I often get asked why I created a different adaptation from the original Business Model Canvas by Alex Osterwalder. Lately, this question has bubbled up in frequency which is why I decided to take the time to outline the thought process that went into creating Lean Canvas.
First, a quick timeline.
Timeline
May 2010
I was first exposed to the Business Model Canvas through Alex Osterwalder’s book: “Business Model Generation.” While I found the book beautifully illustrated, I originally dismissed the canvas approach as “too simple.” Many of the examples in the book illustrated the business models of well-known companies like Apple and Skype — after they were successful. I was more interested in the “learning” that got them there.
Jun 2010
It was not until I saw fellow entrepreneur Rob Fitzpatrick’s variation (Startup Toolkit) that incorporated Steve Blank’s worksheets from “The Four Steps to the Epiphany” that I took a more serious look at the canvas. I had been using Steve Blank’s worksheets and struggled to keep them updated. The thought of capturing business model hypotheses on a single page seemed killer. I modeled my existing products at the time using both canvases, which prompted me to do some tinkering of my own that I’ll describe below.
Aug 2010
I shared my adaptation (Lean Canvas) in a post I published: “How I Document My Business Model Hypotheses.” This post quickly became one of my top posts of all time. I started using and testing Lean Canvas with other startups in my workshops and was particularly encouraged by its ability to enable more learning versus pitching conversations.
Sep 2010
I recruited the help of other entrepreneurs to start building an online version of Lean Canvas with the initial goal of facilitating more of these learning conversations in my workshops and subsequently opening it up to everyone.
Feb 2011
Lean Canvas also became a critical part of the methodology described in my book: Running Lean — first self-published as an ebook in February 2010, now being republished as a second edition O’Reilly title in March 2012.
Design Goals
My main objective with Lean Canvas was to make it as actionable as possible while staying entrepreneur-focused. The metaphor I had in mind was that of a ground-up tactical plan or blueprint that guided the entrepreneur as they navigated their way from ideation to building a successful startup.
I had already been working with Lean Startup principles, which had a big influence on the design.
“Startups operate under conditions of extreme uncertainty.”
- Eric Ries
My approach to making the canvas actionable was capturing that which was most uncertain, or more accurately, that which was most risky.
Uncertainty
The lack of complete certainty, that is, the existence of more than one possibility.
Risk
A state of uncertainty where some of the possibilities involve a loss, catastrophe, or other undesirable outcome.
- Douglas Hubbard
I found the initial Business Model Canvases I created back in August 2009 missing things I’d consider very high risk, while other things on the canvas didn’t register as high enough risk. Because the canvas is already quite space-constrained, it was important to maximize the signal-to-noise ratio. So I started trading boxes.
Here’s what I added:
Problem
Most startups fail, not because they fail to build what they set out to build but because they waste time, money, and effort in building the wrong product. I attribute a significant contributor to this failure to a lack of proper “problem understanding” from the start.
“A problem well stated is a problem half-solved.”
- Charles Kettering
That is why I chose to make the “Problem” box explicit and not a derivative of something else like Value Proposition.
Solution
Once you understand the problem, you are then in the best position to define a possible solution. That said, I purposefully wanted to constrain entrepreneurs (through the use of a small box on the canvas) because the solution is what we are most passionate about. Left unchecked, we often fall in love with our first solution and corner ourselves into legacy. Keeping the solution box small also aligns well with a “Minimum Viable Product” (MVP) concept.
Key Metrics
Startups often drown in a sea of numbers in an attempt to bring order to the chaos of uncertainty. At any given point in time, though, there are only a few key actions (or key macro metrics) that matter.
“A startup can only focus on one metric. So you have to decide what that is and ignore everything else.”
- Noah Kagan
How is this a risk? Failure to identify the right key metric can be catastrophic — leading to wasteful activities like premature optimization or running out of resources while chasing the wrong goal. Initially, these key metrics should center around your value metrics, and later they shift toward your key engines of growth.
Unfair Advantage
This is another name for competitive advantage or barriers to entry often found in a business plan. I was cognizant of the fact that few startups have a true unfair advantage on day one, which means this box would be blank.
“A true unfair advantage is something that cannot be easily copied or bought.”
- Jason Cohen
This box wasn’t intended to discourage you from moving forward on your vision but rather to continually encourage you to work towards finding/building your unfair advantage. Once a startup achieves some level of initial success, competitors and copy-cats will inevitably enter the market. If you don’t have a defense against them, you stand a real risk of being made extinct by these fast-followers.
Adding four new boxes meant I needed to take out four other boxes.
“Perfection is achieved, not when you have nothing left to add, but nothing left to take away”.
- Antoine de Saint-Exupery
Here is what I took out:
Key Activities and Key Resources
I felt both these boxes were more “outside-in” (versus entrepreneur) focussed, i.e., they helped outsiders looking in to understand what the startup did. I found myself listing things here like “Customer Development,” “Software Development,” “Developers,” etc., that didn’t register high enough on risk to warrant keeping them.
I also found some overlap with the boxes I already added:
- I believe Key Activities can and should be derived from the Solution box after the MVP has undergone some initial testing/validation.
- Building products today aren’t as (physically) resource-intensive as they used to be. With the advent of the Internet, Open Source, Cloud computing, and globalization, we need fewer resources than ever to get a product to market — making Key Resources align more closely with Unfair Advantage. But while a Key Resource can be an Unfair Advantage, not all Unfair Advantages are Key Resources.
Customer Relationships
I advocate starting every product (no matter what you are building) with a direct customer relationship (through customer interviews/observation) and then identifying the appropriate path to customers given your Solution and Customer Segment. This seemed better captured by the existing Channels box.
Key Partners
I’ll admit this was the hardest one to remove and the one that created the most discussion. Yes, success for some types of products is predicated on first establishing the right key partners. For example, building a global solar energy grid (platform) that has huge capital and regulatory requirements would probably require establishing key partnerships in place first. But I’d argue that most products do not fall into this category.
When you are an unknown startup with an untested product, pursuing key partnerships from day one can be a form of waste.
Over time, partners can become critical to optimizing your business model. Still, the risk here isn’t the lack of partners but can rather be traced back to inefficiencies in Cost Structure and distribution Channels for which those two boxes fit the bill.
Other questions
Why did you choose to extend the Business Model Canvas versus creating something new?
Even though it may have been easier to lay out a new canvas differently, I chose to work within the existing layout constraints to attribute the work back to Alex Osterwalder’s original canvas. The fact that he licensed the original canvas under a “Creative Commons” license and invited others to “Share & Remix” made this a no-brainer.
Who is the audience for Lean Canvas?
Lean Canvas was designed for entrepreneurs, not consultants, customers, advisors, or investors. That said, the entrepreneur can greatly benefit by engaging all of those people while validating their canvas. For more, see: “The Different Worldviews of Startups.”
What is the best medium for creating a Lean Canvas?
Use whatever is most natural to you. We created the online tool for the sole purpose of reducing conversation friction (collaboration) with others, especially advisors who tend to be geographically distributed and busy. But I have recently also started using a notepad version and a jumbo poster version, which I’ll make available to people interested in them. Something is appealing about creating a physical (versus online) artifact I can see and touch. I just got back from Dublin, where a team built a LEGO version of Lean Canvas (no kidding). I’ll be sure to share details when I can.
Which version should I use? Should I start with Lean Canvas and then shift to Business Model Canvas?
Again, use what is most natural for you. The most important takeaway is that you document your key business model assumptions (and learning) in a portable format that you can share and discuss with people other than yourself.
That said, I have used Lean Canvas successfully from ideation to Product/Market Fit (and beyond) with several startups now. The risks captured on Lean Canvas aren’t just early-stage risks but morph and evolve throughout the startup lifecycle.
Why do you have Problem and Unique Value Proposition? Aren’t they the same thing?
The Problem box is intended to capture the top problems customers face in their environments, while the UVP is the marketing promise you make to them that stems from the intersection of the Problem and (your) Solution boxes.
For example, on a job board site, a job seeker’s problem might be “getting noticed by a prospective employer,” which might prompt the job board service to offer solutions like “professionally designed resume templates.” Still, the UVP might be “Land your dream job in 60 days or less”.
Clayton Christensen also articulates this distinction very clearly in his talks when making a case for thinking in terms of customer “jobs-to-be-done” (problems) versus marketing features (UVP).
Where do competitors go on the Lean Canvas?
I am less interested in listing well-known competitors we often build into our investor pitches and more interested in identifying how customers deal with their problems today (existing alternatives).
Your true competition is NOT who you think they are, but who your customers think they are.
There is an “Existing Alternatives” sub-section under the Problem box that is intended for this purpose.
Why do you have Unique Value Proposition and Unfair Advantage? Aren’t they the same thing?
The job of a UVP is to capture a customer’s attention, while the job of the Unfair Advantage is to deter copycats and competitors. These two are often NOT the same thing.
For example, with Facebook:
UVP: “Connect and share with the people in your life.”
UA: Large network effects
Why do you have a single key metrics box? Doesn’t every hypothesis that is tested require a metric to measure it?
Yes, when testing any item on the canvas with an experiment, you should formulate a falsifiable hypothesis which requires you to identify a metric you’ll use to measure success or failure. The Key Metric box, though, is intended to identify the single macro metric or goal that drives what you do, i.e., what experiments you run.
Will you add a plug-in model to Lean Canvas like the Business Model Canvas?
I am not opposed to using other tools, worksheets, or even layers that help entrepreneurs to brainstorm or explore the main boxes in depth. For example, a pricing or metrics worksheet might help one to think through these concepts. We are using a form of layering (in the online tool) to capture experiments on the canvas (current progress).
That said, I am opposed to requiring this additional information when conveying the core business model. What particularly drew me to the canvas model was that it fit on a single page, making it fast, concise, and portable. The problem with business plans is that they take too long to create and don’t get read by others. I am all for time-boxing initial canvas creation and jump-starting learning through conversations.
Isn’t the Lean Canvas too product-focused?
If anything, the Lean Canvas is heavily “problem-focused”. Both the canvas and methodology emphasize understanding the problem as a requisite first step. As to the “product” label, I tend to use it rather loosely. Entrepreneurs are action-oriented and need to build a “product.”
In my post, “Your product is NOT the Product,” I challenge entrepreneurs to also shift their definition of “product” from building a solution to building a working business model.
How does the Lean Canvas enable users to switch between exploring and exploiting models?
The Business Model Canvas facilitates the ability for users to shift seamlessly between exploring new business opportunities and exploiting existing ones. This tool is designed in such a way that it allows for an intuitive reflection on different business strategies, making it easier for users to either innovate and experiment with new models or focus on optimizing and expanding current business practices.
