Learn. Learn Fast. Fail Faster.
Why? Because the faster you fail, the sooner you succeed.
“Success is walking from failure to failure with no loss of enthusiasm.” -Winston Churchill
This is one core tenet of the book Business Model Generation by Alexander Osterwalder and Yves Pigneur, and the driving force behind The Business Model Canvas. The Business Model Canvas (a one-page, or lean, business model) is a high-level, very visual, new and different way to outline how your business works. Creating your own Business Model Canvas will allow you to easily focus on how your business creates value, with the least amount of effort and with the most amount of financial gain.
And it’s not a static document – the beauty in this lean method is its capacity for change. The Business Model Canvas is akin to adopting a scientific method approach to your business, then combining that with an agile manufacturing process.
So you’re still producing based on market demand. But you produce those products and services in tandem with a frequent customer touch plan, always focused on delivering quality over quantity and developing meaningful customer interactions and relationships. Now, if the best method for doing that changes due to any kind of market shift, you have the opportunity to reevaluate how to most effectively provide continued quality.
Here’s where your scientific method comes in: you have a hypothesis (the way you currently run your business), and you test it (is the way you run your business still working?). Then you measure the results and make a conclusion. If that conclusion isn’t optimal, it’s time to recalibrate and try again. Rinse and repeat.
Priming the Canvas
So I was recently invited to talk to five small business owners about their companies, with a focus on creating individual lean business models. My workshop, part of a capacity development program focused on strategic planning, took place in a 4-hour session down at Milwaukee’s City Hall. I was happy to share my experiences with the lean business model method. We’ve adopted it at SmartWave, and we’re advocates for the method, as we often use lean business model techniques to help our clients address business technology problems.
I started by warming up the group with a few basic questions…
“Question” # 1: Describe your business in one sentence. This one sentence challenge is an interesting undertaking for most people, because sometimes it’s hard (or impossible) to describe everything you do in one sentence. However, it’s important that first sentence shines: it alone gives people a sense of what you do. It’s that initial hook that resonates with someone who might purchase your products or services. Most people in the group focused on long statements centered on what they felt their business does and what they wanted out of it.
The challenge here is to instead speak in the way your potential customers want and need to hear. This is a really good exercise for someone who wants to practice pitching his or her business to potential customers. Think about your target audience. If your business has multiple offerings, be sure to tailor that first sentence to that particular customer. Ideally, you should be able to describe your business in about three sentences.
Ex. SmartWave works with organizations without a trusted technology advisor to provide expert technical leadership to encourage success and growth.
Question # 2: What are the core principles you use to guide your business decisions? Many of the group members work in social justice, so those guiding principles spoke towards equality. Others referred to product quality as a top priority. These core principles could be based on social concerns, environmental factors, even personal morals.
These core principles ultimately determine HOW you do business, and with whom. So if you’re unwilling to skimp on quality, you might be unwilling to work with certain suppliers or clients who don’t share that viewpoint. If loyalty is a core principle, your business practices might be to work only with those customers loyal to your brand. Though these terms may mean limiting some potential business outlets, each business is free to operate under their principles – it’s their choice.
Ex. At SmartWave, we might choose not to purchase a certain technology, due to poor worker conditions or because the product does drastic harm to the environment. This is because SmartWave core principles include net positive social impact and minimal environmental impact.
Question # 3: What value do you deliver to your clients? Initially almost everyone responded similarly, usually along the lines of, “I deliver quality work at a low cost.” But this is a generic statement of value, not a value proposition. So I challenged the group to start thinking about the real value they provide, from the perspective of their customers. Once they were able to dig in and get to the heart of it, it was much easier to define the real value in what they do.
A value proposition is what other people see as valuable about the product or service you provide. What does your business do differently than the competition? What does your business do that people like or want the most? What do you offer that people are willing to pay for? Or pay more for? Stuck? Start here: “My business saves customers time and money BY_________.”
Ex. At SmartWave, we help business owners save money and time because we establish ourselves as the accountability partner for their technical teams, allowing the business to increase capacity to provide more services. -and/or- At SmartWave, we save our customers time and money by using technology to create innovations in efficiency and in product or service delivery.
Painting the Picture
Primed with the warm up answers, the team was ready to work on their lean business models.
- Customers: People who pay you for your work and your possible audience(s)
- Value Proposition: What you do for customers, in their words
- Channels: How you reach and stay in touch with your customers to deliver value
- Customer Relationships: Your ongoing relationship with your customers
- Revenue: What you provide that people pay for
- Key Activities: The basic actions you need to do to deliver value
- Key Resources: The essential things you need to deliver value through activities
- Partners: The entities that can help you deliver value or improve efficiency
- Cost: The basic costs you will incur to deliver value (keep it simple!)
Right Side… The basic idea behind the first steps is to focus on identifying your customer segments - who your customers are, and why they value what you do. Some of those customers may pay you directly, and some may not, depending upon your business.
Then you focus on how to maintain that ongoing relationship with your customers. Are you helping them? How? Do you offer a personalized service? Are you helping them automate a process? Why do your customers keep coming back to you? Also think about revenue: what do you charge your customers?
Left Side… So while the right side of the Canvas centers on value, the left side of the Canvas centers on KEY activities and resources used to deliver that value. Remember to focus only on key activities and resources, not all the little details. Think big picture.
Next, think about partners and costs. What partners do you have to make those activities/resources more available to your customers? Keep in mind that your business may also provide value for those partners. For example, if you provide inventory or paperwork services and your partner is a supplier, perhaps they are willing to pay for that additional value your business provides. And finally, costs - what must be paid for to get the job done and to run the business efficiently and effectively?
The Big Picture
Remember, the Business Model Canvas is meant to be a very high-level tool - a quick snapshot of what’s going on in your business and in your market. So don’t be too detailed. This big picture is designed to make you aware of where you need to go and what you need to do to get there.
…and what you’re experimenting with…
The Business Model Canvas isn’t just something you fill out and stick with for 20 years. Instead, this is a tool you can keep using over time, as you adjust to the marketplace changes or changes in customer demand. It’s designed to keep you constantly testing your hypothesis.
The value you provide is your hypothesis, not a fact. So every day you go out and talk about your business and do your work, you’re attempting to validate or invalidate that idea.
If/when the day comes that your customers (the ones who used to like your services) come out and tell you that your business no longer saves them time or money…? Then it’s time to change or pivot your business model. If you don’t, you could potentially be out of business – quickly.
So it’s important to maintain awareness of WHY people value your business – this is the key to keeping on top of market trends and ahead of the competition. The example of Blockbuster vs. Redbox came up in the session. Both companies provide the same basic service: movie rentals. But Redbox saw the market shifting and set out to provide movie watchers with more accessible movies, at cheaper rates, and at greater convenience. Customers no longer valued the personalized movie experience provided by Blockbuster, and were unenthusiastic about the limited locations. Same customer base, same service – but different value.
So after four hours working with the group, we got down to the nitty-gritty and together we began evaluating each person’s lean business model. I am happy to say the process was very collaborative. We had people sharing ideas and learning from each other to better develop their own unique Business Model Canvas.
All and all, it was a truly enjoyable experience and I’m glad I had the opportunity to participate. I’m confident the workshop will result in positive outcomes due to the gain of different perspectives from everyone in the group. So now, when they return to their day-to-day business operations, they have a very simple (and very effective) tool that allows each person to run their business through a different lens – the lens of the customer. Moving forward, this exercise should help everyone gain some insights on how to adjust and scale their value in the future.
Ready to try your own Business Model Canvas? Download the official PDF from Business Model Generation here, or try your hand at a different version of the lean business model from Lean Canvas online. (Free to start.)
*Note: this is a brief description of the Business Model Canvas and is not meant as a substitute for the full book, Business Model Generation website material, etc.