Saturday, October 30, 2010

Slides: Business Models and the Business Model Canvas

I uploaded a presentation containing an introduction into business models in general and the Business Model Canvas in particular. It is not the most aesthetic one or most authoritative one on BM Generation and the BM Canvas (see for that the sides of Osterwalder). However, it will provide people who are unfamiliar with the Business model topic outside of the BM Generation with a short and broader introduction.

Thursday, October 28, 2010

Testing Business Model Hypotheses: Going beyond Customer Development

In an interesting post of Steve Blank, where he relates Customer Development to the Business Model Canvas, he states that ‘Customer Development is the standard for testing business model hypotheses.’ While I understand the central role of being customer-driven, as a business model’s primary focus is on creating customer value, this seems to address only one side of the coin.

While the customer-facing part of the business model is of extreme importance, the other parts should not be neglected. It is the whole system that enables the creation of customer value and creates an incentive to do so. This is also why business models are multi-disciplinary bringing together marketing, operations, finance, etc. So in addition to testing the customer hypotheses, we also need to test, for example, the operational hypotheses related to can we produce the kind of offering required at the expected quality and for the targeted costs?

In addition, in my view a business model has the power of being an integrative conceptualization of value where value creation and capture are linked and where the customer and provider perspectives are merged. This means that the most important hypotheses are the once that say something about the relations in the business model. For example, how can the Value Proposition be turned into a Revenue Stream? How can the Key Activities, Key Resources and Key Partners deliver a compelling and unique VP? How can we make sure that we it is all worthwhile (Revenue Streams >> Cost Structure)?

Saturday, October 23, 2010

Start-ups and business model discovery: A talk by Mike Maples

In a talk about ‘thunder lizards’ and ‘pivots,’ Mike Maples discusses the topic of business model discovery. In his view a start-up exists for one reason only: to find a business model that turns its innovation into economic value.

Mike Maples pictures a business model as flows between the company and the customer (see example). Red flows go towards the customer and represents what costs the company money. Green flows come back to the company and represent what the company gets paid for. The more the green is larger than the red, the better the business model. While this is straight forward, most start-ups are not able to draw their business model.

Business models matter according to Mike Maples because there are maybe 20 to 30 flows and every flow is a strategic hypothesis that the company has to validate. If these hypotheses do not hold then the company has to ‘pivot’ and make a discontinuous change to the business model. Therefore, start-ups need to be dynamic and in a discovery mode.

The ultimate goal of business model discovery is to get product/market fit, meaning that the product can be offered to the market in a scalable and profitable way. Alter a start-up has discovered its business model it transitions to a real company. So a start-up is not a small version of the large company, it exists to discover the business model with the highest potential. Mike Maples discussed three forms of pivots and an example for each: pricing pivot (ngmoco), product pivot (Chegg), and an entire company pivot (Odeo/Twitter).

The start-up needs the tactical ability to iterate and the strategic ability to pivot. The dangerous is that start-ups get stuck in iteration after iteration and do not take aggressive, creative pivots. However, taking pivots should not be underestimated, it can be hard and painful, requiring to throw away what has cost a lot of effort and sacrifices. This means letting go of some things that are precious, like a product, a group of customers, a website, revenues, a strategy, etc.

These ideas have a strong relation with innovation theory. However, where innovation theory often discusses the inability of established companies to change radically, Mike Maples stresses that this problem is as relevant for a start-up who run the risk of iterating instead of pivoting. In addition, it shows that next to tools and techniques for product and process design and innovation, there is a strong need to support business model innovation, both for the content and for the process.

See also an earlier post on Business model shift.

Tuesday, October 19, 2010

New book: Collaborative Consumption

What's Mine Is Yours: The Rise of Collaborative Consumption addresses the key forces driving the next evolution in our consumer economy and the opportunities it presents. The book looks into the future highlighting the next generation of collaborative systems from Zipcar (car sharing) to Zopa (social lending) to Swap (swap trading) that are reinventing out dated modes of business and transforming not just what we consume but how we consume.

See here for more information.

Thursday, October 07, 2010

The Razors-and-Blades Myth(s) - The story of Gillette

The razors-and-blades model, which name and origin is contributed to Gillette, is one of the most common examples to introduce the idea of a business model. It is also often cited as one of the archetypical business models next to others like free or long-tail.

In a working paper, Randal Picker discusses the origin of Gillette's model and argues that there are some peculiar aspects that are hard to explain which are often left out in the popular story about the model.

Wednesday, October 06, 2010

Charles Baden-Fuller on business models

Professor Baden-Fuller explains that the business model is about creating and capturing value and that both can be relatively simple or more complicated. He than differentiates between the business model today and in the future. For a robust future business model it needs to offer sustainable competitive advantage (value creation side) and there should be any chance that it will grow and become big (the value capture side, the scaling question).

Professor Baden-Fuller also discusses the talent of making the explanation of a business model come alive, like an artist making a decent picture. This helps businesses getting a grip on their current and future situation, and it gives them a story to tell to their stakeholders. Finally, he discusses the meaning of the term 'model' in terms of a working model telling the essence and an iconic model (like on the catwalk) people can refer to. He also links it to the code of corporate governance.

Professor Baden-Fuller is Professor of Strategy and leader of the Strategy Group at Cass. He is internationally known for his strategy research. Most famous for his work on the rejuvenation of mature firms. He was one of the co-editors of a special issue on business models in Long Range Planning (see also here or here).