Yes, the title is a reference to Ash’s Maurya famous article. If you haven’t read it yet, I strongly recommend that you do so, not only because he is one of the thought leaders in today’s Entrepreneurship world (Ash is the author of the books Running Lean and Scaling Lean I use as textbooks at UFRJ) but also because you may be more familiar with Alex Osterwalder's Business Model Canvas. If you do not wish to read it… no problem: I promise this article is self explanatory.
So, why would I propose to change a successful canvas? For the same reason Ash came up with his: to fit better in a determined context. As assistant professor at UFRJ teaching entrepreneurship to undergraduates and graduates from 20 different majors, and as a consultant for startups and scaleups in all stages, I’ve observed that there is one step before teams can take full advantage of Ash’s Lean Canvas. And this is exactly what we are going to talk about here: the Problem-Segment Fit, and the Red Canvas designed to support it.
What Problem-Segment Fit is
Red is everywhere: Melisandre's dress, Ferrari, Liverpool’s jersey. And it’s an acronym for the author’s first names.
In June 2007 Marc Andreessen revolutionized the startup world, arguing that
The only thing that matters is getting to product/market fit. – Marc Andreesen
Ash Maurya's Running Lean (2010) was a breakthrough because it changed the generally agreed-upon assumption that product/market fit was the first thing startups should pursue. Ash pointed out that before Product/Market Fit, startups need to find Problem/Solution Fit. He then developed the Lean Canvas as a tool to help finding both Problem/Solution Fit and Product/Market Fit.
However, after some years using Lean Canvas, even Ash Maurya recognized that only two of the 9 Lean Canvas' boxes are useful for the very beginning of the startup journey: Problem and Customer Segment . He then proposed a Leaner Lean Canvas, which is a juxtaposition of these two boxes, eliminating all others. We think more changes are necessary, and that is precisely why we created the Red Canvas: to help entrepreneurs deal with all variables they should focus at in the very first days of the startup journey.
The essence of Running Lean can be distilled into three steps: 1. Document your Plan A. 2. Identify the riskiest parts of your plan. 3. Systematically test your plan. – Ash Maurya, Running Lean
There is another interesting aspect in Ash's process: the word systematic. In the dictionary, systematic means (a) something relating to or consisting of a system, or (b) presented or formulated as a coherent body of ideas or principles. We use, however, a third definition, which comes from the evidence-based practice field: a process is said to be systematic if it helps mitigating biases that may prevent understanding phenomena correctly. Ash's contribution is so important because he proposes a process that aims to control biases intrinsic to the entrepreneurial journey. In our upcoming book, we are following on his and other practitioners and scholars' footsteps to propose a meta-method for creating a startup: the Systematic Entrepreneurship Process (SEP).
Before jumping into the Systematic Entrepreneurship Process (SEP), aspiring entrepreneurs (individually or in groups) wander in a nebulous aggregate of ideas, intentions, desires, plans, purposes and competences. Departure points can be as specific as competence in certain technology, or as general as a desire to become an entrepreneur. Adoption of a systematic process, we think, can increase chances of success by reducing chances of failure, as there is no formula for success, but there are many well-known ways to fail.
The Systematic Entrepreneurship Process, like its antecedents, takes time and effort. Its adoption as the main guide of your startup journey requires a strong commitment of resources (including, but not limited to, time, money and psychological strength). SEP is about using procedures that will ruthlessly test and possibly invalidate false hypotheses that so dearly served as departure points. You must get serious, leave your passions and hopes behind (they are biases, right?), and relentlessly focus on the process.
Problem-Segment Fit is the first of SEP's four stages. The others are Problem-Solution Fit; Product-Market Fit; and Scale and Company Creation. We will give more details about each stage in future posts and in our upcoming book. For now, let us focus on Problem-Segment Fit and its relation to the Red Canvas.
During Problem-Segment Fit, the very early startup must answer two questions: (1) Do we have a qualified opportunity? (2) Is the qualified opportunity for us?
Red Canvas is designed to support startups’ search for answers for both these questions.
Problem-Segment Fit involves 5+4 components
After leaving ideas, purposes, hopes, dreams and other departure points behind, entrepreneurs using the Systematic Entrepreneurship Process are confronted with the first challenge of their journey: finding Problem-Segment Fit.
Problem-Segment Fit is a best-as-possible match between the five components of a qualified opportunity, plus the four contextual elements that enable the startup's pursuit of such qualified opportunity. Let's first explain what a qualified opportunity is about, and then discuss the contextual elements.
What a qualified opportunity is
A qualified opportunity is composed of the following five elements:
Beachhead Market (BHM)
The Beachhead Market is a customer segment your startup will use as leverage point in its first days. The idea is to enter, dominate and jump into adjacent segments. We borrowed this concept from Bill Aulet’s Disciplined Entrepreneurship. Bill also provides us with three criteria to know whether you have a targeted enough beachhead market: (1) the customers must all buy similar products, (2) they must have a similar sales cycle, and (3) there must be "word of mouth" between customers in the BHM.
Jobs to be Done (JTBD)
The Beachhead Market aspires for things. We all do. We long for many practical, functional Jobs to be Done (e.g. more quality, faster, cheaper, less effort), but as Clayton Christensen’s Competing Against Luck explains, Jobs to be Done can comprise other sorts of benefits, such as emotional, social and intellectual aspirations. These, at times, are even more important than functional Jobs to be Done. If your startup wants to go beyond selling products and services, you must understand what people and companies truly desire.
Customer Journey (CJ)
The Customer Journey(s) is how the Beachhead market travels to attain their most desired Jobs to be Done. Do not confound your BHM's Customer Journey with your sales cycle, though: you must be in your BHM's shoes to understand how they are currently coming from aspiration to fulfillment.
Note that this box must be filled with existing customer journeys, not with the journey your startup aims to propose. This is a common and dangerous mistake. If your startup is to be successful in the long run, it will not sell products and services for money: it will dominate the design of the best customer journey(s) to achieve the most desired Jobs to be Done for your target markets through time. The rest is means to that end. And all of that is Solution. Problem-Solution Fit is the second stage in the Systematic Entrepreneurship Process. During Problem-Segment Fit we are searching for a qualified opportunity. Diagnose before you propose: focus on existing Customer Journey(s) here.
Existing Alternatives (EA)
Existing Alternatives appeared in the Lean Canvas as a subsection of the Problem box, but we think it deserved its own box in the Red Canvas.
Here you must identify and study local and global Existing Alternatives that support partially or integrally the Customer Journey(s). Existing Alternatives may be direct and indirect competitors, complementary offers, workarounds or simply doing nothing. Pay special attention to jerry-rigs and workarounds your costumers are constructing to circumvent problems. Pay more attention when there are no alternatives: you can either be running to a dead end or pursuing something revolutionary.
Must-Have Problem (MHP)
The Must-Have Problem(s) (MHP) emerges from the previous four components of a qualified opportunity. A MHP is a problem the BHM will invest in a solution for (investment does not necessarily need to be money; it can be time or other valuable resources as well, such as reputation). If the BHM is not willing to invest in a solution, the problem may be a "Nice-to-have" or a "Don't Care". Your business needs to find a Must-Have.
The Must-Have Problem is a leakage of value that appears while the Beachhead Market is traveling its Customer Journey to attain their desired Jobs to be Done, supported by Existing Alternatives. With that in mind, there are three basic types of MHP (that can be combined in a practical situation):
(a) A latent JTBD, which is an aspiration that is currently not attained by any customer journey (such as traveling instantaneously around the Earth; Living in other planets; experiencing the life of a very famous person for a day);
(b) A sub-optimal CJ as a whole, which can be completely overhauled into a better and brand new Customer Journey;
(c) A part of an existing CJ that is leaking value and you think can be optimized - e.g., in terms of costs, quality, speed, effort, reliability, flexibility, service provided.
Red Canvas includes Contextual Elements
To answer the second question, “Is the qualified opportunity for us?”, entrepreneurs must ponder whether they have gathered enough of four contextual resources that will be indispensable along the rest of the entrepreneurial journey. We call them the 4T:
Team
We are with Bill Aulet here: Entrepreneurship is a collective sport.
We cannot stress the importance of a good team enough. There are issues that must be taken care of about team composition, size, involvement, and expectations. And there’s only one general word of advice about it: it’s cheaper to be concerned and take care of these issues earlier. If you want more information, see Noam Wasserman’s great book about this topic, The Founder’s Dilemmas.
Team Fans
Team Fans encompasses mentors, instructors, Professors, colleagues, friends, family and everyone else that will help you in the very early days of your startup. Fans can arrange meetings, provide credibility, feedback, inspiration, new skills, mindset, industry information, money or even cheer you up in the not so good days. However, in the very early days during Problem-Segment Fit it is improbable that anyone except your team is willing to do more than being a fan. In other words, fans may buy your jersey, flag and tickets (some may even buy season tickets!), but do not count on serious investment during Problem-Segment Fit.
Trends
Macro trends come in many flavors, but they share one very important characteristic: they can make or break your business if you are not appropriately aware and anticipative.
Macro trends are also a source of points of departure (ideas, vision, inspiration, problems) for the entrepreneurial journey. Trends can be of any kind: social, cultural, biological/environmental, technological, economical, emotional, intellectual, regulatory.
Trust
The scarcest resource in the very early days of a startup is not money or market intelligence: it’s credibility.
If your startup can find good sources of credibility, it will have enough resources to pursue problem-segment fit for another week or month. Credibility can be converted for money, and the more you have, the better your exchange rate is. And money, as we all know, is time. If you have a lot of credibility but no money, money will come and hence time to pursue problem-segment fit. But if you have a lot of money but no credibility, time will slip through your fingers easily.
Here is what we took out of Lean Canvas:
Unique Value Proposition
The UVP is a powerful and important concept, but developing a UVP is part of the Stage 2, Problem-Solution Fit.
Unfair Advantage
You can guess what your unfair advantage may be at Stage 2 (Problem-Solution fit) and test its early signs at Stage 3 (Product-Market fit) , but your unfair advantage (if any) will only materialize during Stage 4, Scale and Company Creation. We think it’s too early to worry about unfair advantage while pursuing Problem-Segment fit, so we left unfair advantage out of the Lean Canvas.
Key Metrics
Metrics are intrinsic to the Systematic Entrepreneurship Process and its importance cannot be underestimated. Key metrics was the hardest box to remove and one that creates the most discussion. The point is: metrics are a means, not an end in itself, and it’s so important that your must think about it all the time. If you and your team are not creating data, using and improving metrics everyday, then what do you think you are doing? Also, Ash said, “…[t]he Key Metric box though is intended to identify the single macro metric or goal that drives what you do i.e. what experiments you run”. For Stage 1, that’s always “finding the best-as-you-can problem-segment fit”.
Solution, Cost Structure, Revenue Streams, Channels
That will be included later on the Process, but we took Ash Maurya’s blog name to heart: love the problem. Therefore, we decided to leave everything not related to problem and segment out of the Red Canvas.
When should I start using the Red Canvas?
The question is: are you ready to commit to serious hours of research, both over the Internet and out of the building? Or are you just day-dreaming about becoming an entrepreneur? When you are ready to get serious, you are ready to begin using the Red Canvas. And then comes the second question: how do I start?
OK, but how do I use the Red Canvas?
Ultimately, Red Canvas can be read and filled up in any direction. You must arrive at a complete fit among all elements (comprised of validated hypotheses) to pass to the second stage, Problem-Solution Fit. However, we think it’s easier to start filling up the contextual elements (the 4T). Why don't you start with the team? No one is asking you to marry at first sight, but working seriously with a team under mutually agreed-upon conditions can help you discover a lot about your possible future co-founders. You can then discuss who you know that can help (Team Fans) and what you see as the future (Trends). Teams, Fans and Trends add up to provide you some amount of Trust. Is that enough to start a credible business? If not, how can you increase your startup's credibility?
After spending time and effort discussing a first-cut definition of contextual elements, it is now time to sketch and run experiments to invalidate hypotheses the five components of a qualified opportunity. We recommend starting with the Beachhead Market, and then working backwards to understand its Jobs To Be Done, Customer Journeys, Existing Alternatives and Must-Have Problems.
A final note: Red Canvas is licensed “Creative Commons” “Share & Remix”, like Lean Canvas and Business Model Canvas. So feel free to use it freely in your personal or professional projects and please don't forget to cite the source :)
Want to give it a go?
I’m happy to address thoughts and unanswered questions in the comments below. Thanks!
Great article and nice new canvas!
Great article! Edison gives an overview of the startup's early problems, suggests several important readings and proposes a new canvas. The Red Canvas is definetly a challenge that makes every entrepreneur think twice: Let's give it a try!