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hi this is Ash with spark 59 today I'm
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going to show you how to create your
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initial business model canvas in 20
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minutes you might be wondering why just
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20 minutes after all a business model is
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a pretty complicated and critical thing
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to get right surely you should spend a
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lot more time on this but here's the
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thing the perfect plan is a myth Studies
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have shown that most successful
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companies report having drastically
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changed their original plans along the
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way companies like Groupon PayPal Flickr
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are all examples of this what really
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separates successful products from those
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that don't make it isn't necessarily
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starting with a perfect plan but finding
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a plan that works before running out of
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resources the way you do that isn't
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through rhetorical reasoning on a
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whiteboard in pursuit of that perfect
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plan but rather through empirical
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testing getting outside the building and
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stress testing and then refining your
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plan time is the scarcest resource in a
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startup which is why it is important to
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time boox your initial canvas so you
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don't fall into the analysis paralysis
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trap I find that 20 minutes is enough
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time for the first pass Perfection is
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not the goal here but rather the goal is
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to sketch or Baseline a snapshot of your
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current thinking with that out of the
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way let's get started if you haven't
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done this already head on over to lean
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canvas.com and click to create your
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canvas button to sign up for a free
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account after creating your account you
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will be prompted to name your first
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canvas I like to name my canvases by the
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customer segment they address because I
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find that the customer segment box
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drives the rest of the canvas you
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probably already have an inkling of
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possible customers your product
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addresses in your head but the first
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step is splitting these broad customer
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segments into even smaller verticals
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each of these vertical segments
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potentially represents a different
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business model and should ideally have
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its own canvas this is sometimes hard to
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see so it might help to consider an
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example this is an actual product I
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built in my last company cloudfire was a
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service that helped people share lots of
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photos and videos easily with each other
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the really broad category here was
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anyone that shares lots of photos and
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videos while I would have loved to
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service that market it's not specific
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enough when you try to Market to
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everyone especially as a startup you end
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up marketing to no
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one down below you'll see a number of
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more specific and possible customer
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segments that I then created sometimes
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the split won't be perfect for instance
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photographers videographers and graphic
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designers may share enough common
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attributes to be lumped together as a
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creative segment I wouldn't worry too
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much about that right now the most
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important thing though is not going too
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broad like using the anyone that shares
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lots of photos and videos or going too
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narrow where you shrink the market size
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too
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much the next step is to pick your
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strongest customer segment for your
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canvas this might be one you most want
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to service know the most about or have
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the strongest channel to reach whatever
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your reasons start with a single
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customer segment and use that as the
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name of your
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canvas for the cloudfire product I
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decided to use parents as my first
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customer segment mostly because I had
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recently become a parent around that
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time frame and observed several problems
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that I was motivated to
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explore after doing this you should then
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see the canvas screen you you can simply
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click in any of the boxes to start
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typing the blue numbers indicate a
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suggested order for traversing the
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canvas this order is only a
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recommendation even I'm going to deviate
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from it slightly in this video based on
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a newer flow I have been more recently
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using for the rest of the video I'm
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going to walk the canvas and show you
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how to fill each section using the
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cloudfire product as a concrete example
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you can reference it is most effective
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to complete your canvas as I cover each
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section while the content is still fresh
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in your mind so I'll have you pause the
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video after each section before moving
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on so my preferred flow these days is to
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complete the canvas in a set of blocks
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the first block that I like to tackle is
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the problem customer segment quadrant so
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much of your business model is dependent
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on the proper identification of
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customers and their problems that a
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solid footing here creates a very strong
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foundation for the rest of your
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canvas you've already identified your
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main customer segment from earlier which
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goes in the customer segment box it's
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common to have multiple participants or
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user roles in your business model I
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would next go ahead and list all of them
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out here but you should distinguish
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between customers and users when you do
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so that distinction is pretty simple
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customers pay you and your users do not
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for most products that distinction is
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also pretty straightforward in a
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software as a service product for
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instance you attract leads or users and
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aim to convert some or all of them into
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paying customers in a multi-sided
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business like the one driven by
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advertising for example Google search
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you have users who create value through
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participation that you then monetize
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through ads here the advertisers are
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your customers and the users are those
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that are doing searches for these types
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of products I recommend keeping both
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users and customers on a single
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canvas Marketplace businesses however
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are a lot more complicated
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here you often have two or more parties
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that simultaneously work to create value
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classic examples are eBay Airbnb where
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you need both buyers and sellers to make
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the business work additionally each
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party often has a different incentive
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Channel and other elements on the canvas
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that you also need to understand so for
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these types of businesses I recommend
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creating a separate canvas for each
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party
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involved as a slide aside there is a
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hashtag feature in l lean canvas tool
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that lets you visually group different
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customer segments on the same canvas in
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the screenshot above you'll notice
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different colors for buyers and sellers
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on the canvas based on the hashtags that
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are reused in multiple sections this is
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a nice feature that lets you quickly
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keep all your customer segments on a
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single canvas and toggle them on and off
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but if you're more comfortable creating
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separate canvases do that
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instead now it's time to get even more
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specific with your customer segments and
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further narrow them down into early
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adopters early adopters are those people
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that need your product the most and the
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early success of your business model is
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going to be highly dependent on how well
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you can Define and qualify your early
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adopters while we all would like to
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build a product like Facebook that is
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used by practically everyone on the
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planet even Facebook started with a very
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specific early adopter which happened to
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be a college student and not just any
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college student but a college student on
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the Harvard campus
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here's a customer segment box for the
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cloudfire product I've listed parents as
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the primary customer and their family
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and friends as viewers down below I
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further qualified my early adopters to
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be parents with younger kids because I
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felt that they would need my product
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more than parents with older
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kids pause the video here and complete
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your customer segment box before moving
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on with your customer segments and early
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adopters defined we'll now move on to
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the problem box outline the top three
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problems your product addresses for this
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early adopter you can have less than
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three problems but try not to list more
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than three a helpful technique for
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uncovering good problems at this stage
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is using a five wise you start with a
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customer problem which is usually a
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surface problem or symptom you then ask
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yourself why this is a problem and do
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this five times each time refining the
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list of problems till you have a list of
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deeper problems that you can put on your
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canvas here's an example example of this
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technique applied to the cloudfire
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product another useful technique is
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using the job to be done concept
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popularized by Clayton Christensen the
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basic idea here is that customers hire
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your product to get a job done this is
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often something they have already been
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trying to do but probably unsuccessfully
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once you correctly identify that job
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you're in a much better position to
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identify underlying problems and
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eventually Define a solution for that
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this idea also ties nicely into the next
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quadrant where you ask yourself how your
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early adopter solve these problems
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today here you want to be able to
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describe your customer's current reality
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what existing Solutions or alternatives
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are they using today to get the job done
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doing nothing by the way is also an
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alternative as we'll see shortly this
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information will be invaluable in
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properly positioning and pricing your
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product here is my filled out problem
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box for the cloudfire
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value which is just a fancy way of
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saying it gets you
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paid until you gain a deep understanding
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of your customers and their problems you
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cannot really Define the right solution
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that said I'm sure you have an inkling
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of what you'd like to build anyway so
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let's list those but still constrain
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them around the top three problems you
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listed earlier so for each problems that
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you listed earlier briefly outline how
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you envision solving them using your
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solution here is my fill out solution
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box for the cloudfire product I Envision
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solving these problems with software and
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list the top three features I would need
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to include in my minimum viable
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product again pause the video here and
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complete your solution box before moving
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on next we turn to the unique value
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proposition not only is this one of the
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hardest things to get right but it's
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also the most critical at least
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initially when you first introduce a
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product the initial battle is all about
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getting noticed by customers it's
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getting a chance to have a meaningful
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dialogue with a prospect you get this
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chance by making a compelling offer or
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promise represented by your unique value
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proposition the good news is that like
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everything else on your canvas your
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unique value proposition is also a guess
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or hypothesis you'll have lots of
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opportunity to test and refine it later
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here are some techniques for getting
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started your unique value proposition is
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derived from the intersection of your
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problem and your solution solution so
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craft your unique value proposition
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around your number one problem and
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instead of just thinking in terms of top
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features and benefits think in terms of
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your finished story benefit your
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finished story benefit is the value a
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customer deres after using your product
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so if you have a job board service for
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instance your unique value proposition
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isn't the cool resume building feature
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you have but rather the promise of
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helping job Seekers find their dream
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job next avoid the use of empty words
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like simple fast or easy yes I know
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Apple uses these all the time but you
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are not Apple they can get away with it
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because they have built a reputation and
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brand around Simplicity you haven't and
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need to be a lot more specific with your
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unique value
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proposition here's a formula by way of
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Dane Maxwell for creating a compelling
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unique value proposition that uses three
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fragments the first is the end result
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the customer wants which is like the
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finished story benefit the next is
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constraining that with a specific period
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of time when they would see these
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results and then finally you want to
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address any objections they might have
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the second and third items in the
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formula are great if you can fit them
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into your unique value proposition
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without sounding overly salesy otherwise
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leave them out down below are several
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examples of unique value propositions
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that use a finished story benefit with
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some or all of these
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elements and finally it's a good
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exercise to work on your high concept
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pitch the high concept pitch is
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something Hollywood producers use all
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the the time to distill the script of a
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new movie they are pitching into a
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memorable sound bite so for instance
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instead of describing the movie Aliens
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they might just say it's like the movie
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Jaws only in space you can do the same
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thing with products for example when
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YouTube first launched the founders were
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describing it as flicker for videos it's
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important to recognize that the high
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concept pitch is not a unique value
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proposition it's not something you'd put
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on your landing page but it is valuable
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nonetheless it's valuable for helping
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spreading the meme of your product By
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Word of
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Mouth here is my filled out unique value
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proposition for the cloudfire product
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you'll see a couple of unique value
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propositions here along with a simple
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high level concept pause the video here
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and complete your unique value
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proposition box before continuing
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on next we're going to cover your
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revenue streams or pricing box at first
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glance this might seem a little out of
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place since we have mostly been
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considering aspects around your solution
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but pricing is very much part of your
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solution it's very much part of your
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product I often use an example to
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illustrate this imagine you have two
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bottles of water in front of you one is
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priced at a doll and the other at $3
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which one do you think is
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better even though both bottles would
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probably be indistinguishable in a blind
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taste test here price alone has the
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power to define the product in your mind
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the next question which bottle water
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would you
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pick not only is price
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price aimed at your early adopters and
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keep their existing Alternatives in mind
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in the case of a multi-sided business
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model even though you aren't directly
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charging your users you are still
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building an asset the challenge with
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these business models is that this asset
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isn't worth anything until you pass a
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certain threshold or Tipping Point find
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out what that Tipping Point is and get
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some ballpark numbers on the value of
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that asset by looking at comparable
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advertising rates and or Acquisitions
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depending on the type of business you
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building here is my filled out revenue
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streams box for the cloudfire product I
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use my existing Alternatives as anchors
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which range from $0 with Facebook all
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the way to $99 for the Apple mobile Mi
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service I use these alternatives to come
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up with my starting price of $49 a year
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pause the video here and complete your
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Revenue Stream box before moving
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on next we're going to cover channels or
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your path to customers your channels or
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path to customers are one of the more
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riskier items on your canvas you might
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be able to identify a problem worth
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solving build out a solution and even
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get a small group of customers to derive
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value from it but if you can get your
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product in front of enough customers
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none of that might matter channels
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aren't something to defer to later but
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rather something you should start
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building and testing from day
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one the good news is that you don't need
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to build scalable channels from day one
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it's okay to start with a handful of
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outbound channels to jump start your
00:17:00
learning first here are some possible
00:17:02
outbound Channel suggestions that might
00:17:06
help at the same time take a step at
00:17:09
identifying where your scalable channels
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might come from these typically take
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time to build so it helps to think about
00:17:15
them now versus later here's a list of
00:17:19
some possible scalable channels that you
00:17:21
might be able to employ later
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on now here is my filled out channels
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box for the for the cloudfire product
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you'll find a combination of outbound
00:17:30
and inbound channels listed here pause
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the video here and complete your
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channels box before moving
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on now we're going to move on to how you
00:17:40
measure success using key metrics key
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metrics represent the key numbers that
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tell you how your business is doing a
00:17:47
startup is inherently chaotic but at any
00:17:50
given point in time there are only a few
00:17:52
key actions or metrics that matter these
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will change as your product moves
00:17:56
through various stages but at this point
00:17:58
in time I'd like you to identify two key
00:18:01
metrics the first is identifying the key
00:18:04
customer action that drives value in
00:18:06
your product in other words ask yourself
00:18:08
what key activity would you use to
00:18:10
measure your value proposition so for
00:18:12
example if you were building a blogging
00:18:14
platform publishing a blog post would be
00:18:17
the key activity for Twitter posting a
00:18:19
tweet is a key
00:18:21
activity the second key metric is
00:18:23
stating your success metric for your
00:18:25
product what would you need to achieve
00:18:27
to make this product worthwhile while it
00:18:29
could be a revenue Target like building
00:18:31
a $10 million business or aund million
00:18:34
business it could be having some impact
00:18:37
on the world or it could be something
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else
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altogether here is my filled out key
00:18:42
metrics box for the cloudfire product my
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key activity is based around sharing if
00:18:46
a parent doesn't routinely share their
00:18:48
photos and videos with others chances
00:18:50
are they will lose interest and not keep
00:18:52
paying for the product My Success metric
00:18:54
for cloudfire was building a $5 million
00:18:57
business which roughly trans Ed to
00:18:59
acquiring 100,000 paying
00:19:01
customers pause the video here and
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complete your key metric box before
00:19:05
moving
00:19:07
on we're at the home stretch
00:19:11
now after getting hit with a killer idea
00:19:13
and convincing yourself it's worth
00:19:15
pursuing the next thing that should be
00:19:16
keeping you up at night is how you build
00:19:19
enough runway for your product we'll use
00:19:21
this section to do some ballpark sizing
00:19:24
of your business model and estimate
00:19:25
scope and feasibility of implementing it
00:19:29
start by outlining your fixed and
00:19:30
variable costs things like people
00:19:33
servers and other resources you will
00:19:35
need to implement this business model
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it's impossible to be totally accurate
00:19:39
at this stage because a lot of it will
00:19:40
change with
00:19:41
time it does help to consider a shorter
00:19:44
Horizon like a break even point and use
00:19:46
your pricing and cost structure to come
00:19:48
up with the number of customers you
00:19:50
would need to break
00:19:51
even and then go all the way calculate
00:19:54
how many customers you would need to
00:19:56
realize your metric for Success from
00:19:58
earlier
00:19:59
again the point is not accuracy but
00:20:01
ballpark sizing for establishing if you
00:20:03
have a problem worth solving on your
00:20:05
hands here is my filled out cost
00:20:08
structure box for the cloudfire product
00:20:10
pause the video here and complete your
00:20:12
cost structure box and do a similar
00:20:14
sizing
00:20:16
estimate and now the final box the
00:20:18
unfair
00:20:20
Advantage unfair Advantage is also
00:20:23
sometimes called competitive advantage
00:20:24
or barriers to entry on a business plan
00:20:27
it essentially describes how you'll
00:20:29
defend against competitive attacks most
00:20:31
firsttime entrepreneurs don't completely
00:20:33
understand what constitutes an unfair
00:20:35
advantage and often list things that
00:20:37
aren't one of the most commonly cited
00:20:40
unfair Advantage is being first to
00:20:41
Market take a look at these companies
00:20:44
none of them were first movers on their
00:20:46
markets but fast followers one could
00:20:49
actually argue that being first to
00:20:50
Market can be a disadvantage because the
00:20:52
burden of learning and marketing a new
00:20:54
product is all on the first mover here
00:20:57
are other things commonly cited on
00:20:58
business business plans all of these
00:21:00
things while important don't create a
00:21:02
sustainable unfair advantage on their
00:21:04
own so what is a real unfair Advantage I
00:21:07
subscribe to a simple definition put
00:21:09
forward by Jason Cohen who is currently
00:21:11
the founder of WP engine and also writes
00:21:13
the popular as smart bear
00:21:15
blog his definition is that a real
00:21:18
unfair Advantage is something that
00:21:19
cannot be easily copied or bought so
00:21:22
let's list out some examples of some
00:21:24
real unfair
00:21:27
advantages bad new news is that you
00:21:29
probably didn't see an unfair advantage
00:21:30
that applies to you today the good news
00:21:33
is that that's okay even Facebook didn't
00:21:35
really have an unfair Advantage when
00:21:37
they started they were number 11 or 12
00:21:39
at building a social network but they
00:21:42
still managed to build the largest
00:21:43
social network on the planet which has
00:21:45
now become their unfair Advantage the
00:21:47
more important thing is to have an
00:21:49
unfair Advantage story unlike the other
00:21:51
boxes on the canvas the unfair Advantage
00:21:53
is unfortunately not one you decide to
00:21:56
test one day if and when you start
00:21:58
getting some traction with your product
00:22:00
your unfair Advantage will be tested by
00:22:02
competition and
00:22:04
copycats you may also not have a readily
00:22:07
identifiable unfair advantage today
00:22:09
rather than listing something weak and
00:22:11
clearly not an unfair Advantage leave
00:22:13
this section blank some unfair
00:22:15
advantages are revealed over time like
00:22:17
in the case of
00:22:20
zaposlitev a constant reminder to keep
00:22:23
looking for
00:22:24
one here is my filled out unfair
00:22:27
Advantage box for the cloudfire product
00:22:29
since it's targeted at a very specific
00:22:31
and emotional Niche I Envision building
00:22:33
differentiation over time by fostering a
00:22:36
strong sense of community among my
00:22:38
customers pause the video here and
00:22:40
complete your unfair Advantage
00:22:42
box so there you have it if you followed
00:22:45
along you should have captured your
00:22:46
first business model congratulations
00:22:49
next time I'll cover how to bulletproof
00:22:51
this business model from here and show
00:22:53
you how to start the process of stress
00:22:55
testing your plan a until then take care
00:22:58
there
