Learn how to raise your odds of success

 

Your Product is NOT “The Product”

Written by Ash Maurya

Entrepreneurs are typically more passionate about their solution than any other part of the business model which left unchecked can become a problem. While building a product is what you do best and where you derive the biggest sense of accomplishment,
building a product is NOT “the product” of your startup.
Your business model is “the product”.

Your Business Model as “The Product”

Up until recently, I would choose to defer thinking about the “whole” business model because of the sheer number of “unknowables”. My first exposure to business models was by way of attempting to write a business plan. I never got past the executive plan and 10-slide deck. Even there, many of the answers I put down felt like cop-outs: “We’ll just use adwords and SEO to fill the top of the funnel, use a freemium model to lower sign-up friction, then upsell just 10% of them into paying users. Simple.”

The problem with the traditional business plan is that while it is a great *initial* exercise for the entrepreneur, we don’t yet have all the right answers but are expected to pretend we do. More importantly, we see the world differently and need help finding the right answers but the business plan format is not conducive for that.

I stopped writing plans and switched to just building instead, but executing solely based on intuition is not optimal either. Then I stumbled into Customer Development, Lean Startup, and eventually the Business Model Canvas by Alex Osterwalder which is a 1-page format for a business model.

My first impression of the Business Model Canvas was that it was too simple to be useful. I revisited the canvas a month or so later and started tweaking it (under a Creative Commons license) which I blogged about here. I started experimenting with it in talks, workshops, and built an online version of the canvas which eventually became the Lean Canvas shown below:

You should immediately notice that I made the “Solution” box less than one-ninth of the entire canvas – by design. Building solutions is what we do best and is not the problem. It’s the other eight areas that are outside our comfort zone that need attention.

Since I get asked a lot about the specific tweaks I made, I’ve highlighted them below against the original Business Model Canvas:

My main motivations for these tweaks were maximizing the signal to noise ratio on the canvas since it’s already quite space constrained, and making the canvas more actionable from the ground up. I was less interested in retrospectively documenting successful business models, and more interested in capturing and tracking the raw untested hypotheses I was facing.

Or as Sean Murphy would put it I was interested in “solving the system of simultaneous equations that a startup team must solve to find a viable location in a market space”.

Lean Canvas As Your Startup Blueprint

Thinking about the business model as “the product” is quite empowering. It’s not something you back into once you have a product with early traction to pitch investors. Rather, it’s something you can and should be actively building and testing from day one.

The canvas serves as the spec or blueprint for your startup which you can use to systematically build and test your business model much like your product – lending itself to the same Lean Startup meta-principles.

How to Systematically Iterate Your Business Model

Nowadays I start every new product initiative by first sketching a set of Lean Canvases.

I’ve distilled down my process into 3 steps:

Step 1: Document your Plan A

My first step is brainstorming a set of possible models (or system of simultaneous equations) before writing a single a line of code. I usually start with an inkling of the problem, solution, and possible customers in mind. I create multiple canvases for each possible customer segment spending no more than 15 minutes on each.

I then prioritize where to start based on my relative assessment of:

  1. Customer Pain Level (Problem)
  2. Ease of Reach (Channel)
  3. Price/Gross Margin (Revenue Stream/Cost Structure)
  4. Market Size (Customer Segment)

At the end of this exercise, I might outright eliminate some models and decide to keep others.

Step 2: Identify the riskiest parts of the model by stage and type

Unlike a business plan, the power of the canvas lies in it’s ability to pinpoint areas with the most “unknowables” – aka risk. You need to tackle business model risk much the same way as you would tackle product risk i.e. early and often. Ironically, we do the exact opposite when we choose to defer things like pricing and channels over things we’re more comfortable doing like building the product.

While what you consider risky is somewhat dependent on the type of startup you are building, I find a lot of it is dependent on the stage of your startup. For instance, when considering a new product, the biggest risk I want to mitigate is ensuring this is something worth building in the first place. The riskiest part is often not the solution but the problem.

Step 3: Select the right tactics that maximize for speed, learning, and focus

Once you know what you need to learn, the final step is then setting up a series of experiments designed to uncover some answers as quickly as possible. The tactics that you use is highly dependent on the stage of your startup. For instance, the period before Product/Market Fit is usually riddled with qualitative learning (customer interviews/usability tests), while the period after Product/Market Fit tends to be more quantitative.

I often will test multiple models in parallel at the outset of a product through pivot experiments. For instance, if I were building a file sharing product that could possibly be used by attorneys, doctors, and graphic designers, I would create a Lean Canvas for each and conduct a few broad sweep customer interviews against each customer segment. If I get a strong enough signal from a particular customer segment, I might drop some models over others and the type of experiments I run over time become more focussed on optimizing a single model.

People, People, People

As entrepreneurs we view the world with a strong solution bias. Once we acknowledge that the solution is not the whole product and that we don’t need to pretend to believe our made up answers, we shift from pitching to learning – from other people.

I believe the true benefit of creating a business model/plan is only realized when it facilitates learning from other people.

Customer Development is one such conversation but there are many more that are needed to successfully build out the business model – with internal team members, advisors, partners, and investors.

Business Plans fail to do this, but I’ve been positively encouraged by the conversations I’ve had around the canvas with other entrepreneurs, investors, and advisors. I’ll cover that next time.

Become a Practice Trumps Theory member
(it's free)
OptinMonster allows you to explode your email list by using our incredible exit intent technology.
  • http://www.rocketwatcher.com April Dunford

    I really like this model – in particular I love the idea of testing around market segments. 

    [Reply]

  • http://kontrary.com Rebecca Thorman

    I’m sure you’ve read the E-Myth in which the author talks about a similar concept for small businesses; you have to develop the system of the business, that replicate-able formula to find and retain customers. I really like the succint way of saying “your business model as product.” And this reminds me, I need to update my lean canvas!

    [Reply]

  • http://twitter.com/flavspa Flavia Sparacino

    I agree with the first comment that there are underlying commonalities between this post and E-myth revisited by Michael Gerber. I would actually be interested in exploring how some of the ideas Gerber presented for small businesses can adapted to lean startup development, especially: setting systems, choosing roles at start etc.

    [Reply]

    Ash Maurya Reply:

    E-myth is a great book and definitely shaped my own thinking very early on. Especially the takeaway of “working on your business versus in it”. 

    I am a big believer in systems but I think that comes a little later as the earliest stages of any product/company have to be driven by the initial founders. 

    [Reply]

    BillSeitz Reply:

    You might want to check out Rob Walling’s “Start Small, Stay Small”. It’s focused on someone who wants to stay a 1-man-product-house, and has a section about systems/automation to allow (a) running multiple products in parallel, and/or (b) making a given business more-sellable.

    [Reply]

    Ash Maurya Reply:

    I’m a big fan of Rob’s work too!

    [Reply]

  • BillSeitz

    I’d really love it if you got in the habit of following up a general/abstract post like this with specific examples/stories. Like of a case where you generated a number of different revenue models or channels (that were serious possibilities) and then how you picked 1 to stick with.

    [Reply]

    Ash Maurya Reply:

    Sure – I have a real meta-example I started in the book on the “Lean Canvas online tool” itself. That’s one that has been built through this process. I’ll share that soon. 

    Apart from that I was simultaneously testing my last product CloudFire against two customer segments: Busy Moms, and Wedding Photographers. 

    [Reply]

    Anonymous Reply:

    I like Bill’s point.

    I’ve heard several people mention they are using Lean Canvas – perhaps you can interview other people and use their examples. If you want my help, let me know – I can ask some of the people I’ve heard using Lean Canvas if you like.

    [Reply]

    piaxlou Reply:

    yes i am trying to use it now i was focussing on my vendors instead of my customers. and i’m not sure what my high level concept is supposed to be

  • http://bestessay4u.com/ Custom essay

    My product is product 100%

    [Reply]

  • http://anyessays.com/writing/essays buy essays online

    i love this article
    your tips is usefull for me thanks for share

    [Reply]

  • http://twitter.com/waztech Waztech Inc

    this actually makes sense.

    i never could dig Osterwalder’s canvas idea, but your modifications make it better for a web startup. most discussion on startups always leave out the PROBLEM statement.

    and I think that is what you mean by the riskiest part of your idea: you don’t know if the problem you assume the customer has, is actually a real problem that they will want to pay money to be solved, and if it is a real problem, will your proposed solution be the thing they want?

    so the output of your startup phase is a business model: a proven concept of how you will make money.

    your business model may be: your customers have a problem, you have a product that solves that problem, you sell it directly to them on the web, you do all the advertising through adwords, you have 50 customers so far, now you need to build it beyond the beta and scale it.

    getting to that proven model means you have a set of unknowns (you must be honest with yourself!) and you need to run experiments to gather data and see if the reality matches your assumptions. even if the beginning phases are very qualitative (essay answers rather than multiple choice) you must still record them and find a way to analyze them, for you may need to refer back to that data further down the road, when testing other hypothesis.

    once you have your proven business model, your next steps become to scale up sales and iterate future version of the product, based on feedback from users.

    i’m just resaying what I absorbed from what you wrote, and hope I got it correct.

    [Reply]

  • http://termpaperwriter.org/research_paper custom research papers

    wow… Great post, I enjoyed ready reading it, Keep posting good stuff like this.

    [Reply]

  • http://dissertationtoday.com/ dissertation service

    hm…. nice) thank you))))

    [Reply]

  • http://termpaperwriter.org/research_paper custom research papers

    I enjoyed reading your articles. This is truly a great read for me.

    [Reply]

  • Pingback: How To Vet New Product Ideas and Save Time, Money, and Effort

  • Pingback: Build Your Lean Startup Through Conversations

  • http://essaywriter.org/ essay writer

    hm… nice) thanks!

    [Reply]

  • Johnni Nielsen

    p.p1 {margin: 0.0px 0.0px 0.0px 0.0px; font: 10.0px Arial; color: #101010}
    span.s1 {color: #000000}

    Dear Ash, i also feel your model is an important evolutionary step from the Osterwalder model. I wonder if we could consider risk as the uncertainly around net cash flow and the timing of such. As a startup we should minimize the risk of stepping outside the path of lean but un-funded burn rate.

    Johnni
    Cranberger.com

    [Reply]

    Ash Maurya Reply:

    Sure outside problem risk, I usually rank pricing and channels (path to customers) as the next highest set of risks. 

    [Reply]

  • http://www.orchestratormail.com Ritu Raj

    I have been following your blog for a while. I have in the past built 2 large companies, and now working on the third. Every company that I have built have been in a different space all together. I think to get to the point in a startup, where you can see the trees from the forest takes time. Its an iterative, self learning process — after abstracting myself from the forest I can see that having the business model perspective, in mind is key. I would say the problem is key, but can you build a financially viable business around it is more important.

    Love to speak to you at sometime.

    [Reply]

    Ash Maurya Reply:

    I hold weekly “Running Lean” chats. You can simply grab an available slot and I’d love to discuss more: 
    http://www.runningleanhq.com/chat

    Best,

    Ash

    [Reply]

  • Saidi Smeenk

    As startup i have had alot of problem with your focus, and still have. But this is one of the key to succes.

    You have a great main idea you work out. You are very passionated about your marketing(future customers). You have created hypotheses and demos to communicated to yourself and customers. You have your online skills sets ready to go to momentum and keep on building. Then and only then you go to mainstream and need to have your lean canvas for your mvp to go to the massa. But before that, your lean canvas will break more of the passion/idea/skills/momentum of the entrepreneur. Just saying, because ash alot of the guru’s nowadays want to have the silver bullets, to give the ultimate solution. But if you just know you have nice key to go from entrepreneur with that skill set and idea to the mass….. then i will love you more and keep on following your posts. :)

    Then again, this thinking model gives my family and me good communicating to other entrepreneurs.

    [Reply]

  • Pingback: Faraz Khan | Converting Dreams into Reality! How To Vet New Product Ideas and Save Time, Money, and Effort

  • Benjamin Rollins

    Ash, this is great.  Your canvas is better than Osterwalder’s – the biggest thing missing on Osterwalder’s is the importance of an “problem” section and a “solution” section.  In a startup you first have to Nail the Problem/Pain to have a viable business.  

    [Reply]

    Ash Maurya Reply:

    Thanks!

    [Reply]

    Daniel Reply:

    Ash, I do like very much the approach starting from problems but why do you remove Key Partners and Key Activities and replace them by problems and solution ? Because key partners could be a critical element of the business model, couldn’t we simply add the boxes “Problems” and “solutions” ?

    [Reply]

    Ash Maurya Reply:

    Daniel – 

    Short answer is I wanted to maintain the general shape of the BMC and so had to constrain myself to replace vs add.

    The long answer is that I modeled all my current products using the BMC first and found the boxes I replaced to be identical from one product to the next. 

    As I stated earlier one of my goals was increasing the signal to noise ratio. Another goal was using the canvas as a startup blueprint – meant to be used by the entrepreneur to build their company – not get funded, or explain the business model to someone off the street. That meant relying on implied context which I’ll illustrate below specifically in terms of the two boxes you questioned:

    Key Activity
    ========
    I find a lot of the things that go into “Key Activities” to be obvious by context. In my case: software development, content marketing, etc. What value does that provide to me? I already know these things. I also found that these activities were in turn derived by the solution one was building so it made more sense for me to make that the explicit component.

    Key Partners
    =========
    This one was a hard one to replace as partnerships can be important. That said, people tend to place too much emphasis and expend too much energy on partnerships up front. Until you have a product enough people want, I’d argue pursing explicit partnerships is a form of waste. That doesn’t say you do everything yourself. In my business, I outsource as many non-core functions from hosting, billing, trouble-ticketing, etc. to numerous software services. I wouldn’t call those partners though and they are also all captured between the Channel and Cost Structure boxes. 

    Hope that helps…

    Ash

    James S Reply:

    Hi Ash,

    This explanation of removing KP and KA makes sense. I teach a course called Marketing Actions and have used Osterwalder’s model as template for their project work. However, I think I will move to yours next semester as your Problem/Solution choice really drives home the point of meeting the needs of customers, rather than defining customers based on an idea they come up with. This concept of customer needs satisfaction surprisingly is lost of first year college students. It can’t really be ignored in your model. Osterwalder’s model is CC – Can I use yours with attribution as well?

    Ash Maurya Reply:

    James – 

    I finally got the longer-form answer up as a post: http://www.ashmaurya.com/2012/02/why-lean-canvas/

    Yes, Lean Canvas is also released as CC and you are free to use. We’d be happy to also set you up under an academic plan (free) if you’re interested in using the online version: http://www.leancanvas.com.

    Ash

  • Pingback: This Week in Sales, Tech and Other News « Openera

  • Pingback: How To Vet New Product Ideas and Save Time, Money, and Effort | Ace CampaignAce Campaign

  • Pingback: How To Vet New Product Ideas and Save Time, Money, and Effort | KYEAN.org

  • Pingback: The Startup Guessing Game « Be Launched

  • Pingback: Don’t Waste Your Time with CYBF Loans | Andrew Cross

  • http://www.spreadcode.com.au Maxim

    Thanks Ash. I found Lean Canvas really helpful especially in re-focusing technical founder attention on business side of startup.
    I was thinking a lot about finding business co-founder. So I was wondering how to split responsibilities of business and technical founders in the Canvas. For example technical co-founder is at least 90% responsible for solution but what about other areas of canvas? I’d be great to hear your vision on this topic.

    [Reply]

    Ash Maurya Reply:

    Personally (being a technical founder) I would not entrust my company  (destiny) to a 90/10 split. I like to think of the split less in terms of business/technical and more in terms of inside the building/outside the building. I feel you need to be more of a generalist than a specialist as a startup founder . I believe the right split is somewhere between 60/40 and 70/30.

    [Reply]

  • Pingback: Un plan d’affaires utile pour ceux qui n’aiment pas les plans d’affaires inutiles — Le blogue à Steph

  • Cyryl Kwaśniewski

    “I’ve been positively encouraged by the conversations I’ve had around the canvas with other entrepreneurs, investors, and advisors. I’ll cover that next time.”Where did you cover it?

    [Reply]

    Ash Maurya Reply:

    no one asked until now :-)

    I cover a lot more on this in the upcoming update to the book. I’m planning a few more posts on the canvas and will see if an excerpt would work.

    [Reply]

    Cyryl Kwaśniewski Reply:

    And, how is it going? :)
    Also, could reveal more examples of how the canvas worked for your products? It’s so much easier to operate on real-life examples…

    [Reply]

    CyrylKwasniewski Reply:

    Hey Ash, I thought you could show more of your own examples of those canvasses work for profit. Let us know!

  • http://profiles.google.com/jakesulli Jake Sullivan

    testing the canvas using a concept for a simple mobile app for kids.  Can “first to market” be an unfair advantage? 

    [Reply]

    Ash Maurya Reply:

    Jake – here’s an excerpt from the upcoming update to Running Lean:

    “Another frequently cited advantage in business models is the “first-mover” advantage. However, it doesn’t take much to see that being first can actually be a disadvantage, as most of the hard work of paving new ground (risk mitigation) falls on your shoulders, only to be potentially picked up later by fast-followers unless you’re able to constantly outpace them with a real “unfair advantage.” None of these companies were first movers: Ford, Toyota, Google, Microsoft, Apple, or Facebook.”

    [Reply]

  • Pingback: Revisiting The 80/20 Principle | Nomad Couch

  • http://www.tobiasbray.com Tobias Bray

    Curious as to why this lacks a Benefits Section.  One of the challenges for most start ups is that they sell features, not benefits. I think that using features as a benchmark aligns an organization to sell and market on a commodity basis. It is true that people buy from people who solve their problems. I think a more important point is that people buy from people who understand their problem and decrease the friction in visualizing the outcome. Features are the means and benefits are the result. Buy focusing on features, the buyer has to think and that means educating the buyer. Having to educate a buyer creates friction and allows them to come up with more objections.

    [Reply]

  • Pingback: Better Business Models Lead to Better Businesses « Innovation Leadership Network

  • Pingback: Why Lean Canvas?

  • Pingback: Lean Startup Canvas: Your Product is NOT The Product | Hearticle

  • Pingback: #3 BMC na real « Salvador Startups

  • Pingback: Do you think it will flop?

  • Pingback: Porque Lean Canvas | Biz Agility

  • Pingback: Reality is a Game » Blog Archive » Thoughts on Starting a New Business

  • Pingback: #3 BMC na real | Salvador Startups

  • Ram

    How is this different from Product Canvas ?

    [Reply]

  • Pingback: Why Your Business Model Must Evolve « Innovation Leadership Network

  • Pingback: 10 conceitos importantes para uma startup dar atenção | Blog da Concrete

  • Pingback: Ariem is 5! « Me and Ariem

  • Pingback: Kurs Entrepreneurship - Matthias Karkuschke - Unternehmensberatung

  • Amy Sauers

    Hi Ash – I agree with starting with the problem. I teach my students not through a canvas, but rather with a set of Spiral Worksheets. Tell me what you think: https://docs.google.com/presentation/d/1e1IjjtOzX1e50oPRhqaud7dJhs2YTugbnnQOwuziSSA/edit#slide=id.g632094d_0_83

    [Reply]

  • Pingback: Your product is NOT the product | We Love Lean – Lean startups, design, happiness and everything in between

  • Pingback: Agile Business Models | New Venture U

  • Pingback: Porqué el Lean Canvas frente al BMC. Oficial Ash Maurya Castellano

  • Pingback: Business or a hobby? 3 steps to change your attitude | DrivenWoman

  • Pingback: 创业,精益,画布

  • Pingback: 你的产品并不是“产品” | Bernie Gao

  • Pingback: Ein Lean Startup durch Konversationen aufbauen - //SEIBERT/MEDIA Weblog