The Lean Canvas: Breaking down your idea into 9 key assumptions
In the past, if you wanted to start a business, you’d create a comprehensive business plan with all your projections, marketing plans, sales strategies, and operational know-how. But we’ve seen that business plans normally change, especially in the beginning, as you’re learning more about your customer needs and how they’re interacting with your solution.
Instead, if you’re at the ideation stage, it may make sense to use the Lean Canvas to help you think through your idea. Whether you’re a student working on a project, an entrepreneur starting a business, or an executive launching a new product, the Lean Canvas makes it easy to easy articulate and visualize your key assumptions.
What is the Lean Canvas?
The Lean Canvas is a 1-page business model template that helps you break down your idea into 9 key assumptions. It’s created by Ash Maurya and adopted from Alex Osterwalder’s Business Model Canvas [more about this here], and it allows you to easily articulate your key ideas, quickly test your key assumptions, and iterate on your business model.
The 9 Key Assumptions
In the next few articles, we’ll do deep dives into some of these key assumptions, but for now, here are the basics:
Problem: You need to identify the problem you are trying to solve. What do you want to improve or change? Where are there gaps between expectation and reality? Without an actual problem to solve, it will very hard to create a solution and understand its benefits. As you’re brainstorming your problem, you’ll also want to think through the ways it’s currently being solved, whether it’s a commercial solution or a creative hack.
In some instances, instead of identifying a problem, you may want to frame this block as an opportunity you want to address. For example, maybe you identified a market trend you think would be hugely capitalizable. It’s a bit nuanced - all problems can be opportunities, but not all opportunities are problems.
In future posts, we’ll discuss identifying problems and opportunities, “jobs to be done”, and alternative solutions.
Customer Segments: You will want to understand who your customer would be. For example, you would want to have an idea of their demographics, their behaviors, and their attitudes. A customer segment is a category of people who share one of more characteristics. Some examples of customer segments are demographic, socioeconomic, behavioral, and value-based. For the Lean Canvas exercise, you will want to identify your target customer segments. We’ll discuss more about customer segmentation in the following posts.
Solution: Once you’ve defined your problem and identified your target customer segments, you will want to articulate what your solution is. Perhaps you already have a solution - you’ll need to work backward and identify the problem it’s solving and for whom it is.
If you don’t have a solution, you should talk with target customer segments and try to construct a solution that could solve their problems. If you already have a solution, test your assumptions with your target customers. You’ll probably want to A/B test different ideas and develop your solution based on your research.
We’ve talked about crafting your solution one-liner here, and we’ll talk about building value next!Unique Value Proposition: A value proposition is the promise of a value to be delivered and why a customer should buy from you. A unique value proposition (“UVP”) is how the value you promise is different or better than your competition. At the end of the day, your customers will purchase your solution because of the benefits it provides, and your UVP is a way to articulate how your solution solves their needs better or differently than anything else.
It’s imperative that you provide value to your customers; without value, you have no business. We’ll do a deep dive into UVPs here.
Channels: Channels are all the different ways you can reach your customer segments. When you have your solution and your UVP, you can share your message through these different channels. Some examples of channels are social media, email, text messaging, magazines, trade shows, billboards, and even fax machines! There are a ton of different types of channels you can use depending on your solution and customer segment.
Key Metrics: Key metrics are the number and facts you use to objectively and quantifiably measure the performance of your business. You need to identify the metrics that will actually indicate how your business is performing, not just superficial vanity metrics. In the coming articles, we’ll cover a lot of material about key metrics.
Revenue: As a business, one of the most important key metrics you will want to track is revenue growth over time. For many companies, you may not earn revenue for the first couple of years of your business. However, you will need to have an idea of how you will earn money. At a high level, you should understand your basic business model - are you selling to businesses or to average consumers? Are you an e-commerce site or software-as-a-service? We’ll cover different types of revenue models and different types of considerations in future posts.
Cost Structure: It’s also important to understand your cost structure. You will want to list the operational costs for taking your business to market. For example, what is the cost of acquiring a new customer? How much would it cost you to pick, pack, and ship an order? Where will you work? Even if you don’t know the exact costs, you need to identify your potential expenses and then make some educated estimates. By understanding these costs, you will know your burn rate - the amount of money you need just to run your business, and by comparing your cost to your revenue model, you can determine your breakeven and profit points.
Unfair Advantage: Finally, you need to identify your unfair advantage. Jason Cohen, a 4-time entrepreneur and startup mentor, best explained an unfair advantage as “the only real competitive advantage which cannot be copied and cannot be bought.” Examples of unfair advantages are insider information, existing customers, network effects, a data moat, a team of subject matter experts… anything that no one can buy or copy. If you can’t think of your unfair advantage now, try to identify a unique advantage. This would separate you from the pack now but might be replicable or purchased at some point.
As you’re ideating your business or new product, it’s really important to keep these 9 assumptions in mind. Make sure to test and iterate your assumptions as your build upon your idea.
💡TLDR: Instead of wasting weeks building out extensive business plans that may change over time, leverage lean startup frameworks like the Lean Canvas. The Lean Canvas is a 1-page business model template that helps you break down your idea into 9 key assumptions, quickly test your key assumptions, and iterate on your business model.
📖 Exercise: Complete your own Lean Canvas for your idea. Even if you already have an existing business, it’s still a great exercise to try.
📎 Download: Lean Canvas Template
🚀 Group Access: Request access to my Entrepreneurs Group to receive more helpful content, special offers, and free access to my Founder Toolkit (including my Google Drive template!).
