I developed this lecture for teaching how you can use the Validation Board and the Lean Canvas to develop functioning business models. The lecture illustrates how the Validation Board links to the Lean Canvas and uses animations to teach the two tools more effectively. I also used cases in class which you can substitute with your own. The animations and examples are mine. The Validation Board and Lean Canvas are by www.validationboard.com and by www.canvanizer.com, respectively. The Value Proposition model is by Osterwalder et al (2014). You are free to adapt and use the overheads as long as you provide appropriate credit.

1. Erkko Autio
Professor Erkko Autio
Imperial College Business School
From the Validation Board to Lean Business
Canvas

2. Erkko Autio
Anyone remember this?

3. Erkko Autio
Validation Board
Track Pivots Start 1st Pivot 2nd Pivot 3rd Pivot
Customer
Hypothesis Tip: One sticky note per box
Problem
Hypothesis Tip: For two-sided markets,
validate the riskiest side first
Solution
Hypothesis
Tip: Do not define a solution until you
have validated the problem
Project Team Leader
Core Assumptions
Any assumption that, if invalidated, will
break the business
Riskiest
Assumption
Method
Minimum
Success
Criterion
Design Experiment Results
GET
OUT
OF THE
BLDG
Validated
1 2 1 2
3 4 3 4
5 6 5 6
Which assumption is the most
uncertain?
What is the easiest way to test
the assumption?
What is the minimum outcome
still considered as validation?
If validated, explore the next
riskiest hypothesis
Only put the riskiest
assumption from an
experiment in these
boxes.
Record data and
insights separately
Template from www.validationboard.com
If invalidated, pivot at least one
core hypothesis
Invalidated
Tip: clear all post-its from this area after
each experiment is complete
Start Here!
GET
OUT
OF THE
BLDG

4. Erkko Autio
Validation Board
Track Pivots Start 1st Pivot 2nd Pivot 3rd Pivot
Customer
Hypothesis Tip: One sticky note per box
Problem
Hypothesis Tip: For two-sided markets,
validate the riskiest side first
Solution
Hypothesis
Tip: Do not define a solution until you
have validated the problem
Project Team Leader
Core Assumptions
Any assumption that, if invalidated, will
break the business
Riskiest
Assumption
Method
Minimum
Success
Criterion
Design Experiment Results
GET
OUT
OF THE
BLDG
Validated
1 2 1 2
3 4 3 4
5 6 5 6
Which assumption is the most
uncertain?
What is the easiest way to test
the assumption?
What is the minimum outcome
still considered as validation?
If validated, explore the next
riskiest hypothesis
Only put the riskiest
assumption from an
experiment in these
boxes.
Record data and
insights separately
Template from www.validationboard.com
If invalidated, pivot at least one
core hypothesis
Invalidated
Tip: clear all post-its from this area after
each experiment is complete

5. Erkko Autio
Case: Trevor’s Scooter Business

6. Erkko Autio
Trevor’s lean experiments
Track Pivots Start 1st Pivot 2nd Pivot 3rd Pivot
Customer
Hypothesis
Problem
Hypothesis
Solution
Hypothesis
Project Team Leader
Core Assumptions
Riskiest
Assumption
Method
Minimum
Success
Criterion
Design Experiment Results
GET
OUT
OF THE
BLDG
Validated
1 2 1 2
3 4 3 4
5 6 5 6
Template from www.validationboard.com
Invalidated

7. Erkko Autio
Trevor’s final MVP

8. Erkko Autio
Is Trevor now business ready? Why or why not?

9. Erkko Autio
A great product idea does not yet a business make!

10. Erkko Autio
Ask yourself…
Is this a product or a business?
Can I turn this into a business?
How would this business actually operate?
What is my unique and distinctive strength?
Will this be a sustainable business?
Can I earn a sizeable profit?

11. Erkko Autio
A great idea demands a great business concept
Product
or service
idea
Value
creation
operations
Value
delivery
operations
Value
proposition
Cost model Revenue model

12. Erkko Autio
A business model operationalises the great idea
A framework that describes how a
business creates, delivers and
captures value

13. Erkko Autio
From Validation Board to Lean Canvas…
Validation Board: Validate the
product or service concept
Lean Canvas: Validate the
business concept

14. Erkko Autio
The Validation Board
Track Pivots Start 1st Pivot 2nd Pivot 3rd Pivot
Customer
Hypothesis Tip: One sticky note per box
Problem
Hypothesis Tip: For two-sided markets,
validate the riskiest side first
Solution
Hypothesis
Tip: Do not define a solution until you
have validated the problem
Project Team Leader
Core Assumptions
Any assumption that, if invalidated, will
break the business
Riskiest
Assumption
Method
Minimum
Success
Criterion
Design Experiment Results
GET
OUT
OF THE
BLDG
Validated
1 2 1 2
3 4 3 4
5 6 5 6
Which assumption is the most
uncertain?
What is the easiest way to test
the assumption?
What is the minimum outcome
still considered as validation?
If validated, explore the next
riskiest hypothesis
Only put the riskiest
assumption from an
experiment in these
boxes.
Record data and
insights separately
Template from www.validationboard.com
If invalidated, pivot at least one
core hypothesis
Invalidated
Tip: clear all post-its from this area after
each experiment is complete
Pinpointing the customer
Narrowing down on the problem
Evolving the solution

15. Erkko Autio
The Lean Canvas Company name
Date
Iteration #1
Cost Structure
Customer Acquisition costs
Distribution costs
Hosting
People, etc.
R€venu€ $tream$
Revenue Model
Life Time Value
Revenue
Gross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key Metrics
Key activities you
measure
Unique Value
Proposition
Single, clear,
compelling message
that states why you are
different and worth
paying attention
Unfair Advantage
Can’t be easily copied
or bought
Channels
Path to customers
Customer
Segments
Target customers
PRODUCT MARKET
Solution
description
goes here
Here we have the
upstream operations of
the business, which
describe the problem,
solution, and how much
bringing the solution to
the customer costs
Upstream operations
describe how we create
value

16. Erkko Autio
The Lean Canvas Company name
Date
Iteration #1
Cost Structure
Customer Acquisition costs
Distribution costs
Hosting
People, etc.
R€venu€ $tream$
Revenue Model
Life Time Value
Revenue
Gross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key Metrics
Key activities you
measure
Unique Value
Proposition
Single, clear,
compelling message
that states why you are
different and worth
paying attention
Unfair Advantage
Can’t be easily copied
or bought
Channels
Path to customers
Customer
Segments
Target customers
PRODUCT MARKET

17. Erkko Autio
A value proposition
Customer gains: enhancing the
positives (benefits, positive emotions,
conveniences, status)
Customer pains: relieving the negatives
(costs, complications, negative
emotions, embarrassment)
Customer jobs: what do we actually do
for the customer?

18. Erkko Autio
TrainTrick
Customer pains: Filing compensation claims is
complex and time consuming and makes me
angry and frustrated
Customer gains: Making claiming easy and
effortless, makes me feel good (charity)
Customer jobs: Processing compensation
claims, securing outcomes

19. Erkko Autio
The Lean Canvas Company name
Date
Iteration #1
Cost Structure
Customer Acquisition costs
Distribution costs
Hosting
People, etc.
R€venu€ $tream$
Revenue Model
Life Time Value
Revenue
Gross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key Metrics
Key activities you
measure
Unique Value
Proposition
Single, clear,
compelling message
that states why you are
different and worth
paying attention
Unfair Advantage
Can’t be easily copied
or bought
Channels
Path to customers
Customer
Segments
Target customers
PRODUCT MARKET

20. Erkko Autio
TrainTrick customer channels
Application access: Google Play, AppleStore
Publicity: leveraging Southern Rail debacle
(remember the story…)
Interaction: making the app so simple to use
that interaction needs are minimised
Feedback and co-development?

21. Erkko Autio
The Lean Canvas Company name
Date
Iteration #1
Cost Structure
Customer Acquisition costs
Distribution costs
Hosting
People, etc.
R€venu€ $tream$
Revenue Model
Life Time Value
Revenue
Gross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key Metrics
Key activities you
measure
Unique Value
Proposition
Single, clear,
compelling message
that states why you are
different and worth
paying attention
Unfair Advantage
Can’t be easily copied
or bought
Channels
Path to customers
Customer
Segments
Target customers
PRODUCT MARKET
R€venu€ $tream$
Revenue Model
Life Time Value
Revenue
Gross Margin

22. Erkko Autio
TrainTrick revenue model
Initial: revenue share with customers
(commission model)
Then: revenue share from donations to charity
(note how links with
customer gains)
Current: unclear

23. Erkko Autio
Revenue models
Asset sale: I sell goods and services to my customer
Commission: I help my customer gain benefits and receive a commission (e.g.,
eBay)
Licensing: customer pays license fees for the use of my offering
Subscription: customer buys a renewable license
Razor blade: I sell my printer dirt cheap, charge for ink cartridges
Advertising: I give my app for free, generate revenue from ads
Third party: I sell my user data to third parties
Shareware: my customer pays if she really loves my product
Etc…

24. Erkko Autio
The Lean Canvas Company name
Date
Iteration #1
Cost Structure
Customer Acquisition costs
Distribution costs
Hosting
People, etc.
R€venu€ $tream$
Revenue Model
Life Time Value
Revenue
Gross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key Metrics
Key activities you
measure
Unique Value
Proposition
Single, clear,
compelling message
that states why you are
different and worth
paying attention
Unfair Advantage
Can’t be easily copied
or bought
Channels
Path to customers
Customer
Segments
Target customers
PRODUCT MARKET
R€venu€ $tream$
Revenue Model
Life Time Value
Revenue
Gross Margin

25. Erkko Autio
TrainTrick cost structure
Fixed: line rental, website hosting, premises
Fixed: developers (2 – may choose not to
take salary)
Sunk: any pre-firm development costs of app
development (may have been bootstrapped)
Variable: handling claims (likely to be small
since largely automated)

26. Erkko Autio
The Lean Canvas Company name
Date
Iteration #1
Cost Structure
Customer Acquisition costs
Distribution costs
Hosting
People, etc.
R€venu€ $tream$
Revenue Model
Life Time Value
Revenue
Gross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key Metrics
Key activities you
measure
Unique Value
Proposition
Single, clear,
compelling message
that states why you are
different and worth
paying attention
Unfair Advantage
Can’t be easily copied
or bought
Channels
Path to customers
Customer
Segments
Target customers
PRODUCT MARKET

27. Erkko Autio
TrainTrick key metrics (commission model)
Application downloads
Number of compensation claims made
Number of repeat compensations
Cumulative amount of compensation paid

28. Erkko Autio
The Lean Canvas Company name
Date
Iteration #1
Cost Structure
Customer Acquisition costs
Distribution costs
Hosting
People, etc.
R€venu€ $tream$
Revenue Model
Life Time Value
Revenue
Gross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key Metrics
Key activities you
measure
Unique Value
Proposition
Single, clear,
compelling message
that states why you are
different and worth
paying attention
Unfair Advantage
Can’t be easily copied
or bought
Channels
Path to customers
Customer
Segments
Target customers
PRODUCT MARKET

29. Erkko Autio
Unfair advantage
Exclusivity rights (the only one allowed
to operate on campus)
Unique skills
Unique brand
Unique combination of skills, assets,
location, concept…
Intellectual Property rights (patents,
copyrights, trademarks, design
patents)
Network externalities (think Google)

30. Erkko Autio
The Lean Canvas Company name
Date
Iteration #1
Cost Structure
Customer Acquisition costs
Distribution costs
Hosting
People, etc.
R€venu€ $tream$
Revenue Model
Life Time Value
Revenue
Gross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key Metrics
Key activities you
measure
Unique Value
Proposition
Single, clear,
compelling message
that states why you are
different and worth
paying attention
Unfair Advantage
Can’t be easily copied
or bought
Channels
Path to customers
Customer
Segments
Target customers
PRODUCT MARKET
Solution
description
goes here

31. Erkko Autio
The Freemium model
Product is offered for free
It is typically used in service-based businesses
This model is increasingly popular with Internet services
The core free offering then acts as a gateway to the paid service

32. Erkko Autio
The Franchise model
You buy a working business model in a particular industry
You pay royalties for the privilege but get access to a winning recipe, a support
network and an established brand
OR
You sell the right to use the business model in exchange for a percentage of
revenues

33. Erkko Autio
The Premium model
Offer high-end products that appeal to brand-conscious consumers

34. Erkko Autio
The Cheap chic model
Marketing of stylish but inexpensive merchandise
Typically allows for high margins because merchandise sells at low price points
but has an expensive feel

35. Erkko Autio
Game time!
Find the Business Model each brand uses!

36. Erkko Autio
Game time!
Freemium Model Franchise Model
Premium Model Cheap and Chic Model
Freemium Model Franchise Model
Premium Model Cheap and Chic Model
Freemium Model Franchise Model
Premium Model Cheap and Chic Model
Freemium Model Franchise Model
Premium Model Cheap and Chic Model

37. Erkko Autio
Game time!
Freemium Model Franchise Model
Premium Model Cheap and Chic Model
Freemium Model Franchise Model
Premium Model Cheap and Chic Model
Freemium Model Franchise Model
Premium Model Cheap and Chic Model

38. Erkko Autio
Lean canvas - eBay
The world’s largest online auction website
Global market share 5.6%
157 Million active buyers
$8.59 Billion revenue
Founded in 1995
Founder: Pierre Omidyar (B2C – C2C)
1997 VC: 22% equity + $4.5 m + 1 CEO
Went public in 1998
Paypal (2002-2015), Skype (2005-2011)
Free to commission model
2004 Virgin Mary Toast : $28,000

39. Erkko Autio
The Lean Canvas
Date
Iteration #1
Cost Structure
Customer Acquisition costs
Distribution costs
Hosting
People, etc.
R€venu€ $tream$
Revenue Model
Life Time Value
Revenue
Gross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key Metrics
Key activities you
measure
Unique Value
Proposition
Single, clear,
compelling message
that states why you are
different and worth
paying attention
Unfair Advantage
Can’t be easily copied
or bought
Channels
Path to customers
Customer
Segments
Target customers
PRODUCT MARKET
Online market
platform with
auction model

40. Erkko Autio
Quote from eBay founder
"I never had it in mind that I would start a company one day and it would really
be successful. I have just been motivated by working on interesting
technology.“
-Pierre Omidyar

41. Erkko Autio
AirBnB
Airbnb is a peer-to-peer nightly room rental network
Founded in 2008 by Brian Chesky, Joe Gebbia & Nathan Blecharczyk
HQ in San Francisco, California
2 mln listings, 60 mln guests, 191 countries
“Trust is what makes it work”

42. Erkko Autio
The Lean Canvas
Date
Iteration #1
Cost Structure
Customer Acquisition costs
Distribution costs
Hosting
People, etc.
R€venu€ $tream$
Revenue Model
Life Time Value
Revenue
Gross Margin
Problem
Top 3 problems
Solution
Top 3 features
Key Metrics
Key activities you
measure
Unique Value
Proposition
Single, clear,
compelling message
that states why you are
different and worth
paying attention
Channels
Path to customers
Customer
Segments
Target customers
PRODUCT MARKET
Unfair Advantage
Can’t be easily copied
or bought
HOSTS
Offer insurance
Verification process
Prof. photo-shoots
GUESTS
Can check hosts’
profiles and ratings
Offers, promo codes

43. Erkko Autio
What did we learn today?
Validation Board is excellent for validating
product or service ideas
However, to operate as a business, a great
product or service idea needs to be wrapped
in a functioning business model
Lean Canvas can be used to build and validate
business models in an iterative fashion
The Lean Canvas covers: (1) upstream
activities (value creation); (2) downstream
activities (value delivery); and (3) cost and
revenue models (value capture)
There are lots of different kinds of business
models and revenue models out there