Value Proposition Design - Our Next Book Launching This Fall

This blog was idle for a year. I was busy building Strategyzer.com. Now I'm back to content production, working on our next book with the working title Value Proposition Design #vpcbook. It will be about making remarkable stuff that sells with business models that work. The book should be released next fall. Sign up for the launch notification in the sidebar.

We started the book in August 2012. A long time ago. Unfortunately, the project always feel victim to other priorities. Now we're back at it, putting it all together. The book team is composed of Yves Pigneur (co-author), Greg Bernarda (co-author), Alan Smith (co-author and art direction), Trish Papadakos (design), and myself.

The heart of the book is the Value Proposition Canvas (pdf), a plug-in tool to the Business Model Canvas. The VP Canvas allows you to visualize Value Propositions in more detail just like the BM Canvas allows you to visualize Business Models. Here's an intro to the method, which I wrote in the past. Both Canvases perfectly integrate and work hand in hand. After all, even the best Value Propositions can only succeed with the right business model.

For the new book I'd love to hear from you, so we can turn it into a better value proposition. Here are my questions to you:

  1. What do you "hire" business books and methods for? What do they help you get done? Is it to advance in your career? To do a better job? For entertainment?
  2. What are your biggest pains when it comes to management methods and books? What obstacles are holding you back from applying methods and books?
  3. What gains/benefits/positive outcomes do you expect, desire, hope to realize when you learn a new method or read a business book?

I already sketched out a customer profile (jobs/pains/gains) of a general business book reader below. Does that profile resonate with you?

Customer Profile of Business Book Reader

To advance on the book and churn out content I fled to the Swiss Alps. Below a little impression of where I work and get inspiration. It was a bit cold, though...

My #tempoffice at 3'000m above sea level

Stay tuned for more raw and undesigned content chunks from our upcoming book. Don't forget to sign up for the release date!

The Business Model Theater - Can You Put on a Show?

After several years "on the market" there are now multiple Business Model Canvas adaptations floating around. People sometimes ask me about them. This blogpost provides an answer by explaining the Canvas through the analogy of a Theater (watch the video). It shows why we got it right and why most adaptations are broken.

When Yves Pigneur and I set out to find a better way to describe business models we had the following objective in mind: What are all the most important decisions you make when you design your business. We were not interested in operational or organizational issues, but aimed to find a way to describe the blueprint of your business strategy, the core elements that constitute the heart of how your business works. Our research (i.e. my Phd dissertation) led us to the nine building blocks that now constitute the foundation of the Business Model Canvas. If you take away one block, you actually lose the big picture. You lose the overview of ALL the elements that compose your business logic. It will be incomplete. The following video from Strategyzer.com, our online business model tool, illustrates this nicely by comparing the Canvas to a Theater:

A theater has a front stage and a back stage. People don't really care about the back stage, but it is necessary to make the front stage possible. The front stage is what people are interested in and it is what they are willing to pay for. The backstage enables the front stage and it is what costs money. Like a theater, a business model has a front stage (which leads to revenues) and a backstage (which makes up for the costs). Eliminate any of the elements of the Business Model Canvas and you lose the big picture... Hundred thousands of people around the world have come to value this.

By the way, if you liked the video above you should sign-up for Strategyzer.com. As an early adopter you will get 50% discount and only pay $150.- USD instead of $300.- USD. In a couple of weeks or a few months we will probably upgrade to Beta and drop the discount. Besides a really cool and collaborative business model tool you will find an increasing amount of content like the above video inside our Strategyzer Academy.

FYI: A prototype version of this video was posted on this blog earlier last year.

Wanted: Business Model Researcher (submissions closed)

Does this sound like you? You strive to help companies unlock potential by using better business design techniques. You have already done so by researching, applying and "teaching" practical and visual business design tools, in particular the Business Model Canvas and the Value Proposition Canvas.

The opportunity

Work with me and the team behind Business Model Generation (500,000+ copies in 26 languages), the Business Model Toolbox for iPad, Strategyzer.com, and the Business Design Summit. Your research on interesting cases, their business model mechanics and their transformation into remarkable presentations and stories will transform the way people design businesses around the globe. You work from home, anywhere in the world, and with flexible working hours (potentially part-time).

What we expect

You have a deep curiosity for how organisations work and could work better. Your "hunger" to do your best work ever is insane and you are more motivated and better qualified than anybody else to do this job. You have a business research background, potentially a PhD, but also have practical experience in a company, as a consultant, or as an entrepreneur. Your conceptual and practical understanding of the Business Model Canvas is proven. Finally, you are NOT an asshole.

The challenge

You will put together amazing case studies and stories that help people understand business model innovation and transformation. What I'm taking about here are not the traditional text-heavy Harvard Business School cases, but beautiful, simple, and captivating presentations and stories that open people's eyes to the potential and particularities of business model innovation (cf SunEdison, Re-Inventing How We Do Start-Ups!). You will work with me and potentially others from the team on a regular basis via Skype.

How to apply:

  • Tell us: Which business design methods you deeply understand (your level: 0 to 10 / 0=never heard of)? Business Model Canvas (Osterwalder & Pigneur), Customer Development (Blank & Dorf), Lean Startup (Eric Ries), Strategy Maps (Kaplan & Norton), Disruptive Innovation (Clayton Christensen), Jobs-to-be-done (Christensen, Anthony, Ulwick), Value Proposition Canvas (Osterwalder, Pigneur, Smith, Bernarda), Blue Ocean Strategy (Kim & Mauborgne).
  • Tell us: Which of the following authors have you read? Mark Johnson, Rita McGrath, Vijay Govindarajan, Chris Trimble, Nancy Duarte, Garr Reynolds, Dan Roam, Dave Gray, David Sibbet, John Medina.
  • Show off your skills: Compare the business models of Apple, Google, Amazon, Microsoft, and Facebook.
  • Share: Your expectations (including salary) and a story that left a mark on your career and thinking

Apply: send your application with all of the above to xxxxx (sorry, submissions closed) (tip: don't forget that my schedule is pretty busy and that I don't have time to read a lot of text ;-)

The End of Blah Blah Blah - end those useless meetings full of talk

Have you ever been in one of those endless meetings, where smart people sit around a table, talk a lot, but don't get to a real outcome? My friend and author Dan Roam calls that "Blah Blah Blah". Over the last couple of years I saw first hand how visual methods like the Business Model Canvas can end blah blah blah and enable clear and tangible strategic conversations. This post shares a wonderful story that illustrates that.

My biggest learning from working with senior executives, consultants and entrepreneurs around the globe was that we waste a lot of time with talking without necessarily understanding each other. This happens because we just use words, without using visual concepts and tools that could facilitate the conversation. It seems that the higher you get in the hierarchy of an organization, the worse it gets. As if the problems "at the top" were easy enough to discuss without sketching them out, without making them tangible. Have you ever seen a board room with a whiteboard?

This is what it looks like:

Blah Blah Blah

And guess what happens if to those smart business people who only use words and no shared visual language:

blah blah blah

Of course the above are my own experiences and opinions, so I was blown away when my friend Lisa K Solomon (who's upcoming book you should get) shared the story of Sue with me:

I was sitting in a senior manager meeting listening to a perfectly normal PowerPoint presentation by one of our regional directors. He had a complex problem - a large asset that we are contractually obligated to maintain is conflicting with another priority project - what should he do? He was asking for honest-to-god help, but after delivering his PowerPoint, the other managers in the room were still having trouble seeing the big picture.

There were many partners, influences, and beneficiaries along with many policy options - managers tried to give feedback but they spent a lot of time asking the director to reexplain the context.

Finally during a lull while people were eating lunch, the director just asked point blank, "does anyone have any tools or suggestions on how I can better manage this complex issue?" In 10 seconds, I downloaded the Business Model Canvas, jammed the VGA cord into my laptop and asked, "How about this?"



I ran through a few of the blocks explaining how this was a great tool to 1) put all of the parts into one place 2) have more meaningful and specific conversations (people can see the parts all at once so you don't have to keep reminding them of the structure verbally) and 3) immediately record feedback/suggestions in one place that makes sense.

The regional director is really genuinely interested in working with the canvas and asked if I'd be willing to help his team get started (gulp!). Our asset manager came over and said, "hey, I know that thing!" - he's using it with a consultant to draft and test a potential new tool for conservation management. He invited me to audit the meetings with the consultant which I've started - it was surreal to sit in on a meeting where they reviewed an empathy map!

Just to give some quick context, I never actually speak during senior manager meetings as an executive assistant. But I really just could not hold it in any longer - I had to "whip out" the business model canvas. I'm a little terrified of what I may have started but I know that it could be a great tool for many of our project directors so I'm going to be "whipping it out" a lot more.

This will be the result of Sue's efforts:

the end of blah blah blah

With a better outcome:

the end of blah blah blah

And of course the Business Model Canvas is just one visual tool that works. In my two previous blogposts I talked about our new plug-in, the Value Proposition Canvas. Check it out!

Finally, two other authors besides Dan Roam (Blah Blah Blah) that will help you go beyond just talk are Dave Gray, author of Gamestorming (and more recently The Connected Company), and David Sibbet, author of Visual Meetings and Visual Teams.

Test Your Value Proposition: Supercharge Lean Startup and CustDev Principles

In my last post I described a new business tool, the Value Proposition Designer Canvas. In this post I outline how you can use the tool to not only design Value Propositions, but also to test them. You’ll learn how you can supercharge the already powerful Lean Startup and Customer Development principles to design, test, and build stuff that customers really want.

The Value Proposition Designer Canvas (VP Designer Canvas) allows you to zoom into the details of your Value Proposition and the Customer Segments you target. You can use it as a poster (cf image below) to design better Value Propositions with sticky notes. However, to make sure your customers really want what you design, you'll need to test all the assumptions you make with the VP Designer Canvas.
Value Proposition Canvas
We already now know how to do this kind of designing and testing for business models: by combining the Business Model Canvas with the Customer Development process. Steve Blank has impressively demonstrated this in his work.

We can achieve the same for Value Propositions by combining the VP Designer Canvas with the Lean Startup process. This will help us more systematically work towards achieving what the startup movement calls a product-market fit or problem solution fit. In other words, building/offering stuff that customers really want.

Design, Test, and Build Business Models & Value Propositions
In a nutshell, the Lean Startup process essentially consists of iterating through the “building” of, “measuring” of, and “learning” from product (and service) prototypes. The Lean Startup movement calls these prototypes Minimum Viable Products (MVP).

Supercharge the Lean Startup Process

The VP Designer Canvas can add two crucial things to this process that are currently missing. Adding them to the mix will bring us to a whole new level.

Firstly, the VP Designer Canvas gives you a simple and practical way to rapidly sketch out WHAT you are building and how you believe this will create customer value/benefits, as well as WHY your are building it: which customer jobs, pains, and gains you intend to address.

Doing this BEFORE building an MVP, will help you better track and manage the testing, measuring, and learning process.

Value Proposition Canvas: What and Why

Secondly, the VP Designer Canvas helps you distinguish between Product/VP and Customer assumptions. If you “just” build an MVP to measure and learn, you won’t know if a negative outcome of your experiment is related to your MVP or to a lack of customer interest.

In science such a significant bias would invalidate your results all together. Hence, you need to separate the testing of your product/VP assumptions (i.e. WHAT) and your customer assumptions (i.e. WHY) whenever possible. The latter is something you can observe and investigate even before designing an MVP.

Using the Value Proposition Designer Canvas - Step by Step

Let me walk you through a rough step by step process of how to use the VP Designer Canvas for testing. In reality, of course, these steps will be less sequential and much more messy. You'll also want to adapt this process to your needs and circumstances.

1. Fill Out Your VP Designer Canvas.

Describe the JOBS your customer is trying to get done and outline their PAINS and GAINS. List the PRODUCTS and SERVICES you intend to offer and describe how you believe they will ALLEVIATE your customer’s PAINS and CREATE GAINS. You can use the trigger questions in the poster and in my last blogpost if you need help.

1 - Fill Out VP Canvas

Voilà, you now have a great list of Produc/VP and Customer assumptions. You described who you think customers are and what you think would create value for them. It’s your best guess - but still just your (smart) opinion.

1b - Your Assumptions

2. Test your Customer Assumptions

Now it’s time to “get out of the building” - to use Steve Blank’s terms - in order to verify your customer assumptions. Talk to as many (potential) customers as possible to verify if they really are trying to get those JOBS done that you described in the VP Designer Canvas. Find out if those JOBS are crucial to them or unimportant? Find out if the really have those PAINS you believed they have. Are those PAINS severe or minor? Verify if they really value the GAINS you believed they value.

2 - Test Customer Assumptions

It’s even better if you can test your customer assumptions more rigorously. What I mean with that is going beyond simply talking to customers, but not yet building an MVP. The design professions have several techniques to achieve that.

3. Adjust your Customer Assumptions Based on Insights

Now that you better know who your customers are you should revisit the Customer Profile in your VP Designer Canvas. Ideally you now understand the significance of your customers’ JOBS, the severity of their PAINS and the intensity of their desired GAINS.

3 - Adjust Customer Assumptions

4. Redesign your Value Proposition Based on Insights

Adjust which pains and gains you want to focus on, based on your customer insights. Then redesign your Value Proposition accordingly. Don’t forget that great Value Propositions rarely address all customer PAINS and GAINS. They address a few really well!

4 - Redesign your Value Proposition

This will give you a readjusted VP Designer Canvas.

4b Adjusted VP Canvas

5. Start Testing your Value Proposition

Now it’s time to build your MVP and continuously test and adjust your Value Proposition based on what you learn.

5 - Test with MVP

The VP Designer Canvas will serve as your map to permanently track assumptions and tests, while you're pivoting through the Lean Startup process. The moment this circle ends is when you've achieved a fit between your Value Proposition and what your Customers expect. This is what the startup movement calls product-market fit or problem-solution fit. It's when you build stuff that customers really want!

Lean Startup Process

Don't hesitate to give me your feedback, since this process is just a first suggestion of how to use the Value Proposition Designer Canvas.

Achieve Product-Market Fit with our Brand-New Value Proposition Designer Canvas

I’m a big fan of the Lean Startup movement and love the underlying principle of testing, learning, and pivoting by experimenting with the most basic product prototypes imaginable - so-called Minimal Viable Products (MVP) – during the search for product-market fit. It helps companies avoid building stuff that customers don’t want. Yet, there is no underlying conceptual tool that accompanies this process. There is no practical tool that helps business people map, think through, discuss, test, and pivot their company’s value proposition in relationship to their customers’ needs. So I came up with the Value Proposition Designer Canvas together with Yves Pigneur and Alan Smith.

The Value Proposition Designer Canvas is like a plug-in tool to the Business Model Canvas. It helps you design, test, and build your company’s Value Proposition to Customers in a more structured and thoughtful way, just like the Canvas assists you in the business model design process (I wrote more about how we came up with this new tool previously).

The Canvas with its 9 building blocks focuses on the big picture. The Value Proposition Designer Canvas zooms in on two of those building blocks, the Value Proposition and the Customer Segment, so you can describe them in more detail and analyze the “fit” between them. Companies need to get both right, the “fit” and the business model, if they don’t want to go out of business, as I described in an earlier post on failure. The tools work best in combination. One does not replace the other.

Untitled

In this post I’ll explain the conceptual tool. In my next post I'll outline how you can use it for testing in combination with the Customer Development process by Steve Blank and the Lean Start-up process by Eric Ries. The Value Proposition Designer Canvas will allow you to better describe the hypotheses underlying Value Propositions and Customers, it will prepare you for customer interviews, and it will guide you in the testing and pivoting.

The Value Proposition Designer Canvas

As mentioned above, the Value Proposition Designer Canvas is composed of two blocks from the Business Model Canvas, the Value Proposition and the corresponding Customer Segment you are targeting. The purpose of the tool is to help you sketch out both in more detail with a simple but powerful structure. Through this visualization you will have better strategic conversations and it will prepare you for testing both building blocks.

Achieving Fit

The goal of the Value Proposition Designer Canvas is to assist you in designing great Value Propositions that match your Customer's needs and jobs-to-be-done and helps them solve their problems. This is what the start-up scene calls product-market fit or problem-solution fit. The Value Proposition Designer Canvas helps you work towards this fit in a more systematic way.

Value Proposition Canvas - fit

Customer Jobs

First let us look at customers more closely by sketching out a customer profile. I want you to look at three things. Start by describing what the customers you are targeting are trying to get done. It could be the tasks they are trying to perform and complete, the problems they are trying to solve, or the needs they are trying to satisfy. Value Proposition Canvas - customer jobs

Ask yourself:

  • What functional jobs is your customer trying get done? (e.g. perform or complete a specific task, solve a specific problem, ...)
  • What social jobs is your customer trying to get done? (e.g. trying to look good, gain power or status, ...)
  • What emotional jobs is your customer trying get done? (e.g. esthetics, feel good, security, ...)
  • What basic needs is your customer trying to satisfy? (e.g. communication, sex, ...)

Customer Pains

Now describe negative emotions, undesired costs and situations, and risks that your customer experiences or could experience before, during, and after getting the job done. Value Proposition Canvas - pains Ask yourself:

  • What does your customer find too costly? (e.g. takes a lot of time, costs too much money, requires substantial efforts, ...)
  • What makes your customer feel bad?(e.g. frustrations, annoyances, things that give them a headache, ...)
  • How are current solutions underperforming for your customer? (e.g. lack of features, performance, malfunctioning, ...)
  • What are the main difficulties and challenges your customer encounters? (e.g. understanding how things work, difficulties getting things done, resistance, ...)
  • What negative social consequences does your customer encounter or fear? (e.g. loss of face, power, trust, or status, ...)
  • What risks does your customer fear? (e.g. financial, social, technical risks, or what could go awfully wrong, ...)
  • What’s keeping your customer awake at night? (e.g. big issues, concerns, worries, ...)
  • What common mistakes does your customer make? (e.g. usage mistakes, ...)
  • What barriers are keeping your customer from adopting solutions? (e.g. upfront investment costs, learning curve, resistance to change, ...)

Rank each pain according to the intensity it represents for your customer. Is it very intense or is it very light. For each pain indicate how often it occurs.

Customer Gains

Now describe the benefits your customer expects, desires or would be surprised by. This includes functional utility, social gains, positive emotions, and cost savings. Value Proposition Canvas - gains Ask yourself:

  • Which savings would make your customer happy? (e.g. in terms of time, money and effort, ...)
  • What outcomes does your customer expect and what would go beyond his/her expectations? (e.g. quality level, more of something, less of something, ...)
  • How do current solutions delight your customer? (e.g. specific features, performance, quality, ...)
  • What would make your customer’s job or life easier? (e.g. flatter learning curve, more services, lower cost of ownership, ...)
  • What positive social consequences does your customer desire? (e.g. makes them look good, increase in power, status, ...)
  • What are customers looking for? (e.g. good design, guarantees, specific or more features, ...)
  • What do customers dream about? (e.g. big achievements, big reliefs, ...)
  • How does your customer measure success and failure? (e.g. performance, cost, ...)
  • What would increase the likelihood of adopting a solution? (e.g. lower cost, less investments, lower risk, better quality, performance, design, ...)

Rank each gain according to its relevance to your customer. Is it substantial or is it insignificant? For each gain indicate how often it occurs.

Products & Services

Now that you sketched out a profile of your Customer, let's tackle the Value Proposition. Again, I want you to look at three things. First, list all the products and services your value proposition is built around. Value Proposition Canvas - products & services

Ask yourself which products and services you offer that help your customer get either a functional, social, or emotional job done, or help him/her satisfy basic needs?

Products and services may either by tangible (e.g. manufactured goods, face-to-face customer service), digital/virtual (e.g. downloads, online recommendations), intangible (e.g. copyrights, quality assurance), or financial (e.g. investment funds, financing services).

Rank all products and services according to their importance to your customer. Are they crucial or trivial to your customer?

Pain Relievers

Now lets outline how your products and services create value. First, describe how your products and services alleviate customer pains. How do they eliminate or reduce negative emotions, undesired costs and situations, and risks your customer experiences or could experience before, during, and after getting the job done? Value Proposition Canvas - pain relievers Ask yourself if they...

  • ... produce savings? (e.g. in terms of time, money, or efforts, ...)
  • ... make your customers feel better? (e.g. kills frustrations, annoyances, things that give them a headache, ...)
  • ... fix underperforming solutions? (e.g. new features, better performance, better quality, ...)
  • ... put an end to difficulties and challenges your customers encounter? (e.g. make things easier, helping them get done, eliminate resistance, ...)
  • ... wipe out negative social consequences your customers encounter or fear? (e.g. loss of face, power, trust, or status, ...)
  • ... eliminate risks your customers fear? (e.g. financial, social, technical risks, or what could go awfully wrong, ...)
  • ... help your customers better sleep at night? (e.g. by helping with big issues, diminishing concerns, or eliminating worries, ...)
  • ... limit or eradicate common mistakes customers make? (e.g. usage mistakes, ...)
  • ... get rid of barriers that are keeping your customer from adopting solutions? (e.g. lower or no upfront investment costs, flatter learning curve, less resistance to change, ...)

Rank each pain your products and services kill according to their intensity for your customer. Is it very intense or very light? For each pain indicate how often it occurs.

Gain Creators

Finally, describe how your products and services create customer gains. How do they create benefits your customer expects, desires or would be surprised by, including functional utility, social gains, positive emotions, and cost savings? Value Proposition Canvas Ask yourself if they...

  • ...create savings that make your customer happy? (e.g. in terms of time, money and effort, ...)
  • ... produce outcomes your customer expects or that go beyond their expectations? (e.g. better quality level, more of something, less of something, ...)
  • ... copy or outperform current solutions that delight your customer? (e.g. regarding specific features, performance, quality, ...)
  • ... make your customer’s job or life easier? (e.g. flatter learning curve, usability, accessibility, more services, lower cost of ownership, ...)
  • ... create positive social consequences that your customer desires? (e.g. makes them look good, produces an increase in power, status, ...)
  • ... do something customers are looking for? (e.g. good design, guarantees, specific or more features, ...)
  • ... fulfill something customers are dreaming about? (e.g. help big achievements, produce big reliefs, ...)
  • ... produce positive outcomes matching your customers success and failure criteria? (e.g. better performance, lower cost, ...)
  • ... help make adoption easier? (e.g. lower cost, less investments, lower risk, better quality, performance, design, ...)

Rank each gain your products and services create according to its relevance to your customer. Is it substantial or insignificant? For each gain indicate how often it occurs.

Competing for Customers

Most Value Propositions compete with others for the same Customer Segment. I like thinking of this as an "open slot" that will be filled by the company with the best fit. The visualization for this was an idea by Alan Smith, one of my co-founders, and the designer of Business Model Generation. Competing Value Propositions If you sketch out competing value propositions, you can easily compare them by mapping out the same variables (e.g. price, performance, risk, service quality, etc.) on a so-called strategy canvas. BoS Strategy Canvas

The Value Proposition Designer Canvas Poster

You can use the Value Proposition Designer Canvas like the Business Model Canvas: plot it as a poster, then stick it up on the wall, and then use sticky notes to start sketching.

Contrary to the Canvas, the Value Proposition Designer Canvas poster and methodology is copyrighted. However, you are free to use it and earn money with it as an entrepreneur, consultant, or executive, as long as you are not a software company (the latter need to license it from us). However, when you us it please reference and link to BusinessModelGeneration.com.

Here is a downloadable draft poster version of the Value Proposition Designer Canvas.

Value Proposition Designer

Testing and Pivoting

Using the Value Proposition Designer Canvas as a thinking and design tool is only a start. To get the best out of it you need to combine it with testing and pivoting. In my next blogpost I explain how the Value Proposition Designer Canvas perfectly integrates with the Customer Development and Lean Startup Process. I explain how it helps you substantially when you "get out of the building" as Steve Blank would say.

Last But Not Least: Workshop Date Announcements

We have a couple of 2-day workshops coming up where you can learn about all our tools:

Hope to see you in either San Francisco or Zurich!

Help Change How Businesses Are Built: Looking for Tech Co-Founder and Senior RoR Dev

My aspiration is pretty simple: I want to change the way people design, test, and build strategies and businesses. Part of that journey is about bringing the best conceptual tools out there online and making them so useful, practical and attractive that no business person can resist. To achieve that my team and I are looking for an outstanding tech co-founder and a senior RoR developer. Do you want to join us?

Our track record: When we created the Business Model Canvas we created a standard setting business concept for anyone to speak "business model", and we worked directly with Intel, GE, Ericsson, 3M, P&G, and dozens more.

When we published "Business Model Generation" (#bmgen), we created a new breed of visual and practical business books. #bmgen sold 350,000+ copies in 26 languages since 2010.

With the Business Model Toolbox for iPad, we created the first ever tool for individuals to flesh out business ideas. The app combines the smarts of a spreadsheet with the speed of a napkin sketch.

Now, with Strategyzer (alpha version), we've created a beautifully designed, easy to use web-platform for teams to build better business models.

You are... (for the senior RoR developer position)

Our Technical Lead for Strategyzer, passionate about what you do everyday and are doing the best work of your career.

You care about technology, how beautiful products are built, and your are helping us bring on more specialized team members as you grow the product to keep up with an enthusiastic customer base.

You work autonomously in a self directed fashion, and collaborate closely with the core Product and UX team. You believe that great code and great design make for a better product.

You have opportunities (but not obligations) to travel globally to retreats and events.

You finish each day pumped about getting started the next day.
Required skills include:

  • Test Driven Development and Continuous Integration
  • 2+ years experience with Ruby on Rails
  • 7+ years experience in software development
  • Experience building scalable web-apps
  • Javascript, CoffeeScript
  • Selenium
  • Git
  • Pragmatic software design
  • Experience with managing webapp development project from design to implementation

Additional Skills Desired:

  • PostgreSQL
  • DevOps
  • Behaviour Driven Development
  • Ability to work with front-end team (CSS3, HAML)
  • Experience with Enterprise applications
  • Some experience with different modern stacks
  • Some experience with multiple cloud platforms
  • Ability to coach less experienced developers
  • Ability to communicate well with non-technical teammates


Our compensation package includes a competitive salary and equity participation for a tech co-founder and potential equity participation for RoR developer.
Type of position: Permanent Location: Toronto preferably, but could be anywhere in the world since we are a globally distributed team already Work hours: Full-time 100% focus, but super-flexi-hours
Tell us about:

  • How you’ve scaled an app to more than 1000 concurrent users
  • Working in collaboration (your github profile would be good!)
  • What you want to know about how we work
  • What involvement you’ve had in building a dev team
  • A story that left a mark on your career and thinking

Why work at Business Model Foundry?

  • You get to work with a team that's doing the best work of their career, and will help you to do the same.
  • You will turn built up momentum into something amazing for an enthusiastic community.
  • You follow the no-asshole rule, and so do we.


contact us jobs@strategyzer.com
Our work culture:

Artists get inspired when they go to scenic places. This was our most recent "workation" in Splugen, Switzerland Our work culture

Our customers meet us at workshops all year long around the world. Here Alex (co-founder) is onstage in Berlin. Our work culture

Traditionally, we eat (and drink) a lot. This was traditional Norweigan fare, and it was delicious! Our work culture

Why Business Models Fail

There are a lot of reasons why business models fail. Understanding them can help us better manage risks. In this post I sketch out the four main types of failure.

I've been thinking about failure a lot recently. As an early-stage software entrepreneur failure is starring at me big and ugly every morning. Yet, rather than just denying the possibility I prefer understanding and managing the risk of failure. And when I say "failure" I mean the big and hairy type that can put you out of business. In the brief video below I broadly categorized business model failures into four main reasons:

  • Solving an Irrelevant Customer Job
  • Flawed Business Model
  • External Threats
  • Poor Excution



My team and I of course aim to avoid the failures outlined above with the software company we're building. More importantly, however, we strive to provide the software-based tools that can help us manage the risk of failure in order to build prosperous businesses.

Learning videos, like this one (but produced more professionally) and the ones in my previous posts, will be an integral part of that software package...

Competition Is NOT Part of Your Business Model

Every couple of weeks somebody sends me an email writing that I'm missing a building block in the Business Model Canvas. Often, they point out that competition is missing. They're wrong. "Competition" is not a business model building block, it's part of the environment in which you design your business model.

Though I believe we're too obsessed with competition, it would obviously be naive not to take into account existing or potential competitors when you design your business model. Competition is, however, only one of several elements that are part of your Business Model Design Environment: the environment in which you design your business model, just like an architect designs a building in a particular environment. The architect's environment is land use, legal restrictions (e.g. safety regulation, etc.), innovation in materials, the city context, or even societal trends that influence "building tastes". A business model designer's environment is characterized by technology trends, competitors, customer jobs and needs, and many, many more, as illustrated in the video below:

Designing business models is a constant interaction between the nine building blocks of the Business Model Canvas, which you control, and the environment in which you are designing it. If you want to learn more about the environmental model my co-author and I came up with, check out page 200+ of our best selling book Business Model Generation.

We came up with this environmental model, because there was no concept out there that looked at the Business Model Design Environment in a simple, holistic, and visual way.
Business Model Design Environment

The Front- and Backstage of your Business Model Theater

At every talk and workshop I try out something new to see if it sticks with the audience. An image that resonated a lot was describing the Business Model Canvas as a theater with a front stage and a backstage.

What creates value in a theater is the action that takes place on the front stage. It's what people came for and what they are paying for. The backstage, however, is what makes the front stage possible, it enables the front stage. The Business Model Canvas is similar. The right-hand side of the Canvas is the front stage. The left-hand side of the Canvas is the backstage. Check out my little sketch outlining the front stage and back stage of the Business Model Theater:

Guestpost: Business Models, Entrepreneurship, and Poverty Alleviation in Kenya

This guestpost tells the special story of how Sebastián Salinas Claro and Joshua Bicknel connected across the globe on the Business Model Hub. They joined efforts in their aim to defeat poverty by teaching entrepreneurship. The results are amazing.

By Sebastián Salinas Claro (with Douglas Cochrane and Joshua Bicknell): My recent journey illustrates the power of social networks and how linkedin and the Business Model Hub brought me to Kenya - all the way from Chile. It was a fascinating experience that all started when I contacted Alex on Linkedin. I told him how I was teaching the Business Model Canvas to disadvantaged youth in the South of Chile with excellent results. He suggested that I post my story on Business Model Hub, which I did. That's where the journey starts.

In August Joshua Bicknel browsed the pages of the Business Model Hub and came across my post. He read about the exciting experience I went through introducing the Canvas in Chile. He decided to contact me, keen to hear more. After a few hours on Skype, I declared my intention to travel to Kenya to work with him on a pilot project. It was quite a commitment from me. Few Chileans travel to Kenya, and it was an even bigger leap considering we had never met. But I took the leap and joined his team in Nakuru, East Africas fastest growing City, in October 2011.
BMGEN goes Kenya

BMGEN goes Kenya
Since then we have been working with unemployed youth supporting them to imagine and design innovative new businesses that create employment and defeat poverty. I want to use this blogpost to discuss some of the insights from this experience, in particular the power of the Canvas as a great leveler. We worked with 4th year Commerce students from Egerton University and unemployed young men and women who never finished high school. Both grasped the Canvas equally fast and applied it to imagine impressive new businesses. In fact, on a number of occasions the non-university students actually impressed us more.
BMGEN goes Kenya
BMGEN goes Kenya
One such occasion was in a session with the Salgaa Sparks youth group. In Salgaa there is no rubbish collection. All waste is either dumped on the streets or burnt. It is a fast growing town and a popular nightspot for transit truckers, so the area is becoming increasingly dirty and unsanitary. Sparks came to us seeking help to develop a solution to this problem. Initially, they didn't imagine starting a business, instead believing the solution to be a volunteer community-cleaning programme. By using the Business Model Canvas we helped them discover a more interesting opportunity altogether.
BMGEN goes Kenya
BMGEN goes Kenya
Firstly, they mapped their idea on the canvas, imagining it as a profitable business, and came up with a rubbish collection scheme. Not a wholly radical idea. A similar schemes exist in other Kenyan settlements. However, they then began to question whether there was any value in the collected waste and soon realized that they could turn the organic materials into fertilizer and sell it to the farmers at $10 a bag. Then they came up with another profitable idea: to rent out their work carts on days when they were not collecting rubbish.
BMGEN goes Kenya
Using the canvas they envisioned, imagined, developed, and refined a very exciting business model with three potential revenue streams. A business that achieves two goals at a time. It cleans-up the environment and provides unskilled youth with jobs. They are currently applying to the Kenyan Youth Enterprise Fund and project that their business will break even in its second month!
BMGEN goes Kenya
Throughout their lives these youth have been excluded because of their social and economic background. By using the Canvas they have, with no formal business training and sometimes not even a high school diploma, produced a very attractive business proposal. This speaks volumes for the capacity of the Canvas as a tool for profound change, empowering communities to start businesses that tackle the current structures of inequality.
BMGEN goes Kenya
We are excited to expand this programme next year. We will take graduates to both Kenya and Chile to work with hundreds of unemployed youth to develop new businesses as we seek to build a global generation of young people with a commitment to defeating poverty through entrepreneurship and not aid. And everywhere we go we will pack the Canvas as the key tool in our arsenal!

Check out our website in www.balloonkenya.com and www.emprediem.com

Signed, Douglas Cochrane, Joshua Bicknell & Sebastian Salinas Claro

Drop Your Training Wheels: Competing on Business Models

The Business Model Canvas is continuing to spread across the business world. However, some people and organizations use it in more sophisticated ways than others. So I came up with four levels of strategic mastery as to competing on business models.

At the lowest level of mastery, level 0 strategies, people focus on products, technologies, and value propositions mainly. They aren't even aware that it is often the business model that makes the difference between success and failure. At the highest level of mastery, level 3 strategies, companies disrupt themselves with new and innovative business models, while their existing business models are still successful and make money. I played around with a new video tool, educrations, to outline my thoughts. Check out why focusing on products and technology alone is like competing with training wheels, while you could be riding a Ducati Monster:

In the video I describe four levels of mastery:

  • Level 0 Strategy - The Oblivious: Focus on products/value propositions alone rather than the value proposition AND the business model.
  • Level 1 Strategy - The Beginners: Use the Business Model Canvas as a checklist.
  • Level 2 Strategy - The Masters: Outcompete others with a superior business model where every one of the business model building blocks reinforce each other (e.g. Nintendo Wii, Nespresso, Dell).
  • Level 3 Strategy - The Invincible: Continuously disrupt themselves while their business models are still successful (e.g. Apple, Amazon.com).

Business models that outperform others do so in various ways, for example by...

  • disrupting the existing market (e.g. Dell).
  • creating a hard-to-copy competitive advantage (e.g. Apple appstore ecosystem).
  • establishing game-changing cost and/or profitability structures (e.g. Nintendo Wii)
  • creating entirely new markets (e.g. Nespresso).

As a complement to this post you might also want to have a look at my post on the characteristics of a good business model, 7 Questions to Assess Your Business Model Design .
If you carefully watched the video you probably noticed that I messed up the Gary Kasparov quote, which should have been: "Success is the enemy of future success". Good that I can blame the jet lag from my trip to New Orleans ;-)

Stanford Talk & the Bay Area

Last week I had the honor to speak at the DFJ Entrepreneurial Thought Leaders Seminar at Stanford. During my stay I also had the opportunity to work and chat intensively with Steve Blank to advance with the alignment/integration of our methods.

I very much enjoyed my stay in the Bay Area and had a lot of fun sharing the stage and class room with Steve Blank five times at Stanford, Berkeley, and the exciting California College of the Arts CCA. Watch my Stanford talk:

I'd also like to remind the world what makes this place so special with a little video excerpt of an interview with Steve Blank by Om Malik of GigaOM:

During my stay I also ran one of our public enrollment workshops in San Francisco. It was excellent to have Rachel Smith and Laurie Durnell, two visual facilitators/recorders of The Grove at the workshop. They did an amazing job. Rachel sketched out a visual memory of my intro on he iPad. Have a look at the result below:
Intro to Business Model Thinking by @business_design Alex Osterwalder
More ideas came out of my two weeks in the Bay Area, which will certainly fill some more blogposts. Stay tuned!

The Customer Value Map v.0.8 - now called Value Proposition Canvas

I've been thinking about "plug-ins" that complement the Business Model Canvas for a while. One concept that I've been looking at more closely over the last few weeks is the invaluable "jobs-to-be-done" approach. I tried to turn it into a visual approach like the Business Model Canvas (BMC). The result is a prototype conceptual tool, the Customer Value Canvas Map v.0.8. now called Value Proposition Canvas.

Update: the final outcome of the Value Proposition Canvas can be found in this post. Originally, I set out to design an ultra applicable, simple, and visual Canvas Map for the (customer) jobs-to-be-done concept. My motivation was to create a dedicated and complementary Canvas Map that helps organizations sketch out and analyze the fit between their value propositions and the customers they target in a more granular way than the Business Model Canvas mapping does.

The result of my endeavor is a prototype conceptual tool, the Customer Value Canvas Map v.0.8. It's the outcome of several iterations of prototype concepts, test runs with workshop participants, try-outs students, applications with my own team, and several conversations with my #bmgen co-author Yves Pigneur (who is also a concept geek like myself). While the initial idea was to design a JOBS Canvas, the result turned out to become a mash-up of several approaches from various different thinkers.

Relationship between BM Canvas and Customer-Value Canvas Map v.0.8

To explain the Customer-Value Canvas Map bit by bit and show how it relates to and complements the Business Model Canvas I used a series of annotated screenshots of our upcoming Business Model Web App called Strategyzer.com.

The first screenshot simply illustrates how I started to map out a business model, notably by adding sticky notes to the Customer Segment and Value Proposition part of the Business Model Canvas.
Customer Value <del>Canvas</del> Map v.0.8
In the second screenshot the annotations highlight how a Value Proposition targets a specific Customer Segment (or several segments) aiming to create value by addressing a customer's needs.

However, the Canvas does not make the details of the Value Proposition (VP), nor its fit with a Customer Segment's (CS) needs, explicit, because it focuses on the big picture. The annotations in the second screenshot describe which characteristics behind the VP and CS could be interesting to study in order to understand and analyze their relationship and fit in more detail. This would allow us to map what value precisely is created and with regard to which customer needs. That's where the Customer-Value Canvas Map comes in. It describes:

  • (A) For each Customer Segment: which jobs a customer is trying to get done, and all the related customer pains and customer gains
  • (B) For each Value Proposition: the bundle of products & services targeted at the customer and how they are expected to create gains or relieve pains


Customer Value <del>Canvas</del> Map v.0.8
In the third screenshot the annotations introduce the first - customer-focused - part of the Customer-Value Canvas Map and they describe how this helps adding more detail to a specific Customer Segment in the Business Model Canvas.

  • (1) Select a specific Customer Segment in the Canvas
  • (2) That Segment will become the one you outline in more detail on the right hand side of the Customer-Value Canvas Map
  • (3) Specify the specific job(s) that Customer Segment is trying to get done. For a digital music player, for example, the job(s) would be buying, downloading, transferring, and listing to music on the go
  • (4) Now outline all the things that represent a gain to the customer for the outlined job. For the previous example that might be convenience, having all one's music available at any time, the ability to buy new music, automatically playing music according to your mood, etc.
  • (5) Finally, outline all the things that represent a pain to the customer for the outlined job. For the digital music player this might be the weight of a device, its learning curve, its battery life, etc.


Customer Value <del>Canvas</del> Map v.0.8
In the fourth screenshot the annotations introduce the second - value focused - part of the Customer-Value Canvas Map and they describe how it helps adding more detail to the Value Proposition that targets the Customer Segment outlined above.

  • (6) Select the Value Proposition aimed at the Customer Segment outlined on the right-hand side of the Customer-Value Canvas Map
  • (7) That's the Value Proposition you outline in more detail on the left hand side of the Customer-Value Canvas Map
  • (8) Specify the specific bundle of products and services targeted at the selected Customer Segment. For the digital music player, for example, the bundle of products and services might consist of a device, a software, and an online store... does that ring a bell? I'm talking about the iPod, of course
  • (9) Now outline how exactly that bundle of products and services should create gains. For the iPod that would be by offering "thousand songs in a pocket" (remember that sentence Steve jobs repeated over and over when he launched the iPod?), by offering access to an online store with content from all major recording companies, etc.
  • (10) Finally, outline how exactly the bundle of products and services should relieve the customer's pain regarding the outlined job. For the iPad that would be the reduction of the learning curve through seamless integration of hardware and software, the elimination of constantly having to copy songs back-and-forth due to tiny storage capacity (before the iPod digital music players could hold one album of approximately 24 songs)


Customer Value Canvas v.0.8
The next image connects the two pieces described above. The resulting Customer-Value Canvas Map now allows you to map out and analyze how the Value Proposition you designed fits the Customer Segment's job and the customer's pains and gains. While the right hand side of the Customer-Value Canvas Map (customer-side) is something you observe in the market (= studying the customer), the left-hand side (value-side) is something you design (= make choices).

This is where the Customer-Value Canvas Map connects with Steve Blank's Customer Development Process (outlined in his invaluable book The Four Steps). Steve invites people to "get out of the building" and talk to customers. Now you have another tool besides the Business Model Canvas to map the outcomes of those customer conversations.
Customer Value Canvas v.0.8

Example

As mentioned above, I tried out several iterations of the concept with my executive workshop participants and university students. I also tested the final Customer-Value Canvas Map 0.8 presented in this blogpost in my own business. Together with Alan Smith, #bmgen designer and co-founder of my software business, we mapped out the Customer Segments and Value Propositions for our upcoming Web App.

In the images below I illustrate how the Customer-Value Canvas Map helped us visualize and structure our conversation about the Value Proposition of our Web App for consultancy clients (who apply the #bmgen concept to help their own clients innovate their business models).

Customer-Value Canvas v.0.8.

The next image outlines the jobs we are trying to help our consultancy clients get done. There are two main types of jobs we are interested in helping our consultancy clients with. On the one hand they advise clients on business models by running workshops and delivering results and communications. On the other hand they have to continuously acquire clients, retain clients and demonstrate credibility in their consulting domain. I used color-coding to distinguish the different type of jobs.
Customer-Value Canvas v.0.8.
The following image outlines some of the consultancy client's most important pains related to the described job. This includes the risk of giving clients bad advice, the difficulty to manage client follow-up and communication, the time-consuming production of PowerPoint slides, and the risk of defecting clients .
Customer-Value Canvas v.0.8.
The next image outlines some of the consultancy's gains related to the job. This includes (specialist) support that helps them advise clients on BMs, easy monitoring of client progress, an easy way to acquire clients, switching costs that prevent customers from leaving, and growing and recurring revenues.
Customer-Value Canvas v.0.8.
The next images shows which products and services are targeted at the customer. In the case of our example this is simply a cloud-based business Model Web App and dedicated teamspaces for clients or teams.
Customer-Value Canvas v.0.8.
The following image shows how the Value Proposition is expected to relieve pain. This includes simplified production of business model documents and documentation, decreased risk of having various versions of the same business model document circulating, and a collaborative platform that makes working together easier.
Customer-Value Canvas v.0.8.
The last image shows how the Value Proposition is expected to create gains. This includes the support for business model consulting, tools that just work, customization, smooth and continuous client communication and follow-up, and lastly, the fact that it creates switching costs for a consultancy's clients.
Customer-Value Canvas v.0.8.
How it all started

The JOBS concept is an approach that I read first about from Tony Ulwick of Strategyn (cf. Understand Customer Needs) and then from renowned Harvard Professor Clayton Christensen’s consulting firm Innosight (cf. Generating Breakthrough Solutions Using Jobs to Be Done).

I now frequently use the JOBS concept in my workshops because it helps business model innovators look at Value Propositions from a totally new perspective. Check out how Clayton Christensen explains and illustrates the JOBS concept in the video below:

The idea for a visual JOBS Canvas came up when I met with Mark Johnson last fall. Mark is co-founder of Innosight and author of the excellent business model book Seizing the Whitespace. In our conversation we chatted about the fact that the JOBS concept is tested and proven, but that there is no visual template for it like for the Business Model Canvas. That is a pity, since I have come to learn how powerful visual templates can be to foster strategic conversations and innovation. Hence, I set out to design a JOBS Canvas.

The JOBS Canvas would be like a plug-in that complements the Business Model Canvas. I started using the term “plug-in” for methods that either allow going into more detail for a specific building block of the BMC or allow mapping another strategic aspect that is not directly covered by the BM Canvas.

While iterating through several conceptual designs I quickly realized the value of mashing-up the JOBS concept with other approaches. I threw other concepts into the mix, notably the Customer Empathy Map (outlined in #bmgen, but coined by XPLANE, which is now part of Dachis Group), the problem-solution fit (a lean start-up concept), a working paper from 1996 by NYU on Reinventing Value Propositions (pdf), and Steve Blank's Customer Development Process (outlined in his invaluable book The Four Steps).

If you found this blogpost interesting, don't hesitate to test the Customer-Value Canvas v.0.8 and provide me with some feedback. I've already seen how it works for several people and groups, but I'd be curious how it works for you!

I deliberately left the Customer-Value Canvas v.0.8. in a raw form so you realize it's still a prototype concept ;-)

Customer Value Canvas V.0.8

Make Your Business Model Clear with Vivid Thinking. Guest Post by Dan Roam

Visual Thinking is central to designing, testing, and building business models. So I was really excited when Dan Roam accepted to write a guest post on the Business Model Alchemist. His brand new book “Blah Blah Blah: What to Do When Words Don’t Work.” is THE reference book to have better conversations and effective meetings.

At the heart of a business.

Dan Roam Blah Blah Blah Idea

At the heart of every business beat two essential elements: an idea and a plan. An idea without a plan is just a dream. A plan without an idea is just a list. For a business to grow and thrive, it must have both.

Dan Roam blah blah blah plan

Sometimes the idea comes first: “How about we make a computer screen you can touch?” Add a plan (design + manufacturing + marketing) and you’ve got the iPad. Sometimes the plan comes first: “What would happen if we sold something other than books the way Amazon sells books?” Add an idea (online shoes!) and you’ve got Zappos.

The first reason I think Alex Osterwalder’s “Business Model Canvas” is the greatest business modeling tool of the decade is because it gives us a place to quickly translate any business idea into a testable plan – and vice-versa.

Dan Roam blah blah blah Canvas

I’ve got a model. Now what?

But once we’ve developed and tested business model, there’s still one more critical step towards making a living business: we need to sell it to partners, investors, and customers. And that’s the second reason I love the “Business Model Canvas”: it provides us with the basis of the Vivid Story we’ll need to crystallize and communicate our idea. When I say “Vivid” I mean something very specific: a Visual-Verbal-Interdependent idea; an idea made absolutely clear because it is expressed with both words and pictures.

Let me show you. A word-only description of a complex idea is hard to “get” and equally remember. Because words always proceed in a single line, when they are finished we usually forget where they started. That’s a terrible way to describe a business.

Dan Roam blah blah blah words only

A “Vivid” idea weaves together both words and pictures to create a visual+verbal image we can see, understand, and remember. And that is a great way to describe a business.

Dan Roam blah blah blah Vivid

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Dan Roam is the author of the international bestseller “The Back of the Napkin”, the most popular visual-thinking business book of all time, named by Fast Company, BusinessWeek, and The Times of London #1 creativity and innovation book of the year. For more insights on the power of power of Vivid Thinking look at Dan’s new book, “Blah Blah Blah: What to Do When Words Don’t Work.

More on Dan at www.danroam.com.

Dan Roam blah blah blah


7 Questions to Assess Your Business Model Design

Ultimately, customers are the only relevant judges of your business model. However, even before you test your model in the market, you can assess its design with 7 questions that go well beyond the conventional focus on products and market segments.

First things first. In order to assess your business model you should sketch it out on the Business Model Canvas outlined in the video below. If you want to know more about the Canvas and how to use it you can read Business Model Generation of which 70 pages are available for free on our website.

Assessing the basics

Every business model has a product and/or service at its center that focuses on a customer’s job-to-be-done. I call this the Value Proposition. So before even turning to your business model as a whole, you need to ask yourself some basic questions related to your Value Proposition and the Customer Segments that you are targeting.

  • First, ask yourself how well your Value Proposition is getting your target customer’s job done. For example, if a user of a search engine is trying to find and purchase the latest Nike running shoe, the measure of success will be how well the search engine helps the user get this job done.
  • Secondly, ask yourself how many people or companies there are with a similar job-to-be-done. This will give you the market size.
  • Thirdly, ask yourself how important this job really is for the customer and if she actually has a budget to spend on it.

That’s it as to the basics. However, even the greatest products are having an increasingly hard time to achieve a long-term competitive advantage. That is the reason why you need to shift your focus away from a pure product/market segment oriented approach towards a more holistic business model approach. Below are eight questions to assess your business model design. Rank your business model’s performance on a scale of 0 (bad) to 10 (excellent) for each question.

1. How much do switching costs prevent your customers from churning?

The time, effort, or budget a customer has to spend to switch from one product or service provider to another is called “switching costs”. The higher the switching costs, the likelier a customer is to stick to one provider rather than to leave for the products or services of a competitor.

A great example of designing switching costs into a business model is Apple’s introduction of the iPod in 2001. Do you remember how Steve Jobs heralded his new product with the catchphrase “thousand songs in a pocket”? Well, that was more than a product innovation focusing on storage. It was a business model strategy to get customers to copy all their music into iTunes and their iPod, which would make it more difficult for them to switch to competing digital music players. In a time when little more than brand preferences were preventing people from switching from one player to another this was a smart move and laid the foundation for Apple’s subsequent stronghold on music and later innovations.

2. How scalable is your business model?

Scalability describes how easy it is to expand a business model without equally increasing its cost base. Of course software- and Web-based business models are naturally more scalable than those based on bricks and mortar, but even among digital business models there are large differences.

An impressive example of scalability is Facebook. With only a couple of thousand of engineers they create value for hundreds of millions of users. Only few other companies in the world have such a ratio of users per employee. A company that has pushed the limits even further is the social gaming company Zynga. By building games like Farmville or Cityville on the back Facebook, the world’s largest social network, they could benefit from Facebook’s reach (and scale) without having to build it themselves.

A company that quickly learned its lessons regarding scalability was peer-to-peer communication company Skype in its early days. Their customer relationship collapsed under the weight of large numbers, when they were signing up ten thousands of users per day. They quickly had to adapt their business model to become more scalable.

3. Does your business model produce recurring revenues?

Recurring revenues are best explained through a simple example. When a newspaper earns revenues from the sales at a newsstand they are transactional, while revenues from a subscription are recurring. Recurring revenues have two major advantages. Firstly, the costs of sales incur only once for repetitive revenues. Secondly, with recurring revenues you have a better idea of how much you will earn in the future.

A nice example of recurring revenues is Redhat, which provides open source software and support to enterprises based on a continuous subscription basis. In this model clients don’t pay for new software versions because it is continuously updated. In the world of Software as a Service (Saas) these types of subscriptions are now the norm. This contrasts with Microsoft, which sells most of its software in the form of licenses for every major release.

However, there is another aspect to recurring revenues, which are additional revenues generated from an initial sales. For example, when you buy a printer, you continue to spend on cartridges, or when you buy a game console, you’ll continue to spend on games. Or have a look at Apple. While they still earn most of their revenues from hardware sales, the recurring revenues from content and apps is steadily growing.

4. Do you earn before you spend?

This one goes without saying. The more you can earn before spending, the better.

Dell pioneered this model in the computer hardware manufacturing industry. By assembling on order after selling directly they managed to escape the terrible inventory depreciation costs of the hardware industry. Results showed how powerful it is to earn before spending.

5. How much do you get others to do the work?

This is probably one of the least publicized weapons of mass destruction in business model design. What could be more powerful than getting others to do the work while you earn the money?

In the bricks and mortar world IKEA gets us to assemble the furniture we buy from them. We do the work. They save money. On the web Facebook gets us to post photos, create and participate in conversations, and “like” stuff. That’s the real value of Facebook, entirely created by users, while they simply provide the platform. We do the work. They earn the sky-high valuations of their shares.

Previously mentioned Redhat crafted another smart business model based on other people’s work. Their entire business model is built on top of software developed by the open source software development community. This allowed them to substantially reduce their development costs and compete head-on with larger companies like Microsoft.

A more malicious business model in which others do the work is the one practiced by so-called patent trolls. In this model patents are purchased with the sole intention of suing successful companies to extract payments from them.

6. Does your business model provide built-in protection from competition?

A great business model can provide you with a longer-term protection from competition than just a great product.

Apple’s main competitive advantage arises more from its powerful business model than purely from its innovative products. It’s easier for Samsung, for instance, to copy the iPhone than to build an ecosystem like Apple’s appstore, which caters to developers and users alike and hosts hundred thousands of applications.

7. Is your business model based on a game changing cost structure?

Cutting costs is a long practiced sport in business. Some business models, however, go beyond cost cutting by creating value based on a totally different cost structure.

Skype, for example, provides calls and communication almost like a conventional telecom company, but for free or for a very low cost. They can do this because their business model has a very different cost structure. In fact, Skype’s model is based on the economics of a software company, while a telecom provider’s model is based on the economics of a network company. The former’s costs are mainly people; while the latter’s cost include huge capital expenditures in infrastructure.

Similarly, Bharti Airtel, one of the world’s largest mobile network providers, has substantially modified its cost structure by getting rid of their entire network and IT. By buying in network capacity on a variable cost basis from a consortium around network equipment manufacturer Ericsson and IBM, they can now offer among the lowest prices for mobile telephony globally.

Redhat, which was mentioned previously, also built its business model on a game changing cost structure: by smartly building its own model on top of other people’s work.

How does your business model design perform?

Of course no business model design scores a perfect 10 as to every single one of the above questions. Some might even succeed in the market without scoring well at all. However, by asking yourself these questions and by scoring well on at least some of them you are very likely to substantially increase the long-term competitive advantage of your business.

Now all you need to do is test your business model with the real judge: the market. The best way to do that is by turning to Steve Blank's Customer Development process, which fits perfectly with the Business Model Canvas.

Some more info on my workshops, speaking, and projects.

PS: I will be running a series of workshops you might be interested in. Sign-up or pre-sign-up here. In Paris (French: Sept 27/28), in Boston (Oct 27/28), and in Munich (German: Nov 24/25).

PS2: These days are your last chance to get your name into a book project that I'm involved in: Business Model You. Check it out here.

PS3: I wrote this post as a guest post for the Business of Software conference where I'll be speaking in October.

Business Model Toolbox for iPad #BMTBox

I wrote about Computer Aided Design Tools (CAD) for business people years back in my doctoral dissertation. With the Business Model Toolbox for iPad we now made the first concrete steps towards a whole new breed of computer aided business design tools. The Toolbox combines the speed of a napkin sketch with the smarts of a spreadsheet. It enables you to map, test, and iterate your business ideas — fast.

It always struck me that we have relatively few good software tools in business to think through more strategic issues. We do have sophisticated business analytics tools to make sense of large amounts of quantitative data. We do have spreadsheets to simulate complicated financial scenarios. Yet, what do we have today to design and test strategies and business models? Little. That’s exactly why the team behind the bestselling book Business Model Generation developed the Business Model Toolbox for iPad (V.1.0.) together with Geneva-based development firm Hortis le studio.

Watch my rough and improvised demo. It's filmed with my iPhone in the middle of Berlin where I'm giving a keynote at Process World 2011 - more sophisticated product videos to come soon ;-)


The Toolbox V.1.0. focused on three core activities required to prototype business models:

  • Sketch your business model using the practical methodology from the best-selling book, Business Model Generation.
  • Add ballpark figures for market size, revenue streams, and costs — faster than any spreadsheet.
  • Test the profitability of your ideas with a quick report and breakdowns by offer, customer segments, and costs.

Below are the screenshots of the simple example I sketched out in the video...

Starting a simple business model prototype (without costs)

Adding revenue streams: sales through the app store (and paying a Apple a 30% cut of your sales)

Playing with revenue stream ideas: what about a Web subscription?

Report view of a more complex business model

Obviously, many people asked us why just for the iPad. As soon as we launched they immediately asked for Android and Web versions. From a business perspective it might have indeed been smarter to start with a Web app because of its broader reach. This is particularly true, since we started developing the Toolbox when it was far from clear if anybody would buy an iPad.

The reason we went for the iPad first is because I firmly believe that the touch interface and the relatively large screen of the iPad will allow us to demystify and democratize the prototyping of business models - just like the visual design of the Business Model Generation book helped demystify and democratize business model thinking and thus make it accessible to a larger audience than the usual business book readers.

By going for the iPad first and the Web second we wanted to show what's really possible when it comes to prototyping business models. Using your fingers to pull in virtual sticky notes just feels so much more natural than using a computer mouse, doesn't it? The iPad app allowed us to test and validate this theory.

Today there are about 19 million iPads in the market (read more) and there is no doubt that Apple is currently dominating the tablet market. More interestingly, a majority of the senior executives and entrepreneurs I work with have an iPad. Some of them even bought an iPad just to use the app. For all others we will have good news later this year. The Business Model Foundry will continue to develop breakthrough tools for the Business Model Generation.

Go get the Business Model Toolbox for iPad if you don't have it yet and got curious after reading this post. It will help you build better business models at the price of a lunch. Is a better business model worth it? read more... buy it on the appstore...
PS: Here at Process World 2011 in Berlin where I currently am at I'll give a keynote about bridging the gap between business strategy and processes through the Business Model Canvas. Already, Software AG, one of our partner companies and organizer of Process World, has integrated the Business Model Canvas into ARIS, their business process management tool (read more).

Methods for the Business Model Generation: how #bmgen and #custdev fit perfectly

The Business Model Generation is about people who strive to defy outmoded business models. They are visionaries, game changers, and challengers who want to design tomorrow’s enterprises. To succeed on this journey they will require new tools, such as the Business Model Canvas and Steve Blank's Customer Development. In this post I outline how they fit together.

This post comes mainly as a reaction to the various attempts by others to adapt and merge the Business Model Canvas with Customer Development for the entrepreneurial context. While it's great and fascinating to see how people are tinkering with Steve's and our method to adapt them for their start-ups, I am also worried that they lead young companies down the wrong path. Steve and I have both already written about how our methods fit together here (Steve) and here (me). However, this time I took some time to sketch out a more detailed start-up process that merges the concepts and tools from Steve's bestselling The Four Steps to the Epiphany and our globally bestselling Business Model Generation - A Handbook for Visionaries, Game Changers, and Challengers. Additional concepts and tools, such as Eric Ries' Lean Start-up, may be added subsequently.

I will illustrate this process through the fictional story of Dave Sanburn, a former finance type based in Dallas, who decided to launch his own start-up. His entrepreneurial story all started with an unsatisfied customer need that gave him the idea for his start-up.

1) The Business Idea and Initial Stress Tests

Dave likes wearing tailor-made shirts, but sees shopping as a chore. He used to buy these kind of shirts during his business trips to London, but was never really satisfied, neither by the experience nor the price. When Dave realized that it was not so easy to conveniently find and buy tailor-mode shirts in Dallas he wondered if this could be a business idea worth pursuing.

#bmgen and #custdev

Ideas for a business can have various origins. Sources could be:

  • An unsatisfied customer need like Dave's. In fact, many successful entrepreneurs launch a start-up because their own personal needs couldn't be satisfied by the market.
  • A technology (innovation) that allows doing business in a different or more efficient way. Think of how Skype started offering free phone calls because they used the readily available and free Internet as an infrastructure, rather than a proprietary network.
  • A new product or service that the market hasn't seen yet, or that is offered with a different or better value proposition. The Nespresso machine is an example of the former, while cheap flights by Southwest, easyJet or Ryanair are an example of the latter.

Let's get back to Dave and help him run a first rough stress test of his business idea. Dave should look at four areas: customers, key trends (e.g. technology), competitors, and the macro environment. (These for areas are a simplification of the Business Model Environment outlined in Business Model Generation).

#bmgen and #custdev Dave should investigate a series of questions related to each of the four areas:

  • Customers: Who could the customers for the business idea be? What jobs are they really trying to get done? Are there enough potential customers? Do they have buying power? Are they easy to reach?
  • Trends: Could some of the key trends render the business idea obsolete in the future (e.g. tech trends, legal trends, etc.)? Are key trends going to boost the business idea in the future (e.g. socio-economic trends, etc.)?
  • Competitors: Which other companies are already operating in this space? What are the substitute products and services? Which actors (competitors or partners) are key in this space?
  • Macro environment: Which macro-factors must be in place to make the idea reality (e.g. infrastructure, talented employees, etc.)?

In the graphic below I added four of the concepts from Steve's The Four Steps to the Epiphany, which I think can be of tremendous help at this stage (additions in red).

#bmgen and #custdev

Regarding customers (right-hand side), Dave should start sketching out some first rough customer hypotheses and problem hypotheses. Steve's book contains excellent worksheets with questions to develop the hypotheses. Regarding competition (left-hand side), Dave should add a first rough take on the market type hypothesis and competitive hypothesis.

Stress-testing the business idea is part desk-research (thank you Google) and part "getting out of the building", to use Steve Blank's terms. The goal of this phase is to figure out if a business idea is worth pursuing.

2) Business Model Prototyping - Generating Alternatives

After some initial research Dave decides to continue investigating his business idea. The question is: how can he offer tailor-made shirts in a viable way and how can he turn this into multi-million dollar business?

At this point many entrepreneurs fully focus on the product or service they are planning to offer. Big mistake. It's far more illuminating to sketch out and think through several alternative business models for a product, service, or technology.

#bmgen and #custdev

The same product, service, or technology may fail with one business model, but succeed with another. For example, few people know that Nespresso - today a 2+ billion USD business owned by Nestlé - almost failed in the late 80s because of an unsuccessful business model. With exactly the same product and technology (Nespresso machines and pods), but a very different business model, Nespresso started its global conquest of the espresso market.

I call this phase business model prototyping. It's the one that business people and entrepreneurs struggle most with. Rather than sketching out 4-6 potential business model alternatives in 60 minutes, most people feel more comfortable merely discussing ideas or one single business model. Big mistake. It's more valuable to have several business model alternatives on the table so you can discuss their strengths and weaknesses.

To compare the different potential business models you particularly want to play around with ballpark figures for each alternative. You can either do this with a spreadsheet or even more conveniently with our upcoming iPad app (don't ask for the release date ;-).

3) Selecting a Business Model: Plan A

After going through several alternatives and comparing them with a set of criteria Dave has selected the one he thinks looks most promising. It's illustrated in the next three images.

This first Business Model Canvas below illustrates the basic model of offering tailor-made shirts that are manufactured in China to white-collar office workers in big US cities. The hundred million-dollar question is of course how to reach them, i.e. through which channels?

This is where Dave's business model becomes special. He plans to operate no stores and no sales force. His intention is to generate sales through independent "style advisers" who will earn commissions of up to 25 percent on clothing they sell.

MeShirt Business Model

The second Canvas illustrates the value proposition that shall attract the "style advisers" who will essentially be recruited by other advisers. Like in most direct-sales companies, advisers will get a cut of the sales made by reps they recruit.

MeShirt Business Model

The last Canvas shows how Dave's company is different from most other shirt retailers. For example, he operates no stores, no sales force, and only manufactures shirts that have already been sold.

MeShirt Business Model

4) Testing the Business Model - Customer Development

As attractive as this first business model might look, it's nothing else than a set of guesses. Nobody knows if it's really going to work? This is where the real value of Steve Blank's Customer Development kicks in. Each post-it note in the Canvas should be turned into a hypothesis and then tested. In Steve's 4-step methodology this is the first phase called Customer Discovery.

Visually this can be represented with three layers. A first (Canvas) layer represents the business model. This is what we just outlined above with Dave's example of a tailor-mode shirt maker. The second (Canvas) layer outlines the underlying hypothesis for each post-it note. The third (Canvas) layer turns each hypothesis into a test, so that it can be verified and measured.

3 Layers: Business Model, Hypotheses, Tests

Let's briefly go through these three layers with a simple example that Dave could put in practice:

  • Business Model Layer: In the business model Dave might define a price point of 150.- USD for a shirt, because he thinks his shirts need to be about 50% cheaper than a similar shirt sold through traditional retail. The profitability of his business model is calculated based on this price.
  • Hypothesis Layer: The underlying hypothesis for this price point is that customers would not buy if the shirts were more expensive, but wouldn't buy many more shirts if they were cheaper (else Dave risks leaving money on the table).
  • Test (and Measurement) Layer: A way to test the above hypothesis would be a field trial with different prices. Another way to test the hypothesis would be to set-up a different websites with different prices and analyze customers' response rates.

The challenge for Dave is to develop the three layers for each business model building block and post-it note in the Canvas ranging from customers, over value proposition, all the way to resources, and cost structure.

When Dave tests the business model with customers he is likely to modify it in an iterative fashion every time he learns more from customers. Once he thinks he's got it right, he can continue with the remaining 3 steps of Customer Development, notably Customer Validation, Customer Creation, and Company Building.

ps

  • The fictional example of Dave is based on the real-world example of Dallas shirt-maker J. Hilburn, that combines direct sales with custom tailoring. I learned about the company in a Businessweek article.
  • Pardon me the typos and mistakes in this post. It's 2am after a long day, but I just wanted to get this post out (and I definitely didn't have the energy to re-read it)!

Reverse Engineering Facebook's Business Model with Ballpark Figures

Originally I was planning to write a post on "Why The Crazy Facebook ($50B) and Twitter ($3B) Valuations Might Just Make Sense" by highlighting the key characteristics of their business model (e.g. scalability). However, I thought it would be way more fun to reverse engineer Facebook's business model with ballpark figures in collaboration with you, my smart and loyal blog readers.

I sketched out the kernel of their business model and researched/guesstimated some numbers, since it's always easier to start from something rather than from a blank sheet (or Canvas).

The above Business Model Canvas was sketched out with the Alpha version (V.0.7.0) of our upcoming iPad App. The numbers were researched on the Net and are still far from complete. Hence, your help and insights would be much appreciated.

Some numbers, like the fact that there is a ratio of about 250'000 users per Facebook employee, are pretty easy to find and calculate. Others, e.g. like the ad spending of Fortune 500 companies on Facebook (if anything like that exists) is much more difficult to research. Also, I rely on your knowledge for numbers such as the estimated IT cost of the Facebook platform.

Add your thoughts in the comment section! Below are the numbers I gathered today in my little temporary office in a fairy tale chalet in the Swiss Alps.

NUMBER GUESSTIMATES

Users/Customers

  • Number of monthly active FB users: 500M (source: FB factsheet)
  • Number of daily active FB users: 250M (source: FB factsheet)
  • Average time users spend on FB per month: 1'400 minutes -> 46 min/day (guesstimate source: FB factsheet)

Resources

  • Number of employees: 2k (source: FB factsheet)
  • Number of servers: ???

Costs

Revenue Streams

  • Advertising - Average CPM: $0.625 (source: Blogpost)
  • Annual page views: 3.12 Trillion (source: Blogpost)
  • Facebook Credits: 30% revenue cut (source: TechCrunch)

OPEN QUESTIONS

  • How high could Facebook's costs for its IT infrastructure (capital expenditure and operating costs be? This could probably be estimated by comparing to Amazon.com, Google, eBay, or Yahoo!
  • How could its advertising revenues (e.g. banners and text advertising breakdown) really be?
  • What budgets are Fortune 500 companies putting into Facebook advertising?
  • How many SMEs and micro-enterprises are using Facebook for advertising?
  • How much could Facebook already be earning from Facebook Credits, even if this virtual currency is still in Beta?

Don't hesitate to point out any other big things that are missing! This is just a first sketch of a reverse engineered business model!

Re-Inventing How We Do Start-Ups!

If architects conceived and constructed buildings the way we do start-ups there wouldn't be much standing. I'm deeply convinced we can change that and substantially increase the odds.

Admittedly, launching a start-up means dealing with more unknowns than in architecture. The former deals with unpredictable markets and potential customers, while the latter deals with solid materials and the laws of physics. However, while an architect uses concrete tools and systematic methods to come-up with and construct his buildings, most start-up entrepreneurs shape and build their ideas pretty much barehanded in terms of tools and methodologies. I'm convinced that this is a more important reason for the high failure rate of start-ups than the unpredictability of markets.

To boost start-up success we need to look at entrepreneurship as a science or at the very least accept it as a profession with its own fundamental rules and methodologies (and the same goes for intra-preneurship).

The slidedeck below gives you the 101 of such a systematic start-up process by combining the business model concept to shape and structure your business ideas with the customer development approach to test, prove and build them. Check-it out (and don't forget to vote for the presentation in the slideshare contest!)

I'm pretty excited about all this because I believe it's the beginning of a whole new movement that could become an avalanche.

Silicon Valley start-up guru Steve Blank is teaching this at Stanford next year together with two world-class VC's, Ann Miura-Ko of Floodgate, and Jon Feiber of MDV.

Nathan Furr, a professor at Brigham Young University, is launching the first international business model competition.

And we are working on the first basic iteration of an iPad app to support all this business model thinking (yes, yes, we are slightly behind schedule - but we're not that far from finalizing ;-).

Are YOU going to be part of this exciting movement?