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The Lean Canvas Diagnostic - Part 5 of 7: Viability

Is the idea worth pursuing?

Once the desirability story is formed, I focus on viability, i.e., is the idea worth pursuing?

There are two key inputs for stress-testing viability:

  • a goal, and
  • the pricing model.

I usually find that neither is well-defined at this point.

  • The key metrics box usually describes things that the startup will measure in the future (like trials and conversion rates) but is often absent a specific success metric goal,
  • The revenue stream box usually describes how the startup will make money (like subscriptions or advertising) but is often absent on specific pricing.

It is impossible to stress-test viability without specific numbers.

So, my objective during this first diagnostic session is to help the team define these inputs for their business model.Coming off the desirability stress test, pricing is usually a natural segue.Setting Fair Pricing

  • If the revenue stream box lacks specific pricing, I ask the team why they don’t have a price: The most common reason I hear is that the solution is not yet fully defined, so setting specific pricing is premature.
  • If the revenue stream box has specific pricing, I ask the team how they set that price: I usually hear some form of cost-based pricing where the team takes the cost to build/deliver their solution and slaps a margin. Or they try to undercut the competitors with lower pricing to make their solution more appealing.

Both of these use a solution-centric/cost-structure approach which is backward and sub-optimal.It’s backward because

  • customers don’t care about a product’s cost structure.
  • They care about achieving their desired outcomes (value) at a fair price.
  • They determine the fair price by comparing the product to existing alternatives.

In other words, fair pricing doesn’t come from the solution or cost-structure box but from the existing alternatives and unique value proposition box.

The optimal price sits somewhere between two anchors.

  • The first anchor comes from the monetary value customers place on the unique value proposition. A customer will only use a product if they stand to realize more value for themselves than they pay. This anchor typically sets the ceiling for pricing.
  • The second anchor comes from the cost of the existing alternatives. In other words, how much time, money, and effort are customers currently spending on getting the job done? If the UVP is indeed better, one can charge a premium, but be wary that customers will always compare the product against the alternatives. This anchor typically sets the floor for pricing.

I use this reasoning to help the team set/reset pricing for their product. Ballparking (rough estimation) is perfectly fine at this stage.I then turn to goal setting.Setting a Success Metric Goal

Teams are often asked to set goals, but because they are asked to estimate their ideas' 5-7 year maximum upside potential (unknowable at the outset), they either make up a fictional number or don’t bother setting any goals.Neither is a good outcome.I instead ask a different question: “What’s your minimum success criteria?

The Minimum Success Criteria (MSC) is the smallest outcome that would deem an idea a success three years from now.

Why three years?

  • Easier to visualize than five years.
  • Sufficient time for most products to achieve product/market fit.
  • Things get much clearer (fog lifts) after product/market fit.

If the team struggles to formulate a precise number, I invite them to ballpark their goal against their ambition or plans for the idea by showing them the following image:

In the sport of entrepreneurship, there are only four types of games to play when we employ order-of-magnitude thinking.

In most cases, the minimum success criteria for an idea isn’t set by the team, but their environment.

I ask them to pick the level that most closely aligns with their ambition and tell them they’ll have ample opportunity to refine this number later for more precision.Picking a level is important at this stage because each level of the game requires different rules, tactics, and strategies to win. Picking a level sets the constraint against which we can test their idea for viability.Set the stage for the Rapid Viability Stress Test.

With these two inputs set, having seen thousands of models, I can usually tell near-instantly if the idea would be viable. But rather than share my opinion, I instead share a link to the Rapid Viability Stress Test recipe and instruct the team to administer this test on their own before our next coaching session.I do this for two reasons:

  1. It allows me to complete reviewing the rest of the boxes with the team.
  2. More importantly, it teaches the team how to gauge their ideas, an essential skill to learn independently.

With that, I move to the box that the team has been patiently waiting to get to: The Solution box.This is when we start discussing the feasibility of the idea.A topic for next time.The Lean Canvas Diagnostic 7-Part Series TOC

  1. Backstory
  2. Structure
  3. Identify Riskiest Assumptions
  4. Desirability Stress Testing
  5. Viability Stress Testing
  6. Feasibility Stress Testing
  7. Right action, right time

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