Updated: Dec 15, 2020
Many consultancy firms state that you need a business plan to start your own company.
This is not true.
If you don’t have a lot of money to finance your business, you need to monetize fast and a business plan only slows you down.
In this article, you will learn how to start a business with a lean canvas, market your product or service even before it is actually available for sales and pivot swiftly when it doesn’t hit the target response from the market.
Table of contents
A BUSINESS PLAN IS OBSOLETE
Most entrepreneurs don’t always have huge capital to fund their business and this is the reason why they must earn profits as soon as possible.
The only way to do that is to shorten the time-to-market and validate a product/service fast.
A business plan is obsolete, because it postpones a company time-to-market.
Entrepreneur defines a business plan as:
A written document describing the nature of the business, the sales and marketing strategy, the financial background, and containing a projected profit and loss statement.
Such a document drains lots of precious resources (time and money) in the earliest stages of a company and the chances it is precise are low. As I always say, a strategy becomes successful only if it meets the expectations after being tested.
According to a 2019 study of CB Insights, the first reason why a startup fails is due to no market need (42%) and the second because of cash depletion (29%).
It means marketing a product or service fast is fundamental to understand market’s needs and, eventually, promptly pivot before running out of cash.
So, how can you start and market a business fast?
You apply a lean startup approach.
THE LEAN STARTUP METHODOLOGY
Before learning how to use and make a lean canvas, you need to understand how to take advantage of lean startup.
What does lean startup mean?
Lean startup is a methodology to validate a business model by shortening the time-to-market (or development cycle).
A lean startup approach focuses on the needs of early consumers.
Early consumers or early adopters represent your ideal buyers who are ready to purchase new products or services before they become mainstream.
According to The lean startup: how today’s entrepreneurs use continuous innovation to create radically successful businesses, published by the American entrepreneur Eric Ries in 2011:
A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.
It means that startup is not equal to company and has much in common with a context or developing environment. For instance, the scope of a big corporation’s department can be developing and testing new products, but the department itself is not a company.
In Ries’s definition, there is no reference to the team size or years of business. The only important element is the uncertain operating conditions.
This uncertainty can only be reduced by studying the interaction between a new product/service and its early adopters.
How can you do that?
With an MVP.
Develop your Minimum Viable Product first
Minimum viable product (MVP) is a term coined in 2001 by Frank Robinson, CEO of SyncDev, and then spread by Steve Blank and Eric Ries.
According to Ries, a minimum viable product is:
A new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.
In other words, an MVP is a product or service with a basic set of features enough to catch the attention of early adopters and get intel on their preferences and expectations. It allows a business to:
Shorten the development cycle;
Test the demand before launching a full version of the product/service;
Cooperate with customers to further the development cycle;
Pivot in the earliest stages of development.
To be more pragmatic, an MVP is the fundamental business hypothesis.
For example, the founder of the online shoe and clothing retailer Zappos, Nick Swinmurn, wanted to test his hypothesis that people were ready and willing to buy shoes online.
Instead of building a full-fledged e-commerce site with a great footwear database, he approached offline stores, took some pictures of their shoes, posted them online and paid the stores full-price every time he made a sale. Then, he delivered the shoes to his customers.
Those sales indicated that there was an actual demand and Swinmurn finally decided to found the business model of Zappos on selling shoes online.
This story is very appealing, because it makes it seem very easy to turn an idea into a successful business. All the focus is on the MVP and the final success: the “creative” phase and celebration.
In reality, the MVP is only the beginning of a series of iterations and processes that lead to the validation of a business model.
How can you test an MVP fast and decide whether to pivot or not?
The best tool to do so is the lean canvas.
HOW TO CRAFT A LEAN CANVAS
A lean canvas (sometimes also called validation board) is a tool to validate ideas through experimentation.
Lean canvas was invented by the founder and CEO of Leanstack, Ash Maurya, to summarize in one page the customer-problem-solution paradigm.
This visual chart does not only guide entrepreneurs, but also other stakeholders. In fact, Maurya said that lean startup is:
The faster, more effective way to communicate your business model with internal and external stakeholders.
Download my free lean canvas template and market your MVP like a boss!
The purpose of a business is to create value and monetize it. But if the business doesn’t know what problem it is going to solve, how can it create value?
According to Maurya, a lack of problem understanding is one of the major causes of startup failure.
In the “problem” box, list up to 3 problems that your startup wants to solve.
In the section below, “existing alternatives”, list the alternatives that people already use to solve or work around the problems.
Once the problem is clear, you have to come up with a solution.
The “solution” box is small to help entrepreneurs align with the concept of minimum viable product. Besides, they shouldn’t fall in love with the first solution they come across, but keep testing and generating new ideas.
Maurya is also aligned with the thought of many other entrepreneurs. For example, during Philly Tech Week in 2017, I interviewed the CEO of OpenForge, Jedidiah Weller, about lean startup and design thinking. He promptly stated that:
The goal of a start-up is to find a solution.
The only way to decrease uncertainty is being capable of measuring progress and making reliable projections. The issue is that startuppers struggle to keep up with all the numbers.
Most of them are doing it wrong, because they either focus on the wrong metrics or consider too many of them.
The 8-figure businessman Noah Kagan said that:
A startup can only focus on one metric. So you have to decide what that is and ignore everything else.
Failing in identifying the right metrics can ruin a startup.
You should fill the “key metrics” box with a list of numbers which tell how your business is doing.
A lean canvas is as dynamic as the data in it. You should change your key numbers according to the business stage you are in.
Eric Ries underlines the distinction between actionable metrics and vanity metrics.
While actionable metrics give a real view of a business performance, vanity metrics reflects just a narcissist picture of the company.
For example, if you are selling shoes online, you can’t only rely on the number of web page views, because it is not a metric which affects revenue or profit.
On the other hand, if you are an online magazine which monetizes traffic with ads, the number of web page views can be a good metric, since it affects the actual economic performance of the business.
In the “value proposition” box, you should list the products or services which your startup offers to meet the needs and wants of your target audience.
A value proposition is a promise of value to be delivered. It’s a single, clear, compelling message that states why you are different and worth paying attention to.
It usually answers the following questions:
What value do we deliver to the customer?;
Which one of our customer’s problems are we helping to solve?;
What bundles of products and services are we offering to each customer segment?;
Which customer needs are we satisfying?.
Value can be created by many elements like:
Getting the job done;
In the section below, “high-level concept”, you should describe your solution with analogies in order to make people understand what you're talking about.
Sometimes, startups are so innovative they become difficult to comprehend. If the product or service is too complex, people won’t buy it.
For instance, when YouTube was born, they associated it to Flickr. But instead of being a community based on photos, it was based on videos.
You can do the same by listing your X for Y analogy.
The “unfair advantage” box is for something that cannot easily be bought or copied.
Many startups don’t have one, that’s why they have to work hard to fill this space.
If a startup is successful, but it doesn’t have an unfair advantage, copycats will come and push it out of business.
The “customer segments” box is for target customers and users.
List here the groups of consumers you want to serve and if you need help to figure out how to find your best audience, read my article on market segmentation.
In brief, to find your market segment, you can ask yourself:
For whom are we creating value?;
Who are our most important customers?.
In my article, I also deepened many different types of market segments including:
The section below, called “early adopters” is a space for your buyer persona. Here, you can describe your ideal customer.
Early adopters will be your first niche of buyers. They are like a spark that ignites your money machine. Also, they will help you validate and improve your product/service.
List in the “channels” box your path to customers (inbound or outbound). This is the space for the channels that you’ll use to deliver your message, value, product and service.
You can rely on partners, like wholesale distribution channels, or build a way to the customer by yourself through social media, for example.
Usually, a multi-channel approach (which mixes owned and third party channels) is preferred.
To find your channels you can answer these questions:
Through which channels do our customer segments want to be reached?;
How are we reaching them now?;
How are our channels integrated?;
Which ones work best?;
Which ones are most cost-efficient?;
How are we integrating them with customer routines?.
Each channel has its own life-cycle and marketing activities must be tailored for each phase:
Awareness. How do we raise awareness about our company’s products and services?;
Evaluation. How do we allow customers to purchase specific products and services?;
Delivery. How do we deliver a value proposition to customers?;
After sales. How do we provide post-purchase customer support?.
The “cost structure” box is for listing the fixed and variable costs of the organization.
It answers these questions:
What are the most important costs inherent to our business model?;
Which key resources are most expensive?;
Which key activities are most expensive?.
The cost structure is very important, since it determines the business setup. For example it can be:
Cost driven when the business model aims at minimizing costs and cutting off gewgaws (leanest cost structure, low price value proposition, maximum automation, extensive outsourcing);
Value driven when the business model focuses more on generating value than overall costs (focused on value creation, premium value proposition). Usually, high-end brands like Prada or Rolex uses this model.
Characteristics of a cost structure can be:
Fixed costs: they don’t vary based on production output (rents, utilities...);
Variable costs: they vary according to the production output (salaries, raw material...);