Introduction
For over a decade, there’s been lots of discussion about business models in product circles, especially concerning business model innovation. This focus on business models resulted in the emergence of several “canvases” to capture their key elements (and now to capture all kinds of other things like value propositions). In this post, I’ll describe traditional business model-oriented canvases and suggest a new one focused on helping product managers and product teams make early, product-related investment decisions.
What is a canvas?
Canvases originated as a way to capture key elements of a business model in what is essentially tables with cells of varying sizes referred to as “building blocks”. Today, canvases are proliferating, capturing elements of various concepts such as value propositions, supply chains, and (much, much) more. Most canvases are designed to fit on one page and be simple enough that they can be easily reviewed, understood, and discussed by a team.
The Business Model Canvas
Probably the most popular canvas, the Business Model Canvas (BMC) was introduced in 2005 by Osterwalder et al., in their book “Business Model Generation“. The Business Model Canvas has 9 building blocks (see graphic below) that capture what its creators consider the most important elements in a business model. This artifact has probably done more to promote awareness of the importance of business models than anything else I’m aware of.
As you can see, the Business Model Canvas captures information at a fairly high level. For example, the key elements of cost and revenue are not quantified. This desire to preserve simplicity and approachability creates tension between simplicity and completeness. For example, the BMC captures nothing about important elements such as competitors or business risks. Including more building blocks runs the risk of bloating the canvas to the point that it is much less usable.
The Lean Canvas
The Lean Canvas is a version of the Business Model Canvas adapted by Ash Maurya in 2010 specifically for entrepreneurs. The Lean Canvas focuses on addressing broad customer problems and solutions and delivering them to customer segments through a unique value proposition. I have been a huge fan of the Lean Canvas since its introduction, having included it as an important part of customer engagements and training. As a matter of fact, we at career.pm offer a course on the Lean Canvas itself and another that describes the process of converting a Lean Canvas into a complete product business case (see the courses on our site for details).
Why are canvases important?
Canvases are important because they simplify complex concepts by focusing on the elements that are most important. Constrained to a single page of high-level information, they can be drafted quickly so that teams can continuously align as they and their business evolve. As a simple artifact capturing the key elements of business models, business model-related canvases can also be a powerful way to revisit existing products’ business models in an effort to innovate them.
For product managers, business model innovation is of particular importance, especially in mature markets. Continuously attempting to keep up with the competition’s features and function or undercutting competitors’ prices is a very difficult, tedious way to make a living. There are many instances of companies with products that are inferior from a functional perspective but were able to thrive by changing their business model to find new revenue streams, reduce costs, or solve poorly addressed customer problems, e.g., Salesforce.com popularized subscription pricing in the field of customer relationship management (CRM).
How are Canvases Used?
Canvases have many purposes. They can help founders or prospective founders find potential flaws in new business or product ideas before expensive analysis and development are undertaken. They are also valuable as an entry point to discussions about ideas for new products or startups. Finally, as noted previously in this post, canvases can serve as a powerful basis for driving discussions about business model innovation.
Why another canvas?
As a consultant, educator, and coach, I’ve used canvases with clients, students, and the product managers and product leaders I coach to help them validate ideas for new products and businesses or align stakeholders around a product business for which a canvas was never created. For years, I’ve found myself repeatedly explaining some of the concepts incorporated in the Business Model and Lean canvases at length and disclaiming terminology that I thought was confusing or misleading. There was also typically too much guidance required on how to present or “pitch” these traditional canvases as reading them right to left and top to bottom didn’t yield a compelling story. After years of frustration, I thought it worthwhile to sketch a canvas that addressed the weaknesses I perceived in existing business model-related canvases.
What would a better canvas look like?
Retrospectively, I thought about what general characteristics might make for a canvas that is more effective than the BMC and Lean Canvas. In my mind, a better canvas would:
- be optimized for products and product teams
- help drive decisions to move ideas forward toward product development
- use proper terminology
- tell a compelling story when read like most things are read, left-to-right and top-to-bottom.
The Product Decision Canvas
Based on the limitations we perceived in existing canvases and our desire to cater to a product management community that needs to make decisions quickly, we developed the Product Decision Canvas (PDC). To be completely transparent, I had a few spare minutes waiting for a conference call to start in November 2020 quickly converted a PowerPoint table into a draft of the PDC. After reviewing it with a few trusted folks (including my partner Daniel) and soliciting some feedback on social channels, I made a few adjustments and published Version 1 (initially under the name “New Product Canvas”).
The PDC has 10 building blocks which we’ll describe in more detail in the next section. I consider it more a variation on the Lean Canvas than the BMC.
The Building Blocks
The PDC has 10 building blocks:
- Problems
This building block appears on the Lean Canvas as well. As a product manager, you need to make sure you’ve analyzed and validated market problems before you suggest making a development investment in a product or feature. Doing problem analysis can yield important early insights such as:
- is this a problem customers are willing to pay for?
- What is the opportunity related to solving this problem (irrespective of the proposed solution)
2. Product/Solution
In this building block, you should use 5-7 bullets to describe the key features or feature areas you propose should be developed as part of the product. It should be easy for the reader/audience to match the features you list to the problems you identified in the Problem building block. By the way, we use the term “solution” to describe multiple offerings that are combined to solve market problems, e.g., products and services.
3. Market Segments
In this building block, you should identify 3-5 market segments you’re targeting. The market comprises all the entities (people, businesses, and governments) who have the means, e.g., money, and interest to buy your product. By interest, we mean that they perceive value in your product. A market segment is a cohort of entities in your market that share similar needs or priorities. For example, Facebook meets the needs of a younger crowd via its stories feature and businesses via its company page features. Teenagers and business could be considered separate market segments served by Facebook.
Not defining detailed market segments is a common mistake product teams make. Without understanding these different requirements and priorities, it is hard to shape your product so that it excites anyone. Trying to build a product or plan a product release for all the segments in the market (failing to focus) is almost a certain way to ensure product failure.
4. Why we’ll win
This building block replaces the Unique Value Proposition building block in the Lean Canvas. Although it is counterintuitive for some, very few businesses have any characteristics that are truly unique. At best they differentiate the firm in various segments. This commonality is especially true
5. Moats
The moats building block refers to economic moats that protect your business from competition. This concept was promoted by Warren Buffett and became an important criterion for making investment decisions. These are types of moats:
- Switching Costs
- Cost Advantages
- Network Effects
- Intangible Assets
- Efficient Scale
For example, if buying a competitive alternative would require business disruption, your business is protected by switching costs. Patents are a type of intangible asset that can prevent competitors from entering the markets you serve. The number of moats you have and their effectiveness can be very important to decision-makers. Lack of moats for new products is a source of concern.
6. Success Measures
This building block replaces the metrics building block in the lean canvas. Success measures are the metrics you will use to define the success of the product. Are you more interested in adoption or revenue? Is the number of monthly active users more important than deal size? You should answer these questions and more in this building block.
7. Key Risks
We consider the lack of a building block concerning risks a serious omission in the Business Model and Lean Canvases. Since we expect the Product Decision Canvas to help drive decisions we thought it was critical to include this building block. A risk is anything that could compromise your ability to achieve success as you defined with your success metrics. There are multiple types of risks that have been identified:
- Financial
- Market (won’t accept)
- Product (can’t build solution)
- Political
The key risks building block should contain three to five risks that could have a significant influence on decision-makers. The Key Risks building block can capture some elements of traditional gaps in canvases by capturing them as a risk, e.g., Significant competition from both established companies and startups.
8. Marketing Reach
The marketing reach building block addresses a common failure of new products and businesses: having insufficient market reach to develop a sustainable business. While having a great product is important it is insufficient to create a great business if you fail to make a sufficient number of prospects aware of it. You should use this building block to convince yourself and decision makers that you have the means and channels to reach enough potential consumers to support your product launch and overtime build a successful business based on your measures of success. Note that the revenue streams are not typically quantified at this stage of analysis.
9. Revenue Streams
The revenue streams building block represents the various ways you will make money with your product. For example, you may charge a licensing fee or generate revenue by displaying ads. This building block is also included in the business model and lean canvases. We’ve changed its position so that it is easier to present the Product Decision Canvas, telling a story by reading from left to right and top to bottom. Again, the actual costs are not typically quantified in the canvas.
10. Cost Structure
This building block captures significant cost drivers to execute the business model. Tech companies have similar cost structures including the cost of development, hosting costs do deliver software solutions, and marketing.
Who is the Product Decision Canvas for?
We designed the PDC with product managers and product leaders in mind. That being said, we are confident it will be valuable to startup founders and investors or, frankly, to anyone who got value from traditional canvases. We were particularly interested in helping product professionals make decisions early in the product lifecycle before significant resources are invested in product discovery and development. However, we also see value in creating an PDC for existing products and businesses to support team alignment around the business model and to inspire innovation efforts.
PDC Example
Below is an example PDC for a German Bakery in New York City. We chose a non-tech example to make the example approachable. As you can see, most of the building blocks have 3 to 5 items. Even at this scale (a family-owned business), identifying why we’ll win and what we see as moats is important.
I imagine such an artifact being used by the prospective founder to convince herself that the idea is viable. A few observations regarding the example:
- Notice the Problems building block includes sources of emotional pain; they drive buying decisions!
- The Product/Solution building block contains capabilities or feature areas; it is not a detailed description of the proposed solution
- Having compelling moats is important for decision-makers. Think deeply about this building block
- An incident that generates bad press and damages the brand is identified as a Key Risk. Many organizations face this risk.
Key Gaps
Because canvases are designed to fit on a single page and be easy to review and analyze, they are incomplete by design. We think about two types of gaps in the PDC. Firstly building blocks captured in other canvases that are not included in the PDS can be considered gaps.
Secondly, there are a set of gaps that exist in all three. The key gaps in the PDC include:
- Alternatives and Competition
- Alignment with broader vision and strategy
- Quantification of important information like revenue streams and costs
We believe an effective way to address the gaps is to include the canvas in an artifact that has content specifically addressing them.
When to use the Product Decision Canvas
We believe the PDC is valuable at virtually any point in the product development cycle. However, we think it’s particularly relevant for making early decisions about the viability of a new product. We can think of 3 scenarios in which it could be prove valuable:
Pitching to the Product Team
The first scenario is pitching a PDC idea to a product team. By quickly completing a canvas and sharing it with key stakeholders you can leverage the knowledge and experience of the team to determine if the product idea merits further analysis.
Pitching to management (entry point)
We also believe the PDC canvas can form the basis for a pitch to leadership, particularly when incorporated in a document that addresses some of its limitations. For example, you could share the canvas and then navigate to further information on each building block and key gaps.
Pitching to Investors
Finally, we believe the PDC could serve as a viable alternative to more traditional canvases. We believe this audience will appreciate building blocks such as “why we will win” and “key risks”
How should you approach creating a Product Decision Canvas?
You should treat creating an PDC as a multi-step, creative process. Consider creating a quick draft by yourself then revisiting it from time to time to capture new insights. We recommend approaching the building blocks left-to-right and top-to-bottom as you elaborate the draft. We’ve found it more effective to draft some content in each building block rather than diving deeply into only a few. Once you have your “personal draft”, consider putting a bit of space between you and it for several hours or even a day. You’ll often find renewed inspiration aft some time away from it.
Once you find it stabilizing, consider broadening the audience for feedback. Begin socializing your draft canvas with a small group of people whose opinions you value. As it matures, involve a broader range of roles on the product team, adjusting the canvas until you, the team, and management are aligned.
As business models must evolve over time, your canvas is never really finished. It should be revisited from time to time and updated to reflect developments since the last version and to inspire ways it could evolve to generate even better business results.
You can download a PowerPoint template to try to create your own PDC here.
Pitching a Product Decision Canvas
Any new product idea is of limited value if it cannot be effectively communicated to decision-makers. Pitching a PDC can be critically important to the development of a product idea. We’ve designed the canvas so that it supports telling a coherent story by simply reading the building blocks left to right and top to bottom. In our experience, some presenters prefer to address the target market before they talk about the solution but otherwise, we believe you will find the PDC is laid out in a way that makes it relatively easy to present.
The Future
We consider the PDC to be a living artifact that is almost certain to evolve over time (it’s already gone through a name change!). Although we don’t expect to make frequent, radical changes, we can imagine tweaks here and there as we and others learn from its use. We would love to hear your feedback regarding the canvas and any stories you have of productive usage. Join our community and share your thoughts!