Session 2: Business Model Canvas & Value Proposition Canvas

Types of Revenues

* Asset sales (selling an item) * Usage fee (hotel rooms) * Subscription fee (membership fees, Saas) * Lending/renting/ leasing (car rental) * Licensing (permission to use IP_ * Brokerage fee (commission) Airbnb * Revenue Share (selling other company's products) Amazon * Advertising (Ad fee) * Tax (governments) * Equity (incubators)

Describe the motivations for creating a partnership

* 3 motivations for creating partnerships: 1) Optimization and economy of scale (buyer-supplier) 2) Reduction of risk and uncertainty (creating and adopting new standardsO 3) Acquisition of particular resources-create laptops but use Windows Operating system.

Cost structure

* Cost driven vs. Value Driven 1) Cost-driven (Southwest)-low price value proposition Note: In-between: apple iPods and iPhone models 2) Value driven (luxury hotels)

Types of cost

1) Fixed cost 2) Variable cost 3) Economies of scale: cheaper supplies and also learn to make less mistakes. 4) Economies of scope: use same resources to support multiple products. - - - - - - -- - - - - - - Example on page 47. READ it. Potent combination of hardware, software

What is customer Fit?

Fit is only achieved when customers get excited about your VP. It means your VP has addressed important jobs , alleviated extreme pains and created essential gains that customers care about the most. Fit is hard to achieve and maintain. Striving for fit is the essence of value proposition design and pivot.

Describe what a multiple fit scenario is

Some business models have multiple segments and therefore multiple value propositions • Intermediaries - Dealers, Vars, Retailers - Two VPs, one for the end user and one for the intermediary • Platforms - double or multi-sided, can only success if all sides are present and receive an acceptable VP - AirBnB

Revenue Streams

* Deals with money that comes in. How do we get money? * For what value created by us will the customer pay? * How do they prefer to pay? * How much can we charge them? * How many different revenue streams can we have? (1) Transactional revenue (one time only) (2) Recurring revenue

Explain the 3 main pillars of a Lean start up

- Making hypothesis using business model canvas (instead of months pf planning) • Hypotheses are around the product and the business model- how company creates value for itself and customers - Test the hypotheses - Go through Customer validation process (based on MVP) • If proven wrong then pivot, and repeat - Agile development - iterative and incremental development methodology - - - - - -- - - - - - - - - - Changes in the environment: - Hardware: outsourcing - Software: agile development, open source codes

Customer segments.

Customer segments defines the different groups of people or other companies an enterprise wants to reach and serve.

Channels

How do we reach or customers? Through what channels? How do we choose among many channels? • How do thee channels integrate with customer's preferences? -->Channel types: - Own : sales force, web sales - Partner: partner store, wholesaler -->Purposes for different channels -Awareness • Evaluation • Purchase • Delivery • After sales

Types of Partnerships

Types of partnerships: • Strategic alliances • Coopetition (partnership between competitors) • Joint ventures • Buyer - seller relationship

Key Resources

* What key resources does our value proposition need? * Describes the most important assets required to make the business model work. * Can be physical, financial, intellectual or human. * They can be owned, or leased or acquired from a partner.

What are come common mistakes that people make when creating value maps?

1) Listing all products and services rather than just those targeted at a specific segment 2) Add Products and services to the pain reliever and gain creator fields. 3) Offer Pain relievers and gain creators that have nothing to do with the pains and gains in the customer profile. 4) Make the unrealistic attempt to address all customer pains and gains.

Types of Key Resources

1) Physical (factory, equipment, building) 2) Intellectual (brands, patents, data bases) 3) Human (scientists, marketers, developers) 4) Financial (capital, lines of credit, stock options)

What are the 9 areas in the Business Model Canvas?

1) Value Proposition 2) Key Partners 3) Customer Segments 4) Customer relationships 5) Channels 6) Revenue Stream 7) Cost Structure 8) Key Resources 9) Key Activities

Key Partnerships

• What key resources do we get from partners and what activities do they do for us?

Types of pricing

* Pricing Mechanisms: 1) Fixed Menu Pricing: * Feature dependent * Volume dependent * Segment dependent 2) Dynamic pricing: * Negotiation (real estate) * Yield management (hotel rooms, airfare) * Real time market (spot market for commodities) * Uber also does this. Dynamic pricing ie. Surge pricing and alert drivers which areas are "hot"/ * UCLA Anderson professor developed this surge pricing. * Auctions (competitive bidding)

Value map: Gain Creators

Describe how your products/services create customer gains, • How to create desired outcomes and benefits to customer • Focus on most relevant gains to customer and where you can make a significant difference • NO need to be "comprehensive" • Ask key questions • Relevance: Essential to Nice to have

Value Map: Pain Relievers

Pain relievers describe how your products/services alleviate pain. Great VP focus on extreme pains No need to be comprehensive Ask key questions Essential to nice to have.

Key Activities

What important thing does the company have to do to execute its value proposition? - - - - - - - -- - - - - What key activities does our VP require? • Describes the most important set of things a company must d to make its business model work (create, deliver and capture value) • Production (manufacturing) • Problem solving (knowledge management) • Platform/network (eBay)

The Value Proposition Canvas

With the Customer Profile you clarify your customer understanding. With the Value Map you describe how you intend to create value for that customer. You achieve between the two when one meets the other

Customer relationships

* What is the interface, the touchpoint with our customers? * What type of relationship does our customer segment want from us? * How costly is this relationship for us? * How is this relationship integrated with the rest of our business model?

What are some common mistakes people make when mapping and prioritizing customer jobs, pains and gains?

1) Mixing several customer segments into one profile. 2) Mixing jobs and outcomes. 3) Focusing on functional jobs only, forgetting social and emotional jobs. 4) Listing jobs, pains and gains with your value proposition in mind. 5) Identifying too few jobs, pains and gains. 6) Being too vague in descriptions of pains and gains.

3 Kinds of Fit

1) On Paper: The Problem-Solution fit You have "some evidence" that customers care about certain jobs, pains and gains; and you have designed a VP that addresses them 2) In the Market: The Product-Market Fit You have "more evidence" that the VP (products/services, pain relievers and gain creators) are actually creating "customer value" and getting traction in the market 3) In the Bank: The Business Model fit. You have "evidence" that your VP can now be embedded in a profitable and scalable business mode

Value Map: Products and Services

A List of what you offer such as: 1) Physical/tangible goods, 2) Intangible copyright, after sales support 3) Digital: recommendation, music 4) Financial: investment, insurance 5) Relevance of products/service (essential to nice to have)

What is a business model?

A business model describes the rationale of how an organization creates, delivers and captures value. - - - - - - - - - - - Businesses create value for * Customers-get the product * Partners-investment in company * Company-grow and have profits * Investors * Shareholders -In reality, there is a conflict of interest. ie.Many times the value the investors want conflicts with customers values. * Uber was hard on the drivers because they wanted to invest the money in growth since that is what the investors wanted. So they would only give bonuses to drivers once in a while. Other company might invest more in operations

Categories of customer relationship

Categories of customer relationship: * Personal assistance (call center) * Dedicated personal assistance (account manager) * Self-service (provide necessary means for customers to serve themselves) * Automated services (more sophisticated customer self-service) * Communities (Knowledge base-people share problem knowledge in the system) ie. Apple support. * Co-creation (user generated content) eg. Youtube

What are the four main areas of customer jobs? What other considerations should you consider?

Customer jobs describes what customers are trying to get done in their work and in their lives, as expressed in their own words. 1) Functional - performing tasks, solving problems --> Personal, professional 2) Social - looking good, power, status -->impressions, competency 3) Personal/emotional - emotional state -->Job security, safe or growing investments 4) Supporting jobs - purchasing and consuming value as consumers and professionals - Buyer of value: decisions and comparisons - Creator of value: post a review - Transferrer of value: selling, canceling, disposing - - - - - - - - - - - - - - - - -- Other considerations: (a) Context is critical - it might impose conditions and restriction (b) Job importance - some are more critical than others --> Customers define / influence criticality too

What are the components of Customer Pains?

Definition: Things that "annoy" customers. •Undesired outcomes, problems: 1) Functional - it does not work 2) Social - I look bad 3) Emotional - I feel bad 4) Ancillary - annoying "Obstacles" - Not enough time or money to do this " Risks" - Loss of credibility, loss of security - - - - - - - - - -- - - -- - -- Pain severity - low, moderate, severe • Have to understand both the level and how the customer measures it • Ask concrete and defining questions - how much, how long? - what features are missing? - what is not working? - what is the negative social consequence? - what is the fear: is it technical, social, emotional, financial?

Customer Gains

Desired outcomes and benefits • Some gains are required, some expected, some desired and some will just surprise them. • Required - must have; if missing there is no solution • Expected - Basic gains that we have come to expect: a car with a sound system • Desired gains - Beyond what we expect, but we like to have them: devices working together • Unexpected gains - beyond desires; don't even know these gains are possible - - - - - - - - - - - - - -- - - - Vary from essential to nice to have • Make gains concrete • Questions to ask: - Which <feature, capability> would make the customer happy? - What would make your life easier? - What is success? - What are the basic elements you are looking

How would you profile customers in a B2B Transaction?

Need to unbundle all the stakeholders in the decision, and have a proper profile for each • The decision makers - inside the company, ultimate authority • Economic buyers - influence or control the budget, concerned with budgetary efficiency • Recommenders • Influencers • End users • Saboteurs

Explain elements of value creation for customers

Newness (tech) • Performance (PCs, cars, etc.) • Customization (mass customization- Vans) • Getting the job done: (one stop shop, Rolls Royce) • Design (fashion, sport cars, consumer electronics) • Brand/Status (luxury brands, aggressive brands: harley davidson) • Price (value priced products and services, low cost airline, cars, PCs, smart phones) -Cost reduction (Saas, such as salesforce.com) • Risk reduction (extended service contracts) • Accessibility (NetJet - fractional jet ownership) • Convenience/usability (iPod+iTunes)

Describe the five ways of segmenting the market

The five main ways of segmenting the market are: 1) Mass Market: does not distinguish between different segments. -->Focus on very large group of customers with broadly similar wants and needs and creates them all the same. Eg. Consumer electronics. 2) Niche Market: Caters to very specific and specialized customer group. The elements of the business model such as value proposition and distribution channels are tailored to specific needs of the niche group. eg. Automotive industry (primary suppliers) : need to be able to sell parts to BMW's distribution channels and quality criteria. 3) Segmented Market: -complete market segmentation that involves multiple segments. -Each segment has somewhat different needs and values. The elements of the business model such as value proposition and distribution channels are tailored to specific needs of each group. Ex: Ford: started with one model than expanded. 4) Diversified: serving unrelated customer segments, with obviously different needs. Rather than focusing on their core competencies. * Rationale: extending the reach of resources and capabilities. * Not a usual model for startups unless they are reinventing themselves. * Ex. Amazon with a business model as a web retailer, offering cloud services. * Completely different customer and different needs. * B2B rather than B2C * Totally different value prop and customer relationship * Jeff Bezos calls this "Experimentation" * How can you grow if you do what you do best? 5) Multi-sided platforms: * Multi-sided platforms: need to satisfy and serve the needs of 2 or more independent customer segments. * Ex, a credit card company, a marketplace, an online news service providers. * Ex. Amazon: need to satisfy sellers and buyers. They allow sellers to sell products and collect info from customers. Customers get a more variety of products and can compare prices.Same Biz model serving different customer segments.

Value Proposition

The value proposition is the heart of the business model canvas. It refers to the value which the firm offers customers through the products and service bundle it offers to the specific customer segment as well as how those bundles alleviate pains for the customers and create gains. Firms also need to consider MVP when thinking about VP as it is used to test the VP. - - - -- - - - - - -- - - - * the reason why a customer buys your product or services. A set of benefits offered to the customer to satisfy their specific needs. * A combination of physical products, services and implied or perceived user experience. * The offering will be successful and sustainable (customer comes back fro more) if it delivers value and satisfaction (positive user experience. * If value (such as performance) falls short of expectation, than the customer is dissatisfied. The value proposition is not recognized by the customers and customers can write online reviews. * Another view: * What problems, what needs are we satisfying for our segment? Many segments are therefore harder to deal with. * What bundle of products are we offering to our segment?