Validating Your Business Model with Innovator’s Canvas

 

By Omodiaogbe Samuel

Last Updated: December 7, 2023

Introduction

The innovator’s canvas is a single-page business plan template that was designed by Jake Nielson to help entrepreneurs systematically think through and validate or invalidate their innovation ideas. The canvas can be applied to organize, document, and map out a comprehensive business models by prioritizing where to start, and tracking ongoing learning. It also a way to highlight the risk assumptions embedded in a business idea. The goal of the Innovator’s Canvas is not just to provide a canvas template but to provide a systematic process by which business models can be documented, tested and iteratively created until you have achieved either fast/cheap failure or certain success. Whatever your new idea is, this process can help fill in the details and quickly and cheaply tell you if you’re on the right track or not. The Innovator’s 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

Innovator’s Canvas is step-by-step organized into six parts with each part having sun-parts. The following are the parts that made up the Innovator’s Canvas:

  1. Customer/Problem
  2. Solution
  3. Channel
  4. Support Structure
  5. Economic Model
  6. Market Environment

Part 1: The Customer/Problem

The first, and most important part of the canvas, is the customer/problem section. In this section you write down your assumptions about the customer including

  • Characteristics.
  • Problem Statement
  • Job to be done

Part 2: The Solution

Once you’ve detailed your assumptions about the customer you can then move on to writing out your assumptions about the solution:

  • Mission Statement
  • Value Proposition
  • Product or Service
  • Cost of Goods/Services

Part 3: The Channel

Once you have documented both your customer and your solution, it’s time to think through the channel by which your product (or service) will reach your target customer.

  • Awareness
  • Sale
  • Delivery
  • Support
  • Acquisition & Support Costs

Part 4: Support Structure

The next piece of assumptions to fill in has to do with the support structure of the business. This includes:

  • Business Structure
  • Key Resources
  • Key Partners
  • Unfair Advantage

Part 5: Economic Model

Once you’ve defined the assumptions about the customer, solution, channel and support structure, you have everything you need in order to create the economic model of the business.

  • Revenue
  • Acquisition & Support
  • Cost of Goods / Services 
  • General & Administrative
  • Value Creation

Part 6: Market Environment

Once you have documented your assumptions about the business model you are trying to build in the sections above, it’s helpful to also document some specifics about the market in general. That’s where the market environment section comes in handy.

  • Market Trends
  • Market Size
  • Current Channels
  • Current Solutions
  • Current Providers
  • Industry Trends
  • Technology Trends
  • Regulatory Trends

Tips to Developing the Innovator’s Canvas

  • Sketch the canvas in one sitting: While a business plan can take weeks or months to write, your initial canvas should be sketched at a sitting
  • It’s not meant to be perfect at the first draft. Therefore, leave room for update as you get more information
  • Don’t get stuck – it’s important to let old assumptions die and replace them with new ones.
  • Think in the present: Business plans try too hard to predict the future which is impossible. Instead, develop your canvas with a “getting things done” attitude.
  • Make your best guess and move on. You can always come back as you got more information
  • You need to sketch the canvas for each customer segment, as the elements varies greatly by customer segment
  • The Canvas needs to iterated as you learn more about your business
  • Like products, the innovator’s canvas is meant to be continuously updated and improved

Detailed Components of the Canvas

Part 1: The Customer

The first, and most important part of the canvas, is the customer section. Customers comprise the heart of any business model. Without (profitable) customers, no company can survive for long. In this section you write down your assumptions about the customer including

Characteristics

Customers can be segmented into the groups based on their needs, behaviors and other traits. They can be defined by demographics (age, gender, ethnicity, profession, etc.) or psychographic factors (behavior, interests, and motivations).

Problem Statement

The problem is the reason for the business, the motivator for the product; and the solution it’s trying to achieve. The best way to describe the problems is in terms of the job customers need to do. What they are ultimately trying to achieve and the pain or frustration they currently feel.

Job to be done

Jobs include all the tasks that customers are trying to solve. These jobs can include anything that a customer is trying to do. It can include a problem being solved, a task being achieved, or any other need they want to satisfy

Pains

All factors which stop customers from completing a job are called pains. Pains could be frustrations with the current solutions, or unknown barriers. They could be what keeps your customers awake at night.

The gains 

Customer gains are the things that a customer gets excited about as they try to accomplish their goals and get their job done. They’re benefits, delights, things that make it easier to adopt the product or service

Part 2: The Solution

Once you’ve detailed your assumptions about the customer you can then move on to writing out your assumptions about the solution:

Mission Statement

A mission statement is an action-oriented statement, declaring the purpose an organization serves to its audience. The statement clarifies what the company wants to achieve, who they want to support, and why they want to support them

Value Proposition

The Value Proposition is a clear and compelling message that captures the essence of the product and the solutions it offers the target audience. An effective value proposition can be derived by focusing on the benefits when the problems are solved

Product or Service

  • Description: A product or service creates value by getting jobs done while relieving pains and creating gains. Here you list the products you make or the services you provide that help your customer get their functional, social or emotional jobs done
  • Pain Killers: This describes how exactly your products and services alleviate specific customer pains. They explicitly outline how you intend to eliminate or reduce some of the things that annoy your customers before, during, or after they are trying to complete a job or that prevent them from doing so
  • Gain Creators: Gain creators describe how your products and services create customer gains. They explicitly outline how you intend to produce outcomes and benefits that your customer expects, desires, or would be surprised by, including functional utility, social gains, positive emotions, and cost savings
  • Cost of Goods/Services: This state the costs you need to incur in order to the product/service

Part 3: The Channel

Once you have documented both your customer and your solution, it’s time to think through the channel by which your product (or service) will reach your target customer.

Awareness:

Understanding the different levels of customer awareness can help your marketing efforts in attracting various types of potential consumers. Essentially, customer awareness refers to two key concepts:

  • How knowledgeable potential consumers are about your brand, services or products
  • How conscious customers are of their needs or wants in relation to your company’s offerings

Sale

The selling is the process of getting your product/service to the doorstep of the customers. Therefore, you need to ask: How will you explain the benefits of the solution to the customer and answer their questions?

Delivery

You need to have a formidable channel of delivering your offering to the customer. Ask, how will your solution be delivered to the customer?

Support

Sales support is the sum of the resources that support a sales effort by taking care of the more fundamental nuts-and-bolts responsibilities.  The sales support infrastructure could include any combination of actual people, automation, reference materials, or any other entity

Acquisition & Support Costs

This measures how much an organization spends to acquire new customers. Customer acquisition cost is designed to measure and maintain the profitability of your acquisition teams. If your costs to get the customer through the door are higher than your Customer Lifetime Value, then the business cannot be viable

Part 4: Support Structure

The next piece of assumptions to fill in has to do with the support structure of the business. This includes:

Business Structure

This part requires you to state:

  • The legal entity: The legal entity that represents the business.
  • The owners: The list of owners and the number of shares owned

Key Resources

This describes your most important strategic assets that are required to make your business model work. Key resources can be owned or leased by the company or acquired from key partners. Key resources can be human, physical, financial, or intellectual

  • Human resources, i.e., the team needed to build and support the business model
  • Physical resources needed to support the model (e.g., office space, a new plant, tooling, etc.)
  • Financial resources needed in order to support the discovery efforts and to create the first version of the business model
  • Intellectual property necessary to have a right to practice or protection of the idea

Key Partners

This describes the network of partners that make the business model work. In this section, you list the tasks and activities that are important but which you will not do yourself. You need to Identify key partners that will help increase revenues, decrease costs, or share risks.

Unfair Advantage

An unfair advantage is what you have that no other business has. It can’t be copied or bought, and it’s something that cannot be easily met by your competitors. And therefore, it will help you to create a competitive advantage

Part 5: Economic Model

Once you’ve defined the assumptions about the customer, solution, channel and support structure, you have everything you need to create the economic model of the business.

Revenue – Pricing & Frequency

  • The price the customer is willing to pay for the solution as well as the frequency of purchase (over a year)

Acquisition & Support (variable costs)

How much will it cost to acquire and support customers?

  • The cost of supporting the acquisition and post-sale support of a customer on a per unit basis

Cost of Goods / Services (variable costs)

  • This is cost on a per unit basis the business needs to incur to make the product or offer the service. How much does it cost to make each product or service experience?

General & Administrative (fixed costs)

  • Here you ask: How much will it cost to support production of the value proposition and acquisition & support efforts?

Value Creation (profitability)

  • Here you ask, how much operating profit will the initial business model generate and what is the breakeven volume?

Part 6: Market Environment

Once you have documented your assumptions about the business model you are trying to build in the sections above, it’s helpful to also document some specifics about the market in general. That’s what market environment section help you to address

Market Trends

Market trends are the notable changes happening with the customer base as a whole.

  • General customer trends including changing demographics, behaviors or preferences

Market Size

Market size is typically defined as either the total money spent or total volume purchased in a particular market

  • The total number of potential customers whose problem your offering is intended to solve. Also, can include the total amount already spent in the market on solving the problem

Current Channels

Current channels define the paths to market for existing solutions

  • Primary channels that are used today to deliver comparable solutions

Current Solutions

Existing solutions and suppliers available to customers today.

  • Current products and services being sold today

Current Providers

The companies currently providing solutions in the industry you’re launching into

  • The leading creators of comparable solutions in the market today

Industry Trends

Industry trends are anything noteworthy that is changing in the industry. This can include things like consolidation, vertical or horizontal integration

  • Shifts in the industry regarding consolidation, fragmentation, etc.

Technology Trends

The type of technologies that is shaping the industry you’re operating on

  • New technology that provides a runway for innovation

 Regulatory Trends

These are the trends that are noteworthy changes or expected changes in the regulatory environment

Business Model Validation

At this stage, you ought to have a crystal-clear idea of what your business model assumptions are and are ready to move on to the next step. Remember, the first step is documenting the idea in the form of the Innovator’s Canvas. This forces you and your team to think through each of the essential elements of the idea and begin to “put meat on the bone” so to speak. But just having documentation of the idea is merely the first step toward a true business model validation. You need to try as many iterations of the canvas as possible based on real market data. As a result, your business model assumptions need to be tested and validated or invalidated as quickly and cheaply as possible based on the feedbacks you got.

Opportunity/Fit/Difficulty

To help you know which business model you should test first, you need to answer these set of questions to think through for each business model idea:

  1. How big of an opportunity from a market size and revenue standpoint is this business model?
  2. How well does it fit within the core values and capabilities of the founding team or sponsor organization?
  3. How difficult will it be to build, grow and sustain this business model idea?

The idea here is to create a quick relative ranking of each business model idea so you know where to focus your efforts. Once you’ve thought through those questions and arrived at a ranking of business model ideas the next step is validation of those ideas.

Business Model Validation

To help facilitate business model validation, we need to focus on four essential elements in this section:

Problem Identification: The starting point is identifying the customer’s problem that you need to solve. But these problems need to be validated so that you know that the problem is a real one. Once you have confirmed with the potential customers that the problem exists, it’s not trivial, that they are willing to pay for a solution and are willing to switch from whatever solution the use at the moment, then you are in business.

Problem/Solution Fit: The Problem-Solution Fit simply means that you have found a problem your customers are experiencing and that the solution you have offered actually solves the customer’s problem. You achieve fit when customers get excited about your solution, which happens when you address important jobs, alleviate extreme pains, and create essential gains that customers care about.

Product/Market Fit: Product-market fit describes a scenario in which a company’s target customers are buying, using, and telling others about the company’s product in numbers large enough to sustain that product’s growth and profitability. The Fit is not some mythical status that happens accidentally. Searching for a Fit is an iterative process until you arrive as a solution that actually meet jobs, pains, and gains that customer really care about.

Scalability: Business model scalability, whether it be in a financial context or within a context of business strategy, describes a company’s ability to grow without being hampered by its structure or available resources when faced with increased operational demands. A model that scales well will be able to maintain or even increase its level of performance or efficiency even as it is tested by larger demands

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 100,000 that graduate from our tertiary institutions, only about 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 frustration 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 the problem, 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 was 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  

 

                                             Innovator’s Canvas of Footprint Institute

The Innovators Canvas is a one-page business plan template that helps Footprint Institute to work its way around the most critical aspects of starting asocial business to address graduate unemployment crisis in Nigeria. The Canvas is divided into six major components: customer/problem, solution, channel, support structure, economic model, and market environment. We have analyzed each of the sections by filling them out appropriately. However, the goal of the Canvas is not just to provide an analytical tool, but to provide a systematic process by which business models can be documented, tested and iteratively created until achieving either fast/cheap failure or success. As a result, after creating the first version of the innovator’s canvas, the next step is to take it to the market to test it. It’s the market that can validate or invalidate it. The feedback received from the market will determine how we iterate the canvas until we arrive as a sustainable business model. On the other hand, the market would still determine if we need to abandon the initiative or not. It all depends on how viable the business model turns out

 

The Benefits of the Innovators Canvas

The following are the main reason you need to use the Innovator’s Canvas for your startup idea

  • Fast: Compared to writing a business plan which can take several weeks or months, you can outline multiple possible business models on the innovator’s canvas at a moment
  • Easily shareable – Founders can easily share the canvas with partners, team members, and other stakeholders.
  • Concise: Innovator’s Canvas forces you to distill the essence of your product/service, and allows you to easily grab the attention of an investor or customers.
  • Effective: Whether you’re pitching to investors or giving an update to your team or board, the canvas allows you to effectively document and communicate your progress.
  • Easily updatable: The innovator’s canvas is a 1-page document that can be quickly drafted and updated as you receive feedback from the market.
  • Clarity: Ultimately the innovator’s canvas is about making a business idea crystal clear to all stakeholders
  • Opportunity identification: Innovator’s Canvas is a powerful tool that can help you easily understand if a business opportunity exists or not
  • Comprehensibility: It is a way to organize, document and map out a comprehensive plan for your business
  • Assumption testing: It is a way to highlight the risk assumptions embedded in your idea, and so, you can easily validate or invalidate your hypothesis cheaply

                                         Summary

The Innovator’s Canvas is a business model validation tool that help entrepreneurs to test their business idea hypothesis. The goal of the Canvas is not just to provide an analytical tool, but to provide a systematic process by which business models can be documented, tested and iteratively created until you have achieved either fast/cheap failure or certain success. Having your idea documented on the canvas is only the first step of creating your business model. The real work begins when you start to validate or invalidate your assumptions. Therefore, the real determinant of a sound business model is the marketplace. And so, you need to test your assumption and update your business plan based on the feedback from the 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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