The Business Model Canvas, a rigorous, systematic early-stage approach to start-up exploration, can change the equation for innovators by revealing areas of real potential – or not – before significant expenditures of time and money. On-the-ground interviews with potential customers and others move the knowledge base beyond the guesswork of other business plan projections, says ESTEEM Assistant Director Sunny Shah.
“You don’t want to be spending a bunch of money. You want to know ahead of time,” says Shah, adding that Silicon Valley experts who spoke to ESTEEM students on a recent trip repeatedly emphasized the advice to “perform customer validation and fail early if necessary.” “You actually go out and test your value props and customer segments. It is kind of like a science – it is hypothesis-driven.”
The approach charts nine elements of the business model – key partners, key activities, key resources, value propositions, customer relationships, channels, cost structure, revenue streams – and calls for a systematic analysis of each one.
For example, developers of a technology for detecting bacteria in food interviewed potential users like food processing plants or contract food testing labs to gauge understanding of how they currently perform food testing and what are the deficiencies. The developers expected a market among independent butchers, but interviews showed little interest so they pivoted to processing plants and then to testing laboratories, where “their pain point was spending $200,000 a year waiting for two-day test results.”
“If you can come up with something that can be done in two hours, that’s a game-changer,” Shah says. “It’s nothing related to the technology. It’s what value I can provide. We don’t want to create something fancy and build it and then try to sell it. We want to find out what’s needed, what their pains are, and seeing if we can address that through our technology.”
Agile pivoting from one potential market or resource to another is vital to success in developing the business model, he says.
The approach applies to all nine areas of the business model, such as investigating whether to buy or lease equipment as part of the cost structure, or what kind of revenue stream one expects. “I think I’m going to get revenue this way,” Shah explains. “That may or may not be true. You go out and validate by talking to customers.”
Business model canvassing replaces earlier approaches that might have involved focus groups or checklist surveys asking such questions as whether a person might buy the product and how much they might pay.
“It’s more structured than it was,” he says. “Rather than me just guessing, I have some validation.”