NH Tech Alliance

If you advise someone starting a new business that they first need to create a canvas, the first question that most likely comes to mind is: What is a canvas?

A canvas? What does that have to do with my new business?

Let’s assume you are an entrepreneur, and you have an idea for the next great thing, that product or service that will revolutionize the world and fulfill your dreams of making an impact and attaining long-term financial security. I venture to say that a key first step you’ve either heard or learned about is developing a detailed business plan, that lengthy document incorporating every aspect from your idea to proposed operational execution.

In today’s column I want to present the concept of a business model canvas. Instead of a multi-page document or in some cases a small book, a canvas is a single-page document containing a “nine-box” table or diagram that includes the fundamental elements, or building blocks, of your business that clearly communicates your business model. There are a couple of canvas variations that I have experience with and refer to as I expound on this – the business model canvas and the lean model canvas.

These concepts are further documented in the works of Alexander Osterwalder’s team and Ash Maurya, respectively, and they are worth further review for detailed canvas images and additional background. I think that for founders, the canvas is a great approach to capture your business into a succinct representation that can be used to formulate and then communicate with your key stakeholders. It also offers a means to easily capture any variables that you want to evaluate, advancing your hypothesis testing as you confirm product-market fit.

The canvas format begins with two foundational components: the value proposition and customer segments. In both areas, the overall canvas process offers additional rigor and tools into defining the fundamental problem, the detail of the solution, and targeted customers. Once the work of problem definition and customer identification is completed, it is translated into the specific value proposition description that is placed at the very center of the canvas.

This is significant because the value proposition is foundational and core to your business. To the far right, the customers and segments are detailed, capturing the targeted audience that is receiving the value you have defined. The far left of the canvas contains details about key partners who are required to create the value your business seeks to deliver. These could be key strategic alliances or partnerships that you need to leverage for success.

There are two boxes between partners and value proposition that include key activities and key resources required to create the value proposition and directly linked to the proposed setup of your operations. Going back over to the customer side of the canvas there are also two additional boxes for customer relationships and channels that define the link from value proposition to your customers. Therefore, thinking from left to right on the canvas you are detailing crucial information about value creation all the way through value delivery.

Directly below the spectrum of value creation to value delivery are two boxes that represent cost structure and revenue streams. It is within these two areas that you define your cost assumptions based on how you plan to operate and what resulting revenues you have from your customers. The canvas approach allows you to adjust any area and then easily measure the planned profitability implications. I once created four separate canvases to test the profitability and other outcomes of our channel selection. In today’s rapidly shifting digital environments, thinking of new ways to create and deliver value through multiple approaches can easily be tested when applied to your model.

As an investor and former product line manager, I am a big fan of the canvas approach and its ability to include all these critical details in a concise format. While there is not anything new as to the concepts within each canvas block, it is the assembly of these into one framework that highlights overall value. The rigor that goes into its formulation is essential for successful definition of the new business.

It is an agile approach to get the important elements together in a visual format so that you can make decisions and foster communication. I also think of it as nice visual way of startups giving their elevator pitch when I evaluate them. If you are not familiar with this approach, I encourage you to take some time for additional reading of Osterwalder and Maurya.

Here’s to creating canvases, using them to optimize your plans, and overall success in your new business.

Nathan Pascarella currently serves on the board of directors of the NH Tech Alliance and is the Director of Hypertherm Ventures (www.hyperthermventures.com), the CVC of Hypertherm, a manufacturer of industrial cutting systems and software, based in Hanover, NH. He can be contacted at nathan.pascarella@hypertherm.com

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