Documenting your Plan A. Startups and the Business Model Canvas - Agrihack Webinar
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Presentation by John Kieti at the AgriHack online webinar - 20 November 2015
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Documenting your Plan A. Startups and the Business Model Canvas - Agrihack Webinar
- 1. JohnKieti • Developing your Plan A – Introduction to Lean Canvas and Business Model Canvas
- 2. Documenting your Plan A. Startups and the Business Model Canvas At the #ICT4ag webinar on November 20th 2015 Presentation by John Kieti twitter: @JohnKieti
- 3. Sufficient detail and justification of each dimension to outsiders - lenders, investors, partners Sufficient detail for management team to refer to as an action plan to track progress Business Plan Objectives
- 4. Resource Implications: Time & Money! Considerations for new ventures - Business Plan
- 5. Narrowing down on options (Can result in premature lock in) Considerations for new ventures - Business Plan
- 6. A startup is a temporary organization formed to search for a repeatable and scalable business model ~ Steve Blank A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty ~ Eric Ries
- 7. A business model describes the rationale of how an organization creates, delivers, and captures value ~ Osterwalder and Pigneur
- 8. Value Proposition - The bundle of products or services that create value for a specific customer segment - by solving their problem or satisfying their need.
- 9. Unique Value Proposition (UVP) - Single clear, compelling message that states why you are different and worth buying
- 10. Business Model - Value Elements Customer Segments The different groups of people or organizations to be reached or served
- 11. Business Model - Value Elements Customer Segments The different groups of people or organizations to be reached or served Channels How company communicates and reaches customers to deliver a value proposition
- 12. Business Model - Value Elements Customer Segments The different groups of people or organizations to be reached or served Channels How company communicates and reaches customers to deliver a value proposition Customer Relationships Types of relationships established with specific customer segments
- 13. Business Model - Value Elements Customer Segments The different groups of people or organizations to be reached or served Channels How company communicates and reaches customers to deliver a value proposition Customer Relationships Types of relationships established with specific customer segments Revenue Streams Cash generated from each customer segments after delivering value to them
- 14. Business Model - Efficiency Elements Key Partners Network of suppliers and partners required
- 15. Business Model - Efficiency Elements Key Partners Network of suppliers and partners required Key Activities The most important things to do
- 16. Business Model - Efficiency Elements Key Partners Network of suppliers and partners required Key Activities The most important things to do Key Resources Assets required
- 17. Business Model - Efficiency Elements Key Partners Network of suppliers and partners required Key Activities The most important things to do Key Resources Assets required Cost Structure Fixed and variable Costs associated with actualising the business model
- 18. Original Business Model Canvas
- 19. Efficiency Value
- 20. Adjustments on BM Canvas for Lean Canvas
- 21. Lean Canvas Tweaks Problem Top three customer pains
- 22. Lean Canvas Tweaks Problem Top three customer pains Solution Top three features
- 23. Lean Canvas Tweaks Problem Top three customer pains Solution Top three features addressing pains Key Metrics Key activities to measure
- 24. Lean Canvas Tweaks Problem Top three customer pains Solution Top three features addressing pains Key Metrics Key activities to measure Unfair Advantage Cannot be easily copied or bought
- 25. Lean Canvas Tweaks Problem Top three customer pains Solution Top three features addressing pains Key Metrics Key activities to measure Unfair Advantage Cannot be easily copied or bought
- 26. Lean Canvas Changes on BM Canvas
- 27. founder
- 28. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?
- 29. Lean Methodology for innovation design The Learning Cycle
- 30. The Business Model Dilemma experimentation vs elaborate planning customer feedback vs intuition iterative design vs “big design up front” Useful Reading: Steve Blank hbr.org/2013/05/why-the-lean-start-up-changes- everything Useful Video: Ash Maurya
- 31. In conclusion, Life is too short to build something that nobody wants ~ Ash Maurya @JohnKieti Presentation Sponsored by: Let’s further the conversation:
Editor's Notes
- So let move on to our second speaker now. John will be presenting on Developing your Plan A – Introduction to Lean Canvas and Business Model Canvas As before, use the chat for your question while the presentation unfolds. John, you have 15 minutes, the floor is yours.
- Some of us have ever read or perused a business plan. Some have even written a business plan. A business plan is a document that’s typically 15 - 500 pages. It documents the various aspects of a new or existing business.
- A business plan serves at least two key objectives (1) To provide sufficient detail and justification of each dimension of a business to outsiders. These could be lenders, investors and business partners and other interested parties. (2) To provide sufficient detail for the management team of the business to refer to as an action plan for tracking progress
- In a new venture, especially where a new product is to be developed, writing a business plan can be problematic. This is because writing a 50 page (or so) document on aspects of a business can be a resource intensive; often requiring extra business expertise. It can be costly and time consuming, more so for new ventures short of time and money among its founders.
- The other consideration is that: to provide sufficient details and justification in a business plan requires a rigorous pre-determination of each business parameter in question. This means that parameters have to be dealt with in detail regardless of whether their underlying assumptions have been validated or not. This leads to narrowing down options too soon before assumptions are tested. It can result in premature lock-in based on invalid assumptions especially for startups.
- When the term “startup” is used on a business, different interpretations and ideas are invoked. According to Eric Ries - author of “The Lean Startup” - a best selling book since 2010, a startup is “a human institution designed to deliver a new product or service under conditions of extreme uncertainty”. Another Lean Startup Evangelist, Steve Blank defines a startup as a “temporary organization formed to search for a repeatable and scalable business model”. These two definitions converge in that designing and delivering a new product implies a search for a business model that is repeatable and scalable. A startup is not merely a smaller version of large companies. A startup is not a younger version of older companies either.
- In their best selling, and much cited book “Business Model Generation”, Osterwalder and Pigneur state and show that a business model describes the rationale of how an organization creates, delivers, and captures value. A business model is in essence a condensed version of the business plan which documents the thinking behind a particular business at any given snapshot in time, in a simpler, more usable and less resource intensive way. Notably, creation, delivery and capture of VALUE are the key business dynamics expressed in a business model.
- While VALUE in the context of your company is expressed in terms of MONEY, value proposition to involves expressing succinctly the “bundle of products or services that create value for a specific customer segment” by solving their problem or satisfying their need so that they can pay money in return. This concept of Value Proposition is an anchor element in documenting a company’s business model.
- Ash Maurya described the concept of Unique Value Proposition as “Single clear, compelling message that states why you are different and worth buying.” This introduces a sense of comparison or competition between any two business models. The Business Model Canvas, proposed by Alex Osterwalder is a one page format representation of a company’s business model using 9 business elements. With value proposition as an anchor element, the other 8 elements can be split equally into (1) Value Maximizing Elements and (2) Efficiency Maximizing elements
- Customer segments imply the different groups of people or organization to be reached or served as per the business model. Although with approaches such as freemium, users are expected to eventually become customers ie. it is important to focus on those who are expected to pay. A business model may be multi-sided as regards customer segments as with the case of an electronic platform that matches buyers and sellers of agricultural produce for a commission from either one or both type of customers. In documenting customer segments, specific details such as age range, gender, location, occupation and so on is required. Specificity helps a startup focus on a manageable scope to maximize learning.
- Channels are descriptions of the path to the customers in terms of creating awareness about the company’s product and delivering it.
- The Customer relationships element describes the type of relationships established with specific customer segments. This relationships are exhibited in interactions for customer acquisition, customer retention or when upselling new / enhanced products to existing customers.
- Revenue streams imply the cash generated from each customer segments as a result of value delivered by the company. Related concepts include “average revenue per user (ARPU)”, “customer lifetime value (CLV)”. Revenue models such as subscription model, premium fees, pay per use, commission on sales and others are covered under revenue streams.
- To make financial sense as a business, creation and delivery of value to customers should be efficient. The efficiency elements of the business model include Key Partners. This is the network of suppliers and partners synergising with you to create and deliver value. In an ICT4ag startup, these could be produce transporters and bulk buyers. They could also be content partners such as agricultural research organizations and meteorological departments for weather data.
- “Key activities” as a building block of the business model helps capture the most important things to do as a company, to efficiently create and deliver value to customers. In ICT4ag these key activities could include developing software features, and customer discovery; through feedback from potential users.
- Key Resources is about assets such money, people, data, documentation, copyright and other intellectual property required to create and deliver value efficiently. An agricultural domain expert for instance, can be a key resource as a team member in an ICT4ag startup.
- To create and deliver value, real money is spent. Careful recognition and watch over fixed costs; including founder stipends, office rent and web hosting is important. Variable costs are those directly related to the volume of sales eg. the cost per SMS paid to network operators in an SMS subscription service.
- These are the 9 building blocks of a business model as laid out graphically by Osterwalder and Pigneur in to the business model canvas. The value proposition stands in the middle, supported by the cost structure and the revenue stream block.
- On the left hand side of the business model canvas are the efficiency seeking elements - that is key partners, key activities, key resources and cost structure. On the right hand side are the value seeking elements that is, customer segments, customer relationships, channels and revenue streams
- Ash Maurya proposes the Lean Canvas which drops “Key Partners”, “Key Activities”, “Key Metrics” and “Customer Relationships” in the layout. He replaces them with “Problem”, “Solution”, “Key Metrics” and “Unfair Advantage” respectively. This is after using the original business model canvas for sometime on technology startups he founded. He found a need to bring sharper focus on the four new aspects especially in the context of developing new products.
- In developing a new product, a focussed approach to understanding the underlying customer pain is important. The problem block helps to narrow down recursively to the top three problems of the customer worth solving.
- The solution block helps to list specific interventions to the customer’s top problems. In ICT4ag, it could be the top three features in a software application whose implementation directly addresses the customer’s top pains.
- To further force the entrepreneur to focus on top business priorities at any point in time, the key metrics block is introduced to identify the most important among a myriad of metrics that track the progress of the business. This means Key Metrics measure progress of activities that have been flagged as top priority amid other activities competing for the team’s attention. For instance; validating a contentious assumption in the business model may be a more of a key metric than a metric to track the number of ICT4ag conferences attended by founders.
- The unfair advantage block helps the founder to focus on building superiority of the business model compared to similar businesses. This element is the very important for investors. As observed by Jason Cohen, a true unfair advantage is one that cannot be easily copied or bought by the competition. For a startup, this element is initially blank as it takes many product iterations to build and validate a true unfair advantage.
- These are the four elements introduced by Ash Maurya to tweak the business model canvas to be more relevant to businesses based on new products and services - especially in technology.
- This is the layout of the lean canvas. Note the additional aspects of Existing alternatives (under problem), High level concept pitch (under unique value proposition), and Early Adopters (under customer segments). Notably, the two sides of the canvas can be viewed as focussing on (1) the Product Characteristics on the left had side and (2) the Market characteristics on the right hand side.
- Startup founders are often cautioned against falling in love with the solution aspect of their business model and to rather have a good command of their entire business model which ultimately is the product. This is more so for technology startup founders who often over-focus on software features or other “exciting” technologies.
- While business plans are envisaged to be living documents, that is often further from the truth in reality because of their complexity and resource constraints. The business model canvas and lean canvas help to actualize the intention rapidly updating the business model as a living document. In essence all entries in the canvas start off as guesses or invalidated hypothesis. It is the work of the startup team to use customer development techniques to validate all outstanding hypothesis in the business model. Validation of all hypothesis iteratively is what yields a repeatable, scalable business model.
- Every entry into the canvas should be subjected to the build, measure, learn loop where every idea or assumption is tested for validated, data driven learning. Multiple incremental versions of the lean canvas are expected as frequently as new ideas arise and get tested as assumptions for validation.
- When documenting your Plan A, always remember that 9 out of 10 products fail and that 66% of the most successful companies drastically changed their course from the initial plan. Therefore a choice is required between experimentation with hypothesis vs elaborate planning, customer feedback vs intuition and iterative design vs big design up front so as to arrive at a plan that works. These are the underlying issues addressed in the lean startup methodology. Steve Blank wrote a very famous article on “why the lean startup changes everything” in the harvard business review. It’s worth reading by us all. For a better sense of how to create your first lean canvas, the 22 minute video by Ash Maurya may be useful for everyone.