October 17

How to Read and Evaluate a Business Model using the Lean Canvas

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If you’re a business leader on the lookout for promising new ventures to fund, the Lean Canvas has become an indispensable tool. This one-page business model is designed to offer a clear snapshot of a business opportunity. As a result it’s the tool of choice for innovators to communicate their ideas to business leaders with the authority (and budget) to get a project off the ground.

But how do you truly understand the viability of an idea presented this way? What are the potential pitfalls to watch out for? And perhaps most critically, how can you probe deeper, asking the right questions to unearth the hidden details?

In this guide we’ll walk through how to read and evaluate a Lean Canvas, helping you spot the most promising innovations for funding.

Understanding the Lean Canvas

Let’s start with a quick recap of the Lean Canvas.  (If you’re already comfortable with the Lean Canvas, feel free to skip ahead.)

Developed by Ash Maurya, the Lean Canvas is inspired by Alexander Osterwalder’s Business Model Canvas. The primary purpose is to quickly sketch out and validate business ideas. It simplifies the traditional business plan into nine essential building blocks, highlighting potential challenges and solutions.

  • Problem: This section lists the top problems the business aims to solve. Look for problems that are genuinely painful or troublesome for the target market.
  • Solution: Potential solutions to the identified problems. This doesn’t need to be fully fleshed out initially but should offer a clear path to problem-solving.
  • Unique Value Proposition (UVP): This is the startup’s promise of unique value to the customer. It should be compelling and differentiate the business from competitors.
  • Unfair Advantage: Something the business has that cannot be easily copied or bought. This could be things like insider knowledge, a patent, or a unique business connection.
  • Customer Segments: Who the business targets as customers. They should be clearly defined, and there should be evidence of demand from this segment.
  • Key Metrics: The indicators the business will use to measure success. These should be relevant and show a clear path to growth.
  • Channels: How the business plans to deliver its solution to customers. These could include online platforms, physical stores, or direct sales.
  • Cost Structure: Lists all the major costs involved in running the business.
  • Revenue Streams: Details how the business plans to make money.

Reading the Lean Canvas: Where to Start

For most people reading this article you’ll have had a lifetime of training to read a sheet of paper from left to right. But if you do that with a Lean Canvas you’ll find it complicates your understanding. To truly harness its power and evaluate its contents efficiently, it’s essential to know where to start.

Lean Canvas

1. Begin with the Core: Customer, Problem, Solution, and UVP

  • Customer: Understanding who the business aims to serve is foundational. If you’re not clear on the target audience, the rest of the canvas loses context. Knowing the customer gives insight into market size, potential demand, and the viability of the proposed solution.
  • Problem: Before diving into solutions, it’s crucial to grasp the problem being addressed. A clearly defined problem hints at the intrapreneur’s research and understanding of the market.
  • Solution: Once you’re familiar with the problem, the proposed solution will make more sense. This gives insight into the business’s innovative approach and its potential effectiveness.
  • Unique Value Proposition (UVP): The UVP ties together the customer, problem, and solution, showing how the business plans to stand out. A compelling UVP can be a strong indicator of the business’s potential success in the market.

Starting with these sections helps establish a narrative. You’ll get a clear picture of the core business idea, its target audience, the challenges they face, and how the business plans to address those challenges uniquely.

2. Next, Dive into the Finances: Costs and Revenue

With a grasp of the core idea, it’s time to delve into the business’s financial feasibility.

  • Cost Structure: This provides a rundown of the expenses involved in bringing the solution to life and sustaining the business. It’s vital to know if the business has realistically accounted for all potential costs.
  • Revenue Streams: Equally critical is understanding how the business plans to make money. This section should align with the earlier UVP, offering monetization strategies that resonate with the value proposition.

By examining costs and revenue after understanding the core idea, you gain a holistic view. You’ll be able to assess whether the financial aspects support or challenge the business’s proposed solution and UVP.

3. Dig in to the Details

If the core concept shows potential, you’re now equipped to dig into some of the detail, looking at Channels, Key Metrics and Unfair Advantage.

Why This Order?

The essence of a business lies in its ability to solve a problem for a specific customer in a way that stands out—hence the emphasis on the Customer, Problem, Solution, and UVP sections first. These sections offer a storyline and context. Once you’ve grasped the story, the financial sections (Costs and Revenue) act as a reality check, ensuring that the narrative is grounded in economic viability.

In essence, this structured approach to reading the Lean Canvas ensures that you’re not just captured by a great idea but that you’re also considering its practicality and potential for real-world success.

Ask the Right Questions to Assess Viability

Here are a few prompts you can use to accelerate your analysis of a Lean Canvas. Some of these prompts are questions to ask yourself as you read the canvas, others are questions to ask the intrapreneur.

  • Does the canvas tell a cohesive story? All the segments of the Lean Canvas should connect and tell a cohesive story about the business. If one section contradicts another, this could be a red flag.
  • Are the customer segments well-defined? Has the business done its homework in understanding its target market?
  • Does the problem resonate? Is it a genuine problem that a significant number of people face? Is there evidence or research to back this up?
  • Is the UVP compelling? Does the proposed solution truly stand out in the market?
  • Do the revenue streams and cost structures make sense? Are they realistic and sustainable? Look for clarity in monetization strategies.
  • What is the unfair advantage? Is it genuinely unique and sustainable over time?
  • What evidence is available to back up the canvas? The Lean Canvas is based on assumptions, and it’s crucial to validate them. Has the intrapreneur conducted market research, interviews, or pilot testing? Concrete data always trumps assumptions.
  • Can you see a path to a scalable, sustainable business? While the initial canvas might reflect early-stage thinking, there should be signs that the business can grow and sustain itself long term. If the model seems too narrow or niche without a clear path to expansion, it might be a concern.

Want to learn more about how to lead innovation projects and manage intrapreneurs? Then this one-day training might be ideal for you: Leading Innovation and Managing Intrapreneurs.

It’s a Wrap!

So there you have it: how to read and evaluate a Lean Canvas business model in four easy steps.

We’ll leave you with one final tip: As with all business tools, the Lean Canvas is most effective when combined with critical thinking and open dialogue with innovators. If you see a germ of an idea, work with the intrapreneurs to help them evolve their concept into something worthy of funding.

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