Peter Skarzynski and Rowan Gibson’s definition of a business model is “a conceptual framework for identifying how a company creates, delivers and extracts value”. The duo propose five components of a business model:
- Who do we serve? – Market segment(s) and customers.
- What do we provide? – Products/services and benefits.
- How do we provide it? – Partners, supply chain, assets, partners, suppliers.
- How do we make money? – Product costs and profits.
- How do we differentiate and sustain an advantage? – Includes key advantages over competitors and value provided to customers.
This business model framework provides the methodology of how your company will fit into your chosen market. It is simplistic and effective. A lot of this information you should be able to fill in will be from your earlier research. So if you are unable to answer any of these questions, you will need to go back and perform further research until you can.
Business plans have traditionally presented two major problems for new businesses. Firstly, they are very long documents and they take a lot of time to produce. As you know, startups like to stay light on their feet. Technology allow startups to change directions (pivot) rapidly. Therefore, I believe business plans are contrary to startup methodologies.
“Business Plan: a document investors make you write, that they don’t read”.
If you’re like other founders you probably want to start focusing on developing your product or service, rather than have your head buried in a lengthy document you will probably never read again.
In the next section, I am going to save you a ton of time by providing you with a huge short-cut to writing a business plan – with a system that’s better in many ways.
Your Business Plan Done, Fast.
I agree with Mr Blank, business plans are lengthy and time-consuming documents that are massively underused. I have known plenty of people over the years to spend weeks and even months and thousand dollars on business plans, only for them to sit on top of the company filing cabinet in the back office collecting dust.
Alexander Osterwalder also believed that business plans were not very effective. Osterwalder devised the Business Model Canvas which allows entrepreneurs to complete their entire business plan on a single page by filling in the boxes available in the template.
The Business Model Canvas was later streamlined for startups by Ash Mayura. Ash created the Lean Canvas which took Alexander’s Business Model Canvas and refined it for startups. I think Alexander and Ash, must have saved about a 7 trillion hours of founders’ time with their brilliant work.
The Lean Canvas is a great tool to quickly establish objectives such as your ideal customer, the problem you solve, sales channels, how your product or service differs from the competition and more. The Lean Canvas is a very efficient way to do this because you can complete it by ‘dot-pointing’ the key areas. It is also a convenient collaboration tool for your team to use.
HOT TIP: If you plan on raising money, applying for a grant or require a business loan to get started, you will need the ‘old-style’ business plan. Regardless, the Lean Canvas remains the best place to start.
Lean Canvas credit: Ash Mayura
How to Use the Lean Canvas
Let’s get started with getting your Lean Canvas completed, by going through it one section at a time. Remember, this is a simple document that can change over time. Some of the items you will add are going to be assumptions that you will need to make.
The important thing is to get it down on paper. You may be surprised to find when filling it out, that some of your team may have different ideas in some areas. If that’s the case, that is fine (and very normal).
Starting with the upper-left section of your Lean Canvas, is Problem, which are issues your customers are facing which you’re planning to solve. It’s important to consider each customer segment that you work with and the individual problems they each face and that you plan to solve.
Tip: It is best to focus on solving one core problem in the beginning.
2. Customer Segments
On the opposite side of the Lean Canvas we have Customer Segments. You should have an idea of the customers you are trying to target. Customer Segments are different groups of target audiences. It is best to focus on gaining significant traction in one customer segment before beginning to target another.
Tip: See below in the section named “Nailing Your UVP” where I discuss identifying the pain points of your Customer Segments. And also talk about how you this relates to the Value Proposition Canvas.
3. Unique Value Proposition
The next largest block in the middle is unique value proposition (UVP). In this block, you’ll fill out what differentiates you in the market with a clear and concise statement. What value do you provide to your target audience that they are unable to get elsewhere? What is unique about your brand and your product solution? Understanding your company’s value is incredibly important. I am going to dive deeper into the UVP a little later.
Tip: See below in the section named “Nailing Your UVP” where I discuss a way to formulate a killer UVP. We also get specific by using a Value Proposition Canvas.
Between the problem and the UVP on the Lean Canvas we have the solution block. This is where you write your solution to the problems your customers are facing.
Tip: If you have been diligent in your research and have strong indicators that your solution should fit your target market’s problem, you are on your way to finding ‘product-market fit’. This is a significant part of the startup battle!
Between your UVP and Customer Segments is Channels. This section will be used to detail the channels you plan to use in order to reach your intended audience such as social media platforms, traditional channels like television, print, or content.
Tip: Although you can list a number of Channels, practically it is best to implement one channel at a time when performing paid advertising and perfecting it, before moving to the next channel.
6. Revenue Streams
At the bottom right of the Lean Canvas is the Revenue Streams block. This is where you list the details of where your money will be coming from. This will also include how you price your products and services.
Tip: Although this must be completed on your Lean Canvas. Income and profit are significant for obvious reasons. I will speak in more detail below about your Revenue Model a little later.
7. Cost Structure
The Cost Structure block will detail the cost of operating your business. Here you will list expected expenses such as staff, contractors, utilities and leases. You can estimate how many active customers you’ll need to pay for your business operating costs can be a great idea.
Tip: It is a good idea to overestimate your costs at the start. Remember, you balance these costs against what you expect to charge your customers, in order to determine whether your product or service is profitable.
8. Key Metrics
Below the Solutions section is the Key Metrics block. Some people use the term KPI (key performance indicators). This block is used to describe the key metrics that will be used to measure how well your business is doing. You can list a couple of procedures or ideas on how you’ll track your metrics, but in general, you’ll often be using analytics and other digital tools to help you keep track of your business’s progress.
Tip: Aside from the digital analytics tools that Facebook and Google offer, remember the good ol’ fashion metrics such as sales appointments per week, sales per day and profit each week. You will notice I said weekly KPIs. Early stage startups need to track their activity more closely, so they have time to make fast adjustments. This avoids burning cash.
9. Unfair Advantage
Lastly, we have the Unfair Advantage block, which helps you identify what your unfair advantage is in the marketplace. This is something that is unique and comes from within your company such as members of your team members, your technology or even specialist relationships or knowledge about the industry you are operating in.
The Lean Canvas is something you can create quickly – after you have completed your market research, of course. Remember, your Lean Canvas may change over time. For example, you may find a new UVP that you may have not considered before – that’s fine. Just be sure that your whole team sees the updated canvas.
HOT TIP: Print your Lean Canvas in A3 Format and put on your office wall where your team can see it. It will serve as a reminder of the focus of your startup in the early stages of your startup.