The first step is to write down your initial vision, and share it with at least one other person.
Too many entrepreneurs keep their hypothesis in their head alone, rather than documenting, which makes it hard to systematically build and test a business.
Since plan A’s are likely to be proven wrong, it’s important to use a format that’s flexible, and quick to create, such as a Lean Canvas (based on Alex Osterwalder’s Business Model Canvas).
These notes are based on the second section of “Running Lean” - Document your plan A
These are my personal notes, which I hope others will find useful.
A Lean Canvas Template
The Lean Canvas has a lot of the building blocks of a traditional business plan, or an investor slide deck.
On the Lean Canvas, the “Solution” box is kept purposely small, while the “Problem” box is purposely large; customers identify with their problems, and don’t initially care about your solutions initially. Entrepreneurs, on the other hand, are naturally wired to look for solutions.
Chasing after solutions to problems nobody cares enough about is a form of waste.
You can download a copy of this template here: Lean Canvas Template
Brainstorm possible customers
While iterating on a particular plan, progressing through the build-measure-learn cycle, and changing only one thing at a time, there is a risk that you’ll arrive at a local maxima.
You can raise your odds of finding a better solution when you are open to exploring and even testing multiple models in parallel. Because of this, it can be a good idea to create several lean canvases.
Distinguish between customers and users
A customer is somebody who pays for your product. A user does not.
Split broad customer segments into smaller ones
You can’t effectively build, design, and position a product for everyone.
Start with specific customers in mind.
Attempt to put everyone on the same canvas first
This helps you first visualise everything on a single page. Split into individual pages if needed.
Sketch a lean canvas for each customer segment
The elements of a business model can vary greatly by customer segment.
Start with two or three customer segments that you understand the best, and find most promising.
Create your Lean Canvas
Sketch a canvas in one sitting
Ideally a Lean Canvas would be created within 15 minutes.
The goal of a Lean Canvas is to capture what’s in your head at that point in time, so you can move on to figuring out what’s riskiest.
It’s important that after creating your lean canvas, that you get out of the building, and share it with at least one other person.
You can download a copy of a Lean Canvas PDF here: Lean Canvas Template
It’s ok to leave sections blank
Blank sections may be indicative of what’s riskiest about your model, and the place to start your testing.
Other elements such as “Unfair advantage” may take time to figure out. Not knowing what to put in a block is ok.
The Lean Canvas is an organic document which evolves over time.
The goal of the small squares on the lean canvas is to distill your business model down to it’s essence.
Aim to fit your canvas on a single page.
Use a customer-centric approach
Running lean is heavily customer driven.
Tweaking just the customer segment can completely change your entire business model.
The “problem” and “customer segment” sections often drive the rest of the canvas.
List the top one to three problems for the customer segment you’re working with.
Within the “problem” section, list the alternatives that exist today. Most problems have an existing solution, sometimes these solutions are not from an obvious competitor.
2. Customer Segments
Include any existing customer segments you can think of.
Give special attention to potential early adopters. Narrow down the characteristics of your prototypical customer.
3. Unique Value Proposition (UVP)
This is one of the most important boxes on the canvas, and one of the hardest to get right.
The UVP is the answer to the question: why is your product different, and worth getting attention?
First time visitors spend an average of 8 seconds on a landing page. If you make your UVP the first interaction with your product, they might be more inclined to stay.
The book “Positioning: The Battle for your mind” is a good introduction to marketing and how to craft your UVP.
Dane Maxwell recommends the following formula in crafting a great UVP:
Some tips in generating a good UVP:
- Be different, and make sure your difference matters
- Target early adopters
- Focus not on features, but on benefits that your customers derive from using your product. What is the outcome from the customer perspective?
- Answer: what, who and why
- Study other good UVPs i.e. from Apple, 37signals, and FreshBooks
Create a high-concept pitch, to distill your product into a memorable sound-byte. i.e. for Youtube, this might be “Flickr for video” - this can help you quickly get your idea across to a potential customer.
Now that you’ve completed the Problem, Customer Segments, and UVP sections, you are ready to consider solution possibilities.
Don’t worry too much about defining your solution, just sketch out some ideas - because your problem is currently untested, it’s common to have your solution possibilities reprioritised, or replaced completely after just a few customer interviews.
Build your solution to your problem as late as possible.
One of the top reasons that startups fail is that they fail to build a significant enough path to customers.
At first, it’s ok to rely on any channels that get you in front of potential customers because the initial goal of a startup is to learn, rather than scale.
Some channels might be inapplicable to your startup early on, but become applicable as your startup scales.
If your business model relies on acquiring a large number of customers to work, your initial path to customers might not scale beyond the initial stages, and it’s quite possible you’ll get stuck later. Because of this, it’s important to think about your scalable channels so that yucan start testing them early.
6. Revenue streams
Your MVP should not only address the top problem customers have identified as being important to them, but also the problems that are worth solving.
You should always plan to deliver enough value to start charging on day 1.
One argument for delaying charging is that it maximises learning, and that pricing creates unnecessary friction that should be avoided early on.
Getting paid is the a major form of validation. In order to know that you’ll have a business, you need to validate that customers will actually pay for your product..
Price is part of the product and influences percieved value - if there are two bottles of water to choose from, and one is priced higher than the other, people are often inclined to believe that the higher priced water is more pure or of better quality.
Price defines your customers - the amount you charge will signal your positioning on which customers you want to attract.
7. Cost Structure
Any operational costs that you will incur while taking your product to market. It may be hard to forecast these early on, so focus on the present i.e.
- How much will it cost to interview 30-50 potential customers?
- What will it cost to build and launch your MVP?
- What will your ongoing burn rate look like in terms of both fixed and variable costs?
Use both revenue streams and cost structures to estimate a break even point, and how much time, money, and effort you need to get there.
8. Key Metrics
Every business has a few key metrics.
Key metrics are useful for measuring progress in your customer lifecycle, and identifying areas which need extra focus.
Acquisition - The point where you turn an unaware visitor into an interested prospect - specifically, getting a person to do anything other than leaving your website.
Activation - when the interested customer has had their first positive user experience
Retention - measures repeated use and/or multiple engagements with your product
Revenue - the events that get you paid
Referral - when your customers refer other potential prospects to your product
9. Unfair Advantage
Many founders list things as a competitive advantage which really aren’t i.e. passion, lines of code, features.
First mover isn’t an advantage either - as you’ll do most of the hard work of paving new ground, only to be outpaced by faster followers.
It’s important to be aware that anything worth copying will be copied, especially once you start to demonstrate a viable business model.
A real unfair advantage is one that can’t be easily copied or bought.
Some examples of unfair advantages:
- Insider information
- The right endorsements (experts, influencers, etc)
- Large network effects
- Existing customers
- SEO ranking
It’s important to think about how you can/will make yourself different, and make your difference matter.
Want to read more?
I’ve written the notes on this book in several parts, you can read the other parts here:
Thanks for reading!
I hope you found this post useful. Do you have any questions? Are there any follow-up blog posts you’d like me to write relating to this? Feel free to leave any feedback in the comments below.