The traditional business plan – 20 or more pages of text covering your product, features, benefits, customers, business model, etc. has gone the way of the dodo. It’s been replaced by PowerPoint presentations covering exactly the same traditional outline. Theoretically startups should be using this business plan to run their businesses, but few if any do. The PowerPoint goes back into its digital drawer once capital is raised.
However, Alexander Osterwalder has taken a completely different approach to business planning. One focused not on PowerPoint presentations or startup competitions but a focus designing your business from the ground up using a tool called The Business Model Canvas.
The canvas is a visual planning tool enabling a startup to put each key element of its business into one framework, and to quickly and easily modify any element. The idea is not that you attempt to squeeze your whole business into one 8/5″ x 11″ sheet of paper, but rather that the team uses a white board, or better yet a whiteboard painted wall, and a set of Post-It notes.
Frankly I was not initially in favor of the way the elements are laid out. For example, Customer Segments, which to me is probably the most important element of any business, is at the far right of the canvas and most readers read from left to right. Key Partners gets just as much space on the canvas as Customer Segments, yet I don’t know anyone who considers defining partners nearly as important to startups as defining their customer(s). However, there is logic behind the layout of the nine elements. The operations functions of the company – partners (including suppliers), key activities, key resources (such as employees), and cost structure are all grouped together on the left side of the canvas. The customer oriented elements, value proposition, customer relationships, channel, and customer segments are all grouped together on the right of the canvas. Balancing Cost Structure on the bottom left is Revenue Streams on the bottom right. Once you get yourself oriented on the canvas it all begins to make sense.
I highly recommend Alexander Osterweider’s book Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. But much of it is oriented towards existing companies attempting to innovate and to create new business models rather than startups building a business. So I would recommend you use this book as a guide to business planning by getting the canvas up on your wall ASAP. Then as you work your way through the nine elements in the book you start with your stack of different colored Post-It notes and try filling in the canvas.
There are several advantages to using the canvas instead of traditional PowerPoints or other typical desktop apps:
- It’s a working tool. Unlike a pitch deck your business model canvas is a living document that you can use throughout the lifetime of your company. You can invite a prospective investor over to your office and walk them through your canvas. Far better to have a conversation in front of your canvas than a presentation in a darkened conference room where you audience might fall asleep.
- It’s based on a team, collaborative model. By drawing this canvas on your wall your entire team can work in any element together and you should.
- It’s a forcing function. Many startups tend to avoid dealing with who their customer is (Customer Segments) or how they will reach that customer (Channels). Having these big blank spots on your wall will be a constant reminder that you need to fill in every element.
- It’s very easily changed. By combining the fixed framework of the canvas and the changeable technology of the Post-It note it enables the team to quickly and easily change any element of the business. One weakness to be aware of – the canvas has no memory and trying to save Post-It notes is clumsy at best. So I advise you to take photos of the canvas on a regular basis, say every Monday morning, and storing those photos. I’ve found that sometimes the best ideas of a startup come at the beginning, then they get lost as other founders join the team, and investors and advisor pitch in their ideas. By storing your old versions you can go back in time if necessary. You can also use a photo of the canvas in your pitch deck.
- It ties nicely into using the scientific method to run your startup. You can put your hypothesis – such as what channels you will use – into the canvas, then run some experiments, gather data, and either validate or invalidate that hypothesis. Startups are based on constant iteration and the canvas enables that process.
Entrepreneurs are in a hurry – and they should be. They don’t want to read books, they want to build products. So you can read this first 50 pages or so to fully understand each element of the canvas and then get going. Going further will provide you with some examples, like Apple’s iPod, that you might find helpful. But the examples are dated and as noted, the book wasn’t designed for startups and much of it’s text is oriented towards existing companies trying to innovate. But the book is highly visual in its design, which makes for a quick and easy read.
The business model canvas has become a standard planning tool for startups and if you are in a real hurry you can get the absolute basics on Wikipedia. And searching Amazon you will find other books, some more up to date. So don’t confuse the book with the canvas. But is is the canonical work and has sold over a million copies, so it’s a good place to start.
Get that canvas up on the wall, stock up on Post-it notes and markers, and dig into understanding each element of the canvas – and how they relate to each other – and you are good to go. And get going!