from validation board to lean canvas
Post on 16-Jan-2017
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Erkko Autio
Professor Erkko AutioImperial College Business School
From the Validation Board to Lean Business Canvas
Erkko Autio
Validation BoardTrack Pivots Start 1st Pivot 2nd Pivot 3rd Pivot
Customer Hypothesis Tip: One sticky note per box
ProblemHypothesis Tip: For two-sided markets,
validate the riskiest side first
Solution Hypothesis
Tip: Do not define a solution until you have validated the problem
Project Team Leader
Core AssumptionsAny assumption that, if invalidated, will break the business
Riskiest Assumption
Method
Minimum Success Criterion
Design Experiment Results
GET OUT
OF THE BLDG
Validated
1 2 1 2
3 4 3 4
5 6 5 6
Which assumption is the most uncertain?
What is the easiest way to test the assumption?
What is the minimum outcome still considered as validation?
If validated, explore the next riskiest hypothesis
Only put the riskiest assumption from an experiment in these boxes.Record data and insights separately
Template from www.validationboard.com
HERE I LIST MY HYPOTHESES FOR THE
INITIAL IDEA (separate
for customers, problem, solution)
HERE I LIST MY CORE ASSUMPTIONS (DERIVED FROM HYPOTHESES)
HERE I LIST MY ELABORATED HYPOTHESES FOR EACH ROUND OF PIVOTING
IF A CORE ASSUMPTION GETS INVALI-DATED, I NEED TO PIVOT
If invalidated, pivot at least one core hypothesis
InvalidatedTip: clear all post-its from this area aftereach experiment is complete
IF MY ASSUMPTION IS VALIDATED, I MOVE TO THE NEXT CORE ASSUMPTION
Start Here!
TWEAK A NEW SET OF HYPOTHESES FOR EACH PIVOT. REPEAT THE CYCLE UNTIL DONE
HERE I LIST LESSONS AND INSIGHTS FROM MY HYPOTHESIS TESTS
GET OUT
OF THE BLDG
THE RISKIESTASSUMPTION GOESHERE FOR TESTINGHERE I DEVELOP
A WAY TO TEST THE ASSUMPTION
HERE I DECIDE HOW A SUCCESSFUL EXPERI-MENT LOOKS LIKE
Erkko Autio
Validation BoardTrack Pivots Start 1st Pivot 2nd Pivot 3rd Pivot
Customer Hypothesis Tip: One sticky note per box
ProblemHypothesis Tip: For two-sided markets,
validate the riskiest side first
Solution Hypothesis
Tip: Do not define a solution until you have validated the problem
Project Team Leader
Core AssumptionsAny assumption that, if invalidated, will break the business
Riskiest Assumption
Method
Minimum Success Criterion
Design Experiment Results
GET OUT
OF THE BLDG
Validated
1 2 1 2
3 4 3 4
5 6 5 6
Which assumption is the most uncertain?
What is the easiest way to test the assumption?
What is the minimum outcome still considered as validation?
If validated, explore the next riskiest hypothesis
Only put the riskiest assumption from an experiment in these boxes.Record data and insights separately
Template from www.validationboard.com
If invalidated, pivot at least one core hypothesis
InvalidatedTip: clear all post-its from this area aftereach experiment is complete
This is where I keep track of my problem, customer, and solution
ideas and pivots
This is where I design
and manage my experiments
This is where I keep track of my insights
and lessons from experiments
Erkko Autio
Trevor’s lean experimentsTrack Pivots Start 1st Pivot 2nd Pivot 3rd Pivot
Customer Hypothesis
ProblemHypothesis
Solution Hypothesis
Project Team Leader
Core Assumptions
Riskiest Assumption
Method
Minimum Success Criterion
Design Experiment Results
GET OUT
OF THE BLDG
Validated
1 2 1 2
3 4 3 4
5 6 5 6
Template from www.validationboard.com
Invalidated
UNIVERSITY STUDENTS
COMBUSTION ENGINE SCOOTERS ARE NOT ECO FRIENDLY
ELECTRIC SCOOTERS
IMPORTED FROM CHINA
PEOPLE WANT ECO FRIENDLY SCOOTERS
TRY TO SELL ELECTRIC SCOOTERS
MANY SOLD SCOOTERS
STUDENTS WANT ECO FRIENDLY
VESPA BUYERS
OIL IS BAD
CARE ABOUT ENVIRONMENT
CARE ABOUT ENVIRONMENT
FAKE AD TO GET TO TALK TO VESPA BUYERS
7/10 CARES ABOUT THE ENVIRONMENT
CARE ABOUT ENVIRONMENT
DIFFICULT COMMUTE
NO EXPOSURE TO SCOOTERS
VESPA FRIEDNS
DIFFICULT COMMUTE
FRICTION TO LIFESTYLE
NO EXPOSURE TO SCOOTERS
NO VESPA FRIENDS
TALK TO PEOPLE
MANY PEOPLE UNAWARE OF THE IDEA
TRIAL RENTING MODEL
PAY $250 PER MONTH
PITCH
PAY $250 PER MONTH
15 SIGN UP
PAY $250 PER MONTH
Erkko Autio
Trevor’s final MVP
Erkko Autio
Is Trevor now business ready? Why or why not?
Erkko Autio
A great product idea does not yet a business make!
Erkko Autio
Ask yourself…Is this a product or a business?Can I turn this into a business?How would this business actually operate?What is my unique and distinctive strength?Will this be a sustainable business?Can I earn a sizeable profit?
Erkko Autio
A great idea demands a great business concept
Product or service
idea
Value creation operations
Value delivery
operations
Value proposition
Cost model Revenue model
Erkko Autio
A business model operationalises the great idea
A framework that describes how a business creates, delivers and captures value
Erkko Autio
From Validation Board to Lean Canvas…
Validation Board: Validate the product or service concept
Lean Canvas: Validate the business concept
Erkko Autio
The Validation BoardTrack Pivots Start 1st Pivot 2nd Pivot 3rd Pivot
Customer Hypothesis Tip: One sticky note per box
ProblemHypothesis Tip: For two-sided markets,
validate the riskiest side first
Solution Hypothesis
Tip: Do not define a solution until you have validated the problem
Project Team Leader
Core AssumptionsAny assumption that, if invalidated, will break the business
Riskiest Assumption
Method
Minimum Success Criterion
Design Experiment Results
GET OUT
OF THE BLDG
Validated
1 2 1 2
3 4 3 4
5 6 5 6
Which assumption is the most uncertain?
What is the easiest way to test the assumption?
What is the minimum outcome still considered as validation?
If validated, explore the next riskiest hypothesis
Only put the riskiest assumption from an experiment in these boxes.Record data and insights separately
Template from www.validationboard.com
If invalidated, pivot at least one core hypothesis
InvalidatedTip: clear all post-its from this area aftereach experiment is complete
Pinpointing the customer
Narrowing down on the problem
Evolving the solution
Erkko Autio
The Lean Canvas Company nameDate
Iteration #1
Cost Structure
Customer Acquisition costsDistribution costsHostingPeople, etc.
R€venu€ $tream$
Revenue ModelLife Time ValueRevenueGross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key MetricsKey activities you measure
Unique Value PropositionSingle, clear, compelling message that states why you are different and worth paying attention
Unfair AdvantageCan’t be easily copied or bought
ChannelsPath to customers
Customer SegmentsTarget customers
PRODUCT MARKET
Start by inserting
your validated customer hypothesis
here
Validated problem
hypothesis goes here
Solution description goes here
Here we have the upstream operations
of the business, which describe the problem, solution,
and how much bringing the solution to the customer costs
Upstream operations describe how we
create value
Here we have the downstream
operations of the business, which
describe the customer, delivery channels, and how
we generate revenue
Downstream operations describe
how we deliver value
Here we describe our
unique, compelling
value proposition
which gives us a competitive advantage
Erkko Autio
The Lean Canvas Company nameDate
Iteration #1
Cost Structure
Customer Acquisition costsDistribution costsHostingPeople, etc.
R€venu€ $tream$
Revenue ModelLife Time ValueRevenueGross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key MetricsKey activities you measure
Unique Value PropositionSingle, clear, compelling message that states why you are different and worth paying attention
Unfair AdvantageCan’t be easily copied or bought
ChannelsPath to customers
Customer SegmentsTarget customers
PRODUCT MARKET
A value proposition
defines:- Customer
pains- Customer
gains- Customer jobs
Erkko Autio
A value propositionCustomer gains: enhancing the
positives (benefits, positive emotions, conveniences, status)
Customer pains: relieving the negatives (costs, complications, negative emotions, embarrassment)
Customer jobs: what do we actually do for the customer?
Erkko Autio
TrainTrickCustomer pains: Filing compensation claims is
complex and time consuming and makes me angry and frustrated
Customer gains: Making claiming easy and effortless, makes me feel good (charity)
Customer jobs: Processing compensation claims, securing outcomes
Erkko Autio
The Lean Canvas Company nameDate
Iteration #1
Cost Structure
Customer Acquisition costsDistribution costsHostingPeople, etc.
R€venu€ $tream$
Revenue ModelLife Time ValueRevenueGross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key MetricsKey activities you measure
Unique Value PropositionSingle, clear, compelling message that states why you are different and worth paying attention
Unfair AdvantageCan’t be easily copied or bought
ChannelsPath to customers
Customer SegmentsTarget customers
PRODUCT MARKET
A value proposition
defines:- Customer
pains- Customer
gains- Customer jobs
How do we reach, communicate with, sell to, interact with, and get feedback from our customers?
Erkko Autio
TrainTrick customer channelsApplication access: Google Play, AppleStorePublicity: leveraging Southern Rail debacle
(remember the story…)Interaction: making the app so simple to use
that interaction needs are minimisedFeedback and co-development?
Erkko Autio
The Lean Canvas Company nameDate
Iteration #1
Cost Structure
Customer Acquisition costsDistribution costsHostingPeople, etc.
R€venu€ $tream$
Revenue ModelLife Time ValueRevenueGross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key MetricsKey activities you measure
Unique Value PropositionSingle, clear, compelling message that states why you are different and worth paying attention
Unfair AdvantageCan’t be easily copied or bought
ChannelsPath to customers
Customer SegmentsTarget customers
PRODUCT MARKET
How do we reach, communicate with, sell to, interact with, and get feedback from our customers?
R€venu€ $tream$
Revenue ModelLife Time ValueRevenueGross Margin
Where do we generate revenue from and how?What is our revenue model?
Erkko Autio
TrainTrick revenue modelInitial: revenue share with customers
(commission model)Then: revenue share from donations to charity
(note how links with customer gains)
Current: unclear
Erkko Autio
Revenue modelsAsset sale: I sell goods and services to my customer Commission: I help my customer gain benefits and receive a commission (e.g.,
eBay)Licensing: customer pays license fees for the use of my offeringSubscription: customer buys a renewable licenseRazor blade: I sell my printer dirt cheap, charge for ink cartridgesAdvertising: I give my app for free, generate revenue from adsThird party: I sell my user data to third partiesShareware: my customer pays if she really loves my productEtc…
Erkko Autio
The Lean Canvas Company nameDate
Iteration #1
Cost Structure
Customer Acquisition costsDistribution costsHostingPeople, etc.
R€venu€ $tream$
Revenue ModelLife Time ValueRevenueGross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key MetricsKey activities you measure
Unique Value PropositionSingle, clear, compelling message that states why you are different and worth paying attention
Unfair AdvantageCan’t be easily copied or bought
ChannelsPath to customers
Customer SegmentsTarget customers
PRODUCT MARKET
R€venu€ $tream$
Revenue ModelLife Time ValueRevenueGross Margin
Where do we generate revenue from and how?What is our revenue model?
What are our cost drivers?
What are our fixed and
variable costs?
How large are my upfront
costs before I generate
revenue?
Erkko Autio
TrainTrick cost structureFixed: line rental, website hosting, premisesFixed: developers (2 – may choose not to
take salary)Sunk: any pre-firm development costs of app
development (may have been bootstrapped)Variable: handling claims (likely to be small
since largely automated)
Erkko Autio
The Lean Canvas Company nameDate
Iteration #1
Cost Structure
Customer Acquisition costsDistribution costsHostingPeople, etc.
R€venu€ $tream$
Revenue ModelLife Time ValueRevenueGross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key MetricsKey activities you measure
Unique Value PropositionSingle, clear, compelling message that states why you are different and worth paying attention
Unfair AdvantageCan’t be easily copied or bought
ChannelsPath to customers
Customer SegmentsTarget customers
PRODUCT MARKET
What are our cost drivers?
What are our fixed and
variable costs?
How large are my upfront
costs before I generate
revenue?
How do I monitor my progress?What are my key milestones?When do I need to pivot?
Note: key
metrics are
closely linked to
your revenue
model!
Erkko Autio
TrainTrick key metrics (commission model)Application downloadsNumber of compensation claims madeNumber of repeat compensationsCumulative amount of compensation paid
Erkko Autio
The Lean Canvas Company nameDate
Iteration #1
Cost Structure
Customer Acquisition costsDistribution costsHostingPeople, etc.
R€venu€ $tream$
Revenue ModelLife Time ValueRevenueGross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key MetricsKey activities you measure
Unique Value PropositionSingle, clear, compelling message that states why you are different and worth paying attention
Unfair AdvantageCan’t be easily copied or bought
ChannelsPath to customers
Customer SegmentsTarget customers
PRODUCT MARKET
How do I monitor my progress?What are my key milestones?When do I need to pivot?
Note: key
metrics are
closely linked to
your revenue
model!
Can I prevent others from copying my business model?
Erkko Autio
Unfair advantageExclusivity rights (the only one allowed
to operate on campus)Unique skillsUnique brandUnique combination of skills, assets,
location, concept…Intellectual Property rights (patents,
copyrights, trademarks, design patents)
Network externalities (think Google)
Erkko Autio
The Lean Canvas Company nameDate
Iteration #1
Cost Structure
Customer Acquisition costsDistribution costsHostingPeople, etc.
R€venu€ $tream$
Revenue ModelLife Time ValueRevenueGross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key MetricsKey activities you measure
Unique Value PropositionSingle, clear, compelling message that states why you are different and worth paying attention
Unfair AdvantageCan’t be easily copied or bought
ChannelsPath to customers
Customer SegmentsTarget customers
PRODUCT MARKET
Start by inserting
your validated customer hypothesis
here
Validated problem
hypothesis goes here
Solution description goes here
Can I prevent others from copying my business model?
What are our cost drivers?
What are our fixed and
variable costs?
How large are my upfront
costs before I generate
revenue?
Where do we generate revenue from and how?What is our revenue model?
How do we reach, communicate with, sell to, interact with, and get feedback from our customers?
How do I monitor my progress?What are my key milestones?When do I need to pivot?
A value proposition
defines:- Customer
pains- Customer
gains- Customer jobs
Erkko Autio
The Freemium modelProduct is offered for freeIt is typically used in service-based businesses This model is increasingly popular with Internet services The core free offering then acts as a gateway to the paid service
Erkko Autio
The Franchise model
You buy a working business model in a particular industryYou pay royalties for the privilege but get access to a winning recipe, a support network and an established brand
ORYou sell the right to use the business model in exchange for a percentage of revenues
Erkko Autio
The Premium modelOffer high-end products that appeal to brand-conscious consumers
Erkko Autio
The Cheap chic modelMarketing of stylish but inexpensive merchandise
Typically allows for high margins because merchandise sells at low price points but has an expensive feel
Erkko Autio
Game time!
Find the Business Model each brand uses!
Erkko Autio
Game time!
Freemium Model Franchise ModelPremium Model Cheap and Chic Model
Freemium Model Franchise ModelPremium Model Cheap and Chic Model
Freemium Model Franchise ModelPremium Model Cheap and Chic Model
Freemium Model Franchise ModelPremium Model Cheap and Chic Model
Erkko Autio
Game time!
Freemium Model Franchise ModelPremium Model Cheap and Chic Model
Freemium Model Franchise ModelPremium Model Cheap and Chic Model
Freemium Model Franchise ModelPremium Model Cheap and Chic Model
Erkko Autio
Lean canvas - eBayThe world’s largest online auction website
Global market share 5.6%157 Million active buyers $8.59 Billion revenue
Founded in 1995Founder: Pierre Omidyar (B2C – C2C)1997 VC: 22% equity + $4.5 m + 1 CEOWent public in 1998Paypal (2002-2015), Skype (2005-2011)
Free to commission model2004 Virgin Mary Toast : $28,000
Erkko Autio
The Lean Canvas Date
Iteration #1
Cost Structure
Customer Acquisition costsDistribution costsHostingPeople, etc.
R€venu€ $tream$
Revenue ModelLife Time ValueRevenueGross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key MetricsKey activities you measure
Unique Value PropositionSingle, clear, compelling message that states why you are different and worth paying attention
Unfair AdvantageCan’t be easily copied or bought
ChannelsPath to customers
Customer SegmentsTarget customers
PRODUCT MARKET
Online market platform with auction model
Commission model: Insertion fee: $0.30 +Final value fee: 10%
Internet• Ebay.com• Mobile app
Total active usersTotal salesTotal Listings, Number of page views…
Hard to trade with buyers and sellers globally 24/7
Trust and safety concerns during transaction
Hard to get desired price
Mass MarketBuyersSellers
Online auction and shopping communities
Antique and collectiblesmotors
- Pains: taking time and effort to find trustful buyers and sellers
- Gains: making trading more convenient, accessible and safer
- Jobs: providing a trading platform and securing transactions
Two-way market dynamic
Globally known brand
Sales and Marketing: 43%
Product Management:
20%General and
Administrative: 24%
Erkko Autio
Quote from eBay founder"I never had it in mind that I would start a company one day and it would really
be successful. I have just been motivated by working on interesting technology.“
-Pierre Omidyar
Erkko Autio
AirBnBAirbnb is a peer-to-peer nightly room rental network
Founded in 2008 by Brian Chesky, Joe Gebbia & Nathan Blecharczyk HQ in San Francisco, California
2 mln listings, 60 mln guests, 191 countries
“Trust is what makes it work”
Erkko Autio
The Lean Canvas Date
Iteration #1
Cost Structure
Customer Acquisition costsDistribution costsHostingPeople, etc.
R€venu€ $tream$
Revenue ModelLife Time ValueRevenueGross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key MetricsKey activities you measure
Unique Value PropositionSingle, clear, compelling message that states why you are different and worth paying attention
ChannelsPath to customers
Customer SegmentsTarget customers
PRODUCT MARKET
GUESTS:People who love to
travelPeople who want to
stay comfortably at
a cheap place
Commission from HOSTS upon every booking (10%)
WebsiteMobile apps from android and iOS
HOSTS:People who own a house and want to earn extra moneyPeople who want
to meet new people
Commission from GUESTS upon every booking (3%)
Unfair AdvantageCan’t be easily copied or bought
Have built a large community of users
worldwideSelf-reinforcing
network
HOSTSP: Trust and safety
Spare rooms/propertiesG: Extra income
InsuranceJ: Publish ads
Manage online
GUESTSP: Trust and safetyExpensive hotels
G: More options to stayCheaper than hotels
Unique local experience
J: Book easily w/ verified hostsManage online
HOSTSOffer insurance
Verification processProf. photo-shoots
GUESTSCan check hosts’
profiles and ratingsOffers, promo
codes
HOSTSDo not trust their
properties to random guests
Do not have attractive pictures of the
properties to advertise
Number of bookingsNumber of listingsCommissions earned
GUESTSDo not trust the property owners
Might switch back to hotels (retention
issue) PHOTOGRAPHERS
Technological set up and running costsSalaries to permanent employeesPayments to freelance photographers
Erkko Autio
What did we learn today?
Validation Board is excellent for validating product or service ideas
However, to operate as a business, a great product or service idea needs to be wrapped in a functioning business model
Lean Canvas can be used to build and validate business models in an iterative fashion
The Lean Canvas covers: (1) upstream activities (value creation); (2) downstream activities (value delivery); and (3) cost and revenue models (value capture)
There are lots of different kinds of business models and revenue models out there
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