The Startup Canvas can be printed out or used as a digital template in whiteboard tools like FigJam or Miro.
The Startup Canvas is an invaluable resource for innovators, visionaries, and game changers seeking to (re)design and validate their business models.
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.
Adapt the canvas in accordance with your latest evidence and insights. Repeat steps for the initial hypothesis to enhance certainty or test your next riskiest assumptions until the key uncertainties are resolved.
For which group(s) of people do we create value? Who will pay for that value? Who is the decision maker?
Identifying the specific groups or segments for which your business creates value is crucial. These are the individuals or organizations who will benefit from your products or services. Consider factors such as demographics, needs, preferences, and pain points. Examples of potential groups could include consumers, businesses, specific industries, or niche markets.
Who will pay for that value?
Determining who will pay for the value your business provides is essential for sustainable revenue generation. This can vary depending on your business model and target market. Potential sources of payment could include end consumers, businesses, advertisers, sponsors, or even investors.
Who is the decision maker?
Identifying the decision maker is important in understanding who holds the power to make purchasing or partnership decisions. In some cases, the decision maker may be the end consumer themselves. However, in business-to-business (B2B) contexts, it could be a department manager, a procurement officer, or a team of decision makers involved in the purchasing process.
To determine the decision maker, consider the dynamics of your target market and how purchasing decisions are typically made within that market. Conducting market research and gathering insights from potential customers or clients can help you pinpoint the decision-making authority within your target audience.
Entire potential market VS Niche
When in the early startup phase and conducting experiments with early adopters, it is beneficial to explore all target segments within the potential market. This allows you to gain valuable insights and understand the specific needs and problems of different segments.
However, attempting to enter the entire potential market of mainstream customers all at once can be challenging. The wide range of specific problems and needs within the larger market makes it difficult to satisfy everyone. Moreover, customers in different niche markets may not naturally intersect, limiting organic growth opportunities. Relying solely on large and expensive sales or marketing campaigns may only partially address this issue.
Instead, it is advisable to narrow your focus and identify a niche market that is small enough to conquer but still significant enough to matter. Find a niche that is experiencing significant pain or has a pressing problem they are eager to solve. In such cases, customers are less concerned about case studies or your company's reputation; they simply want their pain to be alleviated.
By successfully addressing the Problems & Needs of a specific niche market, you can establish a relevant reference case, which makes it easier to expand into mainstream customers in other niche markets. This reference case acts as social proof and builds credibility.
Tips:
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 hold a significant role on the canvas and deserve special recognition. Their unique characteristics allow them to profoundly influence and validate startup concepts unlike any other adoption type. This is primarily due to their ability to recognize the potential for exponential advantage offered by innovative ideas. As enthusiastic and forward-thinking individuals, Early Adopters are invaluable sources of valuable feedback and insights that can greatly benefit startups in refining and shaping their concepts.
If you haven't developed a complete and functional Whole Product yet, it can be challenging to gather valuable feedback from mainstream markets. Mainstream markets are typically less interested in early-stage concepts or minimum viable products (MVPs) and may have less motivation to actively contribute to your progress. However, this does not necessarily imply that your idea is not promising. To validate your idea, it is crucial to focus on testing with Early Adopters. This highlights the importance of understanding the identity and characteristics of your Early Adopters, as they play a key role in providing the necessary feedback to refine and validate your concept.
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)?
Begin by considering the relevant "jobs to be done" by the Target Segment. Then, delve into the Problems & Needs they encounter while attempting to fulfill those jobs. Understanding and deeply comprehending these Problems & Needs is of utmost importance. It not only aids in identifying and defining your Key Values but also helps in defining your Whole Product and effectively targeting your desired Target Segments in the future. Having a clear understanding of the Problems & Needs is the only way your product can make a targeted and positive impact.
Solving problems and addressing needs should not be an accidental byproduct of your business; rather, it should form the core essence, the raison d'être, of your business. Always remember: any profitable product or service ultimately 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?
In every situation, there exists a current solution. If there isn't one, it likely indicates that there is no underlying Problem or Need, and immediate pivoting or concept change may be necessary. The current solution may manifest as a competitor's commercial product or service, but it can actually take various forms or involve different entities that partially address the Problem or Need of the Target Segment. It could even be something as simple as a stick from a tree, demonstrating that solutions can range from high-tech to low-tech.
Exploring the realm of Current Solutions often yields valuable insights regarding the Target Segments and their specific Problems and Needs. Furthermore, it serves as a source of inspiration for completing all other sections of the canvas. By understanding the existing solutions, you can gain a deeper understanding of the competitive landscape, identify gaps, and discover opportunities to provide a more effective and differentiated offering to the Target Segments.
What value do we deliver to our Target Segments? What engenders their adoration for our offering? What sets us apart from the competition?
Let's momentarily set aside discussions about specific products and features and instead focus on the tangible value we provide to our Target Segments through our Whole Product.
The value we deliver encompasses the positive impact and benefits that our offering brings to our Target Segments' lives or businesses. It goes beyond mere functionality and features. This value could include things like time savings, cost efficiency, improved productivity, enhanced convenience, increased satisfaction, or transformative experiences.
Understanding the actual value we deliver to our Target Segments helps us identify the unique selling points and differentiators that make our offering stand out. It enables us to craft a compelling Quick Pitch that resonate with our audience and foster their loyalty and preference for our brand.
By shifting our focus to the value we deliver, we can transcend product-centric thinking and gain a holistic perspective on the overall benefits and outcomes our Whole Product provides to our Target Segments. This approach allows us to align our strategies, messaging, and actions around delivering meaningful and impactful value, ultimately fostering strong customer relationships and market success.
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 initially introduced by Theodore Levitt and Regis McKenna, and later popularized by Geoffrey Moore in his bestselling book "Crossing the Chasm."
The Whole Product encompasses not only the features directly provided to customers and users but also includes everything else that is necessary to create a compelling reason for them to buy and/or use the product.
Early adopters are typically more willing to piece together the different components of the Whole Product themselves. They are more comfortable with incomplete or beta versions of the product and are driven by their own vision and dreams. However, mainstream markets, comprising the majority of customers, prefer to have a fully functional and ready-to-use Whole Product. They are less inclined to invest effort in assembling disparate components.
Even if you have an exceptional product, neglecting the importance of the Whole Product concept can hinder your ability to persuade mainstream customers and may confine you to the early market. It's crucial to recognize that the early market is relatively small, comprising only about 16% of the total market, and it is not sustainable in the long run.
Early adopters exhibit strong loyalty to their own visions and aspirations rather than to your specific solution. They will readily switch to an alternative if they perceive a better opportunity elsewhere. Consequently, your churn rates may increase, and the initial successes you achieved may diminish. At this stage, your startup faces the risk of losing momentum and becoming trapped in the treacherous chasm that exists between the early and mainstream markets.
To successfully navigate this chasm, it is essential to focus on understanding and addressing the requirements of the mainstream market. This involves refining your Whole Product, ensuring it is complete, functional, and aligns with the expectations and needs of the broader customer base. By bridging the chasm, you can transition from early market success to wider adoption and long-term business growth.Moore helped popularize the term in his bestseller 'Crossing the Chasm'.
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 complete product includes products or services that are not directly related to your main business. Fortunately, you don't have to develop the entire product on your own.
Describe the parties you will collaborate with to bring the Whole Product to fruition. What are their contributions and roles? Please note that a Strategic Partner is always aware of their partnership with you. If this is not the case, they may belong 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)
The Quick Pitch is a concise narrative that effectively communicates the Key Values of our Whole Product and how it uniquely or superiorly addresses a problem faced by our target segments. If we cannot explain our product or service quickly, simply, and clearly, how can we expect potential users, customers, investors, or stakeholders to embrace our concept?
It is essential for every startup team to have a well-prepared pitch for every occasion. It enables them to attract top talent, refine their ideas, develop minimum viable products (MVPs) and marketing materials, secure investors, and, last but not least, align the entire team around a shared understanding of the concept.
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?
Consider all the resources required to operate the business model. These resources can range from physical necessities like office space to intangible assets like knowledge. Additionally, what are the associated costs?
Minimizing costs in production and delivery holds varying degrees of importance across different business models. Hence, it can be helpful to categorize business model cost structures into two main types: cost-driven and value-driven. However, it is worth noting that many startups and businesses fall somewhere in between these two categories.
Startups and companies with cost-driven business models prioritize cost minimization at every opportunity. This approach involves creating and maintaining an extremely efficient cost structure by employing low pricing, leveraging automation to its maximum potential, and extensively outsourcing certain functions. It is a prevalent strategy when there is limited or no competitive advantage, or when achieving economies of scale through high production volumes is more feasible. This strategy allows them to gain a cost advantage in the market.
Certain companies place less emphasis on the cost implications of a specific business model design and instead prioritize value creation. Value-driven business models typically revolve around offering premium quality products and delivering highly personalized services. These companies strive to provide exceptional value to their customers, often through unique features, customization options, or exceptional customer experiences.
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 refers to the expansion of a user base through user referrals. This type of growth can be measured using a metric called the viral coefficient or k-factor. The viral coefficient quantifies the number of new users that an existing user brings to a product within a specific time frame. In essence, it represents the equation 1 user = k new users. To have viral growth as the primary driver of your expansion, it is crucial to have a viral coefficient greater than 1. This means that for every customer you acquire, they successfully refer more than one other person to your service.
Paid growth is a familiar engine of growth for many people. It involves acquiring customers through paid channels, such as advertising. Paid growth occurs when the costs of acquiring customers (CAC) are lower than the lifetime value of those customers (LTV). In other words, it is financially viable to invest in paid acquisition because the value a customer brings over their lifetime exceeds the cost of acquiring them.
The final growth engine described in Reis's book is Sticky Growth. Sticky growth pertains to retaining existing customers, aiming to minimize customer churn rate. Personally, I would not consider it a growth engine since its focus lies in retention rather than expansion. In the best-case scenario, with 100% customer retention (0% churn), there is still no growth. Growth occurs when the rate of acquiring new customers surpasses the churn rate. Therefore, to achieve sticky growth, customer acquisition from one or both of the other growth engines is always necessary.
To illustrate this concept, envision a leaky bucket with holes. If you only plug the holes, nothing changes, and the bucket remains empty—no growth. Now, let's return to the bucket with holes. When you pour water in, it flows out through the holes, again resulting in no growth. If you fill the bucket with water at the same rate it is escaping through the holes, the water level remains constant—still no growth. However, if you both seal the holes and allow the water to flow, the bucket will begin to fill up. This represents growth.
