A lean business model is a strategy for reducing waste in products and processes while serving consumer needs. The company will reap more benefits by addressing client needs, such as higher sales and trust.
While the original idea of a lean business model began with manufacturing industries, it has since been applied knowledge work in almost any sector.
This happened in the automobile market throughout the 1990s and 2000s. Because they embraced lean business practices and were customer-oriented, Japanese businesses dominated the American auto market. It took nearly a decade for American automakers to reclaim the market share that they had previously lost.
It’s not like other methodologies, which have hard and fast rules for success. Lean does not come with such strict guidelines but instead relies on seven principles outlined by its founders (which we’ve listed below).
Why choose the Lean business model?
For any entrepreneur, it is essential to put their ideas on paper so that every stakeholder is aware of the goals and threats to make sure everyone thinks about solutions. The process should overcome two challenges:
- Translating your thoughts into a language is difficult. It is hard to decipher what’s in our minds, making it clear and robust using words. Often, the opposite happens, and everything becomes even more complicated when concepts have to become tangible things that exist and can be seen or touched.
- Traditional business plans take weeks to make. This can be a waste of time and energy considering that the market or your scenario could change in just days, sometimes hours. You might find yourself dealing with an unexpected crisis where everything has been radically transformed.
The Lean Canvas is a method that solves two problems. It’s based on practical principles and utilizes simple language to test hypotheses more efficiently.
How does Lean Business Model work?
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The lean business model helps you visualize and analyze the information your team needs to work on together on a single canvas. This eliminates irrelevant details and focuses on avoiding wasted time or energy by concentrating on what’s important at hand.
- Customer issues: As a business, you have to solve your customers’ problems. To do this, you first need to find the problem or multiple problems and then fix them. This section of your canvas should contain up to three priority problems and solutions that seem the best fit for these issues.
- Multiple segments: The first step in understanding your business is deciding who the customer is. You can’t know what you’re solving without knowing the problems that person faces. So if there are multiple segments, it’s crucial to create a separate canvas for each element.
- Unique Value Proposition: Your Unique Value Proposition is what makes your product or service different from the competition. Some examples are: – Free Shipping, Personalized Service, and Quality Guarantee.
- Minimum Viable product: The solution to the problem is that you need a minimum viable product. It offers the basic functionality for delivering on your value proposition and should stand alone, with no additional features.
- Channels: Now, you have to inform how you will reach your audience. This includes all marketing, communication, and distribution channels that you intend to adopt from traditional media and digital media.
- Pricing: You should ask yourself how much your customer would be willing to pay for your product or service. The price and payment system is an essential part of the offer you are making, so it will affect whether or not you succeed in business.
- Cost structure: Your cost structure, or all of the costs needed for you to sell your product. You should list all expenses associated with it, such as research and development, monthly fees, and salaries.
- You will need to determine what metrics you want to use when measuring your business’ performance. This is the only way to monitor your team and head in the right direction towards achieving those results!
- Ask your team this question: “What does this business, product, or service have that no one else does?” This is probably the most challenging question on the entire canvas. The answer has to be something that cannot be copied, mimicked, or acquired – it’s unique within a market. It’s a challenging but essential matter if you intend on using the canvas for attracting partners and investors.
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Benefits of Using Lean business model
One of the advantages of using the Lean business model is that it’s short and objective, as well as other benefits such as:
- Lean Canvas offers a simplified way of making hypotheses and troubleshooting. It focuses on the problem-solution relation, which is more straightforward and transparent. Lean Canvas permits stakeholders to focus on the problem-solution reference, simplifying and clarifying hypotheses.
- This canvas has a generous space for ideas and is easy to use. It’s meant to welcome all team members in developing and fulfilling their opinions while also ensuring that the analysis doesn’t miss anything important.
- A lean business plan is a method created by business people. They are aware that the business plan will seldom be presented to outsiders. That’s why they don’t have to include extra details and accessories in their projects or documents because you would just waste time and energy on them.
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Using the Concepts in Your Business
Here are a few ways to integrate lean practices into your business at the organizational level. These examples of lean business model concepts can be great places to start:
- The seven principles outlined above are based on continuous improvement. Whether viewed as a formal strategy or informal way of thinking, it must be an ingrained part of any Lean business. A commonly used model for continuous improvement is the PDCA model, which stands for Plan, Do, Check and Act. This model encourages teams to perform incremental tests and document learnings throughout a process to improve quality standards with every step they take constantly.
- Value stream mapping helps teams visualize a process’s steps so that inefficiencies can be identified and eliminated over time. This technique is commonly used to improve any process with repeatable steps and multiple handoffs, like assembly line processes. Through analyzing the efforts between each operation and each step’s respective inputs/outputs, things like wasted motion are identified for elimination on an ongoing basis.
- Lean business models have metrics to measure quality and efficiency, such as lead time, throughput, and cycle time. These are meant to be shared in real-time with all employees and stakeholders for key performance indicators (KPIs) to be visible at all times. This level of transparency encourages shared responsibility for process improvement and customer value.
The Lean business model is not a project to be implemented for the entire lifetime of your company. Instead, it’s about a method that allows experimentation. You and your team may test different combinations until you find out the best business model for your venture.