Lean canvas
•Download as PPTX, PDF•
3 likes•1,789 views
Learn how to capture your business model and plan on a single piece of paper. This course teaches you how to create a Lean Canvas for your business
Recommended
Recommended
More Related Content
What's hot
What's hot (20)
Viewers also liked
Viewers also liked (20)
Similar to Lean canvas
Similar to Lean canvas (20)
More from Brett Noyes
Recently uploaded
Recently uploaded (20)
Lean canvas
- 2. Noyes Limited • GU MBA • Startup Weekend •Early stage consulting & advisory
- 3. Permission • Be myself • Have fun • Be honest
- 4. Overview • Introduction to Lean Canvas • 9 sections • 1 minute to fill-in • Coaching & Advisory
- 5. Introductions • Name • Business/idea • Expectations
- 6. Areas of Focus Problem Solution Key Metrics Unique Value Unfair Channels Proposition Advantage Customer Segments Cost Structure Revenue Streams
- 8. Business Model A business model describes how your company creates, delivers and captures value – Steve Blank
- 9. First Step • Important step • Brainstorm possible customers • Create a list
- 10. Pick Customer Segment • Pick strongest customer segment • Highest ROI • Be specific
- 11. Example Company Barters Closet • Online clothing trading platform • Pivoted
- 12. Example Barters Closet • Broad: Anyone who has unwanted or unused clothing • Specific: – Moms with children under 5 – College Students – Hipsters (trend setters) – Thrift store shoppers
- 13. Canvas/Segment • Use a canvas for each segment – College Students – Hipsters (trend setters) – Thrift store shoppers
- 14. Title • Customer segment becomes canvas title
- 15. 5 Minute
- 16. Customer Segment Customer Segments Target customers Early Adaptors
- 17. Customer Segment Sketch Moms with young children under 5
- 18. Early Adopters • First customer to pay • Willing to pay for imperfect product • Essential to identify & market • Revenue & Feedback
- 19. Example • Barters Closet – Lower middle class – Use Pinterest & Facebook – Avid coupon users
- 20. Customer Segment Sketch Young mom’s with children under 5 Early Adopters Lower middle class mom’s who are tech savvy. Use Pinterest & Facebook. Most likely an avid couponers.
- 21. 1 Minute
- 22. Problem Problem Top 3 problems
- 23. Problem-Customer Segment • What problem are you solving • Drive rest of canvas
- 24. Big Problems • Solve big problems – Customer – Investor • Pain points
- 25. Top 3 Problems • Research • Focus Group • Create list • Pick top 3
- 26. Example • Barters Closet – Kids go through clothing quickly – Thrift store does not buy/trade – EBay expensive & time consuming
- 27. List Alternatives • List current alternatives • There is always an alternative • Doing nothing an alternative
- 28. Example • Barters Closet – Thrift stores – Consignment stores – EBay
- 29. Problem Sketch Kids go through clothing quickly Thrift store does not buy/trade EBay listing fees are to high Alternatives: • Thrift stores • Consignment stores • Ebay
- 30. 1 Minute
- 31. Unique Value Proposition Unique Value Proposi tion A single, clear compelling message that states why you are different and worth buying.” - Steve Blank
- 32. The Challenge • Hard to get right • Use as marketing copy
- 33. A difference • It must be different • A difference that matters
- 34. First Interaction • First interaction • Capture attention • Best guess
- 35. Picking Your Words • Pick carefully • Marketing & branding • SEO
- 36. Example – Square: Start accepting credit cards today. – Evernote: Remember everything. – MeetingBurner: Fast & simple desktop sharing.
- 37. How to Create • Study UVP • Brands you admire • Deconstruct • Create passionate customers
- 38. Example • Barters Closet – A community of mothers helping mothers through the exchange of clothes.
- 39. High Level Pitch • Create a high-level pitch • Builds on familiar concepts • Quickly communicate message • Used with elevator pitch
- 40. Example • Barters Closet – An online swap meet for mom's.
- 41. UVP Sketch A community of mothers helping mothers through the exchange of clothes. High-level Concept An online swap meet for mom's with young children.
- 42. 1 Minute
- 43. Solution Solution Top 3 features
- 44. Hypothesis • Untested hypothesis • Define hypothesis • Match solution to problem
- 45. Minimal Features • Minimal Viable Product • Create minimal number of features that will create value
- 46. Customer Focus • Major mistake • Focus on customer needs
- 47. Match • Match solution to problem • Many fail • An exercise in focus
- 48. Problem/Solution 1 • Problem – Kids out grow clothing quickly • Solution – Create clothing trading platform • Allow mothers to trade/sell
- 49. Problem/Solution 2 • Problem – Thrift store does not sell/trade • Solution – Allow users to sell/trade or buy
- 50. Problem/Solution 3 • Problem – EBay listing fees are to high • Solution -Only charge commission on products sold. -No fees on products traded.
- 51. Solution Sketch Create clothing trading platform Allow users to sell/trade or buy Only charge commission on products sold
- 52. 1 Minute
- 53. Unfair Advantage Unfair Advantage Can’t be easily copied or bought Unfair or competitive advantage
- 54. Duplication • Not easily duplicated • Advantage not easily purchased
- 55. Good but Not Unfair • More features • Less features • Design • Passion • Determination
- 56. Features • Less features – Hard to protect – Easy to duplicate – i.e. Apple • More features – Same issues – Not sustainable
- 57. Design • Hard to create • Easy to duplicate • Hard to protect
- 58. Personal Attributes • Passion & determination – Not quantifiable – Not sustainable/enduring – Able to be duplicated
- 59. Unfair Advantages • Insider Information • Dream Team • Existing Customers • Celebrity Endorsement • Network Effects • Community • Organic Search • Patents
- 60. Unfair Advantage Story • May arise over time – Facebook: Community – Zappos: Customer service – Toyota: Internal processes (Lean) • Focus on what it will be • Or, leave it blank
- 61. Example • Barters Closet – Community of mothers helping mothers – Seasoned Board of Directors w/Ecommerce experience
- 62. Unfair Advantage Sketch – Community of mothers helping mothers – Seasoned Board of Directors w/Ecommerce experience
- 63. 1 Minute
- 64. Revenue Streams Revenue Streams Revenue Model Life Time Value Revenue Gross Margin
- 65. Importance of Pricing • Price is a component of your product. • Perception of value • Keeps you in business • Signals branding & positioning
- 66. Customer • Determines your customer • Communicates value
- 67. Example
- 68. Example
- 69. Why Charge • Set expectations • Raises customer commitment • Creates cash flow • Address business model challenge
- 70. Free Trial • Free-Trial pricing method • Pre-determined period of time • Force conversion decision • Iterate faster
- 71. Barters Closet Example • 15%commission on sales • $1 shipping & handling fee
- 72. Revenue $1 shipping & handling fee 15%commission on sales
- 73. 1 Minute
- 74. Cost Structure Cost Structure Customer Acquisition Costs Distribution Costs Hosting, People, etc.
- 75. Accuracy • Impossible to 100% accurate • Focus on known costs • Margin for error
- 76. Research • Broad understanding • Lean approach
- 77. Fixed & Variable • Broad understanding of fixed & variable costs • Action in uncertainty
- 78. Fixed Costs • Time-related – Salaries – Rent
- 79. Variable Costs • Production-related – Rise with increase – Fall with decrease
- 80. Scaling Costs • Costs that increase incrementally with use or growth • Fixed or Variable – Rent – Hosting cost • Broad Understanding
- 81. Cost Structure Example • Barters Closet – Trading platform development $45,000 – Credit card fee-3%/transaction – Rent - $500 – Web hosting $200 – Monthly salaries • Entrepreneur - $600 • Designer - $600 • Developer - $1,000
- 82. Fixed • Barters Closet – Trading platform development $45,000 – Rent - $500 – Web hosting $200 – Monthly salaries • Entrepreneur - $600 • Designer - $600 • Developer - $1,000
- 83. Variable • Credit card fee-3%/transaction
- 84. Scaling – Rent - $500 – Web hosting $200 – Monthly salaries • Entrepreneur - $600 • Designer - $600 • Developer - $1,000
- 85. Cost Structure Sketch Trading platform development $45,000 Credit card fee- 3%/transaction Rent - $500 Web hosting $200 Monthly salaries Entrepreneur - $600 Designer - $600 Developer - $1,000
- 86. 1 Minute
- 87. Key Metrics Key Metrics Key activities you measure
- 88. Measure • Key component of lean start • Conventional accounting • Measure activity • Measure engagement
- 89. Identify • Identify 2 metrics that drive your business • Pre-revenue – First user – First customer – Think about engagement
- 90. Action & Success • Divide metrics into action & success metric
- 91. Action • Quantify engagement – Beta trial – Open email – Respond to email • Goal is data points • Move towards success
- 92. Success Metrics • Associate with action • Financial metrics • Success at each phase • Metrics depend on situation
- 93. 5 Common Metrics • Customer Acquisition Cost • Customer Retention • Viral Reach • Turnover • Revenue
- 94. Key Metric Example • Barters Closet – Key Action: Get users to upload “Closets.” – Success Metric: $3,000 monthly sales
- 95. Key Metric Sketch –Key Action: Get users to upload “Closets.” –Success Metric: $3,000 monthly sales
- 96. 1 Minute
- 97. Channels Channels Path to customer
- 98. Reach • How you reach your customer • Right product-right path • A.K.A. Product/Market fit
- 99. Reality • Many channels • Inapplicable today • Viable at later stage • Realistic • Develop strategy
- 100. Build & Test • Build, test & measure from start • Use small samples • Scale when validated
- 101. Free Fallacy • No such thing • Human capital cost • ROI calculation challenge • Focus on key metrics
- 102. Paid • Search engine marketing • Keyword competition • Learning to optimize
- 103. Inbound VS Outbound • Inbound-pull messaging – Blogs, SEO, E-books, white papers, webinars • Outbound-push messaging – SEM, print/TV ads, trade shows, cold calling.
- 104. Initial Channel Strategy • Lean channel strategy • Testing & measuring • Creativity & risk taking • Experiment & have fun
- 105. Scale Channel Strategy • Learning to revenue • Know how to reach customer • Scale – Internally – Outside professional
- 106. Channel Example • Barters Closet (Current) – Friends/Family – Facebook/Blog/Twitter – Thrift fashion bloggers – Thrift stores – Trading events – Seasonal trading parties
- 107. Channel Example • Barters Closet (Future) – PPC campaign – Facebook target ads – Paid advertising – Street team – Inside sales team
- 108. Channel Sketch – Friends/Family – Facebook/Blog/ Twitter – Thrift fashion bloggers – Thrift stores – Trading events – Seasonal parties
- 109. Example
- 110. Best Practices
- 111. Sketch in One Sitting • Sketch in one sitting • Sketch quickly • Get your ideas on paper
- 112. Blank Sections • It’s ok to leave blank • It’s ok to come back • Some elements take more thought • Evolves over time
- 113. Think in present • Predict the future (business plan) • “Doer” attitude • What hypothesis are you testing?
- 114. Picking a Canvas • Create canvas for each segment • Choose best canvas
- 115. Ease of Reach • Take path of least resistance • Build, learn faster
- 116. Margin • Highest margin
- 117. Market Size • Large enough market • Stepping stone • Build a business
- 118. Mentor • Seek outside help • Indentify blind spots
- 119. Services • Business Model Creation • Pitch Decks • Go-To-Market Strategy • Business Plans • Advisory
- 120. Workshop • Slides available • brettnoyes@startupweekend.org • www.noyeslimited.com
Editor's Notes
- In this lesson you will be introduced to the lean startup methodology, followed by an introduction to the lean canvas framework. This will be the focus of this course. Each section will be presented and an extensive overview of each section will be presented. This first chapter covers problem, customer segment and unique value proposition. Lets get started!
- In this lesson you will be introduced to the lean startup methodology, followed by an introduction to the lean canvas framework. This will be the focus of this course. Each section will be presented and an extensive overview of each section will be presented. This first chapter covers problem, customer segment and unique value proposition. Lets get started!
- The lean canvas focuses on 9 areas. These area are: problem, solution, key metrics, unique value proposition, unfair advantage, channels, customer segments cost structure and revenue stream. It is similar to the structure a business plan for a startup. One of the advantages of using the lean canvas before creating a full business plan is that it saves time, while you search the business model that works.
- According to Steve Blank, “A business model describes how your company creates, delivers and captures value” Or Simply put how your company makes money
- The first step in creating a lean canvas is naming your canvas. This is an important step because it will frame how you address all of the sections in your canvas. The first step in naming your canvas is brainstorming possible customers. To do this create a list that is separate from your canvas.
- Now that you have a narrow list of addressable customer segments pick the segment that you think is strongest. This means the group that you think is most likely to pay and will have the highest return on your investment of time and money Remember everything is just a hypothesis at this point. Make your best guess. It is also important to be specific in the naming of addressable groups This exercise helps you focus your efforts on specific groups that you will target your product or services for
- Using Barters Closet as an example we start with a very broad category such as, “Anyone who has unwanted or unused clothing.” Next we want to narrow down these broad categories into addressable categories. Specific Categories include: Moms with young children College Students Hipsters (trend setters) Thrift store shoppers The final step is to select the category that you believe will have the highest return. Remember that until you test your model everything is just a hypothesis. Do not waste much time on this process. Use your instincts and remember that you can always pivot if you are incorrect.
- A separate canvas will be used for each segment. This practice will allow you to focus your efforts on the specific needs of each of your customer segments. For the remainder of the course we will focus on the mom’s with small children segment.
- The final step in naming your canvas is to transfer the customer segment you have chosen to the title of your canvas.
- In this section you will learn how to fill out the customer segment portion of the lean canvas
- At this point all we have to do is take the name of canvas and put it into the customer segment section of the canvas.
- Next we will want narrow down this segment to what is called an early adopter An early adopter is the first person to pay People that are early adopters are often willing to pay for an imperfect product They get an intrinsic value out of being first to use a product or service As an entrepreneur it is essential to identify and market to this customer group Early adopters will provide you with your first revenue and invaluable feedback
- The next step is to transfer the early adopters characteristics into the customer segment section of your canvas. Take the early adopter characteristics and turn it into sentences that describe your early adopter. On this slide you can see an example of a completed customer segment for Barters Closet.
- It is important to have firm understanding of your customer segment and what problem you are solving for them. The problem and customer segment generally drive the rest of the canvas. Another way to say this is that they influence the decision made in the other sections of the canvas. Start with these two section before moving onto other sections.
- In your startup, focus on solving large problems that are not easily tackled by your competitors It is unlikely your customer will pay you to solve minor inconveniences in their life. It is also unlikely you will be able to raise money from investors, unless you are seeking to solve a big problem for the customer Understand the pain points in your customers’ lives and address them
- Hopefully, you have a firm understanding of your customer and the problem you are solving for them. If not, do some basic research. Lean start is all about getting out of the building and interacting with your customer. You can send out surveys or better yet get out and talk to potential customers to get an understanding of their pain points. Another way to learn about your customers problems is to host a focus group. This does not have to be a big formal event. Just get a group of potential clients together in a room and facilitate a discussion about the product that you intend to build. Next create a list of all the problems that are identified from this research Finally, pick the top 3 problems your customers are experiencing.
- When Barters Closet was initially launched it wanted to address its own problem of wanting to exchange used clothing with like-minded people. It quickly learned that there were other applications and markets for its products. As a group of young college-aged kids they had no experience or first hand knowledge of being a parent. To learn about this potential customer group they held a focus group at a local Meetup group for mom’s. At this Meetup they learned that mom’s experience the following issues: First, their kids go through clothing very quickly and this can be expensive Thrift stores offer a place to buy and donate clothing but they do not pay for their used clothing and they cannot exchange clothing for a larger size as their child grows Many of the mom’s had tried selling their clothes on Ebay but found the listing fees to be expensive and too time consuming to be worth their time. After the focus group discussion, Barters Closet had an understanding of their customer and how they could address their problem.
- Next list current alternatives to your product or service. Often entrepreneurs will say that there is no existing alternative to the problem but this is not true. There is always an alternative. Remember doing nothing is an alternative.
- For Barters Closet the current alternatives are: Thrift stores Consignment stores And EBay. None of these alternatives fully address the mothers problem but they are all current solutions that exist.
- Now that you have identified your top 3 customer problems and alternatives it is time to fill out your lean canvas problem section. Here is an example for Barters Closet.
- In this final section you will learn what a unique value proposition is and how to fill this section out on your lean canvas.
- The UVP is hard to get right because you have to distill the essence of your product in a few words that can fit in the headline of your landing page.
- Additionally, your UVP also needs to be different and that difference needs to matter.
- First-time visitors spend 8 seconds on average on a landing page. Your UVP is their first interaction with your product - craft a good UVP and they might stay and view the rest of your site. Otherwise, they’ll simply leave. The good news is you don’t have to get this perfect right away. Like everything on the canvas, you start with a best
- Pick your words carefully and own them Words are key to any great marketing and branding campaign. Picking a few “key” words that you consistently use. This will help drive your search engine ranking.
- Here are some examples of companies that have clearly defined their unique value proposition Square: Start accepting credit cards today. Evernote: Remember everything. MeetingBurner: Fast & simple desktop sharing.
- Creating a unique value proposition is a craft that can be learned To do this, study other good UVPs The best way to craft a good UVP is to study the UVPs of the brands you admire. Visit their landing pages and deconstruct how and why their messaging works If you are successful your unique value proposition will create customers that are passionate about your products and services
- Here is an example of a unique value proposition for Barters Closet. Barters Closet is a community of mothers helping mothers through the exchange of clothes. It captures the who and the what but fails to capture the why. It may not be a world class unique value proposition but it is good enough to get started.
- Next you will create a high-concept pitch A high level pitch builds on familiar concepts that your audience recognizes The purpose of this pitch is quickly communicate your message in a way your customer can understand. This can be used in conjunction with your elevator pitch.
- Here is an example of the high level concept for Barters Closet. Barters Closet is an online swap meet for mom’s with young children. The main thing Barters Closet is trying to communicate is that their online platform is similar to a swap meet. Barters Closet has made the assumption that most people are familiar with the concept of a swap meet and can envision that experience translated online.
- The final step is to transcribe your unique value proposition and high-level pitch onto your canvas.
- Now that we have learned about different types of business models we are going to move onto the solution section of the canvas.
- Your solution should be based on teaching of minimal viable product Your solution should include the minimal number of features needed to create value for the customer Anything created beyond that is a waste of time, money or resources.
- One of the biggest mistakes companies large and small make is not listening to their customer It is especially important for startups to focus on the needs of the customer This is one of the core teachings of lean start
- As we mentioned earlier you should match your solution to the problem statements you created. Although, it seems like common sense many companies fail to complete the canvas and many fail to build the solution that meets their customers needs Doing this exercise will help you focus your solution so that it matches the problem your customer is seeking to resolve
- To demonstrate this we will look at the problem statement created for Barters Closet and present a solution statement. The first problem that customers stated was that, “kids out grow clothing quickly.” You can not stop kids from growing but you can help mother’s reduce the cost of keeping their children in clothing. For Barters Closet their solution is the creation clothing trading platform that allows mothers to trade old clothing for larger sizes or sell clothing that they no longer need.
- The next problem stated by customers is that thrift stores do not allow you to sell or trade clothing. A thrift store is a great solution if you are looking to buy discounted used clothing or donate old clothing but it fails to allow the customer to trade or sell clothing. This is where Barters Closet sees the opportunity. Its solution is to allow its customers sell, trade or buy used clothing on their website. Barters Closet believes that it can potentially meet all the needs of its customer.
- The third problem presented by customers is that competitor sites like EBay have expensive listing fees that make it prohibitive to sell the used clothing. This is a pain point for the customer. The customer would like to sell or trade used clothing but it is not worth their time or not an option on competitor sites. Barters Closet’s solution is to only charge a commission on products sold. This means that the customer has no risk in uploading product to the site. The second part of their solution is that no fee is charged on products traded. This means if mothers can find other mothers to swap clothing with the only thing they pay is shipping. This is a great deal for mothers and gives them the incentive to upload product and engage with other users.
- Now that we have created solutions that match the needs of our customers it is time to add them to our canvas.
- In this section we will focus on your companies unfair advantage. This is also referred to as the your competitive advantage.
- What makes you hard to duplicate? In this section the question you need to answer is, “what makes your company hard to duplicate?” Or, what can not be easily bought.
- There are a lot of things that you might think are an unfair advantages but they are not. The main reason these are not unfair advantages is they can be easily duplicated by your competitor. Here is a list of good traits and features that are not unfair advantages. More features Less features Design Passion Determination Next we will discuss why these are not unfair advantages
- Whether it is a new product design or a new user interface, design is difficult to create. What this means is that it is difficult to design great products and services but once they are designed they are easy to duplicate. Design is similar to features in the fact that it is difficult to protect. Even if you are able to protect your design under patent law you will most likely face competitors that circumvent the laws and ethics. You will end up spending you time and resources defending your design. As many companies have learned you can be right and still go out of business. Design is a core component of creating a great product or service but it can not be your only unfair advantage.
- Entrepreneurs often cite their personal attributes as their unfair advantage You must understand that these traits are absolutely necessary for success in a startup but they are not an unfair advantage. The reason passion and determination are not unfair advantages is that they are: Not quantifiable – meaning you can not assign metrics to it, which makes it difficult to manage and develop Not sustainable/enduring – meaning that over time your passion and determination will wear down. It is unlikely that you will have the same passion you have for your startup for the next 20 years. And finally it can be duplicated. If your unfair advantage is that you work 80 hours a week on your product a competitor can simply have two regular employees do the work you are doing. Remember that passion and determination are vital traits to have to start a successful business but these can not be the core of your unfair advantage over time.
- Now that we have discussed what is not an unfair advantage lets discuss what is an unfair advantage. Here is a list of unfair advantages: Insider Information Dream Team Existing Customers Celebrity Endorsement Network Effects Community Organic Search Patents Lets delve into what makes these unfair advantages.
- Not every startup will have an unfair advantage from it inception. Often these advantages arise over time. Here is some examples of companies that develop unfair advantages over time. Facebook developed a large online community and quickly experienced network effects Zappos established itself as an online leader by focusing on the customer and providing exceptional customer service Toyota was not a leader in its industry until it applied small batch processing and gain internal efficiencies If you do not have a competitive advantage focus on what you expect it to be in the future Or, just leave this part of the canvas blank.
- Here is an example of how Barters Closet wrote their unfair advantage. They started with the story of what they expect to create. Over time Barters Closet will create a community of mothers helping mothers. Currently, their unfair advantage is a board of directors with proven Ecommerce experience. With their limited resources they were unable to recruit the dream team and the founders had little experience in ecommerce. The way they combated this and turned their weakness into an advantage was by recruiting an accomplished board of directors.
- The final step is to write your unfair advantage on your canvas.
- The focus of this section will be on the revenue streams portion of the lean canvas.
- Price is a component of your product. Price creates the perception of value in the customers mind. Its also important because revenue is what keeps you in business. You want to make sure that you are making enough profit to continue building your company Price is also part of your communication strategy. It signals the value of your brand and your position in the market.
- The price you set for your product will determine who is your customer is. Take the time to understand your customer and learn how they perceive your product in comparison to your price. This can be accomplished through surveys and focus groups. Remember Price communicates the value of your product.
- Here is an example of a simple pricing plan. In this example the company created 4 plans that meet the pricing needs of a wide range of customers. At a glance you can see how much each level of service costs and what you get for that price.
- Here is an example of a simple pricing plan. In this example the company created 4 plans that meet the pricing needs of a wide range of customers. At a glance you can see how much each level of service costs and what you get for that price.
- If you intend to charge for your product, it’s better to be upfront about it. It sets the right expectations, raises customer commitment, starts generating cash flow, and lets you start tackling one of the riskier parts of your business model early.
- If you are hesitant about charging for the initial use of your product consider the free trial pricing method. In this pricing strategy you give your product away for a predetermined period of time. Time-based trials help time-box your pricing experiments so you can force a conversion decision which allows you to learn and iterate faster.
- Here is an example of a revenue stream for Barterts Closet. When Barters Closet interviewed its target market it learned that they did not like paying listing fees. In response to this Barters Closet does not charge any listing fees. Next it looked at its competitors and learned that on average its competitors charged a 20% commission. Barters Closet hypothesis at this point is that it can offer its customers a 15% commission on products sold on its site. Barters Closet believes that it can offer a lower price because the company operates very lean. It also believes that this will be a selling point against its competitors. It also charges a $1 fee for shipping and handling. This strategy ensures that it makes money on every transaction. Through repeat transactions and customer interactions Barters Closet will learn if this is a good revenue stream strategy.
- The final step is to write your revenue stream strategy in your canvas.
- In this section we will discuss the cost structure section of your lean canvas
- It is Impossible to be 100% accurate When you start out it is impossible to accurately forecast all your costs. It is best to focus on known costs and give yourself some margin for error.
- When it comes to researching your costs its best to have a broad understanding of your costs. Its important to understand your cost structure to avoid painful mistakes, but don’t get carried away. For example do not spend 3 months researching the costs of plates and cutlery if you are opening a restaurant. Take a lean approach. Only focus on costs that will allow you to develop a minimal viable product and reach your market. All costs outside that scope are waste.
- Your expenses will consist of fixed and variable costs. At this stage it is not realistic for you to know all costs that will be associated with developing your product. Focus on having a broad understanding of fixed and variable costs. A core component of lean start is action. Do not get bogged with uncertainty. Navigating uncertainty is what entrepreneurs do best.
- In economics, fixed costs, indirect costs or overhead are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be time-related, such as salaries or rent being paid per month, and are often referred to as overhead costs. These costs are relatively easy to research and account for.
- A term that is associated with startups is called scaling costs. These are costs that increase incrementally with use or growth. These costs can be either fixed or variable. For example your rent may increase as you grow from 2 employees to 10 Or your hosting cost may double every time you increase your traffic by 10,000 users At this point all you need is a broad understanding of how your costs will increase as you hit different milestones.
- Here is an example of Barters Closet initial cost structure.
- Lets take a look at Barters Closets fixed costs: The first fixed cost the company has is for the development of the website. The company did not have the internal capabilities to develop the site so it had to go to an outside company to develop the site. This is a sunk cost. Regardless, of whether the company ever sells a single item it will owe this amount. Ideally, the company would have been able to build the site internally and paid a fraction of this cost to start the company. Next the company pays $500 a month for an office in a local entrepreneurial center. Initially, the company started in the founders basement but now it has grown to need office space for employees and interns. The site is currently in beta and has very low daily traffic. Today, it pays $200 a month for its web hosting. Its final expense is minimal salaries for the founders. The founders consist of 3 people. The entrepreneur, the graphic designer and the computer developer. They are all paid a minimal salary while they are developing the website and growing the company.
- At this time Barters Closet only has one variable cost. A 3% fee is charged on every credit transaction. The company is very simple at this point in time. The company will have more variable costs as time goes on.
- For Barters Closet it is important that they have a broad understanding of the costs that will increase as the company grows. Costs that will scale in portion to growth are rent, web hosting and monthly salaries. Currently, rent is $500 per month. They can comfortably fit 3 people and a few interns in the office. They expect that they can fit a maximum of ten people in the office. When the company exceeds 10 employees it will need to seek a new location. It estimates that at that point rent will be in the range of $800-$1,000 depending on what side of town they find space. Currently, there web hosting costs are $200/month. This is more than enough to handle the current site traffic. It estimates that it can accommodate up to 5,000 daily visitors at this level. After it exceeds that level it will need to upgrade to a larger package costing $400/month. The founders have taken a very modest salary to develop and launch the company. The founders know that they can not live at home forever. They have agreed that at the conclusion of the first year of operation they will double their salaries. At least that is the plan today. If the company is not profitable they will have to consider whether or not they will continue to pursue developing this company. It is not important to know all your future costs but rather to have a broad understanding of how and when you company will scale.
- The final step is to write costs in the cost structure section of your canvas.
- In this section you will learn how to fill out the key metrics portion of your lean canvas.
- Metrics are a core concept of the lean start. In this section you will learn how to identify key metrics for your startup. Conventional business accounting metrics often are not relevant to a startup. You will need to develop metrics that are relevant to where you are in the product life cycle There are a ton of things you can measure in a startup but at this stage the key metrics are the activities of a user that move them forward and make them more engaged with the product.
- Start by identifying 2 metrics that drive your business. Your company is most likely pre-revenue at this stage. If this is the case creating metrics around revenue do not make any sense. Think about the activity that will be required to obtain that first customer. At this point that may be to forward thinking. Think about the activity needed to obtain your first user. Next thing about the activity required to convert a user into a customer. The process is all about thinking about how you will engage your customer. Start at your most basic engagement and move forward.
- The next step is to divide your metrics into action and success metrics.
- Action metrics revolve around how you will quantify your engagement. Here are a few examples of action metrics An example of an action metric might be how many people you get to signup for a beta trial of your product at a tradeshow. Another example would be measuring how many people open your promotional email. Or better yet how many people respond to your call to action in your email. In the beginning the metrics may be very basic. The goal is to choose metrics that give you data points that will move you toward your success metrics.
- Your success metrics should be associated with your action metrics. In other words what would be the positive outcome of your action metrics. Often times these goals revolve around financial metrics. Such as first sale, break-even or a level of profitability If your company is a long ways away from revenue focus on the success that will get you to the next stage. A proof of concept or working prototype might be a success metric if your product has a long development cycle.
- Here are 5 common metrics used: Customer Acquisition Cost Customer Retention Viral Reach Turnover And Revenue These metrics are used once you have proven your hypothesis and need metrics to continue your growth. Next we will talk about these metrics in greater depth
- Lets take a look at an example of Barters Closet key metrics. A key metric that is unique to Barters Closet is, “Closets.” Closets is the name Barters Closet has assigned to users that upload product to the website. Barters Closet relies on users to bring product to the site. In order to create a valuable trading network the company needs lots of product uploaded to the site. They have identified this as their single most important metric at this stage. In the case of Barters Closet their success metric is set at a modest $5,000 per month in gross sales. Its an achievable goal the company to meet its monthly expenses, raise salaries and invest in online advertising. As the company grows this metric will grow to reflect their real goal of making $1 million dollars a year. Its important to start with small obtainable goals. Setting large unobtainable goals will discourage you and minimize your happiness at each milestone.
- The final step is to take write your action and success metrics into the key metrics section of your canvas.
- In this section you will learn how to create a channel strategy and complete the channel section of your lean canvas
- A market channel is simply how your reach your customer. In addition to defining the right product to build, it’s just as critical to start finding, building and testing a significant path to your customers from day one.
- While there are a plethora of channel options available, some channels may be outright inapplicable to your startup, while others may be more viable during later stages of your startup. Its important to have a realistic channel strategy that address your needs with the resources you have available. The bootstrap techniques used to launch your product probably will not be applicable at later stages Think about how this strategy will change as you reach milestones.
- It has been said many times during this course that building, measuring and testing is a key component of lean start. Your channel strategy is no exception to this rule. It is recommended that you start this process from the beginning. Build your channel strategy Test it with your intended audience And measure the results Remember your strategy is just a hypothesis at this point. Use small samples to validate your success If your strategy proves to be successful you can scale it to reach a larger audience.
- Many entrepreneurs initially believe that organic SEO, blogs and social media are free They quickly learn that there is no such thing as free All of these activities have a human capital cost. Although, these tasks can be a very good use of time for some companies they are a waste for others. The challenging part is that it is difficult to calculate a direct ROI to these activities. It is recommended that you focus your time and energy on tasks that you can measure against your key metrics
- A commonly cited paid channel is search engine marketing. Eric Ries has written about how he tested his early product on $5 a day using Google Adwords - driving 100 clicks at a CPC of 5 cents. If you can pull this off today, by all means use it, but unfortunately those days are long gone for most products. Keyword competition is so fierce now that you need to either out-spend or out-wit your competition. Both of these activities are better suited after your product has found its market. In other words, this strategy is best used when you have moved from learning to optimizing your channel strategy
- Inbound channels use “pull messaging” to let customers find you organically Example inbound channels: Blogs, search engine optimization, E-books, white papers, webinars. Outbound channels rely on “push messaging” for reaching customers. Example outbound channels: Search engine marketing, print/TV ads, trade shows, cold calling.
- Your channel strategy should be lean. Focus on testing and measuring your strategy not perfection This is a time for creativity & risk taking. For example brainstorm ways you could get your product or prototype in the hands of a celebrity. Have fun with your experiments at this stage. If your product is successful you will have plenty of time to develop conventional channel strategies.
- It is recommended that you spend a minimal amount of money on your initial channel strategy. Channel strategy is a continual process of testing and iterating. Over time you will begin to learn how to reach and engage your customer. Hopefully, this engagement is translating into revenue. If it is, it is time to scale your strategy. At this point you should know who your customer is, how to reach them and what to say to engage them. Now you have two options. Continue doing it internally Or hire a professional There is no one right answer. Doing it internally is less expensive but diverts you from your core competency Outsourcing is more expensive and reduces your level of control but is potentially more effective. These are the decisions you will be faced with when you have had success launching your product or service. The advantage of applying the lean process to your channel strategy is that you will have an in depth understanding of your customer and will have spent minimal resources obtaining this information.
- Now lets take a look at Barters Closets initial channel strategy. At its current stage it is relying on a series of bootstrap or guerilla tactics marketing strategies to reach its customers. The company started by reaching out to friends and family. Barter Closet asked them to upload “Closets” and ask their friends and family to do the same. Over the course of the last year they have created some very creative blogs, posts and tweets that give information to customers about how to recycle and reuse clothing. Now that the site is up and running it has sent out press releases to thrift fashion bloggers asking them to review their site and blog about it. They reached out to thrift stores in an attempt to create partnerships but found out that they were direct competitors Next they setup trading events with potential customers. The purpose of these events were to show a live demonstration of how the website works. This engaging activity raises awareness of the site and demonstrates how it works. Finally, they host seasonal trading parties. These themed parties allow Barters Closet to interact with their customer. At these parties they learn what their customer wants and sell them product from their personal inventory.
- This channel strategy is great today but when the concept has been proven and revenue starts to role in the company will transition to a more established channel strategy. This strategy will consist of: Pay per click adds Targeted facebook ads Paid advertising A street team to spread the message in metropolitan cities And an inside sales team. Barters Closet is a long ways away from these strategies but it has thought in advance where it would like to be.
- The final step is to write your channel strategy in your canvas. Here is an example of Barters Closet channel strategy.
- Here is an example of their first draft of their lean canvas. Barters Closet used the tips and techniques taught in this course not only to create a lean canvas but a business model that they are using today. The lean canvas is a great entrepreneurial tool for creating a business model and testing your hypothesis.
- Now that you understand each segment we will discuss the best practices for filling out lean canvas.
- Sketch a canvas in one sitting This is a bit contrary to how you have been taught in this course. Now that you have a thorough understanding of the canvas and each of its sections you should be able to quickly fill out the canvas for each of your customer segments. For the next customer segment complete the canvas in one sitting While a business plan can take weeks or months to write, your initial canvas should be sketched quickly. The goal is to get your ideas on paper.
- It’s okay to leave sections blank Rather than trying to research or debate the “right” answers, put something down quickly or leave it blank and come back to it later. Some elements like “Unfair Advantage” take time to figure out. The canvas is meant to be an organic document that evolves over time and it’s okay to say “I don’t know”.
- Its good to have an idea of where you are going but think in the present Business plans try too hard to predict the future which is impossible. Instead, write your canvas with a “get things done” attitude. Based on your current stage and what you know right now, what are the next set of hypotheses you need to test to move your product forward?
- Remember you will be creating a canvas for each customer segment In this next section you will tips for picking the best canvas to start with.
- Building a path to customers is one of the harder aspects of building a successful product. If you have an easier path to one segment of customers over others, take that into consideration. It doesn’t guarantee you’ll find a problem worth solving or a viable business model, but it will get you out of building faster and speed up your learning.
- This is pretty intuitive but you should pursue the customer segment that has the highest margin The exception to this rule would be if the market was too small or very expensive to reach. In general, spend your time and energy in places you expect to have the highest return
- Lastly, you need to pick a customer segment that represent a big enough market, or are a stepping stone to a big enough market, that you can build a business around. Using these tips and techniques will help you identify the customer segment you should pursue first and outline your strategy for testing your hypothesis.
- If you do not have a firm grasp of costs it is recommended that you seek outside help from someone that has experience in your industry. Seeking a mentor is something that is recommended to all entrepreneurs. A mentor will help you navigate through uncertainty and serve as a sounding board throughout your journey A mentor will also help you indentify any blind spots or areas you may have over looked. A mentor can be an incredible resource that will save you time, money and resources.