There are a lot of articles out there explaining what the business model canvas is and what each section means, but they all seem to make the critical mistake of ignoring the stage the canvas is approached at. This means you spend, probably waste in fact, precious time thinking about components of your business that won't actually come into the picture for months maybe.
So how do you use the business model canvas correctly?
Quick intro to the Business Model Canvas
First off, let's take a step back and agree on what the Business Model Canvas (BMC from now on) looks like and what you'd be normally expected to do.
The BMC is the result of a joint effort led by Alexander Osterwalder to create a simple one pager to replace long business plans that often weren't more solid than a castle of cards.
The canvas looks like this:
If you've never filled one out it's probably a good idea to take two minutes to watch this introduction video:
The model itself has some useful annotations in each section that can help you to fill the blanks. If you want to learn more about it you can also consult some of the other free videos and books listed on the resources page.
The 4 most common mistakes
So what's wrong with just filling out the canvas?
If you watched the animated series linked on the resources page you should already have figured out a few:
- you fill it once and you're done
- you fill it all at once
- you don't take everything you wrote as an hypothesis
- you are generic in what you write down
1. You fill it once and you're done
The BMC, like any other canvas in Lean Startup land, is supposed to be a live document. This means that you fill it out based on what you know today with the understanding that you will be revising it as you learn more from testing your hypothesis.
Unfortunately doing away with a business plan often doesn't mean doing away with the habits of a business plan and so you end up with a one pager up on the wall that you will use as something to execute on rather than as guidance to figure out your next test.
2. You fill it all at once
Often times new founders will download the template, print it out and then proceed to spend an entire afternoon, if not an entire day, debating how to fill every single block. But it often doesn't end up there and after a night of sleep the cycle will repeat. I've done this and it's a complete waste of time.
Consider the stage you're at: are you just starting out? are you filling in the canvas for an existing product? As you can imagine those two scenarios are wildly different and that should reflect on how you use the canvas.
3. You don't take everything you wrote as an hypothesis
Building on #1 you should use the canvas as a living document to figure out how to de-risk your business which means coming up with hypothesis and running tests. For example, if in the revenue stream you wrote $10/m subscription, is that how you're going to price your product? how did you come up with that price to begin with?
Pricing is often a matter of understanding the value to the customer, competitors price points and other variables before you can make an hypothesis worth testing. This doesn't have to take a lengthy market research, but it's not something that makes sense to do on day one with no clear idea about your customers and how they look at the problem you're trying to solve.
4. You are very generic in what you write down
This is the everbad and one of the biggest causes of failure (and startups only fail when they fail to learn).
Being generic in your value proposition will make it impossible to explain what you do to your customers who will smell a confused founder miles away.
A generic customer will get in the way of customer development (check out this how-to on how to create a persona archetype ) and make it hard to get any value from your qualitative tests since you won't have a clear baseline to analyze the data against.
If you're not specific in your channels outreach will likely be more expensive than it should, wasting money and time with lower conversion rates than if you had a better picture of who your customer is, what language they speak and what their habits are.
The same thing applies to the rest of the blocks, bottom line, specificity will save you a lot of energies.
We forgot about market size and competition
This isn't as much of a mistake as it is a shortcoming of the BMC itself, but it's so important that I wanted to mention it: if you're anywhere around solution validation, and are hopefully approaching product market fit, you should have a good idea about your competitors and market size. There is no good way to represent this in the BMC and I've often documented this in a competitive mind map (a post about this is coming up soon).
How to use the BMC correctly
As I mentioned in the opening of this post how to use the canvas correctly depends on the stage you're at so let's look at some of the common scenarios (remember my focus in on early stages startup so I won't be talking about established business stages):
- Just starting out
- Problem is validated and solution is being tested
- Approaching Product/Market fit
1. Just starting out
If this is your first week, or even month, your entire focus should be on problem testing.
You may have been sitting on this idea for a while and poked around, but if you can't comfortably say that the problem you're trying to solve has been validated with early adopters then that's your focus.
If that's your focus then there are only 2 parts of the canvas that should concern you:
- the value proposition
- the customer segment
You might be tempted to look at channels as well and even relationships, but if you actually focus on the problem and develop a good customer persona) the channels will almost fill themselves and relationships will be mostly 1-on-1 interviews.
With that in mind I'm going to contradict myself and say that if this is your very first time filling a canvas for this product then go ahead and fill it all out, but then put it in a drawer and never look at it again for at least a couple months. The point of this is to capture that initial idea of how you thought everything was going to work and use it as a way to emphasize learning and at times reminding you of the long term vision so that you don't get stuck in a local maxima.
2. The problem is validated and the solution is being tested
Congratulations, you found a problem worth solving and are on your way to figure out how to solve it in such a way that people will pay for it.
By now your value proposition, customers, channels and relationships should be relatively solid.
The prime way to test a solution is to get people to pay for it so it's time for you to focus on what you need to do to actually deliver an MVP (which, contrary to what most people say, in my opinion must deliver some value to the client).
This translates to key resources and key activities. It's tempting to think about key partners as well, but I suggest you let that be driven by key resources and activities based on the core things that you should be doing in house.
The other temptation here is to look at costs, but at this stage you're not optimizing for profit so you can still leave that out. On the other hand you do need to think through revenue streams and pick a reasonable price to run your MVP tests. This should be relatively easy now that you have a clear understanding of who your customer is, how painful that problem is, how much that task is worth to them and who are the competitors and what they charge. However don't stress it, again, it's not yet time to optimize for revenue.
3. It's Product/Market fit time
Hats off to you for getting this far, it's not an easy feat.
From now on your goals is to scale the business so things like costs, pricing, sales and marketing, and customer relationships become really important.
Your canvas should be complete already and you need to start revising some key points starting with customer satisfaction and relationships since to get new customers is harder and more expensive than anything else.
At the same time you do want to grow so marketing and sales are probably becoming a key activity that you didn't have there before. Depending on your product and finances this may be a place to establish new partnerships.
Likewise costs and pricing need to be tuned so that you have decent margins (Cost of Customer Acquisition - CAC - & Life Time Value - LTV - really start to matter here). You might want to draw some new canvases playing with different partnerships and revenue streams trying to optimize that.
True at all stages
Going off of the common mistakes we discussed before there's obviously a few things you must do no matter what stage you're at:
- being specific
- taking everything as an hypothesis to test: remember you're just laying the assumptions to built that hypothesis
- creating multiple canvases to choose amongst: don't fixate on just one option, go wide then deep (see this how-to for brainstorming and picking best ideas )
- be quick on your feet: fill those blanks quickly (<1hr) and don't bike shed. Remember you are putting hypothesis together that you will test, don't try to think them through in your head
- if you ran a test hopefully you've learned something so go back and update your canvas based on it
- regularly consult your BMC (especially if you are a techy): the temptation of going off to build stuff is always so strong that going back to the BMC weekly can provide a great grounding checkpoint.
Need help filling out your BMC or want feedback?
No matter how much documentation one reads it's often still hard to translate theory to practice so if you want help filling out your BMC or would like a review of the one your already did just book a free call below.
It's as easy as picking a time that works for your and it doesn't cost you anything.