A lean business model canvas determines your business model in a visually descriptive way. In the same way as the original Business Model Canvas, this ‘lean’ version, ideal for startups, will help you construct your business plan more efficiently and help draft a business model for your idea or business.
We talked in our last article about how to construct a business plan and what needs to go in it. But, a lean business model canvas can be built quicker. A lean business model canvas is perfect for startups as it is all about getting ideas down quickly. You then use it as a starting point to test assumptions and align the founders’ direction.
It is essential to be able to demonstrate your business model clearly to get colleagues, fellow founders, investors and partners on board with a specific direction.
Our Alacrity founders, like all entrepreneurship teams, can find this method tricky the first time they do it. It’s merely another one of those learning curves on the way to startup success. The lean business model canvas course is just one of the entrepreneurship training exercises that Alacrity teams go through to ensure their future success. Alacrity is an entrepreneurship educational 15-month course where we educate you, fund you and give you the skills to grow (we also pay you on the course). to apply or for more information click here >
In 2008, Osterwalder’s original business model canvas was formed. This business model canvas is ideally printed out as big as possible, or written on a large whiteboard so that your whole team can work on it. Ideas can be added, subtracted, and moved around as you work towards a more precise business model for your startup.
Following the original business model canvas came several iterations specific to business needs. Here we’re going to talk about the ideal one for entrepreneurs and startups, the Lean Business Model Canvas.
The Lean Business Model Canvas is more straightforward and less comprehensive than the original Business Model Canvas. The Business Model Canvas aims to provide a complete model of a business based on larger corporation thinking (like Skype or Apple). The Lean Canvas has a more creative approach based on timelines, revenue streams and targets. This has also become more focused as it is shorter and achieves a simpler business model.
The Lean Canvas is more suited to entrepreneurs and startups as it is more actionable by focussing on factors such as uncertainty and risk.
The Lean Business Model Canvas Framework
Like the original canvas, the lean business model canvas framework also contains nine sections. Let’s dive into each one.
The problem is first addressed. Without identifying and realising the problem, businesses will fail to apply effort, adequate resources and time in building the right product. It is, therefore, vital to understand the problem in the first instance. What problem do users have that your idea or business will correct?
Also, in the problem, you should identify alternatives available to solve this problem. Again, this can be as simple as using Excel and Word. Trying to change peoples habits is the hardest thing to do in business!
Forming and identifying a fundamental problem will help ensure that you are meeting a pre-existing industry need and start you on the path towards identifying solutions.
You’ve identified your problem, recognised alternatives and workarounds and now you need to be specific about your answer. The solution here will visualise in bullet form what your MVP (Minimum Viable Product) will contain. What are the features and outcomes that will be obtained from version 1.0 of your product?
This box is half the size of the problem section as it needs to be laser-focused in its ability and simplicity in solving the problem.
In the same way as marketing campaigns are run, identifiable key metrics need to identify what success looks like. Startups can better build a business around less key metrics and focus on one or two identifiers. For instance, our Alacrity teams have used different parameters depending on their area of business. An achievable percentage of subscriptions during their first quarter, or the GMV (Gross Merchandise Value) that goes through a platform as well as visits to the website with an anticipated conversion rate of 2%. All are valid key metrics and may need tweaking due to your initial assumptions.
From experience, whatever you propose as achievable key metrics; halve them and still ensure your lean business model balances well.
Unique Value Proposition (UVP) or Unique Selling Point (USP)
Here, written in simple to understand language, is your mission statement and promise to your target market that your solution solves their problem. Positive, reactive words need to be adopted to create excitement with your idea.
For instance, CulturVate has a UVP:
“We enable companies to retain and reward employees keeping them engaged while socially collecting their innovative ideas”.
Identify things like the value that you bring your customers along with the problem that you solve. What differentiates you from your competition and what’s different and fresh about you as a startup that can achieve this ambition?
This box also includes an even simpler area to identify an A for B analogy. For instance, Culturvate would be
“LinkedIn for Ideas”.
This should list your competitive advantage. A startup needs to identify whether or not it has something than can be easily copied, adopted or bought.
Here you need to identify your channels to market. After all, your company won’t survive if you don’t reach customers who want to purchase your product, so how will you reach them? You could serve customers directly through an outbound, phone call and email-driven approach, or you could decide to use partner channels like Amazon, SalesForce or Mitel.
Your business is not going to survive without customers, so it is essential to identify and determine what your customer segments are. This lean business model canvas should focus on one of the five specific customer segments. These segments are:
- Mass Market – Your business appeals to the broadest possible range of people.
- Niche Market – Your business appeals to a specific group of customers with particular needs.
- Segmented – These are multiple markets within your primary market. You may need to segment further based on demographics like age, gender, or location.
- Diversified – You serve more than one market segment.
- Multi-Sided Platform – Platforms that serve two markets simultaneously, for instance, you could be a go-between for business and consumers like an HR platform similar to SumoShift.
Also, in this section, focus on who will be your most valuable customers. Typically in the first instance, they will be your early adopters. Who are they and why will they get the most out of your UVP/USP
Here you need to identify the things you will have to pay to bring the product to the client. This would typically include fixed costs such as salaries, rent/rates, cost of goods sold (COGS), cost of maintenance etc. You don’t have to list values here, but it starts to focus your mind on the cost of achieving your goal.
List what could be your most essential costs as a startup and which vital resources are the most expensive. They may even be variable costs or economies of scale (advantage of larger production runs, which lower prices).
Your revenue streams are how you actually make money, and most importantly, how much money you could make. Here you would list your TAM (Total Addressable Market) for a region or country. For instance, if every teenager in the UK could use your product, then your TAM is 5 million users.
Look at how your product will bring in revenue? For instance, will it be an outbound sales-focused product or via an inbound subscription model?
You may have several revenue streams in your lean business model canvas, so this is where you’ll identify each of them.
Identify what your customers currently pay for a similar product and how they are now paying for it. You may identify that a current competitors payment method is hugely confusing so your USP could identify the simplicity over existing products. Also, determine how much each revenue stream contributes to the company.
How is a Lean Business Model Canvas Different to a Business Plan?
In our last article, we talked about how to build a business plan. A business plan is great when you’re six months in and spoken to many people about your idea and looking towards investors. The problem with a business plan is that it can be very long and time-consuming. A business plan maps out expected outcomes and contingencies in place. It talks about cash-flow, market size and competitors in detail as well as specifics about your profit and loss, product and solution.
A lean business model canvas can be created in a day, is much more collaborative in its approach and provides structure and focus to early-stage startups. It’s a starting point on your entrepreneurship journey. As your market and product pivot to fit an identified and lucrative need, it starts to form the basis of your business plan. And this really helps later on…