I've had this book on my shelf and after mowing it down in 24hrs, have to admit it's one of the better entrepreneurship books I've read that deserves to be up there with lean startup and blue ocean strategy. In hindsight, this would have been useful to read before I started my own business, let alone for completing business model canvasses in the three entrepreneurship classes that I bought it for.
Business Model Canvas
CS - Customer Segments
Mass Market
Niche Market (supplier buyer relationships)
Segmented
Diversified (unrelated segments, e.g. AWS & customers)
Multi-sided platforms (e.g. marketplaces)
VP - Value Propositions
Newness (cell phones, impact investing)
Performance (faster PC's)
Customization
Getting the job done (Rolls-Royce Aircraft engines, pay per hour of flight time)
Design
Brand
Price
Cost Reduction (Salesforce CRM software - cheaper than building by self)
Risk Reduction (outsourced IT services)
Accessibility (NetJets)
Convenience/Usability (iTunes)
CN - Channels
Own - Direct: Direct Sales Force
Own - Direct: Web Sales
Own - Indirect: Own Stores
Partner - Indirect: Partner Stores
Partner - Indirect: Wholesaler
CR - Customer Relationships
Personal Assistance - call centers, email
Dedicated Personal Assistance - Key account managers
Self Service - Google, Uber
Automated Service - recommendation engine
Communities - GSK overweight medicine
Co-creation - youtube, Amazon merchants
R$ - Revenue Streams
Asset Sale - books, cars
Usage Fee - hotel rooms, package delivery
Subscription Fee - WoW
Lending/Renting/Leasing - Zipcar
Licensing - Intellectual Ventures
Brokerage Fees - Real Estate
Advertising
KR - Key Resources
Physical - IT, warehouses, infrastructure
Intellectual - Qualcomm IP
Human - Novartis Scientists
Financial - Ericsson debt leverage
KA - Key Activities
Production
Problem Solving - consultancies, hospitals, service
Platform/Network - eBay, Microsoft
KP - Key Partnerships
Optimization and economy of scale
Reduction of Risk & Uncertainty - Blu-ray, bluetooth, collateralized bargaining
Acquisition of a particular resource - Android OS
C$ - Cost Structure
Cost-driven - SWA, Ryanair
Value-driven - premium and luxury
- Fixed Costs, variable cost, economies of scale, economies of scope
Patterns
3 core business types
- Bundle or unbundle? Integrate or decentralize?
- Challenge: Costs, org culture
product innovation
- First mover advantage, speed is key
- Battle for talent, low barriers to entry, many small players
- Employee-centered, coddle the stars
Customer Relationship Management
- High customer acquisition costs, economies of scope
- Battle for scope, rapid consolidation, few players dominate
- High service-orientation
infrastructure management
- High fixed costs, economies of scale
- Battle for scale, few players dominate
- Cost-focused, standardization, efficiency
Long Tail Business Models
- Selling a large number of niche products by multiple providers
○ Netflix licensing high # of "cult" movies with high WTP
○ Ebay relying on auctioneers selling "non-hit" items
- Challenge: targeting less profitable segments can be costly
Multi-sided platforms
Chicken & egg dilemma - subsidize 1 customer segment to get started
- Can we attract sufficient customers for each side of the platform?
- Which side is more price sensitive?
- Which side will be enticed by a subsidized offer?
VP: 1) attract users 2) matchmake 3) reduce costs by channeling transactions
- Challenge: insufficient customer acquisition
Free
- Advertising-based: need to generate high traffic with low platform costs
- Freemium: <10% are premium customers, require low MC; platform is key
- Challenge: high price of premium dissuades customers
bait & hook (blades & razors model)
- Require a strong brand
- Lock-in switching costs
Open Business Models (C&D)
- Outside-In: NIH --> Buying innovation (P&G C&D)
- Inside-Out: Not Sold Here --> Selling Innovation (GSK selling small patents)
- Challenge: high cost of R&D
Design
Customer Insights
Empathy map
- what does she see & hear (context)
- What does she say & do? (attitude and appearance)
- What does she think & feel (what really counts)
○ Pains (frustrations/fears) and gains (wants/needs)
Ideation: Start with the BMC, use what-if questions
Resource-driven: originate from existing infrastructure or partnerships
- AWS based on IT infrastructure
Offer-driven: create new value propositions that affect other building blocks
- Cemex 4hr delivery vs. 48hrs
Customer-driven: based on customer needs, access, or convenience
- 23andme mass customization
Finance-driven: new revenue streams or cost structures
- Xerox leasing model for new copiers
Multiple-epicenter driven
- Hilti move from selling tools to renting tools
Process
- Choose a Diverse team
- Key question & background/context immersion
- Wide range of innovations considered
- Criteria selection: what is the most important criteria?
- Prototyping: sketch out each business model
- Brainstorm warmup: tactics of creativity (silly cow, weird/opposite/extreme)
Visual Thinking
Post-it notes & sketches/drawings
- Understand the essence: big picture, relationships, collective reference point
Tell a story with the BMC - sell internally/externally
- Map the BMC, draw each element
- Place them 1-by-1, define the storyline
- Tell the story
Prototyping
- Not a simulation, but a thinking tool to help explore possibilities
○ Watchout: "business as usual" mentality towards incremental improvements
○ Watchout: "need more data" - you will get it by prototyping
"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." - Jim Glymph, Gehry Partners
Storytelling
- Make the new tangible
○ POV of a company employee: showcase inner workings of the org
○ POV of a customer: showcase how the organization creates value for her
- Clarify how your business model solves a customer problem
- Engage people by emotion rather than logic
Scenarios
Use scenarios to guide business model design; identify critical customer segments
Future scenarios - driving forces matrix
- Create a new business model for each scenario quadrant
Strategy
Map the design space based on external factors (simplified porter)
- market forces
○ Market issues, market segments, needs & demands, switching costs, revenue attractiveness
- industry forces
○ Competitors/incumbents, new entrants/insurgents, substitutes, suppliers & value chain actors, stakeholders
- Key trends
○ Technology, regulatory, societal/cultural, socioeconomic
- macroeconomic forces
○ Global market conditions, capital markets, commodities/resources, economic infrastructure
- Good SWOT guideline on p217
Blue Ocean Strategy - fundamental differentiation
- Eliminate: which factors can you eliminate that the industry has long competed on?
- Reduce: Which factors should be reduced well below industry standard?
- Raise: Which factors should be raised well above industry standard?
- Create: Which factors should be created that the industry has never offered?
Increase value while decreasing costs - p229 Cirque du Soleil & Wii examples
- Raise/Create right side value (CR, CS, CH, R$ & VP)
- Eliminate/Reduce left side costs (KA, KP, KR, C$ & VP)
Process
Starting Point
- Business Model Design & Innovation
○ Satisfy market: fulfill unmet need (Lulu.com, NetJets, Tata car)
○ Bring to market: new technology or product (swatch, Nespresso)
○ Improve market: improve or disrupt (Wii, Dell, Skype)
○ Create Market: entirely new business (Uber, Google, Diners Club)
- Factors Specific to Established Organizations
○ Reactive: out of a crisis with existing business (Wii)
○ Adaptive: adjusting or improving business for defense (P&G C&D)
○ Expansive: Launching a new tech or service (iPod, Nespresso)
○ Pro-active/explorative: preparing for future (AWS, car2go)
5-phases of business model design
- Mobilize: setting the stage - BMC, storytelling
○ Frame project objectives, test preliminary ideas, plan, assemble team
○ Build legitimacy, engage vested interests early
○ Watchout: overestimation of business potential (red team it)
- Understand: immersion - customer insights, visual thinking, scenarios
○ Scan environment, study potential customers, interview experts, research context
○ Critical to develop customer empathy, question industry assumptions + status quo
○ Watchout: over-research (paralysis by analysis), pre-commitment bias
- Design: inquiry - ideation, prototyping, blue ocean
○ Brainstorm, prototype, test, select
○ bolder model = higher level of uncertainty; watchout for short term focus
○ Watchout: watering down or squashing ideas too early, falling in love too early
- Implement: execution - business models strategy
○ Communicate and involve, execute
○ Manage uncertainties, monitor risk/reward expectation, manage roadblocks & sponsorship via communication campaigns
○ Watchout: weak or fading momentum
- Manage: evolution - evaluating business models
○ Scan the environment, continually assess the business model, rethink & tweak
○ Manage a portfolio of business models to re-insert as appropriate
○ Watchout: becoming a victim of your own success