Both startups and existing businesses fight for their in the market by introducing their products and services. However not all of them are destined to succeed with customers. More than a half of new propositions fail to meet customers expectations and fade away. You can avoid failure only if you identify your customers problems and give them the design, features and functionality they want. Today we’ll have a look at the lean canvas – a tool designed by Ash Maurya to help startups analyze the strengths and weaknesses of their business model, and also we will practice using lean canvas on the Uber example.
What is a lean canvas ?
The lean canvas is a one-page document consisting of nine boxes to be filled in. It originates from Alex Osterwalder‘s business model canvas.
Initially the last one was designed for well-established businesses and not really applicable to startups. That’s where lean canvas comes in.
Lean canvas vs Business model canvas
Its key difference from the business model canvas is its problem-solution oriented approach and its focus on the customer.
To address this, the four business model canvas boxes namely:
- key partners,
- key activities,
- key resources,
- and customer relationships.
were replaced respectively with:
- key metrics, and
- unfair advantage.
That helps founders focus their products on resolving their customers problems instead of specific features of the product.
Lean canvas in practice
Let’s do this together through the example of the world known peer-to-peer ride-sharing app – Uber, back when it was getting off the ground.
We should start by defining the target customer.
Your Customer Can’t Be ‘Everyone’
Many startup founders suffer from a common misconception called “everybody needs my product”.
Narrow down the customer segments as accurately as possible. You’ll be able to expand it later on if you blossom out.
Uber offers its service to passengers and drivers.
The passenger segments can display narrower by demographics, type of usage, and socio-economic characteristics.
Drivers also divide into users who opt for Uber as a full-time job solution, and those who leverage it in addition to their main job. It’s best to mark each segment in different colors your convenience.
In the early adapters section, you can specify the actual people who will be the first to use the raw product and provide feedback.
These may include first customers, developers, friends, and even you, the
Specify customer problems that your product is meant to solve.
In the problem box we refer to customer problems that your product is meant to solve. If you have several customer segments with different problems, you may make separate canvases for each of them. Here we have specified problems for passengers and drivers separately.
Therefore, we’ve got problems as expensive taxi service, availability of cabs, long waiting time during the rush hours, advance booking is often required, and lack of driver profile for passengers.
Drivers need extra income, a part-time job opportunity, and awareness of who they are going to drive.
In the existing alternatives section you should place your closest competitors that are already solving identified problems.
We’ll split the Uber existing alternatives according to different user segments.
Passengers can opt for public transport, a taxi service, or ride with a friend. And drivers are limited to taxi service and other full or part-time jobs to get income.
The product you are going to create must bring revenue. Usually entrepreneurs use the cost based approach where you need to calculate costs and add a margin.
However, we recommend you to rely on the average value required for the customer to solve the problem. For example, Uber takes around 25% of the pay for each ride.
Explain what experience the customers are meant to have.
All problems you specified in the neighboring box should be matched by
the relevant solutions. Explain what experience the customers are meant to
Uber offers a cheaper ride opportunity, wide car network, fast pickup, route tracking, as well as drivers and passengers ratings to solve the mentioned problems.
Cooperation with your target customers will allow you to learn their needs and offer the most suitable solution.
It’s no accident, that the unique value proposition box takes the central part of the link canvas.
The unique value proposition is a brief message which is meant to attract customers attention. You need to describe the uniqueness of your product and show it’s key difference from the existing alternatives.
Uber attracts customers not only with its speed and low price, but also a package of services in one app, which allows you to find a safe ride 24/7/365.
Drivers, in turn, opt for uber as they can work on their own schedule, manage their revenue, navigate the route through the app, and forget about taxi license issues.
In the lower part of the unique value proposition box there is a place for creating a high-level concept – a short and easy to understand statement about your product. It’s kind of elevator pitch you will use when addressing your product.
As an example, Uber is like taxi but cheaper, safer and more flexible.
Even the most groundbreaking product on the market can fail if the customers are not aware of it. Specify communication channels to reach out to your target audience.
In our canvas, Uber relies on PR, word-of-mouth and user referrals.
Define key tracking metrics to measure the progress of your business.
Initially, you can deal with one key metric like minimum success criteria
– meaning the outcome that can be deemed a success.
Later on you can expand your lean canvas with other vital metrics.
As for Uber, they factor in the number of users and rides, money earned and referred users.
The fixed and variable costs find their place in the cost structure box. These may include costs for the office rent, hardware, recruitment, market research etc.
It’s enough to narrow your time window to a particular milestone like a product release or achieving the first 100 customers. Once your cost structure box is filled in, you can balance it with revenue streams and get
answers to such questions as “how many customers do I need to pay off the investments?”, “where is the break-even point?” and others related to the winning outcome.
In our example let’s focus on cost for product development, infrastructure and support, as well as the marketing expenses, and salaries.
The last step in the lean canvas is your own unfair advantage. This term denotes a special thing about your idea that your competitors are not able to copy or obtain in any possible way.
Unfair advantage may include a good reputation, exclusive access to some data, personal authority, community, or any other unique advantage.
It’s not necessary to seek out your competitive advantage right now. You can fill in this box later when some other things have started to go in your favor.
When Uber was founded, its unfair advantage was the experience the application offered: low priced rides at the push of the button.
Remember that your lean canvas can and needs to be changed once you get new feedback from your customers. While you’re in a startup mode, you are still testing various hypotheses. Some get confirmed, some don’t. But make sure you adjust your lean canvas according to the facts, and not how you wish the things were.