Startups produce models over solutions

The product of a startup is a business model, not a solution.

It is common to think in terms of problem and solution when dreaming up a startup idea. If one can find a problem and solve it, one reasons, then one has a viable business. This over-simplification hides crucial assumptions that must be answered in order to build a viable business.

The business modeling tool Maurya illustrates includes only one small box for the solution (Maurya, pg. 6). In fact, a business is not merely a solution; it is the manner in which that solution is delivered, the customers who have a problem that may be solved, the flow of cost and revenue and the ways in which the system is measured. Maurya generally tackles the critical areas in this order:

  1. What are the problem(s)?
  2. Who are the target customers?
  3. What is my “unique value proposition”?
  4. What are the features of my solution?
  5. What is my “unfair advantage”?
  6. How will the capital come in?
  7. Where will the capital flow out?
  8. How can I measure the business?
  9. How will the customer receive my solution? (Maurya, adapted from Figure 3-1. on pg. 27)

The purpose of this order is to highlight the problems and customers first because this is often where the first assumptions are identified and where answers will most impact other sections. It doesn’t mean the areas must be filled in this order. Rather it expands the entrepreneur’s attitude towards the problem their trying to solve to include, not only the problem and solution, but also other key areas that make up a repeatable, scalable business.

Entrepreneurs by nature are passionate about disruption and value-add. This passion can lead them to minimize other aspects of a business model in search of problems and solutions. Yet the right solution for a pressing problem does not a business make. It must be viable on other grounds, of which there are several key questions. Who are the customers? Will they pay enough to cover production cost? Is there a channel to deliver the solution to them? Do I have an advantage that cannot be easily replicated?

A model like the ‘Lean Canvas’ is an asset to entrepreneurs because it codifies several areas of a viable business which an entrepreneur may overlook in their desire to apply their solution to customer problems.

The business model as the product of a startup makes a lot of sense. The purpose of a startup is not the same as an existing business. Instead of building a solution to a well-known problem, a startup seeks to confirm a series of unproven assumptions of which a solution is only one. Therefore the documentation of a startup should reflect the areas important to a startup.

As an entrepreneurial learner, I particuarly appreciate the boiling down of key startup components in a single page. It’s encouraging that there exist a set number of critical areas for a business model to prove before viability. It’s also encouraging that they fit onto a single page. I’ve used a canvas once so far, but I think filling out canvases may be a helpful way to practice the entrepreneurial art of identifying assumptions and creating tests to validate them.

References