Using the Lean Canvas.
The Lean Canvas is a great tool to help you think about your startup idea in a holistic way. It’s much faster to fill out compared to a business plan and is more relevant to the rapid learning process you should be going through.
We love it as it gives you a framework for identifying what you know and what you don’t know in all the areas that you should assess an idea by.
You can download the canvas as an image from here or just make your own.
In this article, I will walk you through an example of filling in a Lean Canvas using the well-known company Deliveroo.
The reason that I love using Deliveroo as an example is that the founder, William Shu, knew nothing about delivering food before starting his business. He was working in the city and was annoyed that none of the restaurants that he loved would deliver to him at work. He knew the problems customers faced but had no idea about delivering food or what problems the restaurants faced.
What I love is that he got started by delivering food on his scooter so he could experience the problems of taking an order from a restaurants and delivering it. What I love even more is that he continues to deliver food as a Deliveroo driver so he can see how to improve the experience.
The best founders spend the time to know their customer’s problems and experiencing the problem yourself is a great way to do that.
Let’s start with the problem and existing solutions.
It's always best to start with the problem. You only need to put in a few sentences, but it will force you to think about what your startup will improve for your customers. Deliveroo is actually quite complex as it’s a 3-sided-marketplace. Restaurants that don’t deliver, drivers that want to work and hungry customers. However, to keep this example simple, I am keeping it to a 2-sided-marketplace of Hungry customers and Restaurants that don’t deliver.
We can, therefore, insert the following sentences for the problem section:
- It’s hard to get decent food delivered to you.
- I want to serve these customers but don’t want to manage deliveries
Note how you don’t need to write a paragraph here. In fact, it’s the succinctness that is powerful. If you find yourself needing to spend lots of words describing the problem then you haven’t distilled it down to its core essence and it will also mean that the product solution will be harder to find.
For the existing solutions, you can list some obvious competitors, like JustEat or Domino’s pizza, but you should also look for the less obvious alternatives like people going to the restaurant and picking up their food. In fact, for those customers that want to eat good food, Domino’s is not even an option. It's more accurate that they will either pick up their food or go out to eat instead.
The point is, for most disruptive markets it isn’t your direct competitors you should be thinking about but the entrenched patterns of behaviour that you are all trying to grab a share of.
Who are your customers and early adopters.
The next section to fill out is the one to the right, relating to your customers and early adopters. As you can see in the canvas below I have put in the following:
- Time poor city workers.
- Offices for lunch.
- Busy affluent families.
The canvas omits the restaurant side, but it would include the following:
- Restaurants that want to serve takeaway customers
The early adopter's section is important as startups succeed when they are focussed. We could have said that our customers are all those that want to eat! In fact, now that Deliveroo is at a very large scale maybe this is true. But when you are starting out it’s important to pick a smaller niche where the pain points are clearer and they are easier to target. If your solution works for them then you can use that momentum to move to the bigger audience.
This is your product solution. If you don’t have a solution yet, that’s fine. Leave it blank. If you have a good guess then add it here. Again short sentences help you to get to clarity. All the best companies start off with a very clear and simple solution statement.
For Deliveroo it’s pretty straightforward, as they took ideas from Uber and Just Eat and then mashed them together.
- Website and App for ordering from restaurants
- In restaurant ordering machine
- Uber-style delivery drivers
When you look at this, there is actually quite a lot of product to build here for Deliveroo to be successful. The restaurant ordering machine requires hardware, the restaurant needs to be able to create their own menus, the delivery drivers require an app that contains information on the orders and provides them with the best routes to get there and the customers need an app to make the orders. That is a lot of product.
However, as Deliveroo is a mashup of Just Eat and Uber, you would assume that the product uncertainty is quite low. Most of it has been done before.
Your unique value proposition and high-level concept.
Both these sections are your chance to refine how you communicate your idea to others. As mentioned earlier, the tighter this is, the better for the success of your business. You will be telling 100’s of people about your startup, from investors to customers, and the clearer it can be communicated the easier it will be for them to understand and for the message to spread.
A lot of people don’t like that the high-level concept often refers to other companies. It makes them feel like they are just copying. I wouldn’t think about it like that. Most acts of creation involve combining different existing ideas to create something new. So don’t worry about it and just write something down that is really easy to understand.
In Deliveroo’s case, Posh Just Eat meets Uber does the job nicely!
A lot of people incorrectly fill out this section by looking into the future when their business is a success and write down their unfair advantage from that perspective. What you should be doing is writing down whether you have some unfair advantage now. It’s ok if this is empty. William Shu didn’t have an unfair advantage and still built a unicorn so you can too. However, if you have some domain expertise or technology expertise then this is what you should put in here.
Having said that, it doesn’t hurt to think about how your startup will be defensible as it gets bigger. From Patents to network effects. It’s good to have some idea of how you will stop copycat companies from coming out of the woodwork.
Startups succeed through a combination of great product and great distribution so you should definitely have some idea of the growth channels that might be effective for your type of business. In filling out this section, think about which channels you might use to get your first 100 customers and also think about which channels will work at scale. All startups need a marketing mix but usually end up with 1-3 big channels that bring in a lot of their customers.
For Deliveroo, I have put down the following including reasons:
- Paid advertising - people search for their favourite restaurants online
- Offline advertising - Deliveroo started off hyper-local so flyering, in-store stickers and the riders all provide advertising opportunities
- SEO - Over time the restaurant pages on Deliveroo will rank on SEO
- Sales - Deliveroo will require a sales team to bring onboard restaurants.
- Deciding on your key metrics
When filling out this section, don’t put down lots of lots of metrics. The idea is to try to find the "One Metric That Matters". Essentially, one metric that can give you a good sense of the health of your business. Don’t use a vanity metric that can always go up - like total number of orders delivered. It’s good for publicity but not very useful for knowing whether your business is working or not.
In the case of Deliveroo, a metric like “Number of orders delivered” is a pretty good metric to use as long as it is looked at over daily, weekly and monthly timeframes. It covers both sides of the marketplace and there are lots of ways that you can improve this number. For exampl,e you could add more restaurants or you could improve repeat orders.
In the of exampl,e I have also added “Deliveries on time” as it encapsulates the logistical complexity of Deliveroo and is also affected by whether you have enough driver supply whether you have enough drivers on the platform. For a 3-sided marketplace, it felt right to have 2 metrics rather than just one.
How are you going to make money is pretty important for any startup. Have a think about what you might charge, how you might charge it and the margin you make. Some startups, like Facebook, monetise attention so in those cases think about how much those eyeballs might be worth.
For Deliveroo, they started off with the following:
- 20% commission to the restaurant
- Charge £2.50 per delivery
Over time they have probably optimised this and added other revenue streams but the above are plausible good places to start.
Finally, complete the cost structure section. Try to list out here what you will need to pay to run your business. Fixed costs don’t vary with the number of orders and your variable costs do. Fixed costs can include staff, product development and machinery. Variable costs might include the costs you incur to acquire and fulfil an order.
As stated above, Deliveroo has to build quite a bit of product to get going to cover the 3 sides of the marketplace. The innovative piece about Deliveroo is their use of independent drivers keeps their variable costs low.
The final canvas.
Here is the complete canvas that William Shu might have created right at the beginning. As the company has grown a lot of sections will have changed and more detail added but it quite succinctly captures what Deliveroo is all about. Good luck with filling yours!