Lean Canvas—Your Unfair Advantage

Before you finish your Lean Canvas, you have one last box to complete: your Unfair Advantage.

Image courtesy of jesadaphorn / FreeDigitalPhotos.net

Image courtesy of jesadaphorn / FreeDigitalPhotos.net

You have probably heard you need a Competitive Advantage. That’s the advantage you have that is going to give you the edge and keep competitors from taking your business. What is the Unfair Advantage you have over your competition? How will you defend against their attacks? If you are successful, you will need one—you will have competitors come after you!

One characteristic which many people consider an Unfair Advantage is being “First to Market.” If you get there ahead of everyone else, you have an advantage, right?

Actually, maybe not. When you are first with a product you have to educate your customers about what it is you’re selling (the category) and why your customers should consider it. When you are a “Fast Follower,” you can capitalize on all the work the First to Market folks did to educate the world about your category of products. In that case, you only have to convince your customers that your brand is better than the other guy’s brand. You do that, and the sale is yours.

If being “First to Market” isn’t the Unfair Advantage you were hoping for, what might be?

Lots of entrepreneurs settle for drab descriptors that aren’t really Unfair Advantages. Things such as:

  • More features
  • Less features
  • Design
  • Passion
  • Determination

Ash Maurya shares his favorite definition from Jason Cohen: “A real unfair advantage is something that can’t be easily copied or bought.”

Here are some advantages that might qualify as “unfair:”

  • Insider information
  • Personal authority
  • A dream team
  • Existing customers
  • The “right” celebrity endorsements
  • Large network effects
  • Community
  • Organic search ranking
  • Patents
  • Core values

The truth is, you may not have any of that when you’re just starting out. That’s ok. Normal, even. And if you don’t have one, the best thing to do is leave that box blank on your lean canvas.

If you fill the blank with drab, unconvincing “advantages,” you’ll probably stop asking yourself about what Unfair Advantage you might have or might be able to develop.

On the other hand, if you leave it blank, you will be forced to consider what might develop or where you might find an unfair advantage as your business launches and grows.

So that’s it—fill in your Unfair Advantage or leave it blank. Either way, by completing your lean canvas, you will have a big picture perspective on what your new business is all about and whether it is worth taking the next step.

Speaking of next steps, what’s your next step for your business? Do you know where to go from here? If so, let me know your thoughts. If not, we should talk. I might be able to help.

Lean Canvas—You Have to Spend Money to Make Money

Looking for a copy of Lean Canvas? Here’s one you can copy to your Google Drive and use as many times as you’d like.

Image courtesy of Stuart Miles/ FreeDigitalPhotos.net

Image courtesy of Stuart Miles/ FreeDigitalPhotos.net

Talking about making money is fun. Talking about spending it isn’t. But spending isn’t all bad. If you spend your money making wise investments in your business, you might reap the rewards for years to come.

That’s what I want for you. So let’s dig in.

When it comes to Cost Structure, the first concept you need to be aware of is “runway.” According to StartupDefinition.com, “runway” is “the amount of time until your startup goes out of business, assuming your current income and expenses stay constant. Typically calculated by dividing the current cash position by the current monthly burn rate.”

Think about it this way. If you were piloting a plane, would you feel safer taking off from a longer runway or a shorter one? Longer is better, right? It’s the same way with your startup. The more runway you have the better.

The next question: How do you know if you have enough runway? That’s where “burn rate” comes in. That’s the amount of money you are spending at regular intervals. If you have $100,000 in the bank and your burn rate is $10,000 per month, your runway is 10 months.

The next question: what’s your burn rate? To calculate that, you need to figure out what your fixed and variable costs are. That will be a guess, of course, but you still need to consider:

  • What needs to be done?
  • Who’s supposed to do it?
  • How will you do what needs to be done?

Let’s take our employment-finding business, for example. Our costs may include: salary for the owner, web development and hosting costs, marketing and advertising expenses, training materials production, office rent, office equipment rental, etc.

My recommendation is to go as lean as possible when starting out to give yourself maximum runway. In the example above, if you can cut your expenses in half to $5,000/month you’ve doubled your runway to 20 months. That’s way less stressful, isn’t it?

A couple more things: Don’t worry about accuracy. Make an educated guess based on the information you have available and then pencil it in. It will change, and you will change with it. No stress.

Consider calculating your breakeven point. If you know you’re going to have fixed and variable costs of $5000/month, and you are going to price your offerings at $500/month, you know you’ll need to get to 10 paying customers to hit breakeven. That’s a critical point in the life of your business, when you can move your business from the red into the black. And it’s a cause for celebration!

My experience is that some entrepreneurs shy away from counting the costs. They’d rather think big picture, or bury their heads in the sand, or both. You don’t need to do that. Know your numbers and they are likely to improve. Neglect your numbers and you might be running out of runway before you have a chance to fly.


Lean Canvas—How Will You Measure Success (Metrics)?

Metrics. Even the word can be unnerving. Visions of Six Sigma, Excel spreadsheets and pivot tables.

Image courtesy of artur84 / FreeDigitalPhotos.net

Image courtesy of artur84 / FreeDigitalPhotos.net

And yet, if we don’t measure how we’re doing, how will we know? I mean really know. Whether for fun or profit (or both), it’s helpful to know the score. Picture this: you fly to New York, spend a small fortune to buy tickets to the Seahawks vs. Broncos game, take a cab to the stadium and walk in 10 minutes after kickoff. You buy a beer and a hot dog, find your seats, and sit down. You turn to the guy who’s sitting next to you.

You: “Who’s winning?”
The Guy: “No one. They’re just having fun!”
You: “Why am I here?”

It sounds silly, but we do this sort of thing all the time in business. Sometimes it’s because getting the numbers is hard, but more often it’s because we don’t like the hassle, or we don’t want to see what’s really going on. Sometimes numbers can be scary.

To minimize that fear, Maurya suggests that we need to understand and measure at least a couple of things. The first is to figure out the key customer action that drives value. If you’re thinking about your employment business, you might decide that the key action is weekly participation in your group coaching program. Or attendance at your “Get Hired Now” seminar.

The second thing you need to measure is what Maurya calls your Success Metric: what would you need to achieve to make this target worthwhile? A revenue target? A profit target?

For your employment business, you might say that your success is $100,000 in annual revenue. Or you might say that it is a 90% success rate for people participating in your program. You get to decide what makes it worth it.

That being said, you should decide what makes it worth it. What does success look like in your business and how will you know when you’ve achieved it?



Lean Canvas—Show Me the Money

Today is a big day. An important day. One of the most important in the life of your business. Today you get to decide how much money you are going to charge your customers for the solution to their problem. Or at least begin the process of deciding.

You’ve got your Unique Value Proposition nailed down. Now let’s turn your attention to the Lean Canvas canvas box marked “Revenue Streams” and figure out what your pricing model should be.

Image courtesy of jannoon028 / FreeDigitalPhotos.net

Image courtesy of jannoon028 / FreeDigitalPhotos.net

Why are we talking about pricing now? Because pricing is actually part of your product. Your price will help to define your product in the mind of your customer and determine who your customers will be.

It’s not easy, though. There are lots of variables and no magic answers. According to Charles Toftoy, associate professor of management science at George Washington University, pricing is “probably the toughest thing there is to do.”

To help you in your decision about price, Maurya has some helpful suggestions. First of all, realize that cost-based pricing is a mistake. Cost-based pricing goes like this: It costs me $1 to produce, so I’ll charge 2 times cost. Or 3 times cost. Or whatever. The truth is, it’s irrelevant how much it costs you to produce your solution. When you look at cost-based pricing, you are forgetting the most important consideration: your customers are hiring your product/solution to do a job and fix a problem. They don’t care whether it costs you $1 or $100 to produce. Can you fix their problem?

If cost-based pricing isn’t the right answer, what is? Value Based Pricing. The real consideration your customer has is the value of your solution, and that value relative to your competitors’ offerings. In other words, if I have a problem, what will it cost me to hire your solution to fix it? What will it cost me to do something different to try to fix it? And remember, cost doesn’t always mean or even necessarily mean price.

Ben Guild recently wrote a blog post about selling TV’s three different ways: FOBO, Craigslist, and Fulfillment by Amazon. Craigslist turned out to be the place where he made the most money (net profit), but there were also considerations of inconvenience, speed of transaction, security, etc. In the end, Guild suggests FOBO has the right combination of factors to be the choice for most people. The profit was higher with Craigslist, but the cost was least with FOBO. Your customers will consider price as well as other factors. How convenient will it be? How fast can I get it? Is assembly required? Is it safe? How confident am I that this solution will really solve my problem?

As you are considering your business model, look at similar solutions in your marketplace. You have a Unique Value Proposition, but you know who your competitors are. Let’s look at our business designed to help people find work after 60. Who is doing that?

Honestly, I don’t know that market well enough to know who all the players are. But let’s assume that one option is the in-person career coach. According to this article, a career coach can start at $100 per hour and can costs thousands. According to this article, a resume and cover letter writing service can set you back $250 to $1000 or more.

To solve our hypothetical job-seeker Bill Johnson’s problems, he may need something like career coaching, but perhaps needs assistance with resume and cover letter writing as well. Perhaps a pricing model of $500/month service X 3 months with a guarantee to keep working with someone after if they haven’t found the right job might work. Or a $2500 flat fee.

On the other hand, Bill might just need a good book. Peggy McKee over at CareerConfidential.com has an ebook she’s selling for $1.99. Maybe we could write an ebook and charge $1.98.

Bottom line: your business model will determine your competitors, and your competitors’ solutions will set the price anchors in your customers’ minds.

More helpful pricing guidance: keep your pricing as simple as possible. Keep your early adopters in mind and consider what they are looking for. Eventually, you may want to go with a more complex pricing model. Today, keep it simple.

So that’s it. Or at least enough to take a first crack at it. What are you going to charge for your product or solution?


Lean Canvas—Don’t Turn Your Business into a Swiss Army Knife

Now that you have clarity about your customers and their problems, you get to focus on creating a solution. Since you probably had a “solution” in mind before you started this process, let’s look closely to make sure it’s reasonable considering your customers and their problems.

Image courtesy of posterize/ FreeDigitalPhotos.net

Image courtesy of posterize/ FreeDigitalPhotos.net

To do that, we’ll take another look at Bill Johnson (whom we discussed here and here). He’s the retired auto worker who has to get back into the workforce, and he’s having trouble. Specifically,

  1. Bill doesn’t know how to find the contact information for the appropriate person with hiring authority.
  2. Bill doesn’t know how to get over or around the road blocks employers set up to thwart job seekers from contacting them directly.
  3. Bill doesn’t know how to communicate the value that he offers a potential employer.

There are lots of ways you could design a company to help Bill. You could create a one-on-one in person coaching program. You could design a virtual group coaching program. You could create a Udemy course to teach him what he needs to know. You could write an ebook. You could create an app or a membership site. You may try all of them eventually, but you have to start somewhere.

Here’s where entrepreneurs get into trouble. Most entrepreneurs envision a solution and begin to construct a product to deliver their solution. They ponder their product, dream about their product, talk about their product. And as they do, they start to think, “Wouldn’t it be nice if…”

Let’s say I want to construct a virtual group coaching program to help people like Bill. I can conduct my meetings for free using Google Hangouts or Skype. But it’d be nice if I could integrate a transcription service into the virtual meeting platform—one that could automatically email meeting notes to everyone after our virtual get-togethers. It would also be kind of cool if I could integrate my virtual meeting platform with monster.com, the local newspaper want ads, etc.. That way we could take a look at real-time classified ads and talk about overcoming the hurdles that thwart job seekers. And it be awesome if we were able to integrate LinkedIn to our virtual meeting platform…

You see what’s happening? Feature creep. We confuse what would be nice to have with what we need to have. What we need to produce, at least early on, is what is referred to in the startup world as a “minimum viable product.” That is the smallest product that will deliver value to your customer, something that they are willing to buy.

Would someone invest in my virtual coaching program if I just used Google Hangouts or Skype without integrating monster.com or LinkedIn.com, or without the transcription and email service? If so, then I shouldn’t go chasing the other stuff.

When I want to buy a pocket knife, most of the time what I really want is a good blade. It’s fun to have the corkscrew, the leather punch, the tiny magnifying glass I can get with a Swiss Army Knife, but do I really need those features to buy the knife? Almost always, the answer is “no.”

At this stage in the game, don’t turn your business into a Swiss Army Knife. As an entrepreneur, your job is to focus on that one blade, the blade you’re going to sell, and refine it until people will invest. When you do, you will save an enormous amount of time, money and emotional capital. It’s hard to believe but true: you will invest your emotional capital in your solution. And even if you recognize you’ve built a feature no one wants, it will be hard for you to let go of it. Better to avoid the Swiss Army Knife Syndrome altogether.

So here’s my question for you: given what you know about your potential customers and their problems, what’s the minimum product or service you can produce to turn your prospects into customers? Not that you will always choose to do the minimum, but that’s where you should start.

Bonus: Once you’ve started, you’ll get to know your actual customers well enough so that you won’t waste as much time on a bunch of nonsense they don’t want anyway.


Lean Canvas—Clarity About Customer Problems

Here is a Google doc of the Lean Canvas you can use for yourself or to play along at home.

When you complete a Lean Canvas, Ash Mauyra recommends that you work on Customer Segmentation and Problem Statements simultaneously. You know who you customers are now. What are their problems?

Image courtesy of Stuart Miles/ FreeDigitalPhotos.net

Image courtesy of Stuart Miles/ FreeDigitalPhotos.net

Mauyra recommends that you first list your customers’/early adopters’ top 3 problems, the problems you are going to help them solve. In order to do that, he recommends the 5 Whys method of seeking the root cause.

In the scenario from yesterday’s post, a 5 whys analysis might look something like this:

Problem: Bill Johnson hasn’t found a job.
Why? Because he hasn’t convinced an employer to hire him.
Why? Because he hasn’t had an opportunity to speak to a person with hiring authority and present the value he offers to potential employers.
Why? Because he hasn’t been able figure out who the people with hiring authority are.
Why? Because he doesn’t know how to find the pertinent information.
Why? Because the employers set up road blocks to keep job seekers away.
Why? Because employers don’t have time/don’t see the value in talking with potential job applicants.

There is nothing magical about the number 5, of course. It could be the 4 whys or the 8 whys. The important thing is that you dig until you get a clear sense of what the problems are (or at least a reasonable hypothesis regarding the problems).

Using the example above, we might hypothesize that Bill’s 3 biggest problems are:

  1. Bill doesn’t know how to find the contact information for the appropriate person with hiring authority.
  2. Bill doesn’t know how to get over or around the road blocks employers set up to thwart job seekers from contacting them directly.
  3. Bill doesn’t know how to communicate the value that he offers a potential employer.

The good news? At this stage you could be dead wrong. These might not be your potential customers’ biggest problems. But if they aren’t, when would you rather discover that you’re wrong—today or after you’ve invested countless hours and dollars to create a solution for a problem that doesn’t exist? Finding out you’re wrong that this stage is inexpensive and instructive—you can learn, pivot and grow.

Another way of looking at this, Clayton Christensen says, is to consider the question, “What is the job the customer is hiring you or your product to do?” The premise is that customers hire your product to get a job done. They may already be solving or attempting to solve that problem without you. Alternatively, they may not be doing anything about the problem because addressing it is relatively less stressful than not doing anything.

Given his predicament, Bill might do any or all of the following:

  • Ignore the challenge he’s facing and go to the movies.
  • Go to the library to look up company contact information in the white pages.
  • Pretend he is friends with the hiring manager if he gets the gatekeeper on the phone (“Is Bob there? Tell him it’s Bill.”)
  • Try to make the hiring manager look/feel stupid for not considering a job candidate with Bill’s qualifications.

You get the point. People can do anything. The question you need to ask and answer is, “What are my current prospects doing now (or not doing now) to solve their big problem?”

Soon we’ll be discussing the next components of the Lean Canvas: your solution, your unique value proposition, and your revenue streams.

In the meanwhile, what are your customers’ top 3 problems? How are they addressing (or not addressing) their top 3 problems currently?


Lean Canvas—Clarity About Customer Segments and Early Adopters

Here is a Google doc of the Lean Canvas you can use for yourself or to play along at home.

Ash Maurya is one bright guy. I don’t know him, but his work is smart and useful. His blog—Practice Trumps Theory—is a great resource for entrepreneurs. His gifts to the entrepreneurial world include the Lean Canvas and his book Running Lean.

Image courtesy of ratch0013/ FreeDigitalPhotos.ne

Image courtesy of ratch0013/ FreeDigitalPhotos.ne

As I mentioned in a previous post, Alexander Osterwalder’s Business Model Canvas is one of the go-to resources of the Startup World. Championed by Steve Blank and Bob Dorf in their Startup Owner’s Manual, the business model canvas turns 9 boxes into a way of presenting and digging into just about any business model. One of the foundational concepts of the Business Model Canvas is being aware of and taking action to determine and mitigate risk. 

Ash Maurya takes those nine boxes and changes them up a little bit. His adaptations focus on areas of highest risk. In a way, he’s created a tool that says “PAY SPECIAL ATTENTION TO THESE THINGS! THEY MIGHT KILL YOUR BUSINESS!”

I’m exaggerating a little bit, but not much.

And what are the first two boxes you should be paying attention to? Customer Segments and Problem Statements.

Customers are the people that pay for your service. Sometimes that means “users,” but sometimes it doesn’t. You need to be aware of both customers and users, but don’t confuse one for the other.

Once you have a broad idea of people you want to serve, you need to create a list of possible customers within that list. For example, if you wanted to create a business to help the unemployed and underemployed, it would be helpful to pick a subset of the unemployed. “Everyone” is too large a group, too diverse. So you might break it down into smaller groups. People that took early retirement. People that were laid off. Baby Boomers. People over 60. Whatever the segment, it should be large enough to make the business sustainable, but narrow enough to be able to meet their specific needs.

Once you’ve identified your Customer Segments, you need to determine your early adopters. Who needs your help the most? In the example above, perhaps the people who need your help the most are people over 60 who have worked in areas which did not require special certifications or licensure (e.g. CPA’s, attorneys, etc.)—because they’re likely to have greater challenges when returning to the workplace.

You could further narrow your early adopters to people who worked in manufacturing (e.g. auto plants) and took early retirement, assuming that their pensions would secure their future. Now they find their pensions have been threatened, reduced, or taken away altogether, and they are having to reenter the job force.

Let’s make one up. Bill Johnson is a 65 year old man living in Arlington, TX. He worked on the line building Chevy Suburbans at the GM assembly plant in Arlington until 2007, when he took early retirement. He’s worked hard all his life, standing 8-10 hours a day while on the line. He had some savings, had his health insurance paid for until he became eligible for Medicare, had his retirement package and his pension coming. That was all before the Great Recession. Bill is our early adopter.

Now people have broken their promises to Bill, and he has to get a job. He’s got a wife, a mortgage, a car payment, and medical bills. He’s not exactly sure where or how to look. The Ft. Worth Star Telegram‘s want ads aren’t what they used to be, and there’s so much stuff on the internet it’s all one confusing, depressing blur.

Your homework: Think about your customer segments. Who is your customer? Who is your early adopter? Who can you help the most? Tomorrow we’ll talk more specifically about what your early adopter’s problems are, and how you are going to help.

Lean Canvas—Before You Write a Business Plan, Try This

The Lean Canvas Will Make Your Business Plan Better

I was talking with a friend of mine earlier about what it takes to start a business. We talked about vision, strategies for innovation, funding, market research, etc. Like lots of entrepreneurs, me included, he also said he felt like he needed a business plan, which meant he needed information and a process for creating a meaningful, effective business plan.

Everyone talks about a business plan, but few entrepreneurs actually create them. And when they do, they are usually a lot of wishful thinking designed to get money-loans or investors. The Small Business Administration has a helpful series of articles outlining the contents of the various sections a model business plan that are worth reading.

I have found, though, that before you start your business plan, there are several tools that will make the business plan process much easier and more useful. Some are simple: write down 5 people you know personally that would buy the product or solution you’re selling. Some are more complex: SWOT analysis, PEST analysis, TOWS Matrix.

One of my favorites is the Lean Canvas.

If you are familiar with the brilliant work of Alexander Osterwalder in his Business Model Generation, you will recognize similarities between the Business Model Canvas and the Lean Canvas.

Lean Canvas

Lean Canvas

Business Model Canvas

Business Model Canvas

Differences Between the Lean Canvas and the Business Model Canvas

There are significant differences between the two, of course. The Lean Canvas adds Problem, Solution, Key Metrics, and Unfair Advantage and removes Key Activities and Key Resources, Customer Relationships, and Key Partners. We’ll discuss the reason for these variations this week as we walk through the various aspects of the Lean Canvas and applying them to a specific business.

In the meanwhile: do you have a business plan? If so, do you use it? If not, why not?