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I love running workshops. It's a passion of
mine. You start off with setting the theme, or topic for discussion, and then
you let the magic happen.
Last week, I was called in for a 2nd workshop on
the Lean Canvas. The workshop was held in Nazareth which is in the north of
Israel. Now, I live in the center of Israel, in a small city called Ramat Gan.
Nazareth is about 100 km north of Ramat Gan and on a normal day, this shouldn't
take longer than an hour and a half drive. But, as the workshop was scheduled
to start at 6pm, I had to leave about 3 hours earlier to allow time for the
heavy traffic. almost 3 hours!? That's crazy.
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Photo: Downtown Nazareth. A beautiful place with
G-R-E-A-T Shawarma!
For the past 2 years I've been giving back to
the Israeli entrepreneurship eco-system by giving free lectures on Business
Models and both the Business Model Canvas and the Lean Canvas. Did I already
say that the Lean Canvas is my favorite? :-) I explained why in my previous post.
Lean Canvas first timers
Back on topic. Last week. I had a group of about
8 aspiring entrepreneurs who all have great embryonic ideas. I've met these
guys before, about 2 weeks ago when I first exposed them to the Lean Canvas
technique. This time, the plan was to go through their homework and together as
a group, refine one canvas prepared by one of the entrepreneurs and drill down
to a specific segment.
One of the guys, Maroon, had a great venture
idea in the travel industry. Now there is another over saturated market, but
nevertheless, a challenge. How do we niche an early
idea? How do we make an idea into a compelling proposition?
In this post, I will address some of the
misconceptions that came up during the workshop. This is important for anyone
looking to describe their business model using the Lean Canvas.
Ok, a quick refresher on the Lean Canvas. The
Canvas has 9 sections, each addresses key aspects of the business model.
In this post, I want to focus on the 5 main
mistakes made while filling out this canvas.
1. Customer Segments contain real company names
It's natural to think about specific companies
when you think about customer segments. However, this section includes only
segments and sub-segments. A market segment is an identifiable group of individuals,
families, businesses or organizations that share one or more
characteristics or needs. The basic criteria of a market segment are:
* Homogeneity - common needs within the segment
* Distinction - unique from from other groups
* Reaction - similar response to marketing and promotional
offers
In addition to the definition of a market
segment, there is a process called market segmentation which is a strategic process whereby a broad market is
divided into smaller, clearly defined market segments. It is important to
distinguish a 5 main types of
marketing segmentation practices:
A - Geographic Segmentation - a first step in international marketing
and includes segmentation by countries, cities, states, religions,
neighborhoods etc. This is normally followed by Demographic Psychographic Segmentations. You should understand your geographic
segmentation early on when defining your business model. As an example, if
you're planning on developing a mobile app that uses geo-location features to
discover or acquire users, you would be segmenting based on local
neighborhoods. Take Gett (GetTaxi).
Their core segmentation is based on major metropolitan cities where short
distance daily commuters is in high proximity and demand. Tools such as Google Analytics or other analytical tools provide real-time and
historic statistics on these stats out-of-the-box.
In your canvas, you might want to be as broad as
San Francisco or as specific as within a 2km radius of local neighborhoods in
large metropolitans.
B - Demographic Segmentation - the 2nd step in segmenting is by age, gender,
occupation, educational level etc. Assuming your start-up addresses a specific
local market, say San Francisco, you would then want to further segment this
market into the various age groups, genders etc.
Taking the Gett example above, we could specify
the segment as busy professionals, predominately males, aged 25-40 in large
metropolitans, working in the city center or within a 3km radius of it.
C - Behavioral Segmentation - this practice divides consumers based on
purchase patterns, frequency of purchase, usage patterns and brand loyalty. The
best example here are the Apple loyal fans. Apple had created a strong consumer
brand-loyalty which on its own represents a market segment. Another good
example is a home-exchange network, a website such as homeexchange.com. This segment addresses people that are
open to and familiar with exchanging their homes with others on a frequent
basis. Yet another example are people that prefer and often choose to buy and
eat organic food.
D - Psychographic Segmentation - segmentation based on lifestyle and
personality. The perfect examples for this is the GoPro camera which primarily
targets the Extreme sports lovers. These days, GoPro had diversified and now
targets additional segments, such as party-gowers.
E - Segmentation by Benefits - segmentation by benefits sought after by
consumers. Easier way to explain this is by thinking of what is important to
you when you think about your car. Is energy efficiency important? safety? low
consumption?
F - Cultural Segmentation - used to classify markets according to
cultural origin. Cultural origins provide strong insights into consumer
customs, perceptions and general behavior.
When writing your customer segments, keep these
practices in mind, it will help you get a good start on your segments and a
better understanding of your target audience.
2. The Solution section includes the product's benefits
The Solution section must include the specific
solution components. For instance, if your end product is a mobile app, then
"Mobile App" should be described in this section.
It's easy to get confused with the Value
Proposition section as people tend to describe the solution by its benefits. This
is not the case here. You should also try and include up to 3 of your top
features of the product or service you're offering. This will help clarify what
it is all about.
Let's use the Gett example from above. The Gett
company offers a Mobile App solution which includes Taxi ordering from you
mobile, Auto-receipt generation and forwarding by email and a rating system for
drivers.
3. Unfair Advantage section contain weak advantages
This one is one of my favorites. The unfair
advantage refers to something that will not only make you stand out from the
crowd but also something that will be VERY hard to reproduce by existing or new
competitors. It is very important to not confuse this section with I would call
'standard' advantages.
Example. If you're planning on creating a travel
planning app that includes local guides providing content and selling travel
packages in the app, you might consider adding "Local Guides" as your
unfair advantage. However, this is not the case. Partnering up with local
guides for your venture could be easily done for another. Getting local guides
involves using effective business development activities.
The idea behind unfair advantage is that you
need to specify something unique and solid that will keep your competition
behind as long as possible. Here are some guidelines on what an unfair
advantage could be:
* Official / Exclusive Distributor - normally achieved by signing an
agreement with an overseas exporter to solely represent and sell its goods and
services
* Patent - a patent is a great example of how to establish
and maintain a competitive edge in the marketplace
* Domain knowledge expert - attracting and in some cases hiring a domain
knowledge expert such as a professor in a particular field can provide solid
competitive leverage. From personal experience, while operating my
start-up 5skills, I was able to locate a professor who conducted a very extensive
research in the field of matching job seekers to jobs. This would have been a
great addition to the start-up as far as being competitive in the online
recruiting industry. Unfortunately, the strict research implementation
requirements proposed by the university, would have changed the product
offering significantly. As a result, this partnership dissolved.
* Celebrity - last but most definitely not least, using a
celebrity association to boost the brand awareness and credibility, is a sure
way of getting ahead in the early days. A great example I love using is a
start-up called Feex.
Feex finds and reduces your retirement fees using crowd-sourced management fees
comparisons. One of Feex's founders is Uri Levine who was
one of the founders of Waze.
During the early days of Feex, you could have seen many promotions on Facebook,
mainly in Israel, with the title "Uri Levine's new start-up". This is
a perfect example of utilizing a celebrity or another well known figure to
boost the start-ups awareness in the marketplace.
4. Channels describe common channels
The Channels section must include specific
channels that can attract the right segments with the proposed unique value
proposition. Including only the common channels like social networks, blogs,
online advertising is not enough and will make the business model weak.
You should really focus on finding niche-based
channels, these have always proved to be the most effective in targeting the
right audience (segments) with the right proposition. Example. Using the travel
mobile app example mentioned earlier, let's assume that the start-up would like
to attract 2 main segments, travelers and local guides.
Let's refine the travelers segment. Let's
break-down the travelers into a primary segment of young (ages 25-35), single
professionals that travel for long quick weekend getaways in major cities in
Europe between 6-8 times a year. Now, you have to ask yourself, how do I reach
this audience? If we're talking about young single professionals, we can assume
they work in offices, perhaps some of them might work for big corporates? It
would be fair to assume that some of these guys go to the gym 1-2 times a week,
drink coffee in a cafe each morning and love going to the pub on Friday nights.
As you can see, we were able to narrow down the
channels to very specific and effective ones very quickly. It'll be easy to
extract channels such as gym billboard and newsletter, HR department in large
corporates, coffee shops (using flyers and business cards), Pubs (billboards,
beer coasters etc). You can also target specific web-sites, blogs and
individuals to help promote the start-up idea. Use your imagination here and
after trying a few options, you will be able to find solid channels you can use
to reach your audience.
5. Key Metrics describe too broad metrics
The Key Metrics section
is one of my favorites. This normally would require you to think carefully and
decide what are the key 1 or 2 metrics you would need to track to ensure the
business is growing.
One common mistake many entrepreneurs make here,
is describe a metric like Traffic or New Users.
This on the surface is a valid metric to track, but I would always argue it's
not one of the key metrics to track. Example.
In the travel app example from before, instead
of using the metric Traffic, you could use a metric such as Number of purchased guided tour packs. This metric will cover both
travelers and local guides preparing and selling guides. This metric will allow
you to track the growth of the transactions of the business and in turn the
growth in travelers and guides. You could refine this metric further and
include the Unique number of
purchased guided tour packs by unique monthly travelers. This metric includes the growth of new guided
tour packs added into the system and sold to unique travelers that are active
on a monthly basis (both new and existing travelers). See what I mean?
This is a very important metric to get right,
but it might take you a bit of time and a few iterations until you land on the
one best suited for your business.
Wrap up
I hope this was a useful summary of what NOT to
do in some of the key Lean Canvas sections. Good luck with yours and feel free
to contact me if you have any questions.
To get your Lean Canvas right, CONTACT ME HERE
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