The Lean Canvas Business Model - Creating The Killer Business Plan

Summary

Highlights

• Amazon's 1994 business model serves as a prime example in the video. 📊
• The Lean Canvas was inspired by Japanese lean manufacturing principles. 🇯🇵
• Key metrics for e-commerce businesses include sales conversion per visitor and average sales per transaction. 📈
• Amazon's unfair advantage was an unlimited selection of books with great prices and service. 📚
• Lean methodology encourages preventing distractions from a company's core value proposition. 🚫

Key Takeaways

• The Lean Canvas helps simplify constructing a business plan, focusing on core components, not complex details. ✍️
• Originally derived from Japanese Lean Manufacturing, Lean Canvas emphasizes constant improvement and iteration. 🚀
• It highlights the necessity of defining your target customers and understanding their needs first. 👥
• Utilizes examples like Amazon's early model to demonstrate practical implementation. 📚
• Emphasizes validating your assumptions through real-world feedback and iteration. 🔄
• Lean Canvas is suitable to plan and monitor growth from startup stages to significant business scales. 📈

Overview

Chapters

• 00:00 - 01:00: Introduction to the Lean Canvas The chapter provides an introduction to the Lean Canvas, a tool for creating a business model. It is based on the Business Model Canvas by Alex Osterwalder from the book 'Business Model Generation.' The Lean Canvas is an online tool consisting of nine segments that help in defining a clear business model. The speaker recommends using this tool as a first step in crafting an effective business plan.
• 01:30 - 03:00: Core Business Equation The chapter discusses the importance of modeling a company and ensuring all key components are included to build a comprehensive business plan. The concept of 'lean' is explored, highlighting that it stems from the Toyota and Japanese lean manufacturing philosophies, emphasizing constant improvement and iterations. These principles have been adapted and widely adopted in the startup world, particularly originating from Silicon Valley, and have now spread globally, largely influenced by a seminal book on the topic.
• 03:00 - 04:00: Overview of the Lean Canvas Components The chapter begins with a recommendation for entrepreneurs to read 'The Lean Startup,' described as a foundational text for entrepreneurs. The speaker, Eric Reed, emphasizes that it is not necessary to have read these books to proceed with understanding the chapter, but they come highly recommended for deeper insights. A key point made is the tendency for both entrepreneurs and business professors to overcomplicate business discussions with intricate details such as HR, compliance, and accounting. The chapter seems to suggest simplifying business concepts to focus more on strategic components, possibly aligning with the Lean Canvas model's focus on clarity in business planning.
• 04:00 - 04:30: Segment 1: Target Customers The core concept of business is described as a simple equation emphasizing the importance of focusing on the fundamentals of the business model. The key aspects include creating a product or service, pricing it appropriately, ensuring it's sellable, delivering it to customers, and ultimately securing a profit. The chapter stresses the importance of not getting distracted by non-fundamental areas and maintaining alignment with this essential equation.
• 04:30 - 07:00: Segment 2: Problem and Opportunity The chapter discusses the fundamentals of a successful startup, emphasizing that while initial profitability may not be present, the business model must eventually lead to profitability. The chapter highlights the importance of focusing on creating and selling products at a profit without getting distracted by other factors. It introduces the concept of the lean canvas as a tool for outlining business essentials, encouraging readers to explore it further, which can be accessed for free online.
• 07:00 - 08:30: Unique Value Proposition The chapter 'Unique Value Proposition' discusses building a business model using Amazon as an example, focusing on its inception in 1994. The limitations of the internet and market at that time are considered while reconstructing how Amazon's model might have been developed. Due to Amazon's well-documented history, sufficient details are available to create a comprehensive sample business model. The narrative proceeds to introduce the concept of the lean canvas as a strategic tool.
• 08:30 - 10:00: High-Level Concept The chapter discusses the distinction between the tactical components of a business, such as HR, and the fundamental elements that define a business model. It emphasizes the importance of defining a strong business model as the foundation for success. The success of a business relies on effectively answering key questions related to revenue streams, market advantages, and the solutions offered to address market needs. Validation of these components in the marketplace is crucial.
• 10:00 - 12:30: Solution The chapter highlights the misconception that a startup is merely a smaller version of a large company. It explains that startups face unique challenges that big companies don't have to deal with initially. The focus for startups should be on addressing and validating nine critical components to set the path for eventual success and scaling of the business.
• 12:30 - 15:00: Channels The chapter "Channels" kicks off by identifying the target customers for Amazon, initially focusing on people who buy books as the core customer base. It delves into the concept of early adopters, pointing out that this group is crucial as they represent the focused segment of the market meant to engage significantly in the initial years. The goal is to concentrate on this subset of the audience to establish a strong start.
• 15:00 - 16:00: Revenue Streams This chapter discusses the different revenue streams available to businesses. It highlights the importance of understanding both operational limitations and marketing target strategies. The chapter uses Amazon as a case study, focusing on its early days targeting avid book readers who were comfortable making online purchases, which was a significant challenge during that time. It also notes that these early adopters were interested in exploring new books, which further shaped Amazon's approach.
• 16:00 - 18:00: Cost Structure This chapter discusses the cost structure advantages that Amazon brought to the market, primarily focusing on the almost unlimited supply of books. It highlights the vision of Jeff Bezos, the CEO and founder of Amazon, who observed the problem of expensive bookstores as an opportunity to create Amazon. This streamlined supply and distribution process tackled the traditional brick-and-mortar bookstores' high expenses and limited stock availability.
• 18:00 - 20:00: Key Metrics The chapter 'Key Metrics' discusses the issues faced by traditional bookstores prior to the internet era. One major problem highlighted is the limited inventory space that even large bookstores had, restricting access to a wide range of products that consumers might not have wanted. The text describes how the internet presented a solution to this issue by allowing virtually unlimited online inventory. Additionally, the chapter touches on the difficulty of finding books and receiving recommendations in physical stores, where options were limited to seeking advice from employees or book clubs.
• 20:00 - 23:00: Unfair Advantage In the chapter titled "Unfair Advantage," the discussion centers around the value of diverse recommendations. The author emphasizes the benefit of hearing book recommendations from multiple people who have read and liked various other books, rather than relying on a single person's suggestion. This highlights the idea that collective insights can lead to discovering better book options. Furthermore, the text explores the concept of alternatives and competition within the context of the lean canvas business model - specifically examining how bookstores are a traditional competitor in the market of book sales. The idea is to identify new opportunities where many voices can contribute to a more effective recommendation system versus the conventional bookstore model.
• 23:00 - 27:00: Conclusion and Next Steps The chapter discusses the historical context of book distribution and club subscriptions, highlighting the limitations they had in terms of cost, inventory, and discovery. It points out how Amazon sought to address these issues by providing a more affordable and extensive book selection, with a user-friendly platform that offers recommendations across diverse genres. The chapter sets the stage for discussing Amazon's unique value proposition, which combines solutions to customer problems and insights into customer needs.

The Lean Canvas Business Model - Creating The Killer Business Plan Transcription

• 00:00 - 00:30 all right let's get started at creating your killer business plan the first step is really to define a very clear business model the tool we're going to use and I'm going to teach you is the lean canvas it's based on Alex austar walers business model canvas from business model generation book a really great book I highly recommend you look into but the lean canvas is basically a online tool of nine segments that briefly mentioned before allows you to
• 00:30 - 01:00 quickly model your company and see if you've covered all the key components you need to have a business plan and really the foundation of everything you need for a business plan the whole idea of lean is not about less money or thin or anything like that it comes from the original idea of you know Toyota and Japanese lean manufacturing which is constant Improvement and iterations and many other philosophies these philosophies have been applied to the startup world uh starting up in silkon Valley and really now spread you know across the globe uh because a book by
• 01:00 - 01:30 Eric Reed called The Lean Startup um has become just one of the most important tombs for entrepreneurs so another book I highly recommend you read now to get through this section you won't need to have read those books I just highly recommend them one key concept before we get too deep into you know doing this is that sometimes we like to make business and you know business professors are really good at this but making business much too complex you know there's all these details and there HR and there's compliance and you know all the accounting everything else but at the
• 01:30 - 02:00 beginning at the core the business is actually a really simple equation and it's really important you keep aligned with this because you can get easily get distracted in areas that aren't going to be fundamental your business model so what is that key concept that key concept is an equation it says you have to make something whether it's a service or product you have to be able to sell it which means you know you have to price it people willing to buy it you got to get it to the customers whatever and in the end you have to have a profit left over now this is a very important
• 02:00 - 02:30 concept now in the beginning startups you might not be profitable but longterm your business model has to fit to this m mold which is you're going to have to create something and you're going to have to be able to sell it and then end as a profit and if you keep focused on that you'll be a successful business it's amazing how if you look at any successful startup they stayed to the fundamentals and didn't get distracted so let's jump in and take a look at what the lean canvas looks like you again you can get this yourself for free Lan canvas.com but let's jump in and start working through the different seg ments
• 02:30 - 03:00 and build a a business model we're going to use Amazon as our example but I'm going to use Amazon back in 1994 when it started understand the limitations of the internet and the market and go what would their model have look like if when they were starting back then since Amazon is such a well-known and documented company we actually have a lot of details about them that allowed me to put together this sample a business model for you to see what it looks like complete so let's get started so this is the lean canvas now it
• 03:00 - 03:30 doesn't look like the you know traditional components of a regular business right you know where where's HR where are all the other components well those are really tactics those are things you'll have to do as part of delivering your business but that doesn't Define what your business model is and the business model is the foundation of you being a successful business or not is how well you have these pieces answered and then how well you're able to validate them within the market as you have the right Revenue stream you have a real unfair Advantage you have a solution the market wants that solves the problem one thing to
• 03:30 - 04:00 remember when you see this also is that a startup is not a small version of a big company there's going to be a lot of components of the business and pieces that you're just not going to deal with early on and as you scale and become a more mature company you may you know have to deal with but in the beginning you know you have enough challenges as a startup to get off the ground that if you can just satisfy the validation of these nine components you'll have accomplished a lot to getting becoming successful start up now starting with
• 04:00 - 04:30 segment one first list your Target customers who is Amazon's Target segment in the very beginning you know at the highest level people who buy books right that and ultimately anyone that would buy books could be their Target customer now the next side of this is you know in section one is the early adopters now the early adopters is where you narrow down your target audience to those you expect to really hit the first couple years the people that you are targeting
• 04:30 - 05:00 that you can handle the demands for so it comes both the limitation of what you're operationally can do and also what you want to Target marketing wise and the it's available in the market so Amazon in this case was what you know Avid book readers so those who are reading you know maybe several a month that already use the internet are willing to make purchases online which was a big hurdle back in '94 it was a big hurdle even a 2000 people purchasing online and I think an important early adopter component is that they like to explore books right because one of the
• 05:00 - 05:30 advantages Amazon brought is this almost unlimited supply of books so let's go to section two section two is your problem you see in the market or the opportunity you see so what was the problem what did Jeff buos the CEO founder of Amazon C that caused him to want to create this to create Amazon well one he noted that you know bookstores were expensive um you know everything was there was rarely SA if
• 05:30 - 06:00 they were there on products that no one wanted so so what is a second problem or you know opportunity he found he found that you know most bookstores you know thinking pre- internet time yes there was some of the big box stores but even they had limited inventory they could only carry so much which uh was a challenge so he thought you know the internet might you know be able to fix that something online and then lastly he said it's hard to find books and get recommendations at bookstores you know yes you can go in and ask maybe there's a book club maybe you can ask someone that works there but it's really one
• 06:00 - 06:30 person's recommendation you much rather hear what 10 people that have read 10 other books I've liked tell me about one book so you know there was an opportunity here where many people giving recommendations versus what I got at bookstores uh could be solved so what were the Alternatives so this is the second part of the second section of the lean canvas you know just who are my comp competitors who am I competing with obviously it's bookstores book were sold
• 06:30 - 07:00 through catalogs regularly um and there were book clubs where you subscribe to it and a couple books were sent every you know a few weeks or every month for it none of these really solved any of the problems that uh Amazon wanted to solve which was trying to make them less expensive having an unlimited inventory and making it easy to find books and get recommendations across all sorts of genres so the next section is your unique value proposition this is where you know your problem ultimately Your solution your customer set ments all
• 07:00 - 07:30 come together and there has to be something that is valuable about what you're doing to the customers that is going to trigger them to either you know go to your site make a purchase from you uh follow your blog whatever it is and really what their value proposition was were Earth's largest bookstore their name even came from it they you know chose the name Amazon because of the river and the size it was almost uh you know unmappable so large and for their target audience particularly the early adopters to be the Earth's largest
• 07:30 - 08:00 bookstore resonated with them the next component of the third section uh of the lean canvas is a high level concept now this is important when you're doing something that hasn't been done before or in a way it's really distinct sometimes you need to give a reference point to your investors or even yourself of how you would quickly describe what it is we do in this case Amazon said we're going to be the supermarket of bookstores online okay that makes sense I understand a supermarket is a very
• 08:00 - 08:30 large place with lots of variety um and it's going to be online this is something I've never seen before the next section section four is your solution now this might be your service you provide it's your product you deliver or a combination uh thereof now you notice that it's box is small and that's actually by per on purpose is that your customers and your problem are really your most important things to solve your solution most likely will change and evolve as you learn more about your customer customer and the problem you're trying to solve now so
• 08:30 - 09:00 you have to just simply outline what is it our solution is and it may have multiple bullet points or or features in this case for Amazon back then it's a website that sells all books available that it's core is what Amazon is second it had it was a website that allowed web-based customer reviews so it became a way to identify new types of literature to read new books and here are other people's comments uh around
• 09:00 - 09:30 people that have actually purchased it not just critics third part of the solution was to ship direct from distributor this meant I didn't have to carry you know large inventories I didn't have to worry about all the logistics that if I ship directly from distributor I was able to basically sell any book that is available from any distributor and keep the costs low and there was one other one that I pulled out from the early business plans of Amazon which is they put it as a question mark and this is okay to do is
• 09:30 - 10:00 maybe we might actually have our own Warehouse too because compared to the competitors which were all retail components or catalog which really was a dying business model that having a warehouse once they hit a certain scale might make sense now we can look in hindsight and realize it really did make sense they're one of the best logistics companies in the world with you know some of the best Warehouse operations around but back then that was a huge purchase you know uh thought for them at the beginning it was just can we have
• 10:00 - 10:30 the most books available moving on to the next section channels channels is how you're going to sell your product in some case you might have a channel partner like a distributor or have to sell through a retailer in other cases like an Amazon they were going to sell direct to customer through their website so their product was the channel there also was one other channel which was just starting to emerge is was to be able to leverage email to get people to click through to buy their product it was still still eventually going to come
• 10:30 - 11:00 back through the website for purchase but email was becoming a channel to attract and build sales section six next one revenue streams very simply where are your sources of revenue now pretty straightforward with Amazon they were going to sell books so their Book Sales that was a revenue Source now were the other sources of revenue for them well yes they charged shipping fees back then so that was another Revenue stream for them so so pretty simple straightforward it's not
• 11:00 - 11:30 all the details but it gives the foundation off of that to know where should I be looking from revenue to build out my financial model moving on to the other side of the financial equation the cost structure and it's important here that you're both looking for your fixed and variable costs variable costs are costs you incur whenever you sell your product and often are considered costs of good sold but not necessarily and fixed costs are the ones that you're going to recur month after month uh you know your salaries
• 11:30 - 12:00 and wages your rent any legal service fees uh that you have your travel expenses are going to go here now you're not looking to do a line item of all the details what you're trying to do is go what are the key areas of our business operations our business model that are going to incur costs well obviously we're going to have the website operations and the developers and the team it has to manage that so we have you know servers back then and anything to do with the data center um and all the staff that runs the website we're selling something we're going to need
• 12:00 - 12:30 good customer service staff um and we're going to need a center they work for and you know the phones and all the other overhead it goes with that we're going to need some sort of logistics and fulfillment staff and other costs that go with it even if we're not shipping out of our own Warehouse we still have to manage the shipping with our Distributors and returns and that part of it so that's another area cost and lastly and this is the variable cost for them would be the books and the shipping of the books but I built that more into Logistics component is the books or cost
• 12:30 - 13:00 we're going to incur whenever we sell something moving on to Section 8 the key metrics one of the most overlooked components when someone builds a business plan or a business model is how are we really going to measure our traction what are some ones that matter now this was a little hard to decipher for Amazon back then but I went to some basic numbers that are very important to e-commerce and so the first one was sales conversion per visitor so this is a number a metric I'd look because for every person that shows up on our
• 13:00 - 13:30 website how many buy something that conversion is very important to your financial modeling to figure out your assumptions of you know your traffic and how much revenue you'll make the next important metric is average sales per transaction so when someone buys something what is the average sale you know if you're getting a 100 customers Buy $100 each is a different Dynamic than if you get a th000 customers you know buying 10 yes the gross number is
• 13:30 - 14:00 different but really the buyer behavior is different and you may have to adjust your pricing your product mix or a mix of all of them to satisfy the way people are actually using your product and the final metric and this is really just a combination of the two metrics above but I think it's good sometime to have related metrics is this what is our total sales to how many visitors we have you know in a ratio format and that lets me know that if I can get another 10,000 visitors to our site I can increase our sales by X numbers very quickly and
• 14:00 - 14:30 these are important ratios to know not just pitching your company but also really to understand where you should focus your time where you should focus your marketing to build revenue and increase the traffic and traction for your idea and the last box the unfair Advantage so this is often related to the unique value proposition but it's really more not from the customer viewpoint but something that is unique to what you're doing doing how you're putting together your business model how
• 14:30 - 15:00 you've combined all these pieces it may be a piece of technology or several pieces but often it's just something you figured out a way to do a little differently and you're going to execute different and in this case it's our unfair Advantage is an unlimited selection of books with great prices and customer service if we can do that and we were first movers Amazon was in the case if Amazon could do that they could own the market now hindsight being 2020 we can say yeah they executed on this
• 15:00 - 15:30 miraculously they adjusted and refined their business model but once they nailed it they started executing on it and growing and then they started expanding they went to new products and whenever another company comes along that is able to really have the same unfair Advantage they have but in something different they've bought them so bottom so you find they've made really
• 15:30 - 16:00 strategic moves off of their core unfair Advantage which has become a core compy of the company they are now this is the lean canvas it takes some time to do I walk through it rather quickly just to show you how to build it out but you're going to have to do the research and thinking about your business to figure out how to clearly and concisely answer each one of these blocks but once you've done it you don't have your business you have a bunch of assumptions you think is what your business will be the next steps will be once you launch your
• 16:00 - 16:30 business is to start validating these testing essentially each hypothesis and go is this really the customer is this the price is the metrics that really matter or is there something else I could be measure but with this Foundation you can take your company from 0er to100 million as the core tool for planning and management meetings to know exactly where the company should be there is some revisions on this plan as once you're up and running company but the core structure pretty much is the same