Are you looking for a quick way to go from an abstract idea into an actionable plan to pitch to your friends and investors ? Here is your fastest and most solid way to do this.
The main issue that entrepreneurs face when they have a great idea is to put that idea onto paper and break it down into small, understandable principles that can then be slightly altered to create many different business models. This is the whole idea of the Lean Canvas. You start from a structure that can then evolve and be iterated on by switching out different parts. The customer’s aren’t coming ? What if you switch the channels ? You can keep the rest of the business plan the same and simply switch out one part in order to figure out what works and what doesn’t until you find the perfect combination ! So how do we do it ?
Here is the basic idea in 7 easy questions using the example of a lemonade stand.
- Problem – What is the issue that your customers face ?
The main problem faced by our potential customers is that they are either thirsty or are looking for something to cool down because of the summer heat. The most important thing about this aspect is to understand the need that arises out of the problem. Here the need arises from dehydration and the want comes from the wish to rehydrate onesself with a tasty beverage.
- Customer segment – Imagine your target customer, who are they ?
Customer segments can be defined by four categories : geographic, demographic, psychographic, and behavioural.
Geographically, our lemonade stand would be serving customers in close proximity from our stand which would emphasize the importance of choosing either a residential location (residents as target market) or a commercial location (business workers as target market).
Demographically, we are looking at customers that are not necessarily defined by income (due to the cheap nature of the lemonade) nor gender and education. However, we could focus on age. Are we targeting children or parents ? Again here the question of a residential vs a commercial business area become a principle question. Are we targeting parents that are purchasing for their children or business workers that are purchasing for themselves.
Psychographically, we could find a way to add value to our product by focusing on things such as, the sourcing of the lemon, the quality of the cups, or if we are using a strong brand, the prestige of the brand. In other words, how do we associate our product to a specific lifestyle to be coherent in our target customers everyday activities.
Lastly, behaviourally, are we looking at regular users such as business workers that would come have a lemonade every day on their break, or are we looking at serving one time customers such as tourists ? Are they particularly loyal to our product in case of competitors ? These are all questions that need to be answered in order to establish a benchmark with which to make decisions in the future. What is particularly useful then is to create a persona such as : Bruce, 43 years old, office worker, managerial level, works 5 min away from the lemonade stand, has breaks at 10 am each morning. The more your flesh out these personas, the more you will understand your target customer and be able to tell if your marketing messages will be effective. Everytime you create marketing content, it should be addressed to the person that will be purchasing your product, Bruce !
- Unique value proposition – How do you position yourself competitively ?
According the Michael Porter, each unique value proposition must include three elements : which customers, which needs, and which relative price. Here we are going to make a decision in regards to relative price. The two main strategic options that we have in this case is either to take a price-leader strategy (to focus on providing the cheapest lemonade) or a differentiatior strategy (to find ways to add value by increasing the quality of the product or finding another way to add value to its user). We then combine this with our analysis of the problem (needs) and our target customers (customer segment) into one sentence. An example for us would be : We are looking to provide the highest quality lemonade with excellent sourcing to business workers working within a one mile radius of our stand at a premium.
- Solution – How do you fix your customers problem ?
Here we define how our product features enable us to fix the initial problem. The principle of the lemonade stand is quite simple, due to the fact that lemonade quenches thirst it directly solves the problem. This can become more complex if there is more than one way to solve the problem. Consider the problem of a leaky pipe. Either the customer with this problem could hire a plumber to fix the problem for him or he could simply look at a tutorial of Youtube. Of course there may be a difference in the quality of the resolution but both are possible. In other words, if there is more than one way to fix the problem effectively, the value of the product must come from more focus on differentiation.
- Channels – How do we reach our customers? How do we get our product to our customers?
Here we look at the different ways we are going to gain access to our customer segment in order to market the idea effectively. Some general ideas would be too look at the different areas where we can create touch points with our potential customers such as : social media, corporate events, catering events, or direct marketing to a person of influence in a key organization.
We also look at how we are going to physically distribute our goods and deliver them to our customers. This is where supply chain analysis will take place later on. The main questions are : how much of the production process do we control ? how do we integrate inbound materials into our production ? In the case of the lemonade stand, some ideas would be : where do we source our lemons from ? do we make the lemonade ourselves ? do we make the lemonade on site ? These are all questions that need to be answered in order to be coherent with the promise of quality that we make to our potential customers to ensure that we can deliver it properly.
- Revenue Steam – How do we make money?
This section is generally dedicated to how your company will generate revenue. In the case of the lemonade stand, this is quite simple section as most of the revenue will be generated from lemonade sales. However, if we consider a more complex business idea such as a website ; revenue streams could be coming from subscription, ad revenue, or merchandise being sold.
- Cost structure – How do we pay for the business operationally?
Here we are focused on finding the most appropriate way to fund the operational side of our business by looking at fixed and variable costs. In terms of the lemonade stand, the basic fixed cost to look at would be the initial investment in buildilng the stand and possibly renting out the space to put it. In terms of variable cost, we would be looking at the beverage cost of producing the lemonade and the amount of people that need to be hired to run the stand depending on the demand. The key factor to understand here is the magnitude of the fixed costs vs the variable costs. If you have a high fixed cost, you will need significantly more investment to launch the operation to begin with and this is how you can make this point to your potential investors.
- Key metrics – How do we measure success?
This is the way that you measure the effectiveness of the business and are typically industry specific. In the case of the lemonade stand, a typical metric would be : number of lemonades sold, customer satisfaction %, and contribution margin (the profit made for every lemonade sold).
- Unfair advantage – What do we have that helps us and our competitors cannot copy?
This is what can be considered a competitive advantage against other competitors. In the case of the lemonade stand example, this may mean that we have access to a secret recipe from one our friends, or we have access to an excellent location because we know that the person in charge of the previous lemonade stand is selling it. These aspects are very difficult to copy and give your business an advantage that can be sustained at least in the short run.
I hope this little tutorial has given you some clarity in how to create a business plan via the Lean Canvas and wish you the best on your entrepreneurial journey. If you are in Lausanne, Switzerland and are serious about launching your business and looking for a place to work. Drop by our coworking place for a visit !
Image source: http://www.directpeople.cz/