12-Min Guide to Lean Canvases and Pivots

Originally published on http://www.appsterhq.com

And Why They Are Essential to Building Successful Startups

With the increasing popularity of “lean start-ups”, the notions of “the pivot” and “lean canvases” have become hot topics in the start-up world.

However, widespread confusion seems to surround the meaning and utility of both of these concepts.

In this article I’ll try to sort through this confusion by explaining:

  • why lean canvases have replaced conventional business plans,
  • what pivoting actually involves,
  • and why both lean canvases and pivoting are essential to building successful start-ups.

The Arrival of the “Lean Start-Up”

At their cores, startups are fundamentally concerned with identifying specific consumer pains and offering monetizable and scalable solutions within large and/or quickly expanding markets.

Beyond this, most entrepreneurs are likely familiar with one or more of what we might consider to be the standard or go-to definitions of “startup” from industry leaders like Paul Graham and Steve Blank:

  • “A startup is a company designed to grow fast… Everything else we associate with startups follows from the need for growth.” (Paul Graham)
  • “A startup is an organization formed to search for a repeatable and scalable business model.” (Steve Blank)

Graham expands his definition by noting that startups seek to “make something customers actually want” by “offering people better technology than they have now” and “spending as little money as possible” in the process.

Blank, for his part, stresses the function and significance of a repeatable and scalable business model:

“A business model describes how your company creates, delivers and captures value… A business model is a drawing that shows all the flows between the different parts of your company including how the product gets distributed to your customers and how money flows back into your company. And it shows your company’s cost structures, how each department interacts with the others, and where your company fits with other companies or partners.”

The creation of a repeatable and scalable business model is the point in the startup lifecycle where a new venture finds ways to consistently acquire new customers for less money than the revenue they are expected to bring in, thereby generating profit.

This, of course, takes place after a product has been built for a hungry market populated by users willing and able to pay for it.

Starting several years ago, Eric Ries began popularizing the notion of leanness, further refining the popular understanding of the purposes and operations of startups.

Building on earlier blog posts, Ries formally introduced the notion of the “lean startup” methodology in 2011.

In a nutshell, Ries’ approach is all about the various ways in which startups can intelligently and effectively cut wasted time and resources by efficiently creating, testing, and refining products that actually fit the demands of the market precisely because they are based on the experimental (i.e., data-backed) needs and desires of real customers.

Ries uses the terms “iterative” (i.e., continuous development based on ongoing customer feedback) and “validated learning” (i.e., many rounds of analytics and metrics-based testing of assumptions designed to further refine hypotheses and thereby progressively build a sustainable product) to describe his methodology.

The arrival of the lean startup has helped usher in serious challenges to various previously taken-for-granted aspects of doing business as a startup in the 21stcentury.

In this article, I want to look at how lean canvasses are replacing traditional business plans and how pivoting is changing what it means for start-ups to adapt and evolve within today’s fast-paced world.

Traditional Business Plans are Basically Useless

When it comes to traditional businesses, it’s usually a good idea (not to mention standard practice) to create a formal business plan.

A business plan is a highly detailed document that:

  • reviews one’s industry, previous earnings, current products and services
  • and forecasts future revenue, means for distinguishing oneself from one’s competitors, upcoming changes to the market, etc.

With regard to startups, however, the situation is quite different: traditional business plans are of very little, if any, use.

Indeed, there is increasing recognition (examples: 1, 2, 3, 4) that start-ups should avoid wasting time, energy, and money constructing business plans due to one or more of the following dynamics:

  • Creating a formal business plan is a time- and money-zapping process, one that necessarily pulls startups away from creating, launching, and tweaking the products on which their businesses must be based.
  • Many investors/funders of startups have little if any interest in reading 50–100 page business plans.
  • Business plans virtually always contain at least some fiction, i.e., shaky guesses or projections that threaten the integrity of one or more core components of the plan.
  • Business plans are necessarily limited to a specific snapshot of time, thus calling into question their ongoing relevance and utility.
  • The vast majority of startups pivot one or more times during their histories (more on this in a second), instantly nullifying any previously created business plan(s) when they do.

From a startup perspective, the basic problem with the conventional business plan is that it assumes too much.

It assumes that you can put together a solid marketing strategy and clearly define your customers and outline your product specifications and meticulously divide and allocate your finances and commit all these data to paper — and then you simply follow the plan to the letter and wait for success to arrive.

To be blunt, the entire process is rather laughable.

How, for example, can you project your marketing expenses if you haven’t acquired any customers first?

Or consider “financial forecasting”.

This practice involves finding one or more sets of market adoption rates from competitors and then projecting your sales based on these numbers.

But as an entrepreneur I can easily create dozens if not hundreds of different forecasts using existing metrics to project revenues anywhere from $1000.00 to $1 billion in one year.

Steve Blank put it well: when it comes to startups, “no business plan survives the first contact with a customer”.

Why? Because startups launch innovative products alongside yet-to-be-proven business models, often in niche and evolving markets.

There simply are no established, dependable benchmarks available in the start-up world.

Traditional business plans are appropriate for big companies and specific kinds of upper-level employees (e.g., corporate managers).

For instance, a Marketing Manager at Coca Cola who’s set to launch a new line of cola drinks will follow a business plan by acting in accordance with a host of previously used and familiar procedures and data points, such as creating x number of billboards in order to attract y number of customers and thereby generate z amount of revenue.

But what happens when you launch a mobile app? Which previously used and familiar data can you invoke?

The truth is that it’s extremely hard to predict whether users will adopt your app, whether the app will solve one or more customer problems in the way you intend, whether your revenue will come primarily from ads or from other sources, and so on.

Lean Canvases Are the New Business Plans

So, traditional business plans are out and what I referred to above as “business models” are in when it comes to the start-up world.

Several years ago, Ash Maurya modified Alex Osterwalder’s famous Business Model Canvas and introduced what has become the highly used Lean Canvas.

Ash describes the Lean Canvas as “a 1-page business plan template that helps you deconstruct your major business idea into its key assumptions using 9 basic building blocks.”

The Lean Canvas replaces the traditional business plan — in fact, it blows it out of the water, so-to-speak.

Because startups are a thoroughly unique phenomenon previously unseen in the business world, entrepreneurs need a revolutionary tool that helps them visualize, account for, and interact with each of the unique variables involved in launching a start-up.

And this is where the Lean Canvas comes in.

We at Appster have created a version of the Lean Canvas that will help you intelligently and efficiently map out the core connections between the different parts of your business, thereby allowing you to determine and plot the linked ways in which you create, capture, and spread value to your customers:

Building a start-up is a dynamic process that often requires responding to uncertainty and unpredictability.

Startup founders simply cannot predict the future; it would, therefore, be entirely foolish to follow some 50–100 page document that contains educated guesses at best and fantasies and irrelevant data at worst.

Our Lean Canvas contains a set of 9 variables that start-up founders must define and then test.

It’s basically startup-meets-science:

  • you begin with a given hypothesis,
  • create a controlled experiment that involves real-world market research,
  • gather the results,
  • and, finally, use those results to generate new hypotheses, update your Lean Canvas, and then start the entire process all over again.

As Eric Ries stresses, creating a successful startup in today’s world requires an iterative — i.e., constantly evolving, back-and-forth — process, one that must be done efficiently and scientifically.

A Quick Note on Testing and Adapting

As a startup entrepreneur, you absolutely must commit to testing, refining, and re-testing the fundamental assumptions about your business, your product, your customers, and your market.

For example, rather than perfecting every last bell and whistle on your app before launching, you test your app on an ongoing basis by creating a minimum viable product comprising the core feature and rolling it out into small subsets of your market in order to gather feedback and tweak as necessary.

Similarly, rather than investing a ton of money into buying ad space, you divide your marketing budget such that you invest in several advertising strategies and run analytics on each of them in order to determine which delivers the best ROI.

“The Pivot”: Not Just the Latest Buzz Phrase

Startups constantly change: they grow, alter direction, adapt, shift focus, re-adjust objectives, evolve — i.e., they pivot.

Arguably, one of the most defining features of 21stcentury startups is the fact that they continuously and rapidly change/adapt.

This is true for both the “big sharks” (i.e., today’s most dominant ventures) and the newborn “guppies” (i.e., start-ups that have just launched).

As I recently noted:

“Instagram started as a Foursquare knock-off called Burbn; Pinterest was called Tote and began as an e-commerce startup; and Paypal pivoted 5 separate times before settling on its current online payment service. If any of the founders of these mammoth companies had remained resolute in their determination to execute upon their original visions then they’d very likely have failed long ago.”

Here’s another example: YouTube started as the video dating site Tune In Hook Up but even though the startup was executed, it didn’t get any traction.

When the founders recognized the existence of a different problem, i.e., the difficulties associated with trying to find popular videos online, they made an educated and intelligent decision to change directions by building what we know now as YouTube.

The point is that these huge companies did not ascend to the rank of billion-dollar ventures by stubbornly refusing to alter their initial objectives or goals but instead by testing their assumptions and shifting their focus based on the results they received.

New startups, too, must either embrace change or risk losing everything.

In fact, drastically changing directions is the norm for novel ventures.

Paul Graham, founder of Y Combinator, reports that anywhere from 70% to 100% of YC-funded startups begin working on a different core idea for their business by the end of the first three months of their YC experience.

But is “the pivot”, i.e., significant changes in a startup’s aims and/or operations, merely just a buzz phrase that entrepreneurs use when they realize that their ideas suck and they now need to come up with new ways to generate revenue? Is it an over-used, kind of “get-out-of-jail-free card” for new ventures? Or does it actually have some value to it?

When understood and applied correctly, pivoting can be a very helpful concept and practice.

Eric Ries, who coined “the pivot”, explains it in the following way:

“The hardest part of entrepreneurship is to develop the judgment to know when it’s time to change direction and when it’s time to stay the course. The concept of the pivot recognizes that successful startups change directions but stay grounded in what they’ve learned. They keep one foot in the past and place one foot in a new possible future. Over time, this pivoting may lead them far afield from their original vision, but if you look carefully, you’ll be able to detect common threads that link each iteration. By contrast, many unsuccessful startups simply jump outright from one vision to something completely different. These jumps are extremely risky, because they don’t leverage the validated learning about customers that came before.”

Simply stated, pivoting refers to a calculated and intelligent response to the realization that one or more of your key assumptions are wrong.

For instance, let’s say one of the fundamental hypotheses about your customers is that they would become more productive at a specific task were they to use a product that helps them improve their organizational skills and habits.

To test this assumption, you invite customers from your specific market to use your minimum viable product and you record various analytics on how they interact with the product and whether their productivity changes at all.

The data show that productivity levels remain unaffected (or, worse, decrease).

Using these data, you generate a new hypothesis that suggests that customers’ productivity levels are dependent not on organization but rather on the inability to effectively manage distractions.

At this point, you could then set to designing some sort of Internet-blocking tool that restricts access to certain distracting websites and/or widgets.

You would then repeat the process so as to test this new assumption and gather new data on which your next tweaks would be based.

This hypothetical scenario involves an example of what Martin Zwilling, drawing on Ries’ work, calls a “product feature pivot”.

Startups can engage in a variety of other sorts of pivots, including revenue model pivots, customer problem pivots, and market segment pivots.

Pivoting is virtually always a reality with which start-ups have to deal at least at some point during their lives.

Pivoting is Not Giving Up

As corporate 9–5 jobs continue to dwindle and start-ups become ever-more attractive, I expect that I’ll see more and more “wantrepreneurs” who half-heartedly create startups and then haphazardly change the focus of their “companies” as soon as they encounter their first obstacles.

They then convince themselves that their new idea is bigger, better, and obviously more likely to be a huge hit.

They don’t execute on their original idea. They don’t test their assumptions. They don’t innovatively respond to, and learn from, the data they (don’t) collect.

Instead, they abandon the foundation of their startup and “jump ship” to whatever’s hottest at the moment.

This isn’t pivoting; it’s what psychologists call “escapism”.

Giving up at the first sign of difficulty has nothing to do with the measured, thoughtful, and scientific decision to pivot from one vision to another.

They both require rapid decision-making but whereas the latter is based on data, insight, and planning, the former is grounded in near-sightedness, unpreparedness, and a lack of understanding.

Not to sound self-aggrandizing or overly dramatic here but the reality is that true entrepreneurs never give up.

The greatest entrepreneurs of our generation are clear about this:

  • Elon Musk: “No, I don’t ever give up. I mean, I’d have to be dead or completely incapacitated before that would ever happen.”
  • Steve Jobs: “Sometimes life hits you in the head with a brick. Don’t lose faith.”
  • Richard Branson: “Prepare well, have faith in yourself, help each other, and never give up.”

Pivoting is what an entrepreneur does when she’s driven out through the door but comes back through the window.

It’s what the startup founder does when he walks into his 52nd investor meeting after the first 51 were rejections.

And it’s what the app creator does when he enthusiastically abandons his favourite feature of the app because his users have clearly shown that they don’t care for it.

True entrepreneurs don’t throw in the towel; they find a way to succeed — always.

Final thought: building a startup is not about taking tons of risks in reflex-like, dangerous ways; rather, it’s about having the confidence, analytics-backed data, and foresight to manage risk effectively by intelligently pivoting when necessary.

To this extent, all contemporary startups should incorporate the Lean Canvas into their philosophies and practices.


Originally published at http://www.appsterhq.com/
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