The Business Model Canvas Gets Even Better – Value Proposition Design

Product/Market fit now has its own book. Alexander Osterwalder wrote it. Buy it.

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The Lean Startup process builds new ventures more efficiently. It has three parts: a business model canvas to frame hypotheses, customer development to get out of the building to test those hypotheses and agile engineering to build minimum viable products.

This week the author of the business model canvas, my friend Alexander Osterwalder, launched his new book Value Proposition Design, the sequel to his million copy best seller, Business Model Generation.

His new book does three things:
1. Introduces the Value Proposition Canvas
2. Tells you how to design new ventures with it
3. Teaches you how to use Customer Development to test it.

Value Proposition Design is a “must have” for anyone creating a new venture. It captures the core issues around understanding and finding  customer problems and designing and validating potential solutions.

Value prop design

Product/Market fit

Product/Market Fit
If you’re familiar with the Lean Startup you know that the Business Model Canvas is the tool to frame all the hypotheses of your startup. Of all the 9 boxes of the canvas, the two most important parts of the business model are the relationship between the Value Proposition (what you’re building) and the Customer Segment. These two components of the business model are so important we give them their own name, “Product/Market Fit.”

The Value Proposition Canvas functions like a plug-in to the Business Model Canvas and zooms into the value proposition and customer segment to describe the interactions between customers and product more explicitly and in more detail. This keeps things simple by giving you the big picture at the business model level and the detailed picture at the “product/market fit” level.

bus model and value prop mapvalue prop map

Integration with Customer Development and Lean Startup
Alexander and I met after he published Business Model Generation. We both realized that we had each invented one of the two parts that define the Lean Startup. In his new book he’s integrated Customer Development with the Business Model and Value Proposition Canvas and added some new tools to the mix.

Now an integral part of Value Proposition Design, several of his new tools help with testing and validation of hypotheses. These testing tools match the first two of the four steps of Customer Development. The diagram below is one of my favorites of the book and provides a simple overview of how to conduct customer discovery and customer validation in combination with the Business Model and Value Proposition Canvas. You start by extracting and prioritizing your hypotheses, then design your tests with Test Cards and finally, you conduct your tests and capture your learning. To make this all actionable Osterwalder added an Experiment Library to the book that equips you with ideas on how to test your assumptions.

3_Value_Proposition_Design_Testing_Process

Tracking Customer Development with the Value Proposition Canvas
With Customer Development you’re constantly talking to customers and partners and conducting a ton of experiments to validate and invalidate your hypotheses. All these activities, the evidence of what works and what doesn’t, and your progress towards finding a successful value proposition and business model need to be tracked. In Value Proposition Design Osterwalder shows how to do this with the Progress Board, a tool that includes a version of my investment readiness level thermometer to track progress.

5_Value_Proposition_Design_Progress_Board

Online Tools
Doing all the above together with your team is not easy when you “just” use poster-sized Canvases, sticky notes, and PowerPoint. There are simply too many Canvases you will design and trash (after rejecting and pivoting from your early tested ones), too many experiments you will conduct, and too much evidence you will produce. Keeping track of all this requires software support.

So the Value Proposition Design comes with a series of exercises that you can complete online with assessment tools that show you how you are using the Value Proposition Canvas. And last, but not least, you get access to a whole series of checklists, templates, and incredibly awesome posters that you can immediately use in your work.

Lessons Learned

  • The Value Proposition Canvas describes the details of how the value proposition and customer segments interact
  • It integrates the Customer Development process in the book
  • Product/Market fit now has its own book. Buy it

17 Responses

  1. Excellent tool!

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  2. Really looking forward to building this in to our teaching. We expose over 700 undergrads a year to the Business Model Canvas and customer development processes in our courses, through LaunchPad Central (a godsend), and find that the value proposition is the hardest concept for them to grasp. Would also love to see some whiteboard animation videos on this like “How to Build a Startup!”
    J.York, Cal Poly

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  3. Dear Steve, It has been some time I have been inspired by your work and you newsletter is always enlighting, Since awhile also I tought I shall invite you for a Seminar to Morocco, one of the promissing and fast growing countries in north africa, Please let me know if this is something that may appeal to you and fit in your tight schedule, we may aim at a period around next March 2015, PS: our company is MobIT is aiming at establishing a leader consulting position in north africa, and me and my partner are entrepreneurs with previous experience for more than 15 years in Telecom and IT.

    With very best regards,

    Sent from my iPad

    >

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  4. I ordered it with some italian friends🙂

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  5. Already worked with this a couple of months ago. Works fine and gets proposition on track quickly.🙂

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  6. Hi Steve, great article! As an entrepreneur and digital marketer, I’ve been reading a lot about business models and product/market fit. Your article provides me with a good framework for planning my projects & upcoming ventures … so thank you!

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  7. […] Here, Steve Blank adds a little to the BMC. The review is particularly topical for the Customer Segments and Value Propositions — take a look! […]

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  8. Thank you Steve…we just completed the first accelerator in the Creative Industries with you tools. Lena was here in Albquerque as a mentor. Tom Aageson

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  9. Hey Steve, This is great! It’s great that the new book maps out how the BMC, customer development, and agile development are linked. Having the tools and experiments with the book is very valuable. Thanks for the article!

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  10. Very interesting tool! I’m curious whether Business Model Generation would be applicable to Urban Farming business where I am growing organic produce and distributing it to restaurants and grocery stores.

    Thanks for your feedback!

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  11. I find Alex’s value proposition design tools to be unnecessarily complex and not sufficiently mindful of the classic principles of positioning as described by Al Ries and Jack Trout.

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    • Positioning and the business model canvas are two very, very different things.

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      • I’d love to hear more of your thoughts on the distinctions, Steve.

        A business model canvas certainly contains much more than just the value proposition(s) for the product.

        However, I was specifically referring to value propositions and Alex Osterwalder’s tools for designing them.

        I’ve always operated under the assumption that a unique value proposition in a business model canvas states a form of positioning. In fact, in Ash Maurya’s Running Lean, he explicitly advises filling in that box using the guidelines from Ries and Trout’s classic Positioning: The Battle for Your Mind.

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  12. I am looking forward to reading the book in detail in the New Year so thanks for sharing this analysis. I am also looking at tools which deal with the other end of the BMC, the mechanics of business activities for different models eg SaaS, eCommerce etc. Any good reads in this area?

    Like

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