On Business Models, Prototypes, Love, & Entrepreneurship

Few of the entrepreneurs I meet spend sufficient time exploring alternative business models for their products, services, or technologies. Too often I see them fall in love with their initial idea and then they immediately dig deep into spreadsheets and business plan writing. That has a great risk!

Failing to explore alternative business models before you choose a direction bears the great risk of getting 'ankered' with an inappropriate, mediocre or even bad business model. It becomes very hard to explore alternative business models when you've refined your first idea too quickly. Of course there's a reason that so many entrepreneurs and intrapreneurs stick to their initial business model idea. Few actually realize that the same product, technology, or service could have very many different business models. Now how could they do a better job to increase their success chances of creating a successful new business (model)?

This is where we business people should look to the design professions for help. After all it's their business to create new things. This is what the Weatherhead School of Management of Case Western learned when they worked with star architect Frank Gehry and his team. Among other things they realized how important prototyping could become to design new strategies. Watch the video to see what they discovered:


I particularly loved the following quote at the end of the video by Jim Glymph of Gehry Partners:

“If you freeze an idea too quickly, you fall in love with it. If you refine it too quickly, you become attached to it and it becomes very hard to keep exploring, to keep looking for better. The crudeness of the early models in particular is very deliberate.”

Every serious entrepreneur and intrapreneur should apply the same type of attitude if he or she wants to find the best business model for his or her technology, product, or service. Here a couple of tips what you should pay attention to when making business model prototypes:

  • Use the Business Model Canvas Poster to sketch out as many different business models as possible.
  • Don't discuss and decide which business model to sketch out on the Canvas. Do them all! Only then can you have a valuable discussion on what could work or not.
  • Don't spend 60 minutes sketching out an early and unproven model in detail. That hour is better spent by sketching out four to five ideas in a very rough manner.
  • Sketch out each idea on a separate Canvas. For example, use two different Canvases for two very different customer segments.
  • Sketch out diametrically opposed models. For example, ask yourself "what if I offered my product for free..." vs. "what if I offered my product only to the very high-end market..."


In Business Model Generation - A Handbook for Visionaries, Game Changers, and Challengers we tried to make a clear case for business model prototyping. I think the following spread from the book visualizes our thinking pretty clearly: Business Model Prototyping

In the book we also outline different types of business model prototypses, ranging from the Napkin Sketch to the Business Model Pilot.

Business Model Prototyping

I hope this convinces at least some entre- and intra-preneurs to spend some more time on their business model rather than on their business plan... Don't fall in love with your idea too quickly!

Combining Business Model Prototyping, Customer Development, and Social Entrepreneurship

I'm writing this blogpost following another inspiring discussion with Steve Blank. One of the topics we chatted about was how his Customer Development process and the Business Model Canvas fit together. I wrote these ideas down while visiting Steve's K&S ranch - inspired by its beauty, surroundings and amazing view on the Californian coast. I'll illustrate the ideas with an example from the field of social entrepreneurship.

In a nutshell, this post shall help entrepreneurs and intrapreneurs develop better business models by designing and exploring multiple alternatives, closely listening to customers and continuously adapting their early models until they find the right business model to scale. I believe a start-up or new venture's quest for the right business model should consist of three rough phases:

  • Designing a starting model
  • Iteratively adapting your starting model in response to market feedback
  • Scaling it when you nailed it

All three phases can be supported by the tools and concepts outlined in Steve's book on Customer Development and our book on Designing Business Models. We provide you the tools to map, design and discuss a business model. Steve provides you the mindset and tools to continuously "test" your model and your assumptions with customers until you find the right business model to scale.
Business Model Prototyping and Customer Development V2

The Case Study

Let me outline the three phases above with a case I often use in my business model innovation workshops. It is an example of a Swedish organization that developed a single-use toilet bag, the Peepoo bag for the so-called Bottom-of-the-Pyramid market of over 2 billion people who lack access to proper sanitation.

Peepoople, the company behind the Peepoo bag, is a particularly interesting case because it combines a journey for the right business model with a quest for meaningful impact. No easy task. At this very moment Peepoople is on its search for the right business model: one that is financially viable, and scalable in terms of growth and impact.

Now let us look at the three phases outlined above through the lens of the Peepoople case.

Designing a starting model

Many entrepreneurs and intrapreneurs underestimate that a great new technology, product or service can be insufficient to build a successful and sustainable business. Because of their trust in a technology's, product's or service's superiority they fail to spend enough time exploring alternative business models. They often go with the first model they come up with. Yet, entrepreneurial history is littered with great technologies, products and services that bombed.

Entrepreneurs and intrapreneurs could greatly improve their success chances by spending more time with searching and finding an empowering business model. Every technology, product or service can be brought to market by several alternative business models. The challenge is to find the best and most scalable one.

Peepoople, for example, has a proven product/technology that works and was tested - the Peepoo bag. However, the company acknowledges that this is only a starting point. The management team knows that it has to think through several possible business models in order to find one that is sustainable AND has a substantial impact.

So let us use the product (Peepoo bag), its characteristics, and the context as the starting point to develop alternative business models:

  • A single use toilet bag: it is designed to be conveniently used with any type of recipient and it effectively prevents odors;
  • Self sanitizing; it inactivates organisms that produce diseases and are found in faeces;
  • Biodegradable: it is made of a high performance degradable bioplastic
  • Turns into fertilizer: the treated faeces constitute a high value fertilizer with a considerable market value
  • Low production cost (numbers confidential);
  • Aimed at substantially reducing the sanitation problem in the world;
  • In many developing markets people already pay for (limited) access to sanitation (e.g. public latrines in slums)

Based on the above we can map out several different alternative business models for Peepoople's product. Here the emphasis is on "mapping", which means putting a Business Model Canvas poster on the wall to quickly develop conceptual prototypes. Let me just mention a few possible ones:

  • Not-for-Profit Model: Traditionally, an organization like Peepoople would seek donors to fund the distribution of Peepoo bags to beneficiaries. Like myself, the management team of Peepoople doesn't see this as a sustainable business model nor as one that will achieve the most impact.

    Peepoople Donor Model

  • Cross-Subsidy Model: Peepoople could sell the bags to a premium segment (e.g. to hikers in the Swiss Alps, or as military supplies) in order to fund the free distribution of the bags to beneficiaries. Financially this model already looks more robust than the first.
  • Sales/Retail Model: Why not try to sell through traditional retail among the mini-shampoo bottles sold to the BoP market. Sanitation is a basic need and there is already a market for public latrines.
  • Micro-Finance/Micro-Entrepreneurship Model: Another powerful way to bring the bag to the market could be an alliance with a micro-finance institution which would finance micro-entrepreneurs to buy bags. The entrepreneurs would then resell the bags.

    Peepoople Microfinance Model

  • Licensing/Franchising Model: Peepoople could go down a completely different path and simply license its technology to different institutions. Alternatively, it could build a franchise model to quickly scale its growth.
  • Resource Model (Fertilizer): Fertilizer is a very valuable good in BoP markets. Why not give the bags away and even pay people to bring them back full. Revenues would then be come from selling the fertilizer to farmers.

These are just some of the potential business models for the Peepoo bag. Others could include white labeling the technology, building brand alliances (e.g. distribution with mobile phone prepaid cards), advertising on the bags, and many, many more. What is important is to spend some time with quickly mapping out alternative business models before defining the criteria to select the one to go with. Selection criteria can be growth potential, risk, impact, etc.

An essential part of this first design phase is to carefully observe and understand (potential) customers. The business model alternatives you come up with should be informed by deep customer knowledge. Steve Blank nicely describes this as Customer Discovery, the first of four steps in his Customer Development Process

you need to leave guesswork behind and get “outside the building” in order to learn what the high-value customer problems are, what it is about your product that solves these problems, and who specifically are your customer and user.

Customer Development

Iteratively adapting your starting model to customer/market feedback

When companies have spent substantial time, effort, and money searching for a business model (e.g. for a new product or service) they are often under the illusion that they nailed it. Yet, a "starting business model" is just that: a starting point - based on a number of assumptions and hypothesis. Even with the most elaborate design phase, the smartest people, and the largest budget, it is pretty rare that entrepreneurs or intrapreneurs immediately get the business model completely right.

The Customer Development process assumes that many of the initial assumptions about your business model are probably wrong, which you will find out in the second step of the process, Customer Validation. It is only when you start testing a business model or aspects of it with customers that you will find if your hypothesis were right or wrong. Hence, the Customer Development Process builds in an iteration loop to fix the shortcomings of your business model. Eric Ries, who built on Steve's work, coined this business model iteration loop the Pivot.

Customer Development

The Business Model Canvas powerfully supports this iteration and pivoting process through visualization and structuring. Steve nicely described this as keeping score of your pivots.

Peepoople is just now entering the iterative phase where they are testing business models in Kibera, a slum in Nairobi, Kenya. The challenge will be to continuously search for the most powerful business model and only settle when they found a scalable one.

Scaling it when you nailed it

It is probably only after several iterations and pivots of your business model that you will really "nail it" and find the right one. That is when it is time to scale. In the terminology of Customer Development this is called Customer Creation, when you start "creating end-user demand and drive that demand into the company’s sales channel". Only at the very end should you focus on Company Building "where the company transitions from its informal, learning and discovery oriented Customer Development team into formal departments with VPs of Sales, Marketing and Business Development".

Customer Development

Unfortunately, I've seen too many companies get caught up in this last (operational) step when they haven't even "nailed" the business model.

As to Peepoople, I'm pretty curious to see how the company will manage business model iterations and pivots. It does have a great technology to start with, but only a scalable business model will allow it to have an impact. However, I have great confidence in Karin Ruiz, its CEO. She combines private sector experience, a passion for impact, and the knowledge that only the right business model will allow Peepoople to make a difference in the world.

Users vs Customers

Last week I met with Steve Blank and Ann Miura-Ko at the University Coffee in Palo Alto to chat about Business Model Generation and our upcoming Business Model app for the iPad. It was a real treat. One of the questions Steve and Ann brought up was how to differentiate between users and customers in the Business Model Canvas.

Until this chat the question hasn't really preoccupied me, because it has been less of an issue for most of the companies I work with (mainly large multinationals). However, I do see the relevance of the question (particularly in a start-up context in the software and Web space, but also in other spaces). And how couldn't I have an open ear for a point made by one of my entrepreneurial role models and a rising VC star... Steve and Ann suggest separating customers and users into two separate building blocks when describing a business model. I prefer keeping one single building block that captures users and customers. At the end of the day I think we all have to use the representation that we are most comfortable with. However, I do fully agree with Ann and Steve that it is interesting to look into the user vs. customer question (and a matter of survival if you are a start-up with users, but no customers...).


User vs Customer - iPad sketches


After the chat I couldn't let go of the question, so I sketched out some business model examples on my iPad on a flight from beautiful Vancouver back to San Francisco, our family's temporary HQ. This helped me get a clearer picture of the question. The models I sketched out were Skype, Google, Youtube, Flickr, and Sony Playstation. Each business model has a different user vs. customer configuration.

I basically see all groups for which a company creates value through a product or a service as users. Customers are simply users who pay for the value that is created for them in the form of a revenue stream for the company. In some cases users and customers are pretty similar, except that one group generates revenues by paying for additional features of functionalities (e.g. Skype, Flickr). In other cases users and customers are distinct groups, where one subsidizes the other (e.g. Google, Youtube, Sony Playstation, government services). Let's have a look at some different business models and their dynamics.

Skype

Skype is company that allows making calls over the Internet based on its proprietary software. It has over 500 million users. Of that only a tiny fraction are paying customers. However, in this case it is difficult to distinguish between users and customers, because they might be the very same people. For example, I use free software-based Skype-to-Skype calling all the time, but occasionally also buy so-called SkypeOut credits to make calls from my computer to international landline and mobile phone numbers. I am a (free) user and (paying) customer at the same time.

Regarding the "free user vs. paying customer question" Skype provides some even more interesting material. Skype's free users are crucial to its success. One might think that the reason is to assure a decent revenue even with a small conversion rate from free to paying users. In fact, that is not the only reason.

Skype needs a large user base to assure good calling quality. Every call is routed through the Internet, from one user to another, based on so-called peer-to-peer technology. The more users Skype has, the better the calling quality. In fact, in that regard users are a key resource of its business model. And since Skype manages no network (because of the Internet-based peer-to-peer technology) it costs the company practically nothing to add on free users.

skype - iPad sketches

Flickr

Flickr is a website that allows hosting images and videos. Like Skype it has a large number of free users and only a fraction of paying user/customers who pay for advanced features like increased storage space or unlimited uploads. Like Skype this is a so-called freemium business model with a set of free services and paid premium services.

However, different from Skype, people using Flickr usually fall either into the category of free users or paying customers. Another difference with Skype is that Flickr's free users generate costs that the company has to recuperate with its paying user/customers. The free users do, however, add value by contributing to the content on the website. Flickr now has over 4 billion images on its site.

flickr - iPad sketches

Google

Google's core business - search - is another story. In this case (free) users and (paying) users/customers are two totally distinct groups. The free users are the people using the search engine. The paying users/customers are the people buying keywords for search advertising. Both groups of users are offered two totally different services and value propositions. The first service (search) is free and subsidized by the latter (adverting). And the more (free) users Google can attract, the more interesting it is for advertisers.

google - iPad sketches

Youtube

Youtube, the leading video-sharing website which was aquired by Google in 2006, provides another interesting element to the user vs customer discussion. Free users can be split into two subgroups: a smaller group of users who upload content (often their own user-generated content), and a larger group of users who simply view/consume content. The former provide an important resource to the business model - content - to attract the latter.

youtube - iPad sketches

Sony Playstation

A fifth interesting case regarding the user vs. customer question is the business model of Sony's game console, the Playstation. The users of the Playstation buy their console and in that sense they are customers. However, traditionally Playstation consoles are subsidized in order to make their price more affordable and attract as many users as possible to their game console platform.

Sony does this - and accepts losses on selling consoles - because their most lucrative user/customer segment lies elsewhere. It's the game developers, who make the games for the Sony Playstation and who pay Sony a license fee for every single game sold. Hence, the more users/gamers Sony has, the more attractive it is to developers, the more games are made and sold, and the more license fees Sony pockets. In this sense, the user-base is a key resource to Sony and is its value proposition to game developers.

playstation - iPad sketches

Other Models

There are other interesting models that I haven't visualized. In government services there is also difference between users and customers. We could see beneficiaries of services as users (e.g. regarding grants and contributions) and governments or tax payers as customers (since they foot the bill).

A final model I have briefly looked into from the user vs. customer angle is the insurance model. One could argue that in an insurance scheme a large number of customers are paying for a policy in order to be insured against a hypothetical incident. Yet, only a small group of these customers turn into users because they incur the incident and want to benefit from the insurance policy... In this sense a large number of paying customers (who are not "users") are required to "subsidies" a small group of customers who become users based on an incident.

Finally, ... don't ask me about Twitter ;-)

Join our Business Model App Alpha Testing Team

During the last few weeks we worked on an iPad app that allows you to sketch out business models and simulate it's viability with ballpark figures. Though the app is still very basic I have no doubt it's going to become a game changer. Now you have the opportunity to be among the first to test and influence the app by joining our Alpha version testing team.

Last week we created a new company - The Business Model Foundry - to design, develop, and market a whole new range of software-supported tools that shall help you think through, prototype, test, implement, and manage new business models. The first tool we are working on is an app for the iPad, which will allow you to quickly sketch and simulate business models (as I outlined in my last blogpost). Since this is a totally new tool on a totally new device we decided to test it at a very early development stage already. This sits well with two concepts I recently became a fan of: The Minimal Viable Product by Eric Ries and Customer Development by Steve Blank (who runs one of my favorite blogs). Both stress the importance of testing (software) products and business models with customers at an early stage and developing them in an iterative fashion.

However, we thought it would be a bit boring to just give potential customers access to the early-stage software. Hence, we opted for a more innovative approach: For 150.- USD you can join the exclusive circle of the Alpha Testing Team, which will be involved in the development of the BMGEN iPad App. What will you get?

  • Exclusive access to Alpha test versions of the BMGEN iPad App (starting end of this week/early next week - June 11/14
  • Free lifetime upgrade to all subsequent versions
  • Mention of your participation in the software project
  • Ability to give feedback and influence the development of features and functions
  • If this sounds exciting, please consider joining. Our ambition is not only to create a simple iPad App, but to revolutionize the way innovative business models are conceived and managed. In fact, we are aiming to change the way entrepreneurs and managers work on new business model projects. If you have an iPad, get access to the Alpha test version.

    CAVEAT:

    Please take note of the following important points before buying access:

    • You need an iPad to be able to install the Alpha test versions
    • The early Alpha versions will be extremely raw with limited functionality
    • We will slowly, but steadily build this app into a game changer
    • The first Alpha test App will be available at the end of this week/early next week (June 11/14, 2010)
    • Read the Alpha Testing License Agreement (pdf)
    • First basic App in the iTunes Store to appear somewhere in July/early August October for about 29.99 USD (without lifetime upgrade of course)

    And now come and join us in the club of game changers. This promises to be an exciting journey and even more influential than the Business Model Generation Book (which will be is available in retail outlets across the world US in July!!)... Get access to the very first iPad Business Model App Alpha version now.

    THE TESTERS TEAM NOW REACH OVER 70 PEOPLE - UNFORTUNATELY, WE CAN'T ACCEPT ANYMORE NEW PURCHASES. THE APP SHOULD BE IN THE APP STORE BY OCTOBER

Developing Business Models on the iPad

Some of you know that we are working on an iPad app to help entrepreneurs and intra-preneurs develop innovative business models. We decided to do this as transparently as we have for the book. Please join us on our journey and give us your feedback!

In the slides below we outlined the specs for a minimal viable (app) product (MVP). It is the "heart" of the app we are developing and it will obviously evolve into something more sophisticated over time. But we want to test the MVP with (potential) buyers first...

We have a couple of questions to you:

  • What kind of future functionality would you like to see in the app?
  • What kind of usage scenarios could you imagine for the app and yourself?
  • What do you think of our price of $29.99 - including free updates for some of the early features beyond the MVP?


As you know we really love and value your feedback! Tell us what you think!



Look how one of the early, early software prototypes looks:

 


There are also some videos of our earlier thinking on the app:

scenario: adding an activity with a cost



scenario: for adding a revenue stream



scenario: for opening a financial report

Upcoming Business Model Workshops and Talks

I'm posting a brief schedule of my upcoming workshops and talks during the first semester, because I got a lot of questions about them lately. I try not to post too much self-advertising on my blog, but I need to from time to time so I can support the free content on this site ;-)

My public events are relatively infrequent, since most of my talks and workshops take place inside companies.

  • Keynote Talk, Düsseldorf, Germany (19. March) Creative Summit Nordrhein Westfalen (NRW): Neues Wachstum Durch Neue Business Modelle / in German (website)
  • Workshop (full day), Amsterdam, The Netherlands (23. March): Business Model Innovation - Masterclass (registration)
  • Workshop (half-day), Toronto, Canada (14. April): Exploring Business Model Generation with Alex Osterwalder: A Master Class in Business Model Design (early-bird registration fee)
  • Talk, Toronto, Canada (15. April), Business Model Generation - how to co-create a bestseller guerrilla fashion
  • Workshop (half-day), Gothenburg, Sweden (22. April): Nya grepp om kreativa affärsmodeller / in English (registration)
  • Software Presentation, Geneva, Switzerland (28. April) iPhone Dev Days: Business Model Software for the iPad (website)
  • Special Workshop (full day), London, UK (29. April): London School of Economics: Business Model Design (website)(registration)
  • Workshop (2h) Geneva, Switzerland (5. May) LIFT'10: Business Model Innovation for Start-ups, Corporations and Social Entrepreneurs (website)
  • Workshop (full day), Lausanne, Switzerland (18. May) at the Swiss Gratuduate School of Public Administration (IDHEAP): Reconcevoir vos modèles d'action publique - découverte et application d’une méthode novatrice et pratique / in French (registration)
  • Workshop (full day), Lausanne, Switzerland (19. May) at the Swiss Gratuduate School of Public Administration (IDHEAP): Reconcevoir le management des organisations sportives / in French
  • Keynote, London, UK (14. June) Shine 2010 - Unconference for Social Entrepreneurs (website)

Hope to see you at one of the events!

By the way, on March 17. I'm giving an online interview for the "coaches rising" website (register for free)

A Business Model for Solar Energy

Energy will be, no doubt, one of the dominating issues of the decade and beyond. That's why I was really excited to discover how Jigar Shah, a 34 year old entrepreneur, disrupted the field of solar energy - he achieved that not through technology innovation, as one might expect, but based on an innovative business model.

Last week, my sister Nathalie, a senior environmental lawyer at the International Institute for Sustainable Development (IISD), pointed me to an article in the OnEarth magazine about an organization that has changed the face of the solar energy sector. She had just come from a dinner meeting with Jigar Shah, the founder of SunEdison, which has developed into the largest provider of solar power in the United States. I sketched out SunEdison's business model, which will definitely figure in our new project BusinessModelsBeyondProfit.com. Check out the slides:

The closing paragraph in the OnEarth article was particularly interesting. He stresses that the driver is NOT technology - it's the business model. Jigar Shah says:

"The big area for me has always been to come up with business solutions to address global warming," Shah says. "The thing that people have had a hard time understanding about solar is that it's part of the energy business. While new energy technologies come up all the time, technology is not the driver of the energy industry. The driver is the business model: how you get it financed and how you apply traditional risk-management methods to solar and wind and biomass. That to me is the key to solving global warming."

If you are interested in the state of the solar energy industry (in the US) you should watch Jigar Shah in the keynote below. It's the first part of a total of 6 videos, which you can find on youtube:


Social Media and Business Models

A lot has been written on the value of social media for businesses (Blogs, Wikis, Twitter, Facebook, etc.) - some of it relevant, some of it hype. I will limit myself to mapping out three business model areas where social media can have an impact.

Social media refers to a category of online media or platforms that facilitate discussions, participation, and sharing of various forms of content in a very convenient way. Technologies in this area include blogs, wikis, social networking platforms, micro-blogs, and other platforms that facilitate sharing user generated content. Players - and service providers - in this arena range from Facebook (social network) and Twitter (microblogging), to Youtube (user generated content), LinkedIn, Wikipedia, Flickr, and many, many more. In this blogpost I'm less interested in the technological possibilities of social media, but ask myself how these tools can be instrumental to your business model. I singled out three areas visualized in the Business Model Canvas image below: co-creation, marketing as conversations, and open innovation. As a modern organization, we have, of course, integrated all three of these areas into the production and sales or our bestselling book Business Model Generation (more at the end of this post)

A Co-Creation

Understanding and satisfying customer needs is the basis of any enterprise. So what could be better than integrating the customer into the product or service development process. The question to ask is...

How can social media enable your customers to contribute to value creation?

On the extreme end this means user generated content. Threadless, for example, is a community-based t-shirt company that allows people to submit new t-shirt designs that can be discussed and voted upon on the website. Less extreme example are Amazon.com which allows buyers to review and discuss products, or eBay, which allows the community to evaluate sellers. All this contributes to better value propositions based on customer contributions.

B Marketing as Conversations

Don't you find it annoying when somebody desperately tries to sell you something (remember that last phone marketing call that ripped you out of your deepest concentration..)? Well, hard selling is dead - or at least it's a dying species. The question to ask is...

How can social media enable your customers to become your best advocates/sales people?

Social media is transforming the way companies can market their products and services. The authors of the cluetrain manifesto nicely put this when they state that "markets are conversations".

In a nutshell this means that your most valuable sales force is your existing customer base. You will probably argue that this has always been the case. However, what has changed is that we increasingly rely on our friends and peers to make buying decisions - not company marketing. Hence, you must focus on existing customers as channels to reach their friends and peers... And this is where it ties back into the above point: customers that have participated to co-create value are more likely to become your best advocates.

C Open Innovation

Increasingly organizational boundaries are becoming fuzzy. Companies understand that they need to open up to outside ideas, talent, and patents to leverage their own resources and activities. The question to ask is

How can social media enable your organization to integrate ideas and knowledge from outside its boundaries?

Open innovation is a concept that my friend Henry Chesbrough has eloquently discussed in his books Open Innovation and Open Business Models. Social media has given open innovation another boost. It allows engineers to easily reach beyond company boundaries and it allows R&D departments to effectively collaborate with outside scientists across the world.

An example that I particularly appreciate is the software company Red Hat. The organization's core product, Red Hat Enterprise Linux, is deeply engrained in the freely available open source operating system Linux. A software which could have never reached its current levels of success without the Internet and social media.

Business Model Generation

The book is actually the reason why I wrote this post. Last week I asked my 2'800+ followers on Twitter to retweet (i.e. pass on the message) that we needed help in promoting Business Model Generation in order to improve our Amazon sales rank. This would help us in our negotiations to sell our self-published book to leading publishing houses. In the minutes and hours that followed 16 influential Twitterers helped us regain a decent sales rank in the bestselling management books on Amazon.com.

A special thank you goes to the following Twitterers

@ajenkins @emenel @essen2punt0 @joemmanuelponce @leanbot @LeilaOliva @lylebclarke @michaelscher @NohaMahmoud @petdekoning @robdebob @skfreidel @StefanHagen @stuntspeaker @StUpPal @ThinkWay

The reason why people were willing to help us promote the book among their friends and peers is simple. We had 470 people participate as part of the book project - they helped us co-create the book on the Business Model Hub and got their name in the book as a reward. These participants are the best advocates one can imagine. A warm thank you to all of them.

Many of the above Twitterers stem from that group, others have joined the conversation as fans later on...

Business Model Generation on Amazon.com Now

The first print-run of Business Model Generation was sold out after a few weeks only. We couldn't keep up with demand and were out of stock for a while. Now the book is available again. You can get it directly on Amazon.com in a deluxe or portable version.

Business Model Generation has been selling phenomenally well - and that without a publisher and 0 marketing budget. Last week it even ranked #2 in sales of management books on Amazon.com. For this second print-run we decided to produce two slightly different versions: a deluxe version for your office and a portable version for the road. Deluxe Version

The particularity of the deluxe version is its beautiful cardboard cover and special binding, which allows you to lay it flat open on a table. Yet, it's not only attractive, but also offers you the perfect working experience that you would expect from a hands-on and practical book. However, be careful: deluxe versions are objects of envy - it's not unheard of that copies get stolen when you leave them unsupervised on your desk.

buy now

Portable Version

We introduced the portable version in order to offer you a lighter and more portable copy at a lower price. The content is the same, but its format (perfect bound and softcover) is designed for taking it on the road. Business Model warriors will likely own both versions. One to show off at their office and one to take with them anywhere they go.

buy now

Caveat

Unfortunately, Amazon.com currently restricts us from offering a top-notch service to some customer segments. Readers outside the US cannot benefit from expedited shipping. Also, Amazon.com does not ship the book to Canada, due to internal restrictions. Hopefully, we can find a way around those limitations in the future.

Beta Version Available! Computer Aided Business Model Design

Together with my former PhD supervisor Professor Yves Pigneur (and now my co-author), I have long advocated the utility of some kind of computer aided business model design tool (see here) – in fact my PhD dissertation aimed at building the foundations for that. Now this vision is starting to become reality. One of Yves’ new PhD students has built such a tool on the basis of Yves’ and my conceptual groundwork.

Boris Fritscher, a brilliant student who has just started working on his PhD, has conceived a Web-based tool to sketch and edit business models. Now this Business Model Editor called BM|DESIGN|ER is open to the public in the form of a beta version (I talked about Boris' work previously here and here). The more you test it and play around with it the better it will get. All you need to give in return is substantive feedback! I hope to see the tool on TechCrunch soon - I think it is a substantial basic tool for start-ups to play around with their business model.

Check it out the BM|DESIGN|ER here:
http://bmdesigner.com/

Personally, I believe we can make a lot of progress in the field of computer supported business design. While I am a great fan of working on whiteboards and/or with post-it™ notes, I also think computer-aided systems have an essential complementary role to play (and one day we will be able to conveniently brainstorm with virtual post-it notes).

Some of the main advantages of computer aided business model design over paper are:

  • Highlighting of linkages between business model building blocks throughout a model – e.g. what resources, activities and partners do we need to serve a specific customer segment.
  • Navigating between layers of a business model – e.g. this allows us to look at the different interlinked parts/layers of Amazon.com’s business model, which has expanded from online retailing towards providing Web infrastructure to other companies.
  • Automatically generating financial spreadsheets based on visually conceived business model prototypes.
  • Advanced manipulation of business models, such as storing, merging, comparing, versioning and sharing models.

Of course this all sounds a bit futuristic and it remains to be seen how business people pick up on this. But look at the history of information systems in business and you might be able to trace a trajectory: We started out with modeling accounting information and now have sophisticated software-based accounting systems. Then we started modeling order and warehouse management. That brought us sophisticated enterprise resource planning systems. We moved on and started modeling and redesigning processes. Now we have quite advanced Business Process Management Systems. So what is the next bastion? Business Models: New ways of creating value ;-)

Boris, bravo for providing a first advance in this direction! Let’s have fun playing around with and advancing the BMeditor!!! Boris put all the examples of our upcoming book, Business Model Generation, into the system. That will give you something to start with…

There is No Lack of Business Model Innovation Ideas

Currently I am working our upcoming book "Business Model Generation" on a section about ideation: the art of generating innovative business model ideas.

While working on this section I realized that ideas were not necessarily the problem. They exist in abundance within a company or an industry. I've experienced this with multiple organizations. The issue is selecting the right ideas, turning them into something implementable and then actually DOING them.

Regarding the first issue, selection, the biggest problem is that today's organizational and management structures don't allow good business model ideas to become visible. Interesting business model ideas can come from anywhere in a company. Operations, client services, finance... Yet, they have to be selected by management in order to maybe become real options. More often than not they stay invisible. I'm pretty sure that there were many smart folks in record companies that had good busines model innvation ideas. However, the management of these companies preferred to stick to the status quo... and ultimately become disrupted by illegal downloads and challenged by iTunes.

A solution to this is to put a multi-disciplinary business model innovation task force together. One that has the sponsorship of top management and the board. The task force should be composed of people from various levels of hierarchy, from different age groups, with diverse levels of experience, from different business units and with mixed expertise. The diversity will help ideas to emerge, to be discussed, improved and then selected for implementation.


The implementation issue is more challenging. It requires the willingness of top management and the board to experiment and allow for bottom-up ideas to emerge. Unfortunately, it also requires taking some risks to play with new ideas in the field. But if you look at the major record companies today, the risk of inaction is even bigger. I would argue for maintaining a portfolio of business models of which some may even cannibalize the existing main business model.

A great example of a business model portfolio can be found within Nestlé's coffee business. While the Swiss multinational became big in coffee with Nescafé it's current growth engine is now Nespresso. Nespresso sells espresso machines and pods to the high-end of the market. What is impressive is that Nestlé is internally challenging its new multi-billion espresso-pod money-making machine. They expanded their business model portfolio in coffee with Dolce Gusto, a Nescafé sub-brand targeting the lower end of the market. Dolce Gusto's business model is quite similar to that of Nespresso with some tweaks. Nespresso sells to the higher end of the market, while Dolce Gusto sells to the lower end. Nespresso doesn't sell pods through third party retail, while Dolce Gusto does. Though they are both targeting different customer segments, Dolcé Gusto is still cannibalizing Nespresso to a certain extent. Respect for Nestlé that they allow for this internal competition!

The Power of Immersion and Visual Thinking

I am currently keeping my blogposts to a minimum, because I am focusing on book writing and delivering a small number of keynotes and workshops. However, I haven't stopped experimenting. During the last workshop in The Netherlands I changed the structure of the workshop and I had the opportunity to work together with JAM, a Dutch company focusing on visual strategy facilitation. It was a big success.


One of the main changes I made to the workshop structure was a new focus for the break-out sessions. I gave the immersion into client issues much more space. The workshop had two "client immersion sessions" before actually thinking of drafting an innovative business model around the clients. The ultimate task was to re-invent the consulting business model. Instead of getting them to start with business model innovation immediately I made them think about how consulting clients really feel and start innovating from there. This worked out really well, notably because JAM made the outcomes more tangible through images.

In the first break-out session I asked the groups to make a simple client profile (based on a method from XPLANE, which they call "empathy map"). The goal of this exercise is to think of the client more holistically.



The next break-out session consisted of sketching out the most important client issues. Wouter (1st image below) and Jan (2nd image) from JAM did a wonderful job of making these client issues more tangible through visualizations.



The groups then had a chance to walk around and look at the other groups' work. In addition I asked them to put stickers on the client issues which they found most interesting. This "silent feedback" gave the groups a direction for the following break-out sessions.


After the client immersion sessions I asked the groups to outline the building blocks of their business models with the business model canvas.

At the end of the busy day each group presented their work and we voted for the best new consulting business model.



By the way, the workshop was kindly hosted by seats2meet.com, a company led by Ronald van den Hoff. He is disrupting the meeting space and event venue business with an innovative business model. Workshop participants had a chance to learn about his "lessons learned" when I interviewed him on business model innovation issues during the workshop.


All the other photos of the event can be found on my Flickr page. Big thanks to my business partner Patrick van der Pijl who took the pictures, but more importantly, set-up and managed the event.

Book Chunk Project - prototype

Yves Pigneur's and my book on the topic of "Crafting Innovative Business Models" (working title) is only due in May 2009 (approx.). That is way too long to wait. Many people asked us for early access. Hence, I thought it could be a good idea to distribute the book content in separate chunks before.

The slides below outline the draft of this idea of giving interested people early access to our writing for 24.- $US (or maybe a little more). By subscribing to this so-called "book chunk project" you will get several things (suggest more...):

  • first & exclusive access to raw book content
  • influence authors
  • x installments of book chunks (in a non-linear order - as we write them)
  • 50% discount off the final book (approx.)
  • participate in exclusive book chunk webinars
  • access to templates
  • being part of the business model innovation community

I would be interested in your comments on this and if you would be willing to buy such an early and exclusive access. Do you think the pricing is too low? Any suggestion is welcome. In the meantime have a look at the slides that outline this idea that I would launch very soon if I feel an interest from your side:

Book Chunk Project - prototype
View SlideShare presentation or Upload your own. (tags: book project)

Drawing your Business Model: cooperation with XPLANE, the visual thinking company

I've always been an admirer of the work of XPLANE, the visual thinking company, and its founder Dave Gray. So I'm quite excited to announce that we are now collaborating on visualizing business models. I will speak about the topic at a workshop organized by XPLANE on September 30th in London. The overall theme is "Thinking Visually to Tackle Business Challenges"(flyer).

Find the first XPLANE sketch of how a visualized business model could look like on slideshare:

View SlideShare presentation or Upload your own. (tags: dave xplane)

The XPLANE workshop in London promises to be very interesting. They will apply a creative and innovative approach to problem solving with participants. Personally, I am a firm believer in visual thinking and apply it in all my work. If you want to start learning about this I think the XPLANE event is a good place to start. Workshop goals are:

  • Understand the meaning and value of visual thinking
  • Use a creative and innovative method to solve business challenges
  • Use visual tools to help you generate, evaluate and organise ideas
  • Learn how to use them to contextualise, prioritise and harness change
  • Extend these new techniques and methodology to your team

Find out more about the event in their flyer and if you're interested subscribe on eventbrite.

On XPLANE's website you can also find a multitude of examples of their work. Below just one case study (pdf) that illustrates what they do:

Long Tail Business Models

In today's blogpost I'm sharing a couple of reflections on long tail business models. It is be part of the upcoming book in a section that illustrates some popular management theories & concepts through the business model canvas.

Enjoy the slides:

Long Tail Business Models
View SlideShare presentation or Upload your own. (tags: innovation design)

you can download the slides on slideshare.net:
http://www.slideshare.net/Alex.Osterwalder/long-tail-business-models-presentation/

What the Web has done for me...

I thought this anecdote about how the Web has worked for me might be interesting to you, because this year I am starting to fully reap the benefits of the opportunities that the Web offers freelance thinkers and entrepreneurs like myself.

4 years after launching this blog I can now earn a living from the work generated from this site (i.e. workshops, conference talks and advice). More interestingly is, however, that my approach to fostering business model innovation is starting to be used throughout the globe. This might have been less surprising had I written a book with Harvard Business School Press or had I been professor at a business school like Wharton. Yet, neither is the case. The popularity of my work has mainly come from my web activities...

Now I'm not writing all this to brag. After all, the reach of my work is still absolutely small-scale and I still have a long way to go to get anywhere near the impact levels of thinkers like Henry Chesbrough, John Hagel or even gurus like Gary Hamel or C.K. Prahalad. I'm writing this to show that business concepts that stick with users can now reach a global audience without going through the traditional channels like top publishing houses and Ivy League Business Schools.

Here are the ingredients that made the Web work for me:

  • I write 1-2 posts per week (a bit less at the moment), which is the equivalent of about 2-8 hours time investment
  • Almost all I think, write and do is available for free on my blog. E.g. most of the slides I present at conferences are available on my blog (with a little time lag).
  • I pay attention to getting my blog well referenced in Google. Try googling the expression "business model innovation".
  • I got my work and thinking referenced on Wikipedia.
  • I posted a video recording of my first well paid speaking engagement online. This led to new speaking engagements because people could see me in front of an audience.

The results are the following:

  • My blog now has 20'000+ pageviews/month (growing steadily)
  • 780+ blog feed subscribers (RSS) follow my postings
  • I am starting to get high profile conference invitations (alongside gurus like Henry Chesbrough and Michael Porter)
  • My business model canvas is being applied in places I would have never dreamed of

Paradoxically, I am now writing a book to reach the next level of impact. However, intuitively I know that the book can only succeed if it embraces the Web in new and innovative ways. It will be quite a challenge to reach the world without the marketing might of renowned publishing house...

Your recommendations and insights are highly welcome...

Up-coming Business Model Innovation Workshops & Events

The next few weeks and months I will give some open workshops and will be participating in a couple of events. It would be a pleasure to meet you there! Besides that I am doing a series of private events for corporations (don't forget you can hire me ;-)

Open Workshops

  • 24 Sept. 2008: Amsterdam, Netherlands. Venue: ULURU. Business Model Design & Innovation Workshop (sign-up / few seats remaining)
  • 10 Oct. 2008: New York, US. Venue: Center for Architecture (sign-up)
  • 29 Oct. 2008: Amsterdam, Netherlands. Venue: ULURU. Business Model Design & Innovation Workshop (sign-up)
  • 8. Oct. 2008: Toronto, Canada. Venue: Rotman School of Management. Business Model Design & Innovation Workshop (sign-up) & separate 1h conference talk (sign-up)
  • Nov. 2008: Kigali, Rwanda (to be confirmed).
  • Nov. 2008: Cape Town, South Africa (to be confirmed).

Talks@Events

  • 10. Sept. 2008: Utrecht, Netherlands: Media Congress (web)
  • 11 Sept. 2008: Dublin, Irleland: Innovation Forum 2008 (web)
  • 16 Oct. 2008: León, Mexico: Innovation Event Tecnológico de Monterrey

Unfortunately, I am not present in Asia in the next couple of months. Maybe a local entrepreneur with a strong network sees this as an opportunity to invite me there...

Slideshare Contest: Why Business Models Matter

I finally succeeded to submit a powerpoint presentation to the "world's best presentation contest" on slideshare.net, after some initial problems with the submission options (they simply disappeared before the end of the deadline...).

Please have a look at my slides below on "why business model innovation maters". If you like them please click on the link and go vote. Thanks! As a Swiss I believe in your democratic opinion - but vote "thumbs up" anyways ;-)

What is a Business Model?

Update: Based on the overwhelming interest this post got, I updated and republished the version from 2005

A business model is nothing else than a representation of how an organization makes (or intends to make) money. This can be nicely described through the 9 building blocks illustrated in the graphic below, which we call "business model canvas".

Insight: In addition to this post check out the business model design template

The business model topic is very popular among business people today because in various industries we can see a proliferation of new and innovative business models (i.e. new ways of making money). In several industries new business models are threatening or even replacing established companies and conventional ways of doing business. Just have a look at the music or airline industry.

Hence, the interest in business models comes from two opposing sides:

  • Established companies have to find new and innovative business models to compete against growing competition and to fend off insurgents
  • Entrepreneurs want to find new and innovative business models to carve out their space in the marketplace

Within this context the business model concept is a particularly helpful unit of strategic analysis tailored to today's competitive business environment. It helps executives as well as entrepreneurs increase their capacity to manage continuous change and constantly adapt to rapidly changing business environments by injecting new ideas into their business model.

But what actually is a business model?

In management meetings the question of what a business model is (even what “our” business model is) often remains relatively vague. The main reason for this is because business people have an intuitive understanding of business models. Normal, since the business model is about how an organization makes money, which is a manger’s job after all. However, there is often a lack of a more precise and shared understanding of what a business model is. Yet, such a common understanding is required if we want to have high quality discussions of one’s business model and make important business model decisions.

Therefore we have come up with the 9 building block approach to describing business models. It has the characteristics of any other type of model (e.g. in architecture or engineering).

Like other models it is a simplified description and representation of a complex real world object. It describes the original in a way that we understand its essence without having to deal with all its characteristics and complexities. In the same line of thought we can define a business model as a simplified description of how a company does business and makes money without having to go into the complex details of all its strategy, processes, units, rules, hierarchies, workflows, and systems.

Based on an extensive literature research and real-world experience we define a business model as consisting of 9 building blocks that constitute the business model canvas (readers of this blog will realize that this is an updated and slightly adapted version of the model):

  1. The value proposition of what is offered to the market;
  2. The segment(s) of clients that are addressed by the value proposition;
  3. The communication and distribution channels to reach clients and offer them the value proposition;
  4. The relationships established with clients;
  5. The key resources needed to make the business model possible;
  6. The key activities necessary to implement the business model;
  7. The key partners and their motivations to participate in the business model;
  8. The revenue streams generated by the business model (constituting the revenue model);
  9. The cost structure resulting from the business model.

Origins of the term business model

The term business model became popular only in the late 90s, which, personally I think is related to the rapid erosion of prices in the IT and telecom industry. The roots of my assumption lie in Transaction Cost Economics (TCE). Because it became so cheap to process, store and share information across business units and other companies all the way to the customer, many new ways of doing business became possible: Value chains were broken up and reconfigured; Innovative information-rich or -enriched products and services appeared; New distribution channels emerged; More customers were reached.

Ultimately this lead to globalization and increased competition, but, as described above, it also led to new ways of doing business. In other words, today there is a larger variety of how companies can make money: this means new in terms of what they do, how they do it and for whom they do it...

For managers and executives this means that they have a whole new range of possibilities to design their businesses. This results in innovative and competing business models in the same industries. Before, it used to be sufficient to say in what industry you where in, for somebody to understand what your company was doing. All players had more or less the same business model. Today it is not sufficient to choose a lucrative industry, but you must also design a competitive business model. In addition, increased competition and rapid copying of successful business models forces all players to continuously innovate and adapt their business model to gain and/or sustain a competitive edge.

Companies that thoroughly understand their business model and know how the building blocks relate to each other will be able to constantly rethink and redesign these blocks and their relationship to innovate before their business model is copied.

Business Models & Innovation

The term business model is also closely related to innovation. As I mentioned, the business model concept is related to a whole new range of business design opportunities. There are examples of business model innovations in each of the 9 building blocks described. The most obvious is innovating in the value proposition. When mobile phones appeared in the market they offered a different value proposition than fixed line phones. In the early days of the Internet popular indexes like Yahoo! helped people find information on the Web. Regarding target customer segments, low-cost airlines like EasyJet have brought flying to the masses. Dell became really successful by exploring the web as a distribution channel. Gillette has made a fortune by establishing a continuous relationship with customers based on its disposable razors. Apple resurged based on its core capacity of bringing design to computers and electronic gadgets. Cisco became famous for its capacity of configuring activities in new and innovative supply chains. Intel thrived for its capacity to get partners to build on its processing platform. Google tapped in an innovative revenue streams by linking highly specific search results and content with text ads. Wal-Mart became dominant by its ability to slash cost throughout its business model.

For conference or workshop engagements on the topic of business models, please contact me at alex@businessmodeldesign.com and consult my speaker's profile (pdf)

Online Seminar : Introduction to Business Model Design & Innovation

Date: June 26, 17 :00 CET (Geneva, Berlin, Paris, Madrid)
Price: 150.- USD
Presenter: Dr. Alexander Osterwalder
Duration: 1 hour and question & answer

Are you interested in business models and business model innovation? Do you wonder how this topic will impact you, your company and your competitive environment in the future? Then you should participate in this web seminar. It will introduce you to the fundamentals of business model thinking – a topic that is still too often poorly defined.

In this web seminar you will learn why business model thinking is so important today. You will see how innovative business models are disrupting the airline and music industry. This is likely to challenge you to reflect on the consequences for your own company and industry. To facilitate this reflection we will learn how to use the Business Model Canvas. This approach will allow you to easily sketch out your own and your competitors’ business models. Throughout the web seminar we will use interesting and innovative cases from various industries to get a better grasp on the topic of business model innovation.

Key take-away of the web seminar - you will:

  • sense why it is indispensable for you to start thinking in terms of business models in today’s competitive landscape
  • learn how you can describe your own business model based on the intuitive and pragmatic business model canvas
  • understand what business model innovation is about and how it differs from other types of innovations (e.g. product or process innovation)
  • learn about interesting and innovative cases of business model innovation

Who should participate?

Managers, entrepreneurs, intrapreneurs, business strategists, consultants, academics, venture capitalists.

Caveat

In this introductory seminar we will not go into depth regarding the business model innovation process inside companies. This particular topic is reserved for a future seminar focusing on just that. Similarly, we will not go into depth as to business model assessment, which is also reserved for a future seminar. However, we strongly recommend that people interested in the special-topic seminars scheduled at a later date, follow the introductory web seminar.

General Information

The web seminar will consist of a one hour lecture by Dr. Alexander Osterwalder based on a set of PowerPoint slides. It will be followed by a question and answer session. Within 24 hours of your online registration and payment you will receive an url by email that will allow you to access the web seminar. You will receive a reminder email the day prior to the event including the url that gives you access to the web seminar. The session will run on the webex platform by Cisco.

Cancellation Policy

For cancellations received more than 48 hours prior to the start of the seminar, we will deduct a US$50 administrative fee and refund or credit the remaining fee. There will be no refund or credit for cancellations received less than 48 hours prior to the start of the online seminar. All cancellations or substitutions must be received in writing.