As all you really have at the beginning of your startup are a bunch of educated guesses, your highest priority is to figure out what you’re guessing wrong. In other words: can you build a viable business around your idea?
Those coming from an industry will start from verified market insights. However, by definition, startup is a learning organization, searching for a repeatable business model. Unless you are repeating something previously proven, you can never be sure that you have all the pieces right. Coming from a consultancy business myself, and knowing the pain of my customers well, I was really surprised by the assumptions I was making once I put them on paper and examined them with my customers.
The first step in validating your guesses is to make them explicit, or put fancier: document your hypotheses. I’ll give you some ideas on how you can do this.
In his book Four Steps to Epiphany, Steve Blank recommends you write a number of briefs, each documenting a different hypothesis (about the product, customers, channels, market, etc). Each is described in a subsection of the chapter “Customer Discovery” (the first of the four steps of customer development). They provide useful questions to ask yourself.
But there’s an easier way.
The easier way: business model canvas. If you haven’t heard or used Osterwalder’s business model canvas, I highly recommend to learn more about it (the first 72 pages of Osterwalder’s best selling book are free to download from his website).
What’s cool about the business model canvas is that it collects 9 essential building blocks of a business on a single sheet of paper. Miss one and you got no business. Go on, fill one out. These are your hypotheses.
In addition to being a lean way to document your hypotheses, business model canvas is also a great brainstorm tool. Print the canvas on a big sheet, and brainstorm around it with your team.
Business Model Canvas, an easy way to document your hypotheses
What to fill in? Steve Blank ran a hands-on customer development course with his Stanford students: the Lean Launchpad. The students had to form teams around concrete ideas, and actually perform customer development of their idea during the curriculum. To do so, they had to get out of the building and talk to actual customers. The students used the business model canvas as a score card, and blogged about their lessons learned in interviews.
What’s cool about this course is the bunch of resources and examples it provides, all free and well documented on Steve’s blog. Each post in the Lean Launchpad series zooms in on a different aspect of business model providing.
- A theoretical checklist for the specific business model aspect
- Lessons learned: you get to see how the students put this theory in practice
I collected them for you below.
|Business Model Checklists
|Value proposition checklist, a useful deck urging us to think about the problem statement, technology/market insight (why is this problem so hard to solve), competition and the (minimum viable) product.
||Lessons students learned by testing value proposition hypotheses
|Customer checklist: different types of customers and markets, multisided platforms, different types of customer roles and customer problems.
||Lessons students learned by testing customer hypotheses
|Customer relationship checklist: it’s about demand creation.
||Lessons students learned by testing customer relationship hypotheses
|Channel checklist: direct and indirect sales channels, channels as customers, differences between physical and digital products and channels.
||Lessons students learned by testing channel hypotheses
|Revenue model checklist: what are the customers paying for and how much can they pay, how will you package and price your product, different types of revenue streams.
||Lessons students learned by testing revenue model hypotheses
|Bonus material: a slide deck on 7 different SaaS revenue streams (skip to slide 27 for the juice), a free e-book on software pricing Don’t Just roll the Dice (disclaimer: still on my to-read list).
|Key partners, key resources and expenses: two separate slide decks, the latter by Osterwalder.
||Lessons students learned by testing key resources and expenses hypotheses
Helpful alternative geared towards customer development: lean canvas. Ash Maurya proposes an alternative version of the business model canvas: Lean Canvas. I find it simpler to use, and a slightly better fit for customer development. What I really like about it is that it has explicit fields for Problem (top 3 customer problems) and Solution (top 3 features of your product). Focusing on your customer, the problem and the solution is a good way to initiate your research. This is what Ash has to say about documenting hypotheses. He also provides an online lean canvas tool, allowing you to share your lean canvas with your partners or mentors.
Go ahead, fill one in. Start from the business model canvas you filled in before. I found that I tend to use the business model canvas as a (quick) brainstorm tool to think up alternative business models. Once I get serious about testing one of them, I will dive in deeper and fill all the fields of a lean canvas.
What now? What you now have is a list of hypotheses about your business. If any of the things on your canvas mismatch reality, there is a chance you don’t have a viable business (yet). So you see why it’s so important to validate the hypotheses.
And you don’t have the answers – your customers do. So you need to get out of the building and get the answers from them.
In the next posts, I’ll write on how to do that.