Module 7

Lesson 3&4: Lean Canvas

Context:
A Lean Canvas is a one-page business plan template that helps
entrepreneurs and teams quickly map out and test their business
ideas. It focuses on key aspects of the business model, providing
a clear and concise overview of the various components of the
business.
For startups, creating a Lean Canvas is crucial for quickly
validating ideas, attracting initial funding, and pivoting based on
feedback and learning. It allows for a clear presentation of the
business model to potential investors and stakeholders.
For large companies, Lean Canvas can be a powerful tool for
innovation, manage project risks, and align cross-functional
teams. It promotes a structured yet flexible approach to exploring
new business opportunities and sustaining growth.
Program overview,
and your Venture Journey
over 14 weeks
Learning Objectives:
Concepts covered in this Lesson that are important for you to
understand and be able to apply include:
1. Lean Canvas and its importance
2. Lean Canvas and its components
3. How to use Lean Canvas as an idea stage venture
4. Key Metrics & why they are important
By the end of the lesson you should be able to
• Grasp the ‘Lean Canvas’ concept in business modelling.
• Critique Lean Canvas model for Ventures
• Develop an initial Lean Canvas model for your Venture
• Be able to use customer feedback to iterate your business
model

Lean Canvas and its importance:

Lean Canvas was developed by Ash Maurya in 2010. It is an
adaptation of the Business Model Canvas created by Alexander
Osterwalder.
Lean Startup Principles: Maurya designed Lean Canvas to
incorporate Lean Startup principles, emphasizing rapid
experimentation and iteration. Lean Canvas is favored over the
traditional Business Model Canvas for its
- Simplicity
- focus on customer problems
- suitability for rapid iteration and validation.
It provides a practical, e cient framework for startups to test
and refine their business models, aligning with the agile and lean
approaches crucial for early-stage ventures.
Whether you review a Lean Canvas from a start-up’s or a large
organization’s perspective, both perspectives emphasize the
importance of Lean Canvas in strategic planning, fostering
innovation, and ensuring alignment with market needs and
business goals.

Before we delve into the 9 building blocks of the Lean Canvas, let
us understand the importance of mastering this tool. Key things
to review here include:

a. Focus on Validation
The Lean Canvas isn't about creating a static plan set in stone. Its
core purpose is to validate your assumptions about your
business model.
By focusing on the core building blocks – customer problems,
value proposition, and channels – you can quickly test your
ideas with real people and gather valuable feedback.
This allows you to identify potential flaws early on, iterate your
concept, and ensure you're building a business that truly solves a
customer need.
Example:
Imagine you have an idea for a new fitness app.
The Lean Canvas prompts you to define the specific
problem your app solves (e.g., lack of engaging workout routines)
and your target customer (e.g., busy professionals).
Through early testing and user feedback, you might discover that
people actually crave a more social fitness experience.
This valuable insight allows you to pivot your app's focus towards
creating a community aspect, potentially increasing its user base
and success.

b. Reduced Risk of Failure

Launching a business is inherently risky. The Lean Canvas helps
you mitigate this risk by encouraging a "build-measure-learn"
approach.
Instead of pouring all your resources into a full-fledged product
launch, you can create a Minimum Viable Product (MVP) – a basic
version of your offering with core functionalities.
Using the Lean Canvas, you can then test this MVP with your
target audience, gather feedback, and refine your concept
before a major investment. This iterative process significantly
reduces the risk of launching a product that nobody wants.
Example:
Let's say you have an idea for a new online grocery delivery
service.
The Lean Canvas helps you define your target customers (e.g.,
families with limited time) and their pain points (e.g., long grocery
store queues).
Before investing in a large fleet of delivery vehicles and a complex
inventory system, you could start by partnering with a local store
to offer limited delivery options within a specific area.
This MVP allows you to test customer demand, refine your
logistics, and gather crucial data before scaling your
operations.

c. Improves Communication & Alignment

The Lean Canvas is a fantastic communication tool. Its
single-page format provides a clear and concise overview of your
business model, making it easy for you to share your vision with
potential investors, co-founders, or team members.
Everyone is on the same page, understanding the core problem,
proposed solution, and target market. This fosters collaboration
and alignment, ensuring everyone works towards the same goals.
Example:
You and your co-founder have a vision for a new educational
platform.
The Lean Canvas helps you define the specific learning
gaps students face (e.g., lack of interactive learning tools) and
your target audience (e.g., high school students preparing for
competitive exams).
By presenting this information on the Lean Canvas, you
can effectively communicate your value proposition (e.g.,
gamified learning modules) and secure your co-founder's
buy-in on the project's direction.

d. Enables Adaptability & Agility

The startup world is dynamic. Customer needs can evolve rapidly,
and new technologies may emerge overnight. The Lean
Canvas promotes agility, allowing you to adapt your business
model based on real-world feedback.
As you gather data and insights through customer testing, you
can easily adjust your solution, target market, or even pivot your
entire business concept if necessary.
Example:
You've launched a new food delivery app, but your initial customer
base seems limited to young professionals. Through user
feedback captured using the Lean Canvas framework, you
discover a growing demand for healthy meal options from
families.
This insight allows you to expand your target market and
potentially introduce a new family meal plan feature on your app,
catering to a wider audience.
By embracing the core principles of Lean Canvas - validation, risk
reduction, communication, and adaptability, you'll be
well-equipped to navigate the exciting yet challenging world of
entrepreneurship.
Remember, even the most brilliant ideas need to be tested and
refined. The Lean Canvas empowers you to do just that, giving
you the road map to turn your vision into a thriving reality.
Lean Canvas and its components:
The foundation of any Lean Canvas is its nine building blocks,
which capture the essence of your business idea:
These include:
1. Problem: Identifies the top three problems your product or
service aims to solve.
2. Customer Segments: Defines the homogenous group of
people who form your target customers.
3. Unique Value Proposition: Describes what unique value you
offer to your customers and why they should choose your
product over others.
4. Solution: Outlines the top three features or solutions to
address the problems identified.
5. Channels: Specifies how you will reach and communicate
with your customer segments.
6. Revenue Streams: Details the ways your business will
generate income.
7. Cost Structure: Lists the main costs involved in operating
your business.
8. Key Metrics: Identifies the key performance indicators to
measure your business's success.
9. Unfair Advantage: Describes what gives your business a
competitive edge that is di cult to replicate.

How to use Lean Canvas as an Idea stage Venture:

For a new user of Lean Canvas, it is essential to remember that
Lean Canvas is merely bringing the different components of the
venture idea together. An effective use of the components
requires you to identify and validate key assumptions (as
mentioned above) around each of the components.
Validating assumptions is important as it allows you to develop a
feasible venture idea worth pursuing. A step by step process that
you could apply to build out each of the components of Lean
Canvas include:

1. Identify the Problem

Step: List the top three problems your target customers are
facing.
Assumptions to Validate:
• Relevance: Are these problems significant enough for
customers (do they care enough) to seek a solution?
• Frequency: How often do these problems occur for your target
customers?
• Urgency: How urgent is the need to solve these problems?
Benefit: Focuses your venture on solving real and significant
issues, ensuring you address genuine market needs.

2. Define Customer Segments

Step: Identify who your target customers are. Segment them into
specific homogenous groups based on demographics, behaviors,
or needs.
Assumptions to Validate:
• Identifiability: Can these customer segments (not just one or
two individuals) be easily identified and reached?
• Size: Are these segments large enough to sustain and grow
your business?
• Willingness to Pay: Are these segments willing to pay for a
solution to these problems?
Benefit: Helps you understand who you are creating value for and
tailor your solutions to meet their specific needs.

3. Develop Your Unique Value Proposition (UVP)

Step: Articulate what makes your product or service unique and
why customers should choose it over alternatives.
Assumptions to Validate:
● Differentiation: Is your UVP truly unique compared to existing
solutions?
● Perceived Value: Do customers perceive your UVP as valuable
and compelling (enough to pay)?
● Relevance: Does your UVP directly address the customer
problems identified?
Benefit: Clarifies your venture’s competitive advantage and helps
in creating a compelling pitch to attract early customers and
investors.

4. Outline the Solution

Step: Describe the top three features or solutions your product or
service offers to address the identified problems.
Assumptions to Validate:
● Effectiveness: Do these features effectively solve the
identified problems?
● Usability: Are these features easy and intuitive for customers
to use?
● Demand: Is there demand for these specific features among
your target customers?
Benefit: Ensures that your solution is directly tied to the
problems and value proposition, increasing the likelihood of
product-market fit.

5. Determine Channels
Step: Identify how you will reach your customer segments. This
could include online marketing, direct sales, partnerships, etc.
Assumptions to Validate:
● Accessibility: Are these channels accessible and effective in
reaching your target customers?
● Cost-Effectiveness: Are these channels cost-effective given
your budget constraints?
● Engagement: Do these channels facilitate meaningful
engagement with your customers?
Benefit: Provides a clear roadmap for customer acquisition and
engagement, which is crucial for early growth.

6. Define Cost Structure

Step: List the key costs involved in operating your business, such
as development, marketing, and operational expenses.
Assumptions to Validate:
● Accuracy: Are your cost estimates accurate and
comprehensive?
● Sustainability: Can your business sustain these costs in the
long term?
● E ciency: Are there opportunities to reduce costs without
compromising quality?
Benefit: Helps you understand the financial requirements and
plan for sustainability.

7. Establish Revenue Streams

Step: Define how your venture will make money. Consider
different revenue models like subscription, direct sales,
advertising, etc.
Assumptions to Validate:
● Viability: Are these revenue streams viable and sustainable?
● Pricing: Is your pricing strategy aligned with what customers
are willing to pay?
● Scalability: Can these revenue streams scale as your business
grows?
Benefit: Ensures that your business has a clear and viable path to
profitability.

8. Identify Key Metrics

Step: Determine the key performance indicators (KPIs) that will
measure the success of your venture. These might include user
acquisition rates, customer retention, revenue growth, etc.
Assumptions to Validate:
● Relevance: Are these metrics relevant and aligned with your
business goals?
● Measurability: Can these metrics be accurately measured and
tracked?
● Actionability: Do these metrics provide actionable insights for
decision-making?
Benefit: Provides a way to track progress and make data-driven
decisions, essential for navigating the early stages of a startup.

9. Determine Your Unfair Advantage

Step: Identify what sets you apart from competitors that is not
easily replicable. This could be proprietary technology, unique
partnerships, or deep industry expertise.
Assumptions to Validate:
• Defensibility: Is your unfair advantage truly defensible and
di cult to replicate?
● Value: Does your unfair advantage provide significant value to
your customers?
● Sustainability: Can you maintain and leverage this advantage
over time?
Benefit: Strengthens your position in the market by highlighting
sustainable competitive advantages.
In summary, for Idea stage ventures like yours, Lean Canvas is an
important tool to iteratively refine your venture idea . This
involves as illustrated above, working diligently through each
component of the Lean Canvas and validating key assumptions
for each in order to check the feasibility of your venture idea.
In doing so it is also important to identify and measure the
specific metrics based on the stage of the venture you are in, so
that you can track your own progress effectively.

Please go through the Case Study that Packetworx provided via

this module to further understand how Mr. Bagabaldo, the
entrepreneur, built and evolved his Lean Canvas for his IoT
startup.

Call-To-Action:
Build a Lean Canvas model for your venture idea via Venture
Activity 7.2
Use learnings and Guidelines:
Pay attention to the different assumptions that help
determine feasibility as illustrated here and iterate your key
components by validating them if you haven’t done that
already.
Outline your key metrics keeping in mind the stage that your
venture idea is at so that you can measure effectively.
Remember that Lean Canvas is an iterative model that will
evolve as you advance your venture idea, start up, and
stabilize and grow your start-up.
Additional read

Key Metrics & why they are important:

Key metrics are essential for any business to track its
performance, manage operations e ciently, and make informed
strategic decisions. Key metrics are also sometimes di cult to
determine as the output a venture has to achieve in order to move
from milestone to milestone in the early stages of starting up can
be varied. Those have to be determined by the founders by being
aware of what indicators validate the key assumptions around
their business model at that time of their venture.

However, there are some universally important key metrics that

businesses across various industries might consider essential
and it is important to be aware of them as one is navigating the
venture creation process:

a) Revenue growth
This is perhaps the most straightforward metric, indicating the
health and expansion of a business. It measures how much a
company's income has increased over a specific period and is
crucial for attracting investors and assessing long-term viability.

b) Profit Margins
Understanding profit margins—both gross and net—helps a
business know how much money it's actually making after all
expenses are paid. This metric is vital for pricing strategies, cost
management, and overall financial planning.
 c) Customer Acquisition Costs (CAC)
This measures the total cost of acquiring a new customer,
including all marketing and sales expenses. It's crucial for
evaluating the effectiveness of marketing strategies and
understanding the value each customer brings to the business.

d) Customer Lifetime Value (CLV)

CLV predicts the total revenue a business can reasonably expect
from a single customer account. It helps businesses develop
strategies to maximize the value of their customer relationships,
balance acquisition costs, and foster loyalty.

e) Employee Satisfaction & Turnover rates

Employee metrics are critical for assessing organizational culture
and operational e ciency. High turnover can indicate deeper
issues within the company, such as poor management or
inadequate working conditions, which can affect productivity and
incur higher costs due to the need for constant recruitment and
training.

f) Net Promotion Score (NPS)

This measures customer satisfaction and loyalty by asking
customers how likely they are to recommend the business to
others. A high NPS is often correlated with strong revenue growth
and customer satisfaction.

g) Inventory Turnover
For businesses that rely on physical stock, knowing how
quickly inventory is sold and replaced can help optimize
purchasing decisions and storage, reduce holding costs, and
increase cash flow.

h) Operational E ciency Ratio

These include a variety of metrics such as order fulfillment
time and the ratio of sales to administrative expenses. They
help businesses understand how well they are utilizing their
resources to generate income.

i) Website tra c and online engagement

For digital businesses, metrics like daily/monthly active users,
session duration, bounce rate, and conversion rates are
crucial. They indicate the health of the online aspect of the
business, customer engagement levels, and the effectiveness
of online marketing efforts.

j) Market Share
This metric shows a company's control over its market
compared to its competitors. Understanding market share
helps businesses gauge brand strength, competitiveness, and
overall market position.

Each of these metrics provides insights into different aspects

of a business's performance and health, allowing leaders to
make targeted improvements and strategic decisions that
align with their goals.