20 minute business model

Can you put your entire business model down on paper in 20 minutes?

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The 20-Minute Business Model

Can you put your entire business model down on paper in 20 minutes? Author Ash Maurya shows us how

"Start-ups that succeed are those that manage to find a plan that works before running out of

resources." Ash Maurya

A key part of our business at Avondale is to pursue new ventures or adjacent businesses where we can leverage our strengths and experience to create value We sometimes find it challenging, though, to move forward with fundamentally new business models We tend to have drawn-out debates about how

to approach the market, which customers to serve, and whether the new model has merit

Much of this debate can occur in a vacuum, with only limited discussions with potential customers We tend to get risk-averse when thinking about the investment required to execute a new model and all the uncertainties around it As a result, we can get stuck in analysis paralysis: a lot of talking without much forward progress

Enter the Lean Startup methodology, championed by Eric Ries Ries's book and writings contain a wealth of ideas for incrementally building a start-up Ash Maurya has written a related book entitled

Running Lean: Iterate from Plan A to a Plan That Works that gives practical advice and examples on building and testing a business model

Maurya emphasizes the need to develop a testable business model quickly A start-up simply cannot afford to invest months to develop the traditional 10-to-60-page business plan Maurya instead has developed a lean business model canvas (free to join) that allows you to put the key elements of your business model on a single sheet of paper in 20 minutes The key elements are:

1 The problem we are trying to solve

2 Target customers and users

3 Our unique value proposition

4 Our solution

5 Channels

6 Revenue streams

7 Cost structure

8 Key metrics

9 Our unfair advantage (something that can't be easily copied or bought)

Sounds extensive, right? You might be thinking: It's not possible to get all that down on paper in 20 minutes

It is indeed possible; we experimented with the lean canvas and were able to document a start-up business model in 20 minutes Over the course of a few articles we will talk through the Running Lean methodology using that business model as an example

Lean Business Model Example

We have identified a market opportunity in the traditional Private Equity (PE) model, where the PE fund has misaligned incentives Fund managers have two fundamentally different ways of looking at

risk/reward trade-offs, compared with their investors:

A fund manager might typically be paid 2% of funds annually and also earn 20% of the gains earned on fund investments The net result can be "heads I win, tails you lose" incentives where the fund managers are incentivized to overpay on risky companies, receive the annual 2%, and hope for a big upside gain The investors of course do not want overpaid and risky portfolios

PE funds have limited time windows in which to invest their funds, creating a rush to do deals This again creates misincentives to overpay

As a result, PE funds may be underperforming the S&P500 by up to three percentage points despite taking more risk Similarly, the Kauffman Foundation reports that 62% of their venture capital fund investments failed to exceed returns from public markets

The Problem Statement

Following the Running Lean methodology, we summarized this problem (in roughly five minutes) as:

Investors have a lot of cash sitting on the sidelines earning ~zero returns

Investors are dissatisfied with the current PE model, which elevates fund managers' enrichment above investors' desire for prudent investment

Some investors want to better control and manage risk and take a more active role in their PE investment choices

Based on the problem description above, is this a compelling problem that is worth solving? Please let

us know your thoughts at karlandbill@avondalestrategicpartners.com We will discuss our proposed solution and the other parts of the proposed business model in future articles

Karl Stark and Bill Stewart are Managing Directors and co-founders of Avondale, a

strategic advisory firm focused on growing companies Avondale, based in Chicago, is a

high-growth company itself, and is a two-time Inc 500 award recipient @karlstark

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