When I started using the Innovator’s Canvas three years ago to document new business and innovation ideas, I found it extremely useful in organizing and tracking all critical assumptions in a business idea.
What I learned later on though is that for some people, especially those who have a limited business background, it can be a little intimidating to understand and use. A simpler, less complex version was needed. That’s when I decided to create the Business Planning Canvas.
In this post I’ll share why the business planning canvas exists, how it is different from the classic business model canvas and I’ll walk you through step-by-step in creating a business plan using the canvas.
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If you would like to download a free, editable, PowerPoint version of the Business Planning Canvas, click below.
A Complete Business Plan On One Sheet of Paper
For startups, creating a business plan is often the least exciting part of getting their business up and running. Many startup founders are driven by passion to create interesting solutions to problems and creating a business plan is usually a necessary chore. The purpose of the business planning canvas is three-fold:
- Simplify the business plan creation process
- Guide founders to think through the critical elements of their business idea
- Document and track business plan assumptions
With the business planning canvas, entrepreneurs and startup founders can quickly and easily think through and document their entire business plan on one sheet of paper.
What’s Different About The Business Planning Canvas?
The original business model canvas was the first to organize and layout a business plan on one page. While revolutionary when it came out, I’ve found it’s usefulness to be limited in practical situations. There are oddities about it that don’t seem to accurately reflect the needs of a founders or investors. For example, I’m used to reading pages left to right and top to bottom. If you do that with the business model canvas, you’ll start by figuring out what partnerships you need for your new business idea. While partners are important, that’s certainly not where I’d start when it comes to creating a business plan. In the business planning canvas, the customer segment and problem to be solved are first at the top left.
The second major difference is the business model canvas doesn’t have a good way to explain and list the structure of the business or organization itself. In the business planning canvas, the organization is clearly listed along with the capabilities, advantages and partners that make up the organization.
The third thing is the business model canvas does not have a place for explaining the overall market, industry and technology environment. In the business planning canvas, these are clearly given space so you can think through and know what sort of environment your business will live in.
The fourth and last thing is the business model canvas does not provide a detailed understanding of the economics underpinning the business. They list two boxes, one for costs and one for revenues. Well when you actually have to put a business plan together, the costs, revenues and profitability of the business are a little more complicated. In the business planning canvas, costs are clearly listed under the items they support and in the organization column you can model the overhead costs and overall operational profitability of the business idea.
Those are the main reasons I felt the need to create the business planning canvas. Now let’s dive into what it is and how it can help you and your business.
Introducing The Business Planning Canvas
It’s my experience that the core of every business is comprised of four essential things:
- Customer Segment
The business planning canvas includes each of these items organized in a logical and easy to use format below.
Here is the same canvas but with explanations in each box:
If you would like to download a free, editable, PowerPoint version of the Business Planning Canvas, click below.
Starting from the top left and moving right, we’ll think through an entire business plan using the canvas and a company I came across on TechCrunch called Mirror. I chose this company because it’s an interesting startup with a concept for in-home workout classes delivered via a smart mirror. Other than being intrigued by their business idea, I have no affiliation with them.
For Mirror, after looking through their website they use images of people that are very fit and active and who work out at home, or at least want to work out at home but are currently going to a gym and paying for a gym membership in order to be instructed by trainers.
To put this into a concise statement, I’m going to say that their target customer segment is: People who work out at home or people who work out at the gym but would like to work out at home so long as they could be instructed by trainers.
Job to be Done
The job to be done is a way of thinking about a customer segments fundamental needs. The idea is that people buy products and services in order to get a job done.
The job to be done for Mirror’s target customers is to be fit and healthy. Anything that allows them to achieve that outcome is a potential competitor to the Mirror product. This includes running shoes, a treadmill, exercise videos, gym memberships, etc.
For Mirror, it seems like they are targeting people who want an interactive workout experience but who don’t want to travel to the gym everyday to get it. For some people a gym membership may be inconvenient or they may not like the trainings provided by their local gym. Either way, it’s not hard to envision a customer who wants to be trained well but doesn’t want to have to go to a gym everyday.
While there is no direct product competitor to the Mirror, meaning that there are no other Mirror-like at-home gym solutions, the primary competition for Mirror is a gym membership and other home gym equipment. Typical gym memberships can range anywhere from $30-80/mo depending on the level of access you purchase. Typical home gym equipment, such as treadmills and Bowflex can range anywhere from $500-5000.
Another alternative for this customer segment is at home workout videos such as BeachBody’s P90X. Access to these types of videos can be achieved for free using YouTube, mobile apps or direct purchases from the content providers for anywhere from $5-200.
Solution Price and Frequency
For Mirror, I found on their website that the Mirror hardware itself costs $1495 and the subscription to workout routines is $39/mo.
According to this article on cnn.com the major trends in health and fitness are the growing popularity of high intensity interval training (HIIT), the re-emergence of group trainings over personal training, the impact of wearable technology and body weight training.
Market Size and Statistics
The market size can be thought of as two markets: 1) the market for gym memberships and 2) the market for gym equipment manufacturing.
In a report by IBISWORLD on “Gym Health and Fitness Clubs in the US” it claims the market for gym and fitness club membership revenue in the US is $27.1B.
In a separate report by IBISWORLD on “Gym & Exercise Equipment Manufacturing Industry in the US” it claims that total revenue in 2018 for gym and exercise equipment in the US is $2.0B
Filling Out The Customer Section of the Canvas
Now it’s time to take the information we listed above and plug it into the canvas. Below I took a blank Business Planning Canvas and filled in the left hand side under the Customer.
Note that when you do this for your business idea you may not have all the information for one section at a given time. Because of that, it’s ok to skip around and to come back to prior sections that you’ve filled in and update them with new information.
Now that we’ve clearly identified our customer, including the market size, related trends and the price they currently pay to solve the problem we’re tackling, we can now start to document the solution idea.
In this case, since I’m using Mirror as an example, I have all of the data I need already to fill out the canvas. In most cases you may not have all this data and will need to think it through or do more research. That’s fine as the purpose of this canvas is to be a living document of your assumptions and is updated anytime you learn something new.
Mission and Values
Simon Sinek famously said “People don’t buy what you do; they buy why you do it. And what you do simply proves what you believe.”
This insight is an essential component to creating any new business. That’s why before we start diving into the meat of what you are creating we need to explicitly state your mission in creating this business and the core values that drove you to do it.
For example, with Mirror the CEO and Founder Brynn Putnam explained her primary reason for creating Mirror as:
“No matter who you are or where you are, you can work out with world-class trainers.”
Essentially her mission with Mirror is to give everyone access to world-class fitness training from the comfort and convenience of home.
Product or Service
Now that we have our north star and purpose for creating the business, we need to clearly explain what the product or solution is that is going to solve our target customers problem.
In this case, I took the following description from the Mirror website:
The nearly invisible, interactive home gym.
While that explains it conceptually, it’s also helpful to describe it in terms of a specific product and service. Since Mirror is both, we can add the following to further clarify…
An attractive and affordable mirror which doubles as a display for delivering world-class workouts from top trainers.
Cost of Goods & Services
The next section to think through is the variable cost to create the solution. In Mirror’s case, the cost is mostly captured by the cost to manufacture the hardware. There may be other costs related to creating new workout training videos but I left those out for simplicity since they could also be covered under general and administrative costs.
Regarding the cost to manufacture the hardware, since I have no knowledge of what this number is and I doubt it’s documented anywhere publicly, I’m going to assume it’s $1200 and move on. Note that this cost represents the cost to the company to create and have ready in inventory for final shipment to customers a single Mirror. It does not assume that Mirror will only make and sell one, it merely assumes the average cost to make one, regardless of how many in total are made.
Contribution Margin or Profit Per Unit Sold
This section we’ll skip for now since we need to go through the Channel section first to be able to completely fill out this part of the canvas.
Solutions, Providers & Technologies
The purpose of this section is to ensure you think through the competitive landscape by listing the existing solutions, providers and technologies available to the target customer as an alternative to buying your solution.
This is similar to the competition section where we listed the prices of alternatives to buying your solution. In this section we’ll be expanding beyond just talking about price by giving specific examples and technologies available.
In this case I wrote down four things:
- Equipment such as Bowflex, NordicTrack, PreCor, ProForm treadmills, etc.
- Gyms such as Golds Gym, 24hr Fitness, Anytime Fitness, Planet Fitness, etc.
- Workout videos such as BeachBody, YouTube and others
- Technologies such as Apple Watch, Fitbit, etc.
Business Planning Canvas with Customer and Solution Filled Out
Now that we have the Solution section filled out, it’s time to move on to the Channel.
No business can exist without a reliable path to reaching customers. The purpose of the channel section is to describe the means by which the business will consistently reach customers in terms of generating awareness and making the sale as well as delivering the solution and any ongoing support needed to ensure customer satisfaction. We’ll also outline the costs associated with this channel and describe any current channels in use and/or channel trends that we should be aware of.
Awareness and Sale
The first thing to figure out relative to the go-to-market channel is how will you generate awareness and drive sales for your business?
In Mirror’s case I found out about them via TechCrunch and blogs that cover startups. In other words, Mirror is gaining some awareness with consumers via these channels. However, just because that’s how I found out about Mirror doesn’t mean that’s how they will successfully generate awareness to their target customer segment. They might get some early adopters who are both interested in startups and in working out from home but more likely they will need to drive awareness via other more expensive means such as Facebook ads, YouTube ads and Google Adwords.
From a sale standpoint it appears they are relying solely on their website for explaining the product features and benefits and generating sales. I can’t find any evidence of a dedicated sales staff.
Delivery and Support
Now that we have an idea of how to drive awareness and sales with our target customer segment, we need a plan for how to handle delivery and support of the solution.
With Mirror they are offering a “White Glove Delivery” where they will have a professional bring the Mirror to your home and install it in a place of your choosing.
Ads, Sales, Delivery and Support Costs
The next element of the channel to think through are the costs associated with awareness, sale, delivery and support.
The best way to think about this cost is to spread it over an assumed volume of sales and determine how much it will cost on a per unit basis. For example, with Mirror they will be incurring costs each time they generate awareness, make a sale, complete a delivery and install and take a support call. To figure out the costs involved I’ll make a few assumptions:
Generating awareness with PR is free but eventually they will likely need to start running ads. Let’s suppose they set aside an advertising budget of $10k/month. At that amount of ad spend let’s suppose they make 100 sales on the website. This means that on a per unit basis, the advertising cost was $100 ($10,000/100=$100).
From a sales standpoint, since they seem to be relying solely on their website to make and generate sales, and not some sales commission structure with actual sales people being paid, we can assume the costs of hosting and maintaining the site are negligible or can be rolled up under general and administrative overhead costs. That’s just the portion of a sale where the benefits of the product are explained though. We should also account for the costs of running the transaction itself since they take credit card on their website and are likely needing to pay credit card processing fees. In this case let’s assume 3% of the total transaction which includes the cost of the hardware, $1495 plus the cost of the first month’s subscription of $39 or ($1495+39)*0.03 = $1534*0.03 = $46.02 for credit card processing.
For delivery and support we need to make some additional assumptions. Regarding delivery, Mirror is shipped to the home or a nearby distribution center and installed by “White Glove Delivery.” For purposes of this exercise let’s assume it costs $50 to ship and $75 to have it installed professionally for a total of $125 for delivery.
For support costs we can use an approach similar to what we did for advertising since support costs are generally a function of volume. Let’s suppose they sell 100/month and that on average, 10% of buyers call in with an issue on any given month. That means for any given month (in the short-term) around 10 people may call in to ask for support. At those numbers it almost makes more sense to just roll that under general and administrative costs rather than to show it as variable.
To summarize the channel costs we have the following:
- Advertising: $100/ea
- Sale: $46.02/ea (for cc processing fees)
- Delivery: $125/ea
- Support: $0 or rolled up under general and administrative costs
- Total: $271.02/ea
This means that on average, if Mirror sells 100/month then their channel costs on a per unit sold basis are roughly $271.02.
Current Channels & Trends
The last section under channel to think through are the current channels in use by other solution providers and any important trends or changes with those channels that it will be helpful to be aware of.
From a current channels standpoint it’s easy to note that other exercise equipment is sold both via brick and mortar (e.g. Walmart, Costco, etc.) and online via Amazon or direct from the manufacturer.
While it’s hard to know specific channel trends without actually being engaged in the market, it’s probably still fair to say that broadly speaking the major trends are twofold:
- The retail shift away from brick and mortar to online
- The shift away from local wholesalers to manufacturers selling directly to end customers
The reason to document these shifts is to understand where your business idea is relative to broader trends. In the case of Mirror since it appears they are only selling online and direct to end-customers then we can assume their business model is in harmony with the overall market trend.
Canvas with Customer, Solution and Channel Filled Out
The last major piece of the business planning canvas to think through is the organization that supports all of the product, channel and customer activity. In this section we’ll outline the major elements to supporting the business as well as define specific estimates around how profitable the overall business can be.
Business name, owners and resources
This section is a straightforward listing of the business name, the owners of the business and the resources (either financial, intellectual or otherwise) the business will have at its disposal.
In Mirror’s case I was able to lookup their profile on Crunchbase and find that they started out in late 2016 under the business name “Curiouser Products Inc” led by CEO and founder Brynn Putnam with $2.6M of venture backed equity funding. Since then they have raised additional financing but I’ll ignore those for now since we’re using the canvas as if we were just starting out to document the overall business idea.
Also listed on Crunchbase were three other team members who handle marketing, product and engineering. For completeness, I’ll list those individuals on the canvas as well.
Team capabilities, advantages and partners
Once you’ve clearly outlined the business name, ownership structure and resources (both financial and human) you then need to outline the capabilities, advantages and partners of the business. This section is designed to help you think through why and how your business will stand out against the competition when it comes to creating the solution. These include expertise, experience, relationships and partnerships with other people or organizations needed to effectively execute the business plan.
In Mirror’s case I think it’s notable that the founder Brynn Putnam currently runs a successful gym in NYC suggesting that she has proven an ability already to run effective gym memberships and workout programs. This capability reduces the risk of failure to the business plan.
Other notable advantages that could be listed include the business location in NYC which brings along with it access to tech talent and access to her current gyms trainers.
From a partnership standpoint the most important is likely their manufacturing supplier for the Mirror. I couldn’t find any specific information on who supplies the mirror so I left that part out.
Fixed Cost: General and Administrative
In this section we’ll put a dollar amount in terms of ongoing costs required to sustain the resources in the business. To do this we just need to create a simple list of ongoing fixed costs that the business will incur over a given year. These types of fixed costs generally include payroll, rent, utilities, office supplies, etc.
In the case of Mirror, I made several assumptions regarding their first year in business and came up with the following. Note that Mirror’s location in NYC is a major driver for the high salaries, rent and utility costs.
For payroll and other general expenses I made the following assumptions:
- 5 Full-time employees (the four listed in the name, owners and resources section as well as one more off-site contractor)
- If each employee made $150k/year in salary while their travel and expenses adds another $50k/year then expect to pay $200k*5 = $1M/year in payroll and travel and expenses
- Note for middle managers or executives a 1.33X multiplier on salary is usually a good rule of thumb number for estimating travel and expenses. Don’t make the rookie mistake of just using the salary cost as the total cost for supporting that employee!
- Rent: Assuming a roughly 3,000 square foot office and a rental rate of $83/sqft/year (within the normal rent range for NYC – see here for more info) then the total for rent in a year would come to $250k/year
- Utilities: With internet, heating, cooling, water, etc. I just estimated it to cost around $20k/year
- Office supplies: computers, desks, tv’s, monitors, phones, etc. I put at $30k/year
There could be other costs that I’m leaving out but this is a pretty good list for now. When we add all of these up we get $1.3M/year in general and administrative fixed costs.
Contribution Margin or Profit Per Unit Sold
With the price data from the Customer section along with the variable costs listed under Channel and Solution, we can now calculate the contribution margin per unit sold. Contribution margin is a product’s price minus all associated variable costs, resulting in the incremental profit earned for each unit sold. The total contribution margin generated by a business represents the total earnings available to pay for fixed expenses and to generate a profit. The equation is as follows:
Contribution Margin = Solution Price – Channel Variable Cost – Variable COGS
In Mirror’s case since they are selling both a hardware component and a subscription, we’ll calculate the contribution margin for each separately.
For hardware we take the price from the “Solution Price” and subtract the Channel Variable Cost and the Variable COGS as follows:
Hardware: $1495 – $271 – $1200 = $24/unit
Now I’ll do the same thing for the subscription only in this case I’ll use a yearly number of $39*12=$468 to keep the time frame the same across the board.
Subscription: $468 – $0 – $0 = $468/unit
You’ll notice that I assigned all channel variable costs to the hardware and none to the subscription. This is a debatable choice since there will likely be costs associated with selling people subscriptions after the first year expires. That said it doesn’t impact the overall analysis very much and for simplicity sake I left them assigned to the hardware.
Now for a total contribution margin for both hardware and subscription we get $468 + $24 = $492/unit.
This essentially means that for every new Mirror bundle of hardware and subscription sold there is $492 available to help cover the fixed costs of the business. They call it contribution margin because it’s the margin available that contributes to paying for the fixed costs.
Operating Profit & Breakeven Volume
Next we’ll use the numbers above to determine how much volume in sales the business needs to achieve in order to turn a profit. This can be a very handy number as it helps keep the business focused to help it stand on its own.
The formula for calculating this is very simple. All you do is take the total fixed costs (general and administrative) and divide them by the total contribution margin per sale.
Breakeven Volume = Total Fixed Cost / Total Contribution Margin
In Mirror’s case, using the assumptions above we get the following:
$1,300,000 / $492 = 2643 units to breakeven
With this as our starting point, we can now manipulate the equation to estimate total profit for a given level of sales volume using the following:
Operating Profit = $492 x Volume – $1,300,000
For example, now that we know Mirror must sell at least 2643 units in order to breakeven, we know if they sold fewer than that they will lose money (and will need to find some way to cover those losses – either through more money from investors or using debt) and if they sell more than that they will make money. What if they end up selling 3,000? Let’s estimate how much profit they’ll make:
$492 x 3000 – $1,300,000 = $176,000
So at a sales volume of 3000, Mirror could estimate achieving a $176k profit – assuming all these numbers are accurate.
Which brings me to an important point…just because you can estimate these numbers now does not mean they will be accurate later. Inevitably you will want to always revisit and revise these assumptions as you learn more and gain a track record. Mirror has been on the market now for a while and it’s almost a certainty that they grossly over or underestimated something (and most likely several things) from their original business plan. So think of these as your first stake in the ground for what you think the business model is and update it from there.
Where this framework comes especially in handy is in talking to investors. When you are able to show a clear path to profitability – such as Mirror achieving 3,000 in sales – you will be taken seriously so long as your other assumptions seem reasonable. Investors need to know one thing: when will they get their money back. And in Mirror’s case, if they had started with the Business Planning Canvas, they might have reasonably said “When we sell 3,000 or more units!”
The industry dynamics section is intended to document anything noteworthy that is changing in the industry. This can include things like consolidation, vertical or horizontal integration, etc.
In the case of Mirror in the fitness industry, according to this article there is a trend towards more specialty fitness centers gaining traction against the big traditional gyms such as Gold’s Gym. This is an interesting fact especially for Mirror since, as mentioned earlier, their founder Brynn Putnam happens to own and operates a specialty fitness center as well.
Another trend mentioned in the article is the proliferation of fitness content online that is low-cost and easy to access via computer, smartphone or smart TV.
These trends are important to consider when creating a business plan. The key to look for is whether or not your business plan is in line with current trends or not. In Mirror’s case the industry trends appear to be nice tailwinds for them since the founder has experience leveraging the trend already with her specialty fitness center and by distributing fitness content to Mirror via the internet.
The last section of the Business Planning Canvas to think through is the regulatory environment your business will live in. This is where you would document noteworthy regulations that do or may affect your businesses chances of success.
For example, with Mirror and the fitness industry in general, after Googling “Fitness industry regulations” I was able to find a number of articles on important legislation or proposals that impact the industry. For example, this article from ClubIndustry.com states that several states have attempted or are attempting to pass stricter licensing and registration requirements for personal trainers. Evidently the low barriers to entry have led to some court cases where trainers are sued for club member injuries. It’s unclear how this trend would impact Mirror but it could be argued that it is good for Mirror as they could ensure only high-quality trainers are allowed onto the platform and it could help reduce competition from other specialty trainers.
Completed Example Canvas for Mirror
If you would like to download a free, editable, PowerPoint version of the Business Planning Canvas, click below.
The Business Planning Canvas represents the simplest and most effective business planning tool I’ve ever used. As you think through your business or business idea, using the business planning canvas as a start and then filling in more details and updating it as you go can dramatically help in refining your idea, pitching to investors and focusing your team.