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Business models and Theories

Lean Canvas – How I Document my Business Model

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The validated learning loop is the fundamental feedback loop that drives a lean startup:

Even though, this diagram shows “CODE” as the artifact of BUILD, I subscribe to a much looser interpretation of BUILD that applies to anything you create for the purpose of learning from customers. So, a problem presentation, landing page, and even components of your business model are all examples of BUILD artifacts.

The most significant goal of a startup is finding a scalable and repeatable business model and the process for doing so follows the same validated learning loop. You start by documenting a set of business model hypotheses, then systematically validate those assumptions against reality and make course-corrections, or pivots, along the way.

I’ve experimented with a number of different ways now for documenting my hypotheses and this is how I go about doing it:

Start with worksheets

Steve Blank’s book was my first introduction to customer development and I followed the worksheets at the end of his book as my starting point.

4 Steps to Epiphany Customer Development Worksheets:

1. Product Hypothesis
2. Customer Hypothesis
3. Channel/Pricing Hypothesis
4. Demand Creation Hypothesis
5. Market Type Hypothesis
6. Competition Hypothesis

The worksheets go into very specific detail on each hypothesis – some may or may not apply to your type of business since they were written for a specific type of business – enterprise software. Steve’s intent was not to create a universal set of questions but to get you started in thinking about the types of questions you need answered for your business.

Brant/Patrick simplify these hypotheses to an even smaller set, where they have you first thinking in terms of the customer-problem-solution, and then they layer in the business model details.

1. Customer-Problem-Solution Hypothesis
2. Business Model Hypotheses
– Business Assumptions
– MVP Assumptions
– Funnel Assumptions

I tend to outline my own initial hypotheses along 3 big questions: WHAT, WHO, HOW:

All these worksheets more or less tackle the same set of questions with slight variations in approach. However, you choose to answer these questions, the point of this exercise is to free form your answers. Then it’s time to get it down tighter.

Create a Business Model versus Business Plan

You could take your hypotheses and blow them up into a 30-50 page business plan or go the other way and shrink them down to a 1 page business model. As convincing as your hypotheses might sound to you, it’s important to recognize that they are still largely untested guesses that will almost certainly change.

The Business Model Canvas

I particularly like Alex Osterwalder’s 1 page canvas approach to business model generation. It visually captures the essential components of a business model and looks something like this:

I do find some of Osterwalder’s blocks a bit too general for a lean startup and specifically my type of business – web apps. For instance, before product/market fit, I need to see more emphasis on Problem/Solution than key partners or a customer relationship model.

Rob Fitzpatrick created a great adaption of Osterwalder’s canvas that better captures the “4 Steps of Epiphany” type of hypotheses. You can create these hypotheses online at . Rob’s goal is to version each update so you get an automatic way for tracking the evolution of your model/pivots.

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