Before investing in any company, Warren Buffet and Charlie Munger use a latticework of mental models to evaluate the company. If it passes their tests, they move all in. Otherwise, they do nothing and wait.
Evaluating early-stage ideas is no different.
I have settled on 3 key product-agnostic mental models that I use to
- baseline progress,
- prioritize risks, and
- formulate a “right action, right time” next step.
I’ll outline my key go-to mental models in this issue: Lean Canvas, Customer Factory, and Customer Forces.
Mental Model #1: Lean Canvas
This is the first mental model I use with a team, not necessarily because it’s the right one to start with but because it is the most popular — making it the easiest one.
A Lean Canvas helps deconstruct an idea into key assumptions that tell the high-level business model story.
Creating a Lean Canvas is an excellent exercise for founders to clarify their thinking and practice communicating their ideas as a business model.
In the process, you understand what they are trying to do and can apply a battery of stress tests to challenge assumptions and refine their model.
See the 7-part Lean Canvas diagnostic series.
Mental Model #2: Customer Factory
Most teams don’t have a clear and specific growth plan for their idea because they lack clear and specific metrics and goals. This is where the Customer Factory mental model comes in.
A Customer Factory helps model the key macro steps a customer takes from being an unaware visitor to a happy paying customer.
I use this model immediately after the Lean Canvas diagnostic to help teams size their ideas (test viability) and build a traction roadmap with specific metrics and goals.
Once you layer on the product’s current traction, you can help the team
- identify the stage they are in e.g. problem/solution fit vs. product/market fit,
- prioritize their go-to-market validation strategy,
- communicate business model progress to stakeholders.
The model also doubles as a company-wide dashboard unlocking the real power of this model:
Once you visualize macro-metrics this way, you can use it to
- benchmark actual conversion rates vs. the ones they modeled earlier,
- identify key constraints (bottlenecks) in the business model,
- align team focus on the weakest links (riskiest assumptions).
Mental Model #3: Customer Forces
What separates teams that achieve product/market fit from those that don’t are insights — seeing things others don’t.
The third and final model I use is Customer Forces.
Customer Forces is a customer behaviorial model that describes the causal forces that influence customer decisions.
While a Customer Factory describes what customers do, Customer Forces describes why.
Getting to why customers do what they do is the key to unlocking a business model.
Seeing a product through these three lenses helps test the desirability, viability, and feasibility of an idea:
Business Model Story (Lean Canvas) + Traction Roadmap and Metrics (Customer Factory) + Customer Journey Insights (Customer Forces)
These models aren’t just applicable at the outset of a project.
They can be applied throughout the product lifecycle from idea to product/market fit and scaling.