Analyze and Validate Your Business Model with Lean Canvas

By Omodiaogbe Samuel

Last Updated: November 12, 2023

Introduction

Lean Canvas is a single-page business plan template designed by Ash Maurya to help entrepreneurs to break down their business idea into its basic assumptions. The canvas allows a problem-solution strategy to be easily described on paper. It helps to put ideas into perspective and serve as a guide for startups to validate their hypotheses.  Lean Canvas is easily updatable and allows you to make changes along the way as you test and validate your assumptions in the marketplace. As a result, the process is more cyclical and dynamic than the static form of a traditional business model. The canvas allows founders to construct the business model in a way that revolves around the customer, instead of focusing on strategies suited for larger companies. Also, using the lean canvas allows you to explore how your competitors are solving existing problems. And by knowing what is existing in the market, you would be in a better position to offer innovative solutions that will stand you out from the crowd. Lean Canvas is entrepreneurs-focused, but equally useful for every person involved in introducing new product or idea to the market. The goal of the Lean Canvas model is continuous innovation and eliminating high uncertainty by constantly adapting to the fast-changing market. As a result, it helps entrepreneurs to avoid costly failure of building products without takers.

                       Tips to Developing the Lean Canvas

Before jumping straight into filling in the building blocks, take the time to consider a few factors:

  • The nine building blocks can be filled out in any order; however, it’s recommended to begin with “customer segments” and/or “problems,” as your target customer will determine the viability of your business
  • Be realistic, not idealistic.
  • If working with a partner, have them create their own individual lean canvas and compare and contrast afterwards.
  • Sketch a Lean Canvas for each customer segment: the elements of your business model can and will vary greatly by customer segment.
  • Explore alternatives and competitors who are in your space to see how they address aspects of your Lean Model Canvas.
  • The Lean Canvas needs to change and evolve as you learn more. Adding a second stage, or duplicating a new version lets you see how things have changed over time.
  • Don’t get stuck – it’s important to let old assumptions die and replace them with new ones.
  • Leave sections blank: Rather than trying to research or debate the “right” answers, it is better to write something down quickly on the canvas or leave it blank and come back to it later
  • Sketch the canvas in one sitting: While a business plan can take weeks or months to write, your initial canvas should be sketched quickly.
  • Think in the present: Business plans try too hard to predict the future which is impossible. Instead, write your canvas with a “getting things done” attitude.

What is a Lean Canvas used for?

Use a Lean Canvas is to evaluate the potential of an idea before allocating time, effort, and resources into development. As a one-page model, it’s much faster and easier to create than a multi-page business plan. Its brevity, and simplistic format is readily understood by stakeholders and investors.  It’s easy to update in response to changes in business conditions. Therefore, use the Lean Canvas to:

  • Develop an overview of the critical aspects that drive a business
  • Streamline planning
  • Facilitate conversations about an organization’s strategy
  • Create an understanding of the plan across the entire organization
  • Help employees collaborate better through a shared understanding of how the business operates and its environment.
  • Underpin strategy execution, resource prioritization, and effective action plans.

Components of the Canvas

The Lean Canvas is composed of nine building blocks, just as the Business Model Canvas. But, on the Lean Canvas, these blocks have their titles and purposes modified. The nine blocks are:

  1. Problem
  2. Customer Segment
  3. Unique Value Proposition
  4. Solution
  5. Channels
  6. Revenue Streams
  7. Cost Structure
  8. Key Matrices
  9. Unfair Advantage

Problem

You need to understand the customer’s problem first. To get started, list your customers’ top three problems and then list alternatives that may already exist that these customers use to solve these problems today. Without a problem to solve, you don’t have a product/service to offer.

To effectively fill this block, you need to ask:

  • What are the top problems our potential customers face?
  • What existing alternatives do customers use to solve this problem today?

To address the problems, you need to focus on the possible early adopters (not the mainstream). Narrow down the distinguishing characteristics of your prototypical customer. Once you have confirmed with the potential customers that the problem exists, and that they are willing to pay for a solution or willing to switch from whatever solution they use at the moment, then you are in business.

 

Customer Segment

Once you’ve collected background information, you can define your target customers. Try to narrow down the candidate pool to the early adopters. You can always reach new audiences later on when your undertaking gets on its feet

Early Adopters: Identifying early adopters is extremely important because these are the ones that are going to be your first customers and the first version of the business is going to be crafted around them.

You need to ask the following questions about the customer:

  • Who are our most important current and potential customers?
  • What do they need or want?
  • How do they think and feel?
  • What do they do?

Unique Value Proposition (UVP)

If you want to stand out in your field, your company must have something notable that sets it apart. Taking a central part of the Lean Canvas, this box answers the question of how we are different from the existing alternatives. An effective UVP can be derived by focusing on the benefits when the problems are solved

A Unique Value Proposition should:

  • Be easy to understand in about five seconds.
  • Communicate the benefit a customer receives from using your products and/or services.
  • Explain how your offering is different from and better than competitors’

Here are some tips to craft a unique value proposition:

  • Derive your UVP directly from the #1 problem you are solving.
  • Find and target early adopters with a bold, clear, and specific messaging.
  • Focus on the finished story benefits that your customers will derive after using your product.
  • Pick your words carefully and own them.
  • A good UVP needs to answer 3 questions clearly, “What is your product?”, “Who is the customer?”, and “Why use it?”
  • Create a high-concept pitch that builds on other familiar concepts to quickly get an idea across and make it easily spreadable.

Solution

The solution is the heart of the product to be offered by the start-up. At this point, all that you have is untested problems and as a result, you may not be able to fully define the solution just yet. Rather, sketch out the simplest thing you could build to address each problem. You can brainstorm for ideas with your co-founders, team members, or family to get a list of probable ideas. 

You can define a possible solution by asking:

  • How do we, or can we solve the problem?
  • What is the Minimum Viable Product (MVP) that will address the problems?

Channels

A functional product/service will never be successful if it never reaches its intended audience. Channels are where you list the possible methods of marketing the offering to the target customer. The initial goal of a startup is to learn, not to scale. Look for the following characteristics in your early channels:

  • Free versus Paid
  • Inbound versus Outbound: Inbound channels use “pull messaging” to let customers find you while outbound channels rely on “push messaging” to reach customers.
  • Direct versus Automated: As a learning channel, direct selling is one of the most effective.
  • Direct versus Indirect: Often, startups waste energy in prematurely trying to establish strategic partnerships. First, sell yourself, then let others do it.
  • Retention before Referral: Referral programs can be very effective in spreading the word about your product. However, first you need to have a product worth spreading the word about!

Revenue Streams

This section is all about getting paid. Here you list the different potential options you anticipate for generating revenue from your product or service. You need to provide answer to these questions on your revenue streams

  • How do we plan to monetize the value we provide?
  • How much is the expected revenue and profit in each customer segment?
  • How do customers prefer to pay?
  • How can we scale up sales?
  • What products and services are customers willing to pay for?
  • How do they prefer to pay?
  • How much does each revenue stream contribute to the overall total?
  • What do you need to be profitable?
  • What is the lifetime value of your customer?

Cost

The ultimate goal is finding a scalable business model, and at the sometime determining the cost of delivering your solution and ensuring that you have a healthy margin built in. Therefore, you need to list here your fixed cost, variable costs, and overhead. Being brutally honest in this section will help you kick some financial goals down the track. So, you need to ask:

 

  • What are the fixed and variable costs for the business?
  • What will it cost to build and launch your MVP?
  • How much will be the burn-rate before making profit?
  • Is the new business going to be a freemium service, a free service funded by advertising, are customers going to pay a one-off fee to use it or are they going to subscribe?

Key Metrics

As the old story goes, if you don’t measure it, you cannot control it and you won’t know if you actually got to where you wanted. And so, you need to have indicators to determine if your product or service is performing as expected. Your key metrics can be a mix of engagement statistics, revenue, and customer satisfaction scores. Therefore, you need to ask:

  • What is the single most important measure that drives what we do?
  • How do we know if we are succeeding?

A good model to help with this is Dave McClure’s ARRRR funnel. It’s an acronym that describes five stages a person goes through on the path to becoming a paying customer:

  • Acquisition: This describes the point when you turn an unaware potential customer into an interested prospect.
  • Activation: Activation describes the point when the interested customer has his first gratifying user experience.
  • Retention: This measures “repeated use” and/or engagement with your product
  • Referral: This is where your happy customers refer or drive potential prospects into your conversion funnel
  • Revenue: Customers making a purchase and becomes a paying customer.

Each product needs to have unique metrics for each bucket that track on the key performance indicators of the business.

 

Unfair Advantage

An unfair advantage is something that cannot be easily met by your competitors. This a tricky one, the unfair advantage is NOT the competitive advantage that you believe you will have once you have launched the business. Instead, it has to be something that you already have, and cannot be copied or bought, and would require a considerable amount of time for anyone else to build. So, an unfair advantage makes you different from anyone else willing to launch the same business. Examples of unfair advantage could include:

  • Proprietary technology
  • Exclusive partnerships
  • Cheaper or new customer acquisition method
  • Intellectual property
  • Team of domain experts
  • Endorsements from experts
  • Access to a broad network of industry contacts
  • Having launched a similar business in the past
  • Having access to a strong community or list of potential customers
  • Having won awards
  • Being part of the cohort of an incubator

The goal of this box is to encourage you to keep working towards finding an unfair advantage in the marketplace.

For us to us to demonstrate how the model works, lets now apply it to startup that wants to tackle the problem of graduate unemployment in Nigeria

Case Study

Footprint Institute

The Problem: Addressing Graduate Unemployment Crisis in Nigeria:

There is a great crisis of graduate unemployment in Nigeria. Every year, out of over 200,000 that graduate from our tertiary institutions, less than 10% end up securing employment, and the rest join the unending unemployment crew. Most have stayed at home doing nothing for more than ten years, and the sad news is that the prospect of ever getting employed is remote. The problem is attributed to poor skill level, lack of jobs creation, lack of productivity, corruption and other related challenges. Graduate unemployment in Nigeria is a national crisis and government seems not to have a right answer to it, as no meaningful approach has been taken to address it. The challenge is so high that as those that have graduated are lamenting the undergraduates are living in fear and uncertainty, as they’re unable fathom what the future holds. The frustrations have led many unemployed graduates into crimes such as robbery, kidnapping, banditry, terrorism cybercrime, and other related criminal activities. As a matter of fact, if urgent step is not taken to address it, there is every possibility that it could result to an uncontrollable crisis

Solution:

This is where Footprint Institute comes in. We’re a startup Social Venture that is out to make graduates in my country “job creators rather than job seekers”. What we have discovered after interviewing many of them was that most have inclination for entrepreneurship, but the challenge was the know-how. To address that, we believe setting up an Entrepreneurial Training Institution will go a long way in alleviation the problem. Some of the complaints we got on the interviews were lack of skills, lack of capital, lack of support, and lack of knowledge of the intended industry. To that effect, we believe the right solution can only be found in quality training, where professionals and industry players would equip the graduate students on the best approach. We also discover that most professionals and industry player would be willing to help if the right environment is created. Therefore, we have decided to create a platform for the volunteer’s trainers to reach the inspiring entrepreneurs, to equip them with right skillsets to build and run successful businesses. At the end of the day, our products would end up as job creators rather than job seekers  

                                          The Model as Applied to Footprint Institute

Problem: As listed on the Canvas, the unemployed graduates have the challenges of poor skillset, and lack of entrepreneurial mindset. However, the greater part of the problem is rooted in the culture of erroneous measurement of success. A situation whereby you’re only considered successful if you have a good paying job. Those are the challenges we need to overcome by changing the mindset and perspective. Nevertheless, there are other organizations listed there that are providing alternative solutions, but our approach is quite different

Customer Segment: The focal customer segment is the unemployed graduates that have passion for entrepreneurship. While there are lots of unemployed graduate, not all have passion for entrepreneurship. It must start from the passion. We can only build on and existing interest, rather than imposing our will on the uninterested people

Unique Value Proposition (UVP): As listed on the Canvas, we’re out to do things differently, and that informed out UVP.  Such innovative approach centers on curriculum reform, practical approach to teaching, and continuous engagement through coaching and mentorship. However, the High-Level Concept is “turning job seekers to job creator.’ That essentially summarizes our overarching goal

Solution: As listed on the Canvas, our focus is equipping our students with the skills and mindset to setup and run successful businesses. That is achieved by giving them the best training and ensuring that we continue to engage them even after they have completed the training

Channels: We intend to reach a large pool of students, and therefore relying only on physical classroom is not going to solve it. As a result, we will build a robust online learning platform that is engaging and interactive to meet the need of students across the country

Revenue Streams: We are Social Venture, and as a result, we understand the plight of the unemployed students. We know if we are to charge the market rate, we wouldn’t be able to reach as many as we intended. Therefore, it’s going to be a highly subsidize program. To meet our costs, we will rely on other means of funding as listed on the Canvas

Cost Structure: As listed on the Canvas, we will incur fixed, variable, and overhead costs in running the program. However, we’re spending less on salary and wages because of the model we adopted. Essentially, we will rely on voluntary services from industry expert, consultants, and existing entrepreneurs. However, much of the cost is emanating from building and running an online platform

Key Metrics: The best measure of our outcome is on how we solve the customer problem of joblessness. Essentially, the number of startups realized after completing the program would be a key measure of our success. Other KPIs as listed on the Canvas measures our efficiency and responsiveness

Unfair Advantage: Our business model is centered on harnessing and deploying volunteers to get the job done. That is what no other player has. Also, we have huge potential customer-base that will enjoy highly subsidized program. Finally, the buy-in from the key stakeholders and partners is a differentiating factor

As seen from the application of the Lean Canvas to Footprint Institute, the Lean Canvas is perfect for brainstorming a potential business. It’s a methodological process that guides you through the building blocks starting with customer problem right through your unfair advantage. The Canvas allows a problem-solution strategy to be easily described. It helps to put ideas into perspective and serve as a guide for startups to validate their hypotheses. Besides that, using the lean canvas also allows you to explore how your competitors are solving existing problems. It helps you to offer a better solution that will stand you out from the crowd

Benefits of the Lean Canvas

  • It helps you organize your thoughts,
  • It helps your team understand your message,
  • It helps your partners and co-founders share your vision
  • It helps you understand who your target customers are
  • It helps you understand where you’ll find your early adopters,
  • It helps you understand your potential customer’s problems,
  • It allows investors to understand that you know what you are doing

                                        Summary

The Lean Canvas serves as a tactical planning tool to guide entrepreneurs in navigating their way from ideation to building a successful business. The Canvas is created for entrepreneurs to make it easier for the founders to work their way around the most critical aspects of starting a business. These steps range from identifying the customers and their problems, to designing a unique value propulsion that focuses on the solution; from there to mapping out channels to reach the customers, then to analyzing the revenue streams and cost structure; to pinpointing key performance metrics; and finally, to striving for unfair advantage. The lean canvas is not static, but a dynamic and ever-evolving document that you should optimize in an iterative process. Your initial guesses might be right or wrong. Therefore, it is important to keep in mind that the Lean Canvas is not a project for the entire lifetime of the company. On the contrary, it is about a method that permits experimentation.  And so, test your vision continuously and update the Canvas whenever it’s necessary. Essentially, the goal of the Lean Canvas model is continuous innovation and eliminating high uncertainty by constantly adapting to the fast-changing market.

Omodiaogbe Samuel, MSc. CMC, ChMC, FIMC

Omodiaogbe is a Strategic Management Consultant, and he the Principal Consultant/CEO at Vast Thinking Consults Ltd where he help organizations and business leaders to create superior value. Omodiaogbe holds BSc. and MSc. in Economics. Also, he is a Certified Management Consultant (CMC), a Chartered Management Consultant (ChMC), and a Fellow, Institute of Management Consultants, Nigeria. He is an Instructor on Coursera, where he teaches 25 courses in Strategic Management. Omodiaogbe is one of the world’s leading learners on Coursera and Edx with over 500 Certificates from top-ranked Universities, Business Schools, and Organizations.

Contact him:
Email; somodiaogbe@vastthinking.com.ng
Visit: www.vastthinking.com.ng

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