Should startups use Business Model Canvas or Lean Canvas?

Where the Business Model Canvas tries to provide a complete model which encapsulates many types of business, the Lean Canvas focuses more on customer problems and solutions.

“Most startups fail, not because they fail to build what they set out to build, but because they waste time, money, and effort building the wrong product.” – Ash Maurya.

The Lean Canvas is the adoption of the Business Model Canvas for startups and entrepreneurs.

To make this easy to understand, join me in this imaginary world in which, I am a founder of a startup.

This startup is a marketplace where people trade storage space. Those who have extra space can lend it out to people who need space. I call it ‘Airbnb for storage space’.

To make this real, I literally Googled ‘random startup names’ and picked a name for this company. It’s called ‘Prodok’!

Now with both Business Model Canvas and Lean Canvas, I will attempt to lay out the company’s business model. Then compare what each model uncovers.

Let’s start with the Business Model Canvas.

Business Model Canvas is a template for developing and capturing a company’s business model on one-page. Alexander Osterwalder initially developed the concept in 2005. The idea of capturing a business model on just one page was a massive improvement from the traditional multiple page business plans.

(Image by Business Model Alchemist)

Download the Business Model Canvas

I won’t spend lots of time explaining what each element of the canvas does, but it’s worth revisiting what each element does.

1. Customer segments: Who are the target customers for the business?

2. Customer relationships: The type of relationship a business wants to establish with its customers.

3. Key resources: Key resources required to deliver the value proposition including physical, human and financial resources.

4. Channels: Channels through which the company will reach its customers.

5. Value proposition: The value that the customers receive through engaging with the business.

6. Key partners: Key partners such as suppliers, sponsors, distribution partners, etc.

7. Key activities: Key activities need to be carried out to deliver the value proposition.

8. Revenue streams: How a business makes money from its customers. A few common types of monetisation are asset sale, subscription fees, and licensing.

9. Cost structure: The delivery costs for the company in carrying out its business model

So here’s the Business Model Canvas for my imaginary startup, Prodok: 

1. Consumer segments:

   1. Space suppliers

   2. Space renters

2. Value proposition:

   1. Space suppliers: Earn extra income from renting out storage space.

   2. Space renters: Rent a storage space at a lower price than renting at a private storage unit.

3. Customer relationships: Build trust with both supplier and renter.

4. Channels: Word of mouth, SEO, social media, advertising, direct mail, email marketing

5. Key partners: NA

6. Key activities:

   1. Building the platform

   2. Recruiting space suppliers

   3. Acquiring space renters

   4. Customer support

7. Key resources:

   1. Human resources: Software engineers, marketers, QA engineer, accountant, customer support.

   2. Physical resources: Office space, equipment, office supplies.

   3. Financial resources: Funding.

8. Revenue streams: Brokerage fees from each transaction.

9. Cost structure:

   1. Employee salaries: x2 software engineer, x1 UX/UI designer, x1 QA engineer, x1 marketer, x.5 customer support.

   2. Office/equipment expenses.

   3. Marketing expenses.

So thanks to the Business Model Canvas, I discovered the 2 main customer segments and the value proposition for each segment. I also thought about different channels to reach both segments. The revenue stream is also sensible as most marketplace companies earn incomes through brokerage fees (like Airbnb and Uber).

However, there are a few things I don’t like about this model

• The ‘key resources’ session immediately suggests that I consider all the ‘normal’ elements a business ‘should have’ such as customer support, marketers, HR, accountants, etc. The reality could be that Prodok is nowhere near the point at which it needs full-blown marketing or customer support.

• ‘Channels’ were framed as ‘ways you could reach your customers’. Hence I listed all the marketing channels I thought were applicable. However, this could be dangerous as the tendency is to try out as many of these channels as possible, which can be distracting and would burn through lots of cash.

• ‘Customer relationship’ and ‘key partners’ are more or less distractions. At this stage, any insights about customer relationships may not be actionable. And it’s too early to identify the key partners.

The key focus for this company (at this point) is to understand customer problems and build a product that solves those problems. And a few elements that the Business Model Canvas revealed were either unnecessary or distracting to founders.

So what would Prodok look like in Lean Canvas?

Lean Canvas, proposed by Ash Maurya in 2012, is the adoption of Alex Osterwalder’s Business Model Canvas but optimised for Lean Startups.

Lean Canvas replaces 

• ‘Key Partners’ with ‘Problem’.

• ‘Key activities’ with ‘Solution’.

• ‘Key resources’ with ‘Key metrics’.

• ‘Customer relationships’ with ‘Unfair advantage’.

Ash Maurya also added a few additional elements including:

• Who are your ‘early adopters’?

• What are the ‘existing alternatives’ that solve your customer problems?

• What is the ‘high-level concept’ of your idea?

Download the Lean Canvas

Here’s what the Lean Canvas for Prodok would look like:

• Customer segments

  • Space suppliers

  • Space renters

Early adopters are 1) on the demand side, people who downsize their house and need additional storage space and 2) on the supply side, people with extra storage space. Both groups reside in Auckland.

• Problem

  • Space suppliers have storage space which they don’t use.

  • Space renters need storage space. But storage space units are expensive and require fixed-term contracts (this is an assumption).

Existing alternatives: Private storage units, dumping grounds, asking friends and family to store things.

• Solution: A marketplace for suppliers and renters to trade storage space.

• Unique value proposition:

  • For space suppliers: Earn extra incomes by renting out unused storage space.

  • For space renters: Rent storage space for less, no contracts required.

High-level concept: Airbnb for storage.

• Unfair advantage: First mover in XYZ region.

• Key metrics: Number of transactions on the platform.

• Cost structure: Same as Business Model Canvas

• Revenue streams: Same as Business Model Canvas

• Channels: Same as Business Model Canvas

Here are my thoughts on the Lean Canvas.

• The Lean Canvas forces me to think about the 2 primary elements of a startup: the problem each customer segment faces and the solution for those problems.

• Depicting the ‘early adopters’ makes me think about the first group of customers that will adopt my product, which then helps to specify channels.

• The ‘key metrics’ was also helpful as it makes me think about the key needle I need to push for the business to move forward.

• ‘Unfair advantage’ was interesting. I especially like ‘high-level concept’. Describing it as ‘Airbnb for storage’ is simple, yet it captures the genesis of the business model.

However, the same criticism about ‘Channels’ I made for Business Model Canvas goes towards the ‘Lean Canvas’. Spinning out too many marketing channels at an early stage can be overwhelming and distracting. I recommend replacing ‘channels’ with ‘channels to early adopters’ to make it more specific (early adopters are the first group of customers who will adopt your product). This helps frame the channels specifically around who your early adopters are and only focus on a few channels to target this group rather than spreading your efforts too thin on too many channels.

Overall, the Business Model Canvas was built to encapsulate ‘all types’ of businesses hence a few elements didn’t seem to fit well for startups. The Lean Canvas, on the other hand, offers a much more ‘problem vs solution’ approach. It makes founders think about the pain points that their target customers face and craft the solutions accordingly, which should be the only focus for startup founders in the early stage of their ventures.

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If you’re a Christchurch-based startup who are looking for a home where you can grow, consider joining Te Ōhaka Startup Incubation Programme. We’re looking to work with founders who are starting small but thinking big and moving fast. Find out more at Te Ōhaka Startup Incubation Programme.