Interview with InnovationManagement

Earlier this week Karin Wall, chief editor at InnovationManagement, interviewed me about my work. You can check out the blogpost or read the interview below.

Karin: 1. What is innovation management to you? It’s about harnessing the knowledge, experience, and passion of a company’s employees in order to continuously create value and increase returns. That means building the right managerial and organizational structures, providing the right incentives, and fostering the right innovation culture that promotes the development and implementation of new ideas. That might sound like a grandiose task, but it can start with something as simple as building meeting rooms with whiteboards and moveable furniture. However, the most important is consistency. You need to show that you’re serious about innovation.

Karin: 2. What’s the most satisfying part in your job?

When people who never before have read a business book put our innovation tools to work and get better results. Our team spends an endless amount of time to make the concepts we come up with as simple, as accessible, and as applicable as possible. It’s particularly since my co-author, Yves Pigneur, and I have started working with designer Alan Smith that we achieved a breakthrough. We now strive to change the way business books and business tools look: simple, accessible, and useable. Tackling big questions like that is the most satisfying in my work.

Karin: 3. And the most frustrating parts?

When great ideas and passionate innovators get ‘killed’ by internal company politics or 19th century management structures. In many large organizations politics has become more important than value creation. That’s why there’s an urgent need for management innovation: to enable passionate innovators to strive within large organizations and not just as start-up entrepreneurs. Many of the most brilliant innovators will leave their organizations to build their own company because they can’s strive within. The ‘war for talent’ is still a big topic, but I’m not so sure companies really understand what it takes to attract and satisfy innovators. A fat paycheck alone won’t suffice.

Karin: 4. What’s your next big challenge?

I’m working on a couple. The first one is about building software-supported tools that boost business model innovation. The challenge is to make them so simple, intuitive and accessible that we can reach new audiences: for example first-time entrepreneurs with a new idea, but no formal business education – all the way to senior executives. Hence, we started working on an app for the iPad with which you can sketch out business model prototypes.

The second challenge I’m working on is to design conceptual tools that helps so-called social entrepreneurs build businesses that make a profit and change the world. Increasingly, business model innovation allows tackling the big issues in the world (e.g. poverty alleviation, sustainability, social issues) with innovative and profitable models.

The third challenge is simply about continuing to grow the tools for (business model) innovation. We are trying to achieve this in an open source manner. We designed some tools to start with, such as the Business Model Canvas, and hope others will contribute to this kernel. For example, we are currently working with Sillicon Valley guru Steve Blank, to integrate his method, Customer Development, with ours. We need an innovation toolbox that goes beyond the individual authors who come up with the methods.

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.

Ambition: Building Business Models that Matter

As business people we have a powerful tool in our hands: the knowledge of how to build, run, and manage businesses. Let us be ambitious and put that knowledge to work for things that really matter.

But please don't get me wrong. I'm not talking about so-called "social corporate responsibility". Nor am I talking about "pro bono work" for social projects, or about "giving back", a phrase that so many successful business people like to use. No, what I am talking about is the ambition to build sustainable business models that have a social, environmental and/or development impact written in to their DNA. In other words, business models that make a difference by their "mere" success. Business Models that Matter

Take Grameen Bank, to use a very popular and widely discussed business model with an impact. The Bangladeshi institution makes micro-loans, mainly to women in Bangladesh. This allows the women to build micro-businesses and earn sustainable incomes for them and their families. The success of Grameen Bank's business model has a substantial impact on poverty alleviation and the social status of these women entrepreneurs.

A completely different example is Max Havelaar, an originally Dutch and now pan-European fair trade label. The organization behind the concept has been self-financing its business model since 2001 through licensing fees. Products bearing its label (e.g. coffee, bananas, flowers) are sold through supermarkets at a competitive price. The label provides consumers with the assurance that a fair price was paid to the producing farmers in the South. To make that possible a minimum of intermediaries are used to bring those products to markets in the North.

Another inspiring example is Acumen Fund, founded by Jacqueline Novogratz, the author of The Blue Sweater. The fund invests in business models that generate financial and social returns. It particularly looks at business models that can be effective in reaching the “base of the pyramid” (BoP)—or the billions of poor without access to clean water, reliable health services, or formal housing options.

Real Ambition

Business models of this type is what we should really aspire to build as business people. Trying to tackle business issues of this level of difficulty and relevance, is what I call real ambition. "Difficulty", because it's not "just" about weaving profits into the business model's DNA, but also impact. "Relevance", because I sincerely believe that innovative business models can make a substantial contribution to helping solve some of the pressing global issues of our times (poverty, sustainability, inequality, healthcare...).

Building business models that merely pursue profits almost pale as a hedonistic or pecuniary quest aside the grand challenge of building business models that matter. Let us at least allocate some of our time and intellectual capacity to this quest of designing and implementing relevant business models. I am convinced that powerful innovative business models are one of the major tools (besides regulation, etc.) that can bring systems level change and transformation. Let us take up the challenge

Peepoople - a case study to challenge your creativity

To seduce business people to think about business models that matter, I get them to work on a different type of business model in my workshops. I get them to brainstorm on innovative business models for Peepoople, a Swedish organization that has developed a self-sanitizing toilet bag that is biodegradable and turns into fertilizer after usage. With the right business model this organization could potentially bring toilets to over 2 billion people who lack proper sanitation infrastructure.

Check out the video interview with Peepoople's CEO Karin Ruiz and propose some innovative business models that could help her organization to scale and succeed. I use the video to introduce the case study challenge.

(never mind the video quality - we did this interview over Christmas with Skype when Karin was on vacation in Uruguay / also, please note that I didn't really know how to make a natural-sounding voice-over...)

Last but not least: check out our new project on business models that matter: BusinessModelsBeyondProfit

Mapping Business Models (a Knowledge Game)

Mapping out a business model with a group of people is like playing a game. That's what I came to realize when my friend and leading visual thinker, Dave Gray, introduced me to his new project called Knowledge Games.

I was instantly fascinated by the project, because it is extremely relevant for anybody who wants to understand how creative work is starting to be organized in today's organizations. Yet, most interestingly, the Knowledge Games project is utterly practical, since it aims to outline a series of games designed to help you get more innovative, creative results in your work. The authors of the project, Dave Gray, Sunni Brown, and James Macanufo are on the best path towards creating the next reference guide for the creative business professional and business innovator. The metaphor of games refers to the most natural of human mechanisms of exploring the world: games & play. And what could be more important than exploration when it comes to defining strategy and business models in a competitive environment characterized by volatility, unknowns and constant change:

Games come naturally to human beings. Playing a game is a way of exploring the world, a form of structured play, a natural learning activity that’s deeply tied to growth. Games can be fun and entertaining, but games can have practical benefits too.

When Dave asked me to formulate the usage of the Business Model Canvas as a Knowledge Game I was immediately hooked. Here is the blogpost I wrote for the Knowledge Games project (check out the original post):

Objective of Play: Visualize a business model idea or an organization's current and/or future business model in order to create a shared understanding and highlight key drivers.

Number of Players: 1-6 (depending on the objective). Works well individually to quickly sketch out and think through a business model idea or an interesting business portrayed in the press. To map an organization's existing and/or future business model you should work in groups. The more diverse the group of players (marketing, operations, finance, IT, etc.), the more accurate the picture of the business model will be.

Duration of Play: Anywhere between 15 minutes for individual play (napkin sketch of a business model idea), half a day (to map an organization's existing business model), and two days (to develop a future business model or start-up business model, including business case).

Material required: Mapping business models works best when players work on a poster on the wall. To run a good session you will need the following:

  • A very large print of a Business Canvas Poster. Ideally B0 format (1000mm × 1414mm or 39.4in × 55.7in)
  • Tons of sticky notes (i.e. post-it® notes) of different colors
  • Flip chart markers
  • Camera to capture results
  • The facilitator of the game might want to read an outline of the Business Model Canvas (free 72 page preview of Business Model Generation



How to Play: There are several games and variations you can play with the Business Model Canvas Poster. Here we describe the most basic game, which is the mapping of an organization's existing business model (steps 1-3), it's assessment (step 4), and the formulation of improved or potential new business models (step 5). The game can easily be adapted to the objectives of the players.

  1. A good way to start mapping your business model is by letting players begin to describe the different customer segments your organization serves. Players should put up different color sticky notes on the Canvas Poster for each type of segment. A group of customers represents a distinct segment if they have distinct needs and you offer them distinct value propositions (e.g. a newspapers serves readers and advertisers), or if they require different channels, customer relationships, or revenue streams.
  2. Subsequently, players should map out the value propositions your organization offers each customer segment. Players should use same color sticky notes for value propositions and customer segments that go together. If a value proposition targets two very different customer segments, the sticky note colors of both segments should be used.
  3. Then players should map out all the remaining building blocks of your organization's business model with sticky notes. They should always try to use the colors of the related customer segment.
  4. When the players mapped out the whole business model they can start assessing its strength and weaknesses by putting up green (strength) and red (weakness) sticky notes alongside the strong and weak elements of the mapped business model. Alternatively, sticky notes marked with a "+" and "-" can be used rather than colors.
  5. Based on the visualization of your organization's business model, which players mapped out in steps 1-4, they can now either try to improve the existing business model or generate totally new alternative business models. Ideally players use one or several additional Business Model Canvas Posters to map out improved business models or new alternatives.

Strategy: This is a very powerful game to start discussing an organization's or a department's business model. Because the players visualize the business model together they develop a very strong shared understanding of what their business model really is about. One would think the business model is clear to most people in an organization. Yet, it is not uncommon that mapping out an organization's business model leads to very intense and deep discussions among the players to arrive at a consensus on what an organization's business model really is.

The mapping of an organization's existing business model, including its strengths and weaknesses, is an essential starting point to improve the current business model and/or develop new future business models. At the very least the game leads to a refined and shared understanding of an organization's business model. At its best it helps players develop strategic directions for the future by outlining new and/or improved business models for the organization.

Variations: The Business Model Canvas Tool can be the basis of several other games, such as games to:

  • generate a business model for a start-up organization
  • develop a business model for a new product and/or service
  • map out the business models of competitors, particularly insurgents with new business models
  • map out and understand innovative business models in other industries as a source of inspiration
  • communicate business models across an organization or to investors (e.g. for start-ups)

Interviews on Music Industry Business Models

I admit, I have been posting about the music industry too much recently. However, by studying it we can learn a lot about business model innovation in general (or a lack of it).

After my keynote at the Eurosonic Noorderslag music industry event I gave a short interview. Check it out and don't miss out on the interview with Niklas Ivarsson of Spotify (promise: my next blogpost will certainly not be about the music industry - I will explain how to use the Business Model Canvas to play a game).

Spotify is one of the hot start-ups in the music industry. I portrayed the company's business model in my keynote by sketching it out with the Canvas. Niklas Ivarsson, their global head of licensing, outlines the services of his company in the interview below. Interestingly, he also explains how many users prefer using Spotify rather than relying on piracy for music.

The Music Industry (part II) – two of the new models

It was fun to give a keynote on business model innovation at Eurosonic Noorderslag, Europe’s most important live music industry conference. The music industry is more or less a playground (and battlefield) of new business models

In this second blogpost (read part I) on the music industry I present two of the examples of innovative business models in this area, which I presented during my keynote talk: Sellaband and Spotify. Both companies were actually present during my presentation.

While in the past the music industry was characterized by one dominant business model design (the one of the major recording companies), the future will be characterized by multiple competing business models.

There was also an interesting discussion in the panel after my talk, which hosted Nokia, Spotify and rights holding company Buma/Stemra. One of the elements pointed out was a the competition between business models based on ownership of music (e.g. download) versus access to music (e.g. streaming).

Check out my slides for an illustration of Sellaband's and Spotify's business model:

The Music Industry (part I) - what's broken

Next week I'm giving a keynote on business model innovation at Eurosonic Noorderslag, Europe’s most important live music industry conference and showcase festival for new talent.

While the music industry provides sufficient material for a whole book on business model innovation, I will simply package some thoughts in two blogposts. The first part is on "what's broken". The second part will be on the fact that

Today's music industry is a business model playground - and to a certain extent battleground

It is quite a particular industry because of its high concentration of power. 85% of the recording industry, the most important subset of the music industry, is controlled by only four players, Sony Music Entertainment, Universal Music Group, Warner Music Group, and EMI (source 1, 2). That didn't prevent them to screw up when it comes to business model innovation. In fact, it probably is one of the root problems.

Check out the slides below for a brief outline of the "old" recording industry business model and an assessment of where it is broken. After reacting only slowly to the external pressures on their "old" business model the major record companies are now slowly experimenting more seriously with new models (topic of part II of this blogpost).

Although the major record companies are engaging in new business models, I don't think they are aware of the extent of flaws in their "old" model. Some points that their executives should keep in mind when they brainstorm on new models:

  • Recording companies are fighting piracy, while that won't win them "the battle".
  • Albums sales are out in the digital world - they are unbundled into single songs (e.g. iTunes).
  • The price of albums and songs (not necessarily music in general - e.g. services) will inevitably move towards ZERO.
  • Distribution has become a commodity because of the Internet, attention is the new scarcity.
  • Talent and hits will be discovered by other mechanisms than those that the majors have in place - social networks are what drive music sales today.
  • The old model carries an outmoded legacy cost structure (talent discovery/marketing), which is unsustainable.
  • The balance of power between recording companies and artists is inevitably moving towards artists.
  • The future of music is all about hits AND the Long Tail of music.

Business Model Management - a defining topic for the next decade

Business Model Innovation is on the agenda of many CEOs of incumbent organizations and in the DNA of countless insurgent start-ups. Yet, executives and entrepreneurs should already look beyond "mere" innovation towards managing business models.

Staying ahead of competition requires more than an impressive one-time business model innovation stunt. It requires the careful evaluation and improvement of one's more established business model (cash cows), while proactively playing with a portfolio of new business models. This can be presented as a spectrum ranging from "improving business models" to "disrupting/inventing business models". Managing Business Models

Improve: Continuously assess and improve your more established business models, notably through incremental innovation.

Disrupt, Invent: Pro-actively develop and manage a portfolio of disruptive and entirely new business models that will allow you to maintain a competitive advantage in the future. In some cases these new business models may cannibalize your existing business model in others they may be complimentary. Some companies my prefer an acquisition rather than a development strategy of new business models. However, it still requires a deep understanding of the new and emerging models.

Companies that have failed to manage the entire spectrum of business model management include Xerox who has popularized the dominating photocopying business model in the 60s (see Henry Chesbrough's work for details) or Dell, which has popularized direct sales of PCs through the web. Both have introduced new business models and come to dominate their field, but failed to reinvent themselves.

Managing Business Models - examples

Companies that seem to be managing the entire spectrum of business model management include, for example, Amazon and Daimler. The former is constantly improving it's online retailing business, while building new business models with large growth potential (e.g. Amazon Web Services that allow renting storage space and computing power). The latter is improving it's core business (after some painful merger adventures), while exploring new complementary business models invented by it's Business Innovation Department. In 2009 that department experimented with Car2Go, an interesting mobility concept that allows people to rent and drop-off cars on the fly anywhere in a city. With this concept Daimler intends to exploit the continuing trend of urbanization and problems of congestion and individual transport.

Customer Feedback not on elBulli's Menu

I just came across an interesting post on Harvard Working Knowledge. Julia Hanna writes about a Harvard Business School case study that shows how Chef Ferran Adrià creates innovative customer experiences in his world-famous restaurant elBulli.

elBulli's numbers are impressive:

Each year, some 2 million hopeful diners vie to be one of the fifty customers he serves each evening for the six months that elBulli, his restaurant, is open.

However, what struck me most about the article was Ferran's focus on creating a unique customer experience. This includes a two hour travel from Barcelon to the restaurant on narrow, twisting mountain roads. Another example is elBulli's mysterious reservations system. It's more like a lottery system. If you are lucky to "win" one of the 8'000 available bookings a year, you are given a date and time to show up. This is everything else than convenient for customers.

elBulli seems to violate any common sense marketing rule (e.g. good location, listening to the customer, etc.). More interestingly, what elBulli does is also the opposite of the new "design thinking mantra" of observing customers and then designing services according to the gained insights.

In fact, elBulli's magic and success ultimately lies in Ferran Adrià's passion and his desire to create a one-in-a-lifetime experience. Now that takes real leadership! And in my opinion leadership is one of the most under-discussed ingredients of innovation. Other great examples of innovation leadership include Steve Jobs at Apple or Elmar Mock at Swatch in the 80's.

Business Model Generation Now Available

The waiting is over. Our new book "Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers" is now on the market. Yesterday we shipped over 1'000 pre-purchased books to more than 55 countries.

Enjoy the extensive online preview below and the FREE 72 page pdf preview of Business Model Generation. In order to keep the price affordable we are selling it over our book website for the first few months before distributing it through Amazon.com.

We are curious to hear about your feedback regarding content and form. You may also want to have a closer look at the story and business model of the book, which are very special - more on that at the end of the preview.

The Challenges of an Innovation Journey (an Author's Perspective)

Our upcoming book Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers (10% pre-purchase discount) is literally on the way to the printing press – time to summarize the experience.

The past 14 months have been an exciting, but also very exhausting innovation journey. From all my experiences with innovation (I have helped build two and sell one organization) this has been by far the most challenging one. It is only thanks to a great team that this project has produced a powerful book (Yves Pigneur: Co-Author, Alan Smith: Design, Tim Clark: Editing, Patrick van der Pijl: Production). So how did the journey look like: Starting Point

Goal:

  • Produce a book on the topic of business model innovation that stands out in a market where countless strategy and management books are published every year

Assets:

  • a “willing” and enthusiastic co-author with the best analytical and structuring skills I can imagine: My former PhD supervisor Prof Yves Pigneur
  • a reasonably well frequented blog on business models with a global audience
  • a business model innovation approach increasingly practiced around the world, notably in companies such as 3M, Ericsson, Deloitte, and Telenor (based on my PhD dissertation and blog)
  • a variable income stream from keynote talks and workshops that almost covers the living costs for my little family (invitations for gigs solely through my blog) and allows for writing

Handicaps:

  • “Competing” in a field of big name gurus from Harvard, Insead, Wharton & Co., while I am mainly known through my blog

Initial Ideas:

  • Publish the book based on an innovative business model to underline the importance of the concept
  • Finance the book through corporate sponsors who would have their logo on the cover
  • Bypass publishers
  • Sell mainly through Amazon.com

Of course things turned out differently than I initially imagined. It was actually much more exciting, though I hadn’t foreseen most of the obstacles. But let’s first look at the end result of the journey.

Outcome:

  • a highly visual, full color, beautifully designed, and practical book with 280 pages on business model innovation
  • strong differentiation from traditional strategy & management books
  • 470 co-authors who have contributed to making this a better product and who have partially financed the endeavor through their access fees to the Business Model Hub where the co-creation has take place
  • Pre-sales through our own website www.businessmodelgeneration.com that have contributed to financing the first print run
  • Successfully bypassed publishers (I even got an invitation by the German publishing industry to show how we’ve done it)

What I realized during the project was that Business Model Generation is spearheading an entirely new generation of management books: designed, visual, co-created, approachable and applicable. We had to create entirely new systems and processes to actually produce such a book.

During the work with our creative director and designer, Alan Smith from The Movement, I realized how powerful design is to create a good management book. It’s not “just” about the content, but also about the form. Management concepts are inherently visual, because they deal with simplifying the complexity of today’s business environment in order to make it manageable. Not using visuals to convey these concepts seems silly.

Good design can make management books much clearer and more functional – and as a side effect also more beautiful. As a result of our project I have become intolerant for old-style text-heavy management and strategy books.

So what are the key lessons learned that I could share with writers of future management books?

Lessons learned:

Pros:

  • Co-creating the book in a completely transparent way on an Internet platform has been a wonderful experience. We regularly shared content chunks in a very raw and unedited format with 470 co-authors. In addition we gave insights into our challenges and the design process. The feedback and comments led to a greater product - though responding to every one of the 1’300+ comments and integrating them into the book was extremely time consuming. The positive aspect was to see how enthusiastic the crowd was and how some people started to feel ownership of the product. Rightly so, since they contributed and will have their names printed in the book.
  • Designing the book under the creative direction of Alan Smith has been an eye-opening experience. I couldn’t imagine writing a text-only business book anymore. Impossible. It just wouldn’t make sense. Design and visualization is – in my opinion - indispensable to convey business concepts. More importantly even, discussing the design of content with Alan helped crystallize key concepts of the book. Thus, design thinking has become core to producing content rather than just an afterthought to make the book look good.
  • Differentiation has been “easier” than expected. What we have done in terms of co-creation and book design is truly unique and has attracted many, many curious people. I think it was the only possible path for us “underdogs” in this field of mostly North American gurus (sometimes with Indian roots ;-). Sales will tell.

Cons:

  • Playing underdog is tough. The players who we hoped could sponsor the book project didn’t see the potential and didn’t understand. Now that it’s done they are showing up. Too late – we covered the risk of the project ourselves and succeeded. The premium to join now is high!
  • Resources were extremely limited. It is only thanks to the “sacrifices” of the entire core book team that we could bring this project to fruition. More money would have made the process much easier, yet it probably wouldn’t have led to a better end product.
  • Lacking the infrastructure to do what we wanted to do was a challenge. There is no off-the-shelf platform on the Web where an author can co-create with readers and ask them for a participation fee. We tinkered with Ning and Paypal and my blog to put something workable together.
  • Amazon.com is a must-have distribution channel. However, to sell on Amazon we must give them 55% of our sales price. This leaves us with 45% to cover production costs and shipping to their warehouses. We will probably have to charge a much higher price than we want to simply to cover our costs. However, solely selling at a reasonable price through our own website www.businessmodelgeneration.com based on a Dutch fulfillment center is not an option. Amazon has a de-facto monopoly…

Those were some initial thoughts… There is certainly more and I will write more when we have started to deliver books end of September.

Have a look at the “making of” pages coming directly from Business Model Generation to learn more about what we’ve done.

Making of...