What is a Lean Canvas?

A Lean Canvas replaces long and boring business plans with a 1-page 🧠 Business Model that takes 20 minutes to create and that gets read.

A Lean Canvas is a 1-page idea capture tool that helps you deconstruct an idea into key assumptions or beliefs.

Here's what one looks like:

lean-canvas.png

If you have ever written a business plan or created a slide deck for investors, you’ll immediately recognize most of the building blocks on the canvas.

Where Did Lean Canvas Come From?

Lean Canvas is my adaptation of Alex Osterwalder’s Business Model Canvas. I often get asked why I created a different adaptation. I cut my teeth on the Business Model Canvas but found it too company-centric versus customer-centric. So I tweaked a few boxes and came up with the Lean Canvas and it took off.

My motivation for creating the Lean Canvas was not aiming to create a better business model canvas, but a different one.

See what's different

How to Use a Lean Canvas

While it’s tempting to iterate endlessly on the whiteboard, your initial big idea canvas should be sketched quickly - in less than 20 minutes. Unlike a business plan, the goal with a Lean Canvas isn’t to achieve perfection but to take a snapshot.

Here are some guidelines: 

1. Start with a blank Lean Canvas

2. Set a timer for 20 minutes

3. Avoid groupthink

If you’re part of a team, avoid creating a Lean Canvas as a group exercise. Instead, have each team member create their snapshot first. Then get together as a group and reconcile your canvases into a single Lean Canvas. Not only will this encourage more independent perspectives and avoid groupthink, but it will also save you time.

4. Know that it’s okay to leave boxes blank

If you're unsure about a particular box, it’s okay to leave it blank. We'll cover these boxes in more detail in subsequent sections.

5. Embrace a 1-page constraint

If you can’t describe your idea on a single page, it’s probably too complex to explain. Describing your idea on a single page is not about using smaller fonts but fewer words. Describing something in a paragraph is much easier than in a single sentence. The space constraints of the 1-page canvas are a great way to distill your business model down to its essence.

6. Think in the present

Business plans try too hard to predict the future, which is impossible. Instead, write your canvas with a “getting things done” attitude. Based on your current stage and what you know, what are the next hypotheses you need to test to move your product forward?

7. There is no right order for sketching a Lean Canvas

Sketching a Lean Canvas is like putting together a jigsaw puzzle. There is no right place to start or specific order to follow. So start with whatever box you think you understand the best and build out the rest of the canvas from there.

If you still can’t decide, use the recommended ordering below:

Customer Segments

As the Customer Innovation Framework is heavily customer-driven, the customer segment box of the Lean Canvas is typically a natural starting point.

Distinguish between customers and users.

If you have multiple actors in your business model, aim first to identify your customers.

A customer is someone who pays for your product. A user does not.

Then identify any other actors (users, influencers, etc.) that will interact with this customer.

Examples:

  • In a blogging platform, the customer is the blog author, while the user is a reader.
  • In a search engine, the customer is the advertiser, while users are people running searches.

Model multiple perspectives

It helps to view your idea from each actor's perspective in your business model. Each will likely have different problems, channels to reach them, and value propositions. For example, an advertiser working with a search engine may struggle with driving awareness of their product while those running searches seek answers to specific questions. I recommend keeping these perspectives on the same canvas and using a different color or hashtag to identify each actor's perspective.

Home in on early adopters

As an entrepreneur, you need to simultaneously communicate a big market opportunity while staying razor-focused on your early adopters.

Your objective is to define an early adopter, not a mainstream customer.

Your customer segment should represent the total addressable market (TAM) for your idea, while your early adopters represent a specific subset of your TAM that make up your ideal starting customer segment (also called your ideal customer profile).

Problem

Problems, not solutions, create spaces for innovation. The Problem box is where you list the specific problems you will tackle with your product.

List the top one to three problems.

While it’s tempting to brainstorm and list many possible problems, prioritize the top 1-3 problems you believe are most pressing for your customers.

List existing alternatives

Document how you think your early adopters currently address these problems today. Unless you are solving a brand new problem (unlikely), most problems have existing solutions. Many times these solutions may not be from an obvious competitor.

Unique Value Proposition

Dead center in the Lean Canvas is a box for your unique value proposition (UVP). This is one of the canvas's most important boxes and the hardest to get right.

The Unique Value Proposition forces you to answer the question: Why is your product different and worth paying attention to?

Before paying for your product with money, customers pay you with attention. Your UVP is hard to get right because you have to distill the essence of your product in a few words that can fit in the headline of your landing page. Additionally, your UVP also needs to be different to stand out from the competition, and that difference needs to matter to your customers.

The good news is that you don’t have to get this perfect right away. Like everything on the canvas, you start with the best guess and iterate from there.

Connect to your customer’s #1 problem

The key to crafting an effective UVP is connecting it to the number-one problem you are solving for your customers. If that problem is worth solving for them, you’re already halfway there.

Target early adopters

Too many marketers try to target the “middle” of their customer segments, hoping to reach mainstream customers, and in the process, they water down their message. Your product is not ready for mainstream customers yet. Your sole job should be to find and target early adopters, which requires bold, clear, and specific messaging.

Focus on outcomes

You’ve probably heard about the importance of highlighting benefits over features. But benefits still require your customers to translate them to their worldview. A good UVP gets inside the head of your customers and focuses on the benefits your customers derive after using your product — desired outcomes.

So, for instance, if you are creating a résumé-building service:

  • A feature might be “professionally designed templates.”
  • The benefit would be an “eye-catching rĂ©sumĂ© that stands out.”
  • And the desired outcome would be “landing your dream job.”

Keep it short

Most advertising platforms limit the number of characters on the primary headline field to 120 characters. Pick your words carefully and avoid empty fillers.

Answer: what, who, and why

A good UVP needs to answer the first two questions — what’s it for, and who’s it for? The “why” is often hard to fit into the same statement. That’s why a sub-headline is often used for that.

Here is an example:

Product: Lean Canvas

Headline: Communicate Your Idea Clearly and Concisely to Key Stakeholders.

Sub-headline: Lean Canvas replaces long and boring business plans with a 1-page business model that takes 20 minutes to create and gets read.

Create a high-concept pitch.

Another helpful exercise when crafting a UVP is creating a high-concept pitch. High-concept pitches are used heavily by Hollywood producers to distill the general plot of a movie into a memorable sound bite. The high-concept pitch was also popularized as an effective pitching tool by Venture Hacks in its ebook, Pitching Hacks(fn).

Examples:

  • YouTube: “Flickr for video.”
  • Aliens (movie): “Jaws in Space”
  • Dogster: “Friendster for dogs”

The high-concept pitch should not be confused with a UVP and is not intended to be used on your landing page. There is a danger that the concepts the pitch is based on might be unfamiliar to your audience. For this reason, the high-concept pitch is more effective when used to quickly get your idea across and make it easy to spread, such as after a customer interview.

Solution

I purposely made the solution box less than one-ninth of the entire canvas because, as entrepreneurs, we are most passionate about the solution box and what we are naturally good at.

But as we saw earlier,

  • your solution, while important, typically isn’t what’s riskiest,
  • investors don’t care about your solution, but traction (customer engagement),
  • customers don’t care about your solution but their problems.

It is common for your customer problems to get reprioritized or completely replaced with new ones after just a few customer conversations. For this reason, I recommend not getting carried away with fully defining your solution just yet. Instead, sketch out the simplest thing you could build to address each problem listed on your Lean Canvas.

Bind a solution to your problem as late as possible.

Channels

If a product is launched in a forest, does it make a sound? Failing to build a clear path to customers is among the top reasons startups fail.

The initial goal of a startup is to learn, not to scale. So, at first, relying on any channels that get you in front of potential customers is OK.

The good news is that following a “customer discovery /interview” process forces you to build a path to “enough” customers early. However, if your business model relies on acquiring large numbers of customers to work, that path may not scale beyond the initial stages, and it’s entirely possible you’ll get stuck later.

For this reason, it’s equally important to think about your scalable channels from day one so that you may start building and testing them early.

While many channel options are available, some channels may be outright inapplicable to your startup, while others may be more viable during the later stages of your startup.

Revenue Streams

Many startups defer the “pricing question” to a later stage, but this is a mistake.

Here’s why:

  • Price is part of the product. Suppose I place two bottles of water in front of you and tell you that one costs 50 cents and the other costs 2 dollars. Even though you couldn’t tell them apart in a blind taste test (the products are similar enough), you might be inclined to believe (or at least wonder whether) the more expensive water is of higher quality. Here, the price can change your perception of the product.
  • Price defines your customers. More interesting is that the bottled water you pick determines your customer segment. From the existing market for bottled water, we know there is a viable business for bottled water at both price segments. What you charge signals your positioning on which customers you want to attract.
  • Getting paid is the first form of validation. Getting a customer to give you money is one of the hardest actions you can ask them to take and is an early form of product validation.

Revenue is the difference between a hobby and a business.

Cost Structure

How do you determine the cost structure of your idea/product – that is, how much will it cost to make your product and keep your business running?

Rather than thinking in terms of three- or five-year forecasts, it’s better to take a more stage-based approach. Focus on your most immediate short-term milestones three to six months from now. First, model the runway you will need to define, build, and launch your MVP. Then, revise after you get there.

  • What will defining, building, and launching your MVP cost you?
  • What will your ongoing burn rate look like, such as salaries, office rent, etc.?

Key Metrics

Every business has a few key numbers that can be used to measure how well the business is performing. These numbers are key for measuring progress and identifying hotspots in your business model.

List 3-5 key metrics

Don’t go overboard on metrics. Instead, list the top 3-5 metrics that you’ll use to measure whether your business model is working.

Prefer outcome metrics versus output metrics.

Instead of measuring how much stuff you’re building (outputs), focus on measuring how many people use your product and how (outcomes). The right outcome metrics tend to be customer-centric versus product-centric.

Examples of outcome metrics:

  • Number of new customers
  • Monthly recurring revenue (MRR)
  • Customer lifetime value (LTV)

Prioritize leading indicator metrics versus trailing indicator metrics

While you’ll need to measure and report on revenue and profit, understand that these are trailing indicators versus leading indicators of progress.

“Find the key number that tells you how your business is doing in real time, before you get the sales report.”
- Norm Brodsky and Bo Burlingham, The Knack

Examples of leading indicator metrics:

  • Number of qualified leads in your pipeline
  • Customer attrition rate (churn)
  • Number of trials/pilots

Study analogs

Research what metrics other companies in your product space/industry use to measure and communicate progress to their stakeholders.

Here are some examples:

  1. Typical SaaS metrics
  • Lifetime value (LTV)
    1. Cost to acquire customers (CAC)
    2. Monthly recurring revenue (MRR) or annual recurring revenue (ARR)
  • Typical Ad-based metrics
    1. Daily active users (DAU) and monthly active users (MAU)
    2. Click through rates (CTR)
    3. Cost per impressions (CPM) and cost per click (CPC)
  • Typical marketplace metrics
    1. Buyer to seller ratio
    2. Average transaction size
    3. Take rate

Unfair Advantage

This is usually the most challenging section in the canvas to fill, which is why I leave it for last. Most founders list things as competitive advantages that aren’t—such as passion, lines of code, or features.

Another frequently cited advantage in business models is the “first-mover” advantage. However, it doesn’t take much to see that being first can be a disadvantage, as most of the hard work of paving new ground (risk mitigation) falls on your shoulders, only to be potentially picked up later by fast-followers unless you’re able to outpace them with a real “unfair advantage constantly.”

None of these companies were first movers: Ford, Toyota, Google, Microsoft, Apple, or Facebook.

An interesting perspective (via Jason Cohen, Founder of WP Engine) is that anything worth copying will be copied, especially once you demonstrate a viable business model.

Imagine a scenario where your cofounder steals your source code, sets up shop in Costa Rica, and slashes prices. Do you still have a business? How about if Google or Apple launches a competitive product and drops the price to $0?

You have to be able to build a successful business despite that, which led Jason Cohen to offer the following definition of “unfair advantage”:

A real unfair advantage is something that cannot be easily copied or bought.
- Jason Cohen, A Smart Bear blog

Here are some examples of real unfair advantages that fit this definition:

  • Insider information
  • The right “expert” endorsements
  • A dream team
  • Personal authority
  • Network effect
  • Platform effect
  • Community
  • Existing customers
  • SEO ranking

An excellent illustration of a real and fake unfair advantage is the difference between organic SEO ranking and paid keywords for search engine marketing. Your competitors can easily copy and buy keywords, while organic ranking has to be earned.

Some unfair advantages can also start as values that become differentiators over time.

For example, Zappos CEO Tony Hsieh believed strongly in creating happiness for his customers and employees. This manifested itself in many company policies that, on the surface, didn’t make much business sense, such as allowing customer service representatives to spend as much time as was needed to make a customer happy and offer a 365-day return policy with two-way paid shipping. But these policies served to differentiate the Zappos brand and build a large, passionate, and vocal customer base that played a significant role in the company’s eventual $1.2 billion acquisition by Amazon in 2009.

Start with an unfair advantage story.

What do you do if you don't have an unfair advantage on day one? Most entrepreneurs don't have an unfair advantage at the outset of their idea. Consider Mark Zuckerberg. He wasn't the first to build a social network, and many of his competitors already had a big head start with millions of users and millions of dollars in funding. That didn't prevent him from building the largest social network on the planet.

While Mark didn't have an unfair advantage on day one, he had an unfair advantage story. He knew his unfair advantage needed to come from large network effects. This clarity of focus helped Facebook develop a systematic launch and growth strategy that helped them eventually realize this advantage.

Leave the unfair advantage blank.

If an unfair advantage story isn’t readily apparent, it is always better to leave the unfair advantage box blank rather than stuffing it with a weak unfair advantage.

Embrace obscurity

The good news with unfair advantages is that you don't need one from the outset. When you are just starting out, embrace obscurity to build something valuable without calling out competitor attention. And keep searching for a true unfair advantage.

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