model, a starting point for designing new scenarios and models. As we saw in the post "Tools: The Business Model Canvas", it proposes 9 blocks on which to work on our business model:
As we can see, the business model canvas proposes a structure where on the one hand we have the market, the most complicated part to manage, and on the other hand we have our company, environment, processes and assets. This, which is completely natural when applied to a company, is disconcerting and inappropriate when working with entrepreneurs and startups, because what is the company we are working on, the one we are building?
Moreover, as anyone who has already worked with the canvas will probably realise, there are some blocks that are of little use (such as the relationship block), and blocks that tend to be "copied" (key activities and processes) in many types of business models. In short, although the business model canvas is a great tool to work with in a startup, perhaps it is not intended for this purpose.
THE LEAN CANVAS, MERGING BUSINESS MODELS WITH LEAN STARTUP METHODOLOGY
On the other hand, the way to take a startup to the market is completely different from the execution strategy of a consolidated company, and for this very interesting methodologies have emerged, such as Lean Startup, proposed by Eric Ries in the brilliant "The Lean Startup Method (see+) (recommended books for entrepreneurs).
Is it possible to combine the best of both worlds? The answer is yes. Ash Maurya, some time ago, proposed a method where he hybridised both worlds, which in my opinion does a great job of giving us a tool for startups to design business models: The Lean Canvas.
It is a canvas similar to the business model canvas but with some changes, especially in terms of approach:
- ALLIANCES -> PROBLEM: A key aspect in any business, especially for a startup, is to be clear about the problem or problems you are solving, and that is why this block appears.
- KEY ACTIVITIES -> SOLUTION: Similarly, once the problem has been specified, it is useful to define the main functionalities of the product that will help to solve those problems.
- KEY RESOURCES -> KEY METRICS: For any start-up it is absolutely critical to define from the outset the 3-4 indicators that will be used to measure the business model, a key element when it comes to pivoting.
- RELATIONS -> SPECIAL/DIFFERENTIAL ADVANTAGE: This block covers something that is very difficult to make tangible but which is nevertheless the key to any business... and which in the end is often the key to success in the face of competition.
The most important and principal change that takes place is not so much in terms of blocks but in terms of approach:
"In the Lean Canvas, the right side still represents the MARKET, but the left side represents the PRODUCT (the most real unit of work for a startup)".
HOW IS THE LEAN CANVAS USED IN A STARTUP?
The way to use the Lean Canvas proposed by Ash Maurya in his interesting book Running Lean: Iterate from Plan A to a Plan That Works (another essential for entrepreneurs, perhaps one of the most useful books available).
THE FOLLOWING:
- CUSTOMER SEGMENTS: Identify and know the customer segments to work with and above all make an effort to find out who could be your early adopters or visionary users to start working with. This is vitally important, as targeting the mass market with mature users is usually a bad idea for a startup, at least from the outset.
- PROBLEMS: Find out what the 3 main problems of that collective are (ideally related to your activity, of course), and find out what alternative solutions to your product they use to solve them. This is one of the most complicated aspects to find out, but more so as we saw when talking about whether customers know what they want or not.
- UNIQUE VALUE PROPOSITION: It makes it clear, simple, straightforward and in one sentence (a mini pitch) what makes you special and how you are going to help your customers solve their problem... easy to say, hard to summarise
- SOLUTION: Once you know and prioritise the problems your customers are facing, you should establish which are the 3 most important features of your product/service that will help them solve them... so that you can focus on them and not waste time on secondary functionalities.
- CHANNELS: Now it's time to work on how you are going to get your solution to the customer segments you are going to work with: with a sales force? through a website? It is important to understand this customer journey in a holistic way, i.e. not just thinking about the sales phase but the whole customer experience.
- REVENUE STREAMS: At this point we must think about how we are going to make money, which not only includes thinking about the different flows, but also about the margin, customer value, recurrence model... in short, setting out the strategy on how you are going to make money in your start-up.
- COST STRUCTURE: The reverse side of the income, in the cost structure, we must collect all those elements that cost us money, and that in practice indicate the approximate expenditure that we will have on a monthly basis... and that of course, at the beginning should be as contained as possible.
- KEY METRICS: Once the most important elements of the Business Model have been defined, it is time to get into metrics. We must establish what activities we want to measure and how, bearing in mind that we must generate a very small and actionable set of indicators that will then help us to make decisions.
- LASTING DIFFERENTIAL ADVANTAGE: Perhaps one of the most complicated points to fill in and it is easy to not know what to put at the beginning. It captures that something that makes you special and different, that keeps customers coming back for more. If you can't think of what to put, don't worry, just leave it empty... in time you'll know what it is.
As we have seen, the business model canvas for startups, or Lean Canvas, is a much more appropriate tool for a new business where uncertainty is king.
Practical examples of Lean canvas application
HERE ARE SOME PRACTICAL EXAMPLES OF HOW LEAN CANVAS CAN BE APPLIED IN DIFFERENT TYPES OF COMPANIES:
SOFTWARE COMPANY
- Problem: users of video editing software do not have enough tools to share and collaborate with other users.
- Solution: an online platform that allows users to collaborate in video editing and share content through different channels.
- Customer segments: content creators, advertising agencies, video editors, film and TV production companies.
- Value proposition: an online platform that enables real-time collaboration and shared video editing in a single, easy-to-use interface.
- Distribution channels: online advertising, referrals from existing users, partnerships with video production companies and promotion at industry-related events.
- Cost structure: software development, staff costs and marketing costs.
- Sources of income: monthly or annual paid subscriptions, sale of customisation services and sale of technical support services.
CONSULTING SERVICES COMPANY:
- Problem: companies need a more effective way to manage and organise their projects.
- Solution: an online project management platform customisable for each company.
- Customer segments: small and medium-sized enterprises, large corporations, not-for-profit companies and governmental organisations.
- Value proposition: a customised solution that adapts to the specific needs of each company, enabling more effective project management and increased productivity.
- Distribution channels: online advertising, promotion at industry-related events and referrals from existing clients.
- Cost structure: software development, staff costs and marketing costs.
- Sources of income: monthly or annual paid subscriptions, sale of customisation services and sale of technical support services.
FOOD AND BEVERAGE COMPANY:
- Problem: consumers are looking for healthier and more sustainable food and drink options.
- Solution: a line of food and beverage products made from natural and sustainable ingredients, without preservatives or artificial additives.
- Customer segments: health and sustainability conscious consumers, food and beverage retailers, restaurants and cafés.
- Value proposition: high quality products made from natural and sustainable ingredients, allowing for a healthier and more conscious choice for the consumer.
- Distribution channels: online sales, distribution in food and beverage retail outlets, promotion at health and sustainability events.
- Cost structure: natural and sustainable ingredients, staff costs and marketing costs.
- Sources of income: selling products online and in retail shops, selling products to restaurants and cafés.
Lean canvas of successful companies
HERE ARE SOME EXAMPLES OF SUCCESSFUL COMPANIES THAT USED THE LEAN CANVAS AS A TOOL TO DESIGN THEIR BUSINESS MODEL
- Airbnb: This company used the Lean Canvas to identify the needs of its users and design a business model that would allow them to rent out their homes or rooms to travellers looking for accommodation. Thanks to this innovative business model, Airbnb has become one of the most successful accommodation platforms in the world.
- Dropbox: This cloud storage company used the Lean Canvas to define its value proposition, identify its target market and design an effective marketing strategy. As a result, Dropbox has become one of the most widely used storage tools for businesses and individuals.
- Uber: The urban transportation platform Uber used the Lean Canvas to design a business model that allowed users to request a car with a driver through a mobile app. Thanks to this innovative business model, Uber has revolutionised the transportation industry and has become one of the most successful companies of the last decade.
- Instagram: The popular photo social network used the Lean Canvas to design a business model that allowed users to share their photos and connect with friends and followers. Thanks to its innovative business model and focus on user experience, Instagram has become one of the most popular social networks in the world.
These are just a few examples of how the Lean Canvas can be used to design innovative and successful business models.
APPLY THIS TIP TO YOUR PROJECT
TASK
CASE STUDY
Juan is an entrepreneur who has a business idea related to the creation of an online platform to connect graphic designers with clients in need of design services. To develop his idea, he decides to use the Lean Canvas methodology.
- Customer segments: Juan identifies two customer segments: small and medium-sized companies in need of graphic design services and designers looking for job opportunities.
- Value proposition: The platform offers an easy and efficient way for companies to find designers and for designers to find work. It also offers secure project management and payment tools.
- Distribution channels: The platform will be promoted through social media advertising, advertisements on related websites and through public relations.
- Customer relations: The platform will establish a direct relationship with clients and designers through an integrated chat and email.
- Sources of income: The platform will generate revenue by charging a commission for each completed project.
- Key resources: Key resources will be the online platform, the development team and the marketing capability.
- Key activities: Key activities include platform development and maintenance, promotion and marketing, project management and payment management.
- Key partners: Key partners include designers who register on the platform and companies that hire designers.
- Cost structure: Costs include platform development, marketing expenses and project management and payments.
Juan uses the Lean Canvas to validate his business idea and make adjustments as he receives feedback from designers and companies using the platform. In this way, manages to develop a sustainable and scalable business model for your company.
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