Business Model Generation

The empathy map

"really simple customer profiler" helps you go beyond a customer's demogrpahic characteristics and develop a better understanding of environment, behavior, concerns, and aspirations -guides design of better value proposition, more convenient ways to reach customers, and more appropriate customer relationships WHAT IS THE CUSTOMER TRULY WILLING TO PAY FOR??

2. What if

-dont be held back by status quo -break free of constraints, provoke us, challenge us ex: IKEA, Rolls Royce, Skype

6. scenarios

-guide the design of new business models or innovating around old models -render the abstract tangible types: customer settings and future environments

4. Managing multiple business models

-implement a new innovative BM while maintaining an existing one - can be extremely difficult because new model might have a different culture or compete with the old --> ambidextrous organizations - successful ones The choice: to integrate or separate the new business (or allow autonomy- mix). must consider conflict between new and old, the similarity, the risk, potential for synergies (choices evolve over time) ex: Swatch, Nespresso

channel functions

-raise awareness among customers about company product and services -helping customers evaluate a company's value proposition -allowing customers to purchase specific products and services -delivering a value prop to customers -providing post-purchase customer support

Customer groups represent separate segments if...

-their needs require and justify a distinct offer -they are reached through different distribution channels -they require different types of relationships -they have substantially different profitabilities -they are willing to pay for different aspects of the offer

4 areas of your environment

1) market forces 2) industry forces 3) key trends 4) macroeconomic forces

4 possible objectives of business model INNOVATION

1. satisfy market: fulfill unanswered market needs 2. bring to market: new technologies, product, or services to market 3. to improve market: disrupt, or transform an existing market with a better business model 4. create market

4 types of partnerships

1. strategic alliance with non- competitor 2. coopetition: strategic partnerships between competitors 3. joint ventures to develop new businesses 4. buyer-supplier relationships to assure reliable supplies

techniques for story telling

1. talk and image 2. video clip 3. role play 4. text and image 5. comic strip

5 patterns

1. unbundling 2. long tail 3. multi-sided 4. FREE 5. Open

1. customer insights

Building a business model on customer insights view the business model through the customer's eyes - lead to new opportunities successful innovation requires a deep understanding of customers (environment, routines, aspirations) *cannot just ask them what they want -know which customers to heed and which to ignore - dont just look at existing customer segments, but new or unreached segments

2. Evaluating business models

Evaluate health of market position and adapt accordingly 2 types of evaluation: 1. big picture assessment 2. individual elements- building blocks

2. ideation

Generating NEW business model ideas -need a creative process to generate lots of ideas, then pick the best -ignore status quo and suspend concerns -challenge orthodoxies to design original models that meet new, hidden, unsatisfied needs

1. business model environment

If you understand the environment around your business you can conceive stronger, more competitive business models SCAN continuously - adapt to changing forces Design drivers and design constraints Map current environment and possible future environments - today's model could be obsolete tomorrow

5. Storytelling

Storytelling's value -undervalued and underused -powerful tool to make BM more tangible

ASK:

What are each of the building blocks of the 5 patterns??

Blue Ocean Strategy

about creating completely new industries through fundamental differentiation as opposed to competing in existing industries by tweaking established models -new contested market space through value innovation -increase value by creating new benefits and services and reducing costs by eliminating less valuable features -differentiation and low cost -explore non-customer groups ex: Cirque du Soleil or Wii

post it notes

an idea container that can be added, removed, easily shifted

1. CANVAS

business model canvas

STRATEGY

constructively question established business models and strategically examine the environment in which your own business model functions

1. customer segments

defines the different groups of people or organizations an enterprise aims to reach and serve -heart of business model -may be one or several, large or small -serve vs ignore

9. cost structure

describes all costs incurred to operate a business model -want to minimize -cost driven and value driven

6. key resources

describes most important assets required to make a business model work -different key resources are needed for different businesses -owned, leased, acquired from key partner

Business Model

describes the rationale of how an organization creates, delivers, and captures value

canvas sides

left- efficiency right- value

different types of of customer segments

mass niche segmented diversified multi-sided platforms

future scenarios

not a forecast or prediction trigger out the box thinking 1. develop a set of future scenarios based on two or more main criteria 2. describe each scenario with a story that outlines the main elements 3. develop one or more approproiate business models for each scenario

sketches

people react stronger to images than words deliver message instantly

1. unbundling BM

this concept holds that there are 3 fundamentally differnt types of businesses -customer relationship businesses -product innovation businesses -infrastructure businesses and each has a different economic, competitive, and cultural imperative *they can co-exist, but ideally they are unbundled into separate entities to avoid tradeoffs or conflicts ex: banks- bundled, Mobile Telco- unbundled

Top 20% vs Long tail

top 20%- focus on small numbers of products, each selling in high volume longtail- focus on large number of products, each selling in low volumes

5. open business model

used by companies to create and capture value by systematically collaborating with outside partners -this may happen from the "outside-in" by exploiting external ideas within the firm or from the "inside out" by providing external parties with ideas or assets lying idle within the firm -open up your reseach process ex: P&G- connect and develop (outside in ) GlaxoSmithKlines- patent pool- non blockbuster drugs (inside out) Innocentive- connects org with researchers and researchers to orgs

value-driven

value creation, dont worry about cost -premium value prop -personalized service

customer settings

which channels are appropriate which relationships should we establish which problem's solution are customers most willing to pay for

1. epicenters

-start from any of the 9 building blocks 1. resource driven - existing infrastructure or partners 2. offer driven - create new value proposition 3. customer driven - customer needs, facilitated access, or increased convenience 4. finance driven - driven by new revenue, pricing, or reduced cost **multiple epicenter driven *all have a powerful impact on other 8 blocks -change often originates in areas identified through SWOT analysis

Types of free platform

1. advertising - free offer based on multi-sided platforms. FREE attracts lots of customers, which you need a high traffic platform to attract advertisers 2. freemium - basic services are free and premium services are for a fee. Most never become paying customer- watch costs of serving the free and avg rate of acquiring paying customers (ex: Flickr) 3. bait and hook - free or inexpensive initial offering lures customers into repeat purchases (loss leader or razor blade model) *common factor is at least one customer segment enjoys a value prop for free

Ways to generate revenue

1. asset sale - selling ownership of physical product (ex:Amazon- books) 2. usage fee- use of a service, more you use the more you pay (ex:hotel) 3, subscription fee- selling continuous access to a service (ex: gym) 4. lending/renting/leasing- temporarily granting someone the right to use an asset for a fixed time period for a fee (ex:Zipcar) 5. licensing- giving customers permission to use protected IP in exchange for a fee (ex:media) 6. brokerage fee- derives from inter-mediation services performed on the behalf of two parties (ex:real estate agent or credit card co.) 7. advertising- fees for advertising

5 phases in channels

1. awareness 2. evaluation 3. purchase 4. delivery 5. after sales

4 strategic areas

1. business model environment 2. evaluating business models 3. Business Model perspective on Blue Ocean Strategies 4. how to manage multiple business models within an enterprise

six business model design techniques

1. customer insights 2, ideation 3, visual thinking 4. prototyping 5. storytelling 6, scenarios

9 basic building blocks cover 4 areas of business

1. customers 2. offer 3. infrastructure 4. financial viability

Why longtail??

1. democratization of tools of production - falling technology costs 2. democratization of distribution - internet making digital content distribution a commondity 3. falling search costs to connect supply with demand

2 starting points for ideation

1. epicenters of BM innovation using the BMC 2. What if quesitons

characteristics of cost structure

1. fixed costs - remain the same despite volume produced 2. variable costs - costs that vary proportionately with volume of goods or services 3. economies of scale- costs advantage when output expands 4. economies of scope- cost advantages that companies enjoys due to a larger scope of operations

2 ideation phases

1. idea generation - about quantity 2. synthesis - discuss, combine, narrow options

Uses of storytelling

1. introducing the new - to mgmt to win attn 2. pitching to investors 3. engage employees *make it tangible, clarification, engage people, provoke ideas, justify change -employee or customer perspective

5 phases in the process

1. mobilize 2. understand 3. design 4. implement 5. manage *not an easy linear process

Prototype scales

1. napkin drawing - outline and pitch 2. elaborated canvas - explore what it takes to make it work 3. business case - examine viability 4. field test - investigate customer acceptance

motivations for partnerships

1. optimization and economy of scale - buyer and seller, most basic, reduce costs, outsourcing or sharing infrastructure 2. reduction of risk and uncertainty- reduce risk in competitive environment, form alliance in one area and compete in another 3. acquisition of particular resources and activities- extend own capabilities by relying on other firms to furnish particular resources or perform certain activities

types of customer relationships

1. personal assistance - human interaction (call, in person, email) 2. dedicated personal assistance- dedicate a customer representative specifically to an individual client - deepest and most intimate type (ex: private banking) 3. self-service- no direct relationship 4. automated services- more sophisticated form of customer self-service with automated services (customized) (ex: online profile- give suggestions) 5. communities- user communities - online to exchange knowledge and solve problems 6. co-creation- create value with customers (ex: Amazon and YouTube)

categories of key resources

1. physical - building, car, machine, IT 2. Intellectual - difficult to create, but have substantial value 3. human - drivers, scientists, doctor 4. financial - cash, credit, stock option

types of key activities

1. production - design, make, deliver (manufacturing) 2. problem solving - new solutions to problems (hospital) 3. platform/network (Ebay or Visa)

Ideation Process

1. team composition - DIVERSE- cosinder outsiders or kids, listen activiely, different units, ages, expertise 2. immersion- educated, research 3. expanding- expand range of solutions, more ideas, brainstorming rules 4. criteria selection - prioritize, criteria is specific to business 5. prototype- complete BCM

two types of revenue streams

1. transaction revenues resulting from one-time customer payments 2. recurring revenues resulting from ongoing payments to either deliver a value prop to customers or provide post-purchase customer support

4 processes improved by visual thinking

1. understand the essence - visual grammar, capture big picture, see relationships 2. enhance dialogue - collective reference, shared dialogue, joint understanding 3. explore ideas - idea trigger, play 4. improve communication - company wide, sell internally and externally

empathy map 6 questions

1. what does she see?? environment, friends, market 2. what does she hear? friends, boss, influencers 3. what does she think and feel? worries, aspirations, preoccupations 4. what does she say and do? attitide, appearance, behavior 5. what is the customer's pain? fear, frustration, obstacles 6. what does the customer gain? wants/needs, measures of success

PROCESS

Guide to set up and execute the BM design initiative -every business starts from a different point- new growth, disaster, startup mode, etc.

3. visual thinking

The VALUE of visual thinking -use of pictures, sketches, post its, diagrams -makes discuss easier- can see the holes -enhances strategic inquires by making the abstract concrete 2 techniques: post it notes and sketches -use to tell visual story- very powerful

4. FREE platform

at least one substantial customer segment is able to continuously benefit from a free-of-charge offer -different patterns make the free offer possible -non-paying customers are financed by another part of the business model or another customer segment ex: skype, google, metro

3. Multi-Sided platform

bring together two or more distinct but interdependent groups of customers -such platforms are of value to one group of customers only if the other groups of customers are also present -creates value by facilitating interactions between the different groups a multi-sided platform grows in value to the extent that it attracts more users, a phenomenon known as the network effect ex: facebook, Wii, google, credit cards

infrastructure business

build and manage platforms for high volume, repetitive tasks economic: high fixed costs mean large volume, economies of scale Competitive: battle for scale, few big players culture: cost focused, standardization, probability, and efficiency

PATTERNS

business models with similar characteristics, similar arrangements of blocks, or similar behaviors *a single business model can incorporate several patterns

5. revenue streams

cash a company generates from each Customer Segments (costs must be subtracted from revenues to create earnings)

2) Detailed SWOT assessment of each building block

combine SWOT with BMC - focused assessment and evaluation of the organizations BM Internal - strengths and weaknesses external- potential opportunities and threats Helpful areas- S and O Harmful - W and T Result: provides a snapshot of where you are now (S/W) and it suggests some future trajectories (O/T) - helpful to develop BM prototypes and a new BM

2) industry forces

competitors - identify competitors and their strengths new entrants - identify new, insurgent players and what their BM is substitutes- describes potential subs for your offers- even in different markets and industries suppliers - describes key value chain incumbents in market and new players stakeholders - specifies which actors may influence your organization and BM

motivations for customer relationships

customer acquisition customer retention boost sales

8. key partnerships

describes the network of suppliers and partners that make the business model work -cornerstone of business models -alliances can optimize models, reduce risk, or acquire resources

product innovation businesses

develop new and attractive products and services economic: early market entry, speed is key Competitive: talent, low barriers to entry culture: employee centered

owned channel

direct- highest margins, but can be costly to put in place and operate or indirect

segmented

distinguish between slightly different needs and problems have similar, but varying needs and problems ex: Credit Suisse- customers with $100,000 in assets vs $500,000

mass market

don't distinguish one large group with similar needs

Outside in

established companies with strong brands, strong distribution channels, and strong customer relationships

1) big picture assessment

ex: Amazon Evaluated their strengths and weaknesses Attacked their weakness of low margins by looking for underserved markets, be scalable with potential for significant growth, leverage existing capabilities Solution: diversify

customer relationship business

finding and acquiring new customers and building relationships economic- large wallet share to acquire, economies of scope competitive: battle for scope, few big players dominate culture- service oriented, customer first

pricing mechanism

fixed dynamic

cost-driven

focus on minimizing costs whenever possible -leanest cost structure -low price value prop -max. automation -outsource -no frills

4) macroeconomic trends

global market conditions - outlines current overall conditions from a macroeconomic perspective capital market - describes current capital market conditions as they relate to your needs commodities and other resources - highlights current prices and price trends for resources required for your business model economic infrastructure - describes economic infrastructure in which your business operates

3. Channels

how a company communicates with and reaches its customer segments -communication, distribution, sales

direct channel

in-house sales or website

partner channel

indirect and span a whole range of options -lower margins, but allow an org to expand its reach and benefit from partner strengths

BOS with BMC

left side : costs - *eliminate* factors that the industry has long competed in and *reduce* factors well below industry standard middle: VALUE INNOVATION right side : value creation- *raise* factors well above industry standards and *create* new factors that industry has never offered *ask what you can eliminate, reduce, raise and create about each building block (can also leave some things unchanged) -start with cost implications, value impact, or customer impact - look how other areas of BMC are effected if you eliminate, reduce, raise, or create in another block

4. Prototyping

makes abstract concepts feasible and tangible -engineering and designing -a sketch, a spreadsheet, fully thought through concept -thinking tool that helps us explore different directions we could take our model -tool of inquiry

1) market forces

market issues- identifies issue driving your from from customer and offer perspectives market segments- identifies the major market segments needs and demands - outlines market needs and analyzes how well they are served switching costs - describes elements related to customers switching businesses revenue attractiveness- identifies elements related to revenue attractiveness and pricing power

design attitude

mindset/spirit of inquiry willingness to explore ideas, rapidly discard them, examine multiple possibilities, accept uncertainty

7. key activities

most important things a company must do to make business model work -actions to operate successfully -differ depending on business model type

chicken and egg problem

must attract one side to get the other -solution: subsidize one side-- lure one segment to the platform with free or inexpensive value prop to lure/attract the other side

List can contribute to customer value creation

newness - satisfy a new need (ex:cell phones) performance - improvement (ex:PCs) customization - tailored specific getting the job done - helping (ex:Rolls Royce- airplane engines) design (ex:in fashion and tech industries) brand/status- feeling, prestige, "in" (ex:Rolex) price - similar value with lower price (ex: Southwest) cost reduction risk reduction (ex:used car service guarantee) accessibility - new availability (ex:NetJets) convenience/usability (ex: iPod and iTunes)

fixed menu pricing

predefined prices are based on static variables -list price: fixed prices for individual product or service -product feature dependent: price depends on number or quality of features -customer segment dependent: price depends on type and characteristic of customer segment -volume dependent: price depends on quantity purchased

dynamic pricing

prices CHANGE based on market conditions -negotiation: price negotiated between partners -yield management: price depends on inventory and time of purchase (ex: hotel or airline) -real-time-market: price is determined based on supply and demand -auctions- determined by bidding

3. Business Model Perspective on Blue Ocean Strategy

provide a powerful framework for questioning incumbent BMs and creating new, more competitive models

indirect channel

retail stores owned and operated by org wholesale, retail, or partner owned stores

2. The Long Tail

selling less of more - large number of niche products, each sell relatively infrequently -small number of best sellers account for most of revenues -low inventory costs and strong platforms to make niche content readily available to interested buyers -various rev: ad, product, subscriptions ex: ebay, lulu, lego

multi-sided platform

serve two or more distinct, but interdependent segments both segments are required to make the business model work ex: credit card company- card holders and merchants ex: newspaper- large reader base and advertisers (also an example of FREE pattern)

diversified

serve two unrelated segments with very different needs and problems- ex: Amazon- serve web companies and retail customers

niche market

specific, specialized customer segments

inside out

substantial internal R&D -- unutilized knowledge, technology, and intellectual property

2. DESIGN

techniques and tools to design a better and more innovative business model -imagine what does not exist

3) key trends

technology trends- identifies tech trends that could threaten or improve BM regulatory trends- describes reg trends that influence your BM societal and cultural trends- identify societual trends that may influence BM socioeconomic trends- outlines major socioeconomic trends relevant to your BM

2. Value Propositions

the bundle of products and services that create value for a specific customer segments -why customers turn to one co over another -solves problem or satisfies need -bundle product,service -value can be quantitative (speed, price) or qualitative (design, customer experience)

4. customer relationships

types of relationships a company establishes with specific segments -personal or automated