The Startup Canvas can be printed out or used as a digital template in whiteboard tools like FigJam or Miro.
The Startup Canvas is a great tool for innovators, visionaries and game changers who want to (re)design and/or validate their business models.
The Startup Canvas is designed to fit perfectly into topics, theories and methods such as Customer Development, Lean Startup and Crossing the Chasm. This makes it different from other business canvasses and better suitable for projects with lots of uncertainties.
Print the template on a big sheet of paper. Fill in all parts of the canvas. Use validated facts where possible, for the other parts use assumptions. Don't write directly on the canvas. Use (high quality) sticky notes instead.
Turn your riskiest assumptions (which will have the biggest impact on your business model if they prove invalid) into testable hypotheses. Then run experiments as lean as possible to test your hypotheses.
Change the canvas based on your new learnings and insights. Keep in mind that changing one part of the canvas might effect other parts. When you're done, repeat the steps until most of the relevant uncertainties are gone.
For which group(s) of people do we create value? Who will pay for that value? Who is the decision maker?
Describe the different groups of users and paying customers. Try to be specific. Also, what is the relationship between the user and the buyer? Who convinces whom to purchase / use the product?
In the early startup phase when you are doing experiments with your Early Adopters it is a good practice to look at all Target Segments in the whole potential market. Get to know the Target Segments in those markets and gain lots of insights by doing experiments.
However, your entire potential market of mainstream customers is probably too big to enter at once. It will be very hard to please the Target Segments because there will be too many specific Problems & Needs.
But another and probably the biggest problem with entering the whole potential market at once is that your customers will be scattered around many niche markets. Target segments from different niche markets often do not meet in normal work settings. This blocks organic growth and you can only partially solve this problem with large and expensive sales or marketing campaigns.
So instead of entering your entire potential market of mainstream customers at once, it's better to narrow your focus and find a good niche market that is small enough to conquer but big enough to matter.
Find the niche in the most pain. Mainstream customers typically want to see case studies and reference cases before they buy. But if you find a niche that has a painful problem they want to solve really badly, they won’t care about case studies. They won’t care so much about who you are. They just want the pain to go away.
After that you have a relevant reference case with makes it much easier to expend to mainstream customers in other niche markets.
Tip: Do you have multiple Target Segments? Then use a different color sticky note for each segment on the canvas.
Tip #2: Add your business as a Target Segment on the canvas. This will help you to
Who are the first to show an intrinsic interest in our product? What do these people have in common?
People differ in the way they adopt new products. You can bring the differences down to five adoption types: the innovators, the Early Adopters, the early majority, the late majority and the laggards. Any startup that manages to become a successful business will eventually meet all types as they move from the left side of the bell curve to the right over time.
The Early Adopters deserve a special mention on the canvas. They can help shape and validate startup concepts like no other adoption type can. This is because they see the potential for exponential advantage made possible by the new concept. They can (and often will) give you valuable feedback and insights.
If you don't have a complete and working Whole Product yet, it is difficult to collect valuable feedback from mainstream markets. Mainstream markets are often not yet interested in early stage concepts or MVP's and have less need to help you further. But that doesn't have to mean your idea isn't good. To validate that, you will first have to test with Early Adopters. That's why it's so important to know who your Early Adopters are.
If you want to know more about the relationship between the adoption types and the success of a startup I recommend reading the book "Crossing the chasm" by Geoffrey A. Moore.
What is annoying or troubling our Target Segment(s)?
First consider the relevant 'jobs to be done' of the Target Segment. Then think about the Problems & Needs they experience as they try to complete those jobs.
Knowing and deeply understanding the Problems & Needs is crucial. It will not only help you find and define your Key Values, it also helps you to define your Whole Product and to better target your Target Segments later.
Knowing and understanding the Problems & Needs is the only way your product can make a positive impact in a targeted manner. Solving problems and/or meeting needs is not an accidental side effect of your business, it's the core, the raison d'être of your business.
Remember: any profitable product or service solves a problem and / or meets a need.
Who is out there? Who or what is currently (partly) solving similar Problems and/or meets the Needs of our Target Segments?
There's always a current solution. If not, it probably means there's no Problem or Need and you should pivot (change your concept) right away. A current solution might be a competitor's commercial product or service but could actually be anything (or anyone) that (partly) solves the Target Segment's problem and/or meets their needs. It might even be as lo-tech as a stick from a tree.
Exploring Current Solutions often yields a lot of valuable insights about the Target Segments and their Problems and Needs. In addition, it provides inspiration for filling in all other parts of the canvas.
What value are we delivering to our Target Segments? What makes them love us? What makes us unique and stand out from the competition?
For now let's forget about products and features. What actual value are we delivering tot our Target Segments with our Whole Product?
What features are we shipping and what else is needed for our target segments to have a compelling reason to buy/ use?
The concept of the Whole Product was first introduced by Theodore Levitt and Regis McKenna. Geoffrey Moore helped popularize the term in his bestseller 'Crossing the Chasm'.
The Whole Product includes all features you actually deliver to your customers and users, plus everything else that is needed for a "compelling reason to buy and/or use".
Early adopters are willing to put together the whole product themselves. Mainstream markets do not want to make this effort and only buy a fully functional Whole Product.
So you can have the most amazing product in the world, but if you don't pay attention to the Whole Product concept, you might not be able to convince your mainstream customers and get stuck in the early market. Unfortunately the early market is relatively small (16% of the total market) and it don't last forever. Early Adopters are extremely loyal to their own vision and dreams, not to you. They will leave you as soon as they see an opportunity in another solution. Your churn rates will increase and your early successes will fade. Your startup is now at risk of losing momentum. This is when you fall into the deadly chasm between the early markets and the mainstream markets.
Now we know the importance of the Whole Product, let's dive a little deeper into the Whole Product model.
The Whole Product model is divided in four product levels.
Generic (or core) product
This is the product as it is shipped to the customers after the purchase has been made.
Expected product
This is the product that the customer believes he bought when he purchased the product.
Augmented product
This product includes all the extra, intangible benefits or add-ons that go beyond the product itself.
Potential product
This is the product’s room for improvement and growth, where new business facets can complement it.
For each product layer, keep these five paths in mind. What does it take for our Target Segments to move smoothly through each of these paths?
Purchase
The path from a non-customer to become a customer
Delivery
The path from an inaccessible to accessible product/service
Use
The path from a non-user to become an user
Maintenance
The path from a dysfunctional to a functional product/service
Disposal
The path from an obsolete product/service to a disposed product or canceled service
Define the whole product together with your Early Adopters, before you enter (a niche within) the mainstream market. Early Adopters know exacly what a Whole Product should offer since they probably put together the whole product themselves allready.
A good example of a Whole Product is Apple's first iPod. When Apple introduced the iPod in 2001, several MP3 players were already on the market. Innovators and early adopters saw the convenience of such a small music player, but the mp3 players did not really go mainstream. It was not due to the product itself, but because the whole product was not complete and mainstream markets simply expect a whole product.
The player on its own was useless without the actual music. But there was no store where you could simply buy MP3s. Instead, you had to convert your purchased CDs to MP3 files yourself. And it wasn't easy at all. You had to use a tool for that which asked lots of difficult questions about file formats, bit rate, codec etc.
Apple was smart enough to think about the whole product. In addition to the MP3 player, Apple also introduced the iTunes store in 2001. A digital store where you could buy a song for 99 cents. With the push of a button, the music was on your iPod.
In addition, the iPod came with the well-known white earplugs. The whole product was therefore the MP3 player, earplugs and iTunes. Apple has chosen to develop the whole product entirely in-house (partly made possible by the acquisition of SoundJam MP in 2000), but this is not necessary. You can also enter into strategic partnerships for this.
Who are our partners and suppliers? What parties could provide the parts of the whole product that we will not provide ourselves?
Sometimes the whole product contains products or services that are too far from your core business. Luckily you don't have to create the Whole Product all by yourself.
Describe the parties you will work with to realize the Whole Product. What is their contribution and what is their role? Note; a Strategic Partner is always aware of being your partner, if not, then it's not a Strategic Partner and most likely will fit in the Resources & Costs section of the canvas.
This one is all about communication. How do we describe the product and it’s value?
Try to explain it in:
- One to three words (factual tagline)
- One to three sentences (+- 5 seconds, Value proposition)
- A few sentences (+- 30 seconds, Elevator Pitch)
A clear story that explains the Key Values of our Whole Product and how it solves a Target Segments problem in a unique or superior way. If we can't explain the product or service we're working on quick in a simple and clear way than how do we expect potential users, customers, investors or stakeholders to adopt our concept?
Have a good pitch prepared for every every occasion. It is fundamental for every startup team. It allows them to recruit the best employees, to fine-tune their ideas, to write MVP and marketing contents, to find investors and last but not least to get the whole team on the same page so everyone is working with the same concept in mind.
What resources do we need and what costs do we have to incur to make and deliver the Whole Product to our Target Segments? How can we minimize those costs?
Think of everything you need to run the business model. These can be physical necessities (such as an office) or non-physical (such as knowledge). And what does it cost?
Producing and delivering at the lowest possible Costs is more important to some business models than to others. Therefore it can be useful to distinguish between two broad classes of business model Cost structures: cost-driven and value-driven (although most startups and businesses fall in between both):
Startups and companies with Cost-driven business models focus on minimizing costs wherever possible. This approach aims at creating and maintaining the leanest possible Cost structure, using low pricing, maximum automation, and extensive outsourcing. It is a common strategy in cases when there is no (or little) competitive advantage or when it is easier to achieve scale with production volumes, so they apply the strategy of cost advantage.
Some companies are less concerned with the cost implications of a particular business model design, and instead focus on value creation. Premium quality products and a high degree of personalized service usually characterize value-driven business models.
What are our benefits and sources of income? In other words; what is the revenue model?
What value are our customers willing to pay for? How are they going to pay and how much? How often? There are lots of ways to generate Revenue Streams. Here are some of the most common revenue models:
The most traditional revenue model from the list. The one-time sale of a product or service. The relationship with the customer can be short-lived and the lifetime value of your customers can be low. Something to keep in mind.
The customer pays for access to your product or service for a certain period of time. With software, this is often referred to as SaaS (Software As A Service).
If you own the intellectual property rights as a company, you can rent these rights to other companies. An example of this is Dick Bruna, who sells licenses for the Miffy brand. Producers of t-shirts with an image of Miffy have to pay license fees to Dick Bruna. White labeling is also a form of a licensing model.
In addition to being able to sell products, you can also opt for rental. Think Hertz, where you rent a car for a few days.
You can also charge customers for how much they've used your product, infrastructure, or resources. The more the customer consumes or wants to use, the more he pays. We know this model from telecom and internet providers, for example. With Dropbox, users pay for the amount of storage they think they need.
In addition to your base product, you can also offer a premium version of your product or premium features to extend your base product. When the base product is offered for free, we call this model freemium (a combination of the words 'free' and 'premium'). Think Slack. Free to use, but if you want a searchable archive, you'll have to pay. If the base product has a price, the model is called paymium. In-app purchases within an app are also a form of a premium model.
If you let users use your product or service to buy goods or services from another party with whom you have made agreements, you may receive an affiliate commission on these purchases. E-bay is an example of this.
With this model you do not earn directly from the customers of your product, but from a third party. You promote another company in your product and receive compensation for it. Think of banners and advertisements on news websites.
Simple: you make something on behalf of another party and receive money in return. The profit margin is the income.
You see more and more companies combining two or more revenue models, instead of simply choosing one of the above models. This makes it easier to respond to market demand and to realize a profitable business.
How do we get, keep and grow our users and customers?
Describe the different ways in which you will bring in new customers and users, keep them in, and how you will grow with your existing customers and users.
In his bestseller 'The Lean Startup', author Eric Ries defines three major engines of growth: Viral, Paid, and Sticky.
As Eric Ries specified in his book:
"The engine of growth is the mechanism that startups use to achieve sustainable growth. I use the word sustainable to exclude all one-time activities that generate a surge of customers but have no long-term impact, such as a single advertisement or a publicity stunt that might be used to jump-start growth but could not sustain that growth for the long term."
Viral growth is growth achieved through user referrals.
Viral growth can be quantified with what’s called the viral coefficient, also called the k-factor. The viral coefficient, or k-factor tells you something about the number of new users an existing user brings to your product within a certain time period. 1 user = k new users. For virality to function as your main growth engine, you must have a viral coefficient of > 1 - that is, for every customer you acquire, they successfully refer more than one other person to your service.
Paid growth is the engine of growth most people will be familiar with. It means acquiring customers through paid channels: advertising, for example. Paid growth happens when the customer acquisition costs (CAC) are lower than the customer lifetime values (LTV).
Sticky growth is about keeping your existing customers in. The lower the churn rate, the better. That makes it a somewhat strange Engine of Growth. I didn't come up with the name, but if it were up to me I wouldn't call it a growth engine at all as it's all about retention rather than growth. At best, your retention is 100% (0% churn), meaning you won't lose any existing customers. But even then there's still no growth. Growth occurs when the rate of new customer acquisition exceeds the churn rate. So in order to achieve sticky growth, you always need customer acquisition from one or both of the other engines of growth.
As a metaphor, think of a leaky bucket with holes. If you plug the holes, nothing happens. It's still just an empty bucket. No growth. Okay, now let's go back to the bucket with the holes. When you pour water in, water flows out the holes. Again, no growth. If you fill the bucket with water at the same rate it’s exiting the holes, the water level stays steady – still no growth. But if you plug up the holes ánd let the water flow, the funnel will start filling up. This is growth.
