Module 3 - Business Models

1. Forces us to accept that ideas are built on a foundation of assumptions (or hypotheses) that change over time based on new information 2. Allows us to recognize the interconnectedness of changing assumptions by providing a framework to analyze how changes in one area, (say: target customers) impact other areas. 3. Allows us to track what we've learned and how we've adapted to new information -It shows our progress (iterations) -It brings discipline to getting market feedback 4. Gives us a platform for communicating among ourselves and with outside stakeholders. -It provides the basis for communicating both where we are and what we've learned. 5. A committed and documented process framework allows you to follow the same steps each time you assess (and reassess) an opportunity -Repeatable, so you get better at the process -It "betters your chances" instead of relying on a winning lottery ticket -It's the closest thing we have to controlling TIMING (back to Bill Gross)

5 reasons to use the Lean Canvas

1. Problem 2. Customer Segments 3. Unique Value Proposition 4. Solution 5. Channels 6. Cost Structure 7. Revenue Streams 8. Key Metrics 9. Unfair Advantage

9 components of a Lean Canvas

supply chain

A ______________________ is the network of all the companies that participate in the production of a product, from the acquisition of raw materials to the final sale.

Business model innovation

A business model that revolutionizes how a product is produced, sold, or support after the sale

product/market scope

A company's _________________________________ defines the products and markets on which it will concentrate

target market

A firm's ____________________________ is the limited group of individuals or businesses that it goes after or tries to appeal to.

1. competes 2. uses its resources 3. structures its relationships 4. interfaces with customers 5. creates value to sustain itself on the basis of the profits it generates

A firm's business model is its plan or diagram for how it does what 5 things?

Business Model

A tool used to assess the early attractiveness of new ventures that is a systematic (unbiased) process for iterating from Plan A to a plan that works, before running out of Resources A process unwed (divorced) from the solution itself.

Social

All successful _________________ entreprenuership ventures MUST be a strong, sustainable, business in order to produce value and spread the proceeds to a larger group in the form of a product or service

sustainable competitive advantage

Companies ultimately try to combine their core competencies and their strategic assets to create a ___________________________________________ - achieved by implementing a value-creating strategy that is unique and not easy to imitate.

Getting out of the building

Customer Development is a formal process that allows you to test your hypothesis by doing what?

Written for Enterprise Software and difficult to translate into other implementations or to innovation within large orgs

Customer development is great as a process tool, but what is its downfall?

business concept blind spot

Defining the mission too narrowly which prevents a firm from seeing an opportunity that might fit its business model

1. A single primary activity of the value chain 2. the interface between one stage of the value chain and another 3. one of the support activites

Entrepreneurs look at the value chain of a product or service to pinpoint where the value chain can be made more effective or to spot where additional "value" can be added in some meaningful way. This type of analysis may focus on what 3 things?

Differentiation strategy

Firms that have this strategy compete on the basis of providing unique or different products, typically on the basis of quality, service, timeliness, or some other dimension that is important to customers.

Cost leadership strategy

Firms that have this strategy strive to have the lowest costs in the industry, relative to competitor's costs, and typically attract customers by offering them a low, if not the lowest, price.

mission

For-profit vs. Non-profit is less a question of __________________ and more a question of governance, ownership and tax status

1. Core Strategy (How a firms competes - mission statement, product/market scope, basis for differentiation) 2. Strategic Resources (How a firm acquires and uses its resources - core competencies and strategic assets) 3. Partnership Network (How a firm structures and nurtures its partnerships - suppliers, partners, etc.) 4. Customer Interface (How a firm interfaces with its customers - target customer)

Four components of a business model:

1. Serves as an ongoing extension of feasibility analysis 2. Focuses attention on how all the elements of a business fit together and how they constitute a working whole 3. Describes why the network of participants needed to make a business idea viable is willing to work together 4. Articulates a company's core logic to all stakeholders

Having a clearly articulated business model is important for what 4 reasons?

Choice

In most cases, performance is a function of both the ____________ of a business model and how effectively it's implemented

Inbound logisitcs

Involves a firm's relationship with its suppliers and involves all the activities of receiving, storing, and shipping component parts to the place where they will be added to the final product

Outbound logistics

Involves all the activities required to warehouse and ship a finished product

New data

Lean Canvas allows us to constructively use ____________________.

Ries' Lean Startup methodology is sometimes heavy and daunting and focuses on innovation (creation)

Lean Startup is great as a process tool, but what is its downfall?

data

Now, instead of a business plan, one should conceive, prototype, launch, and adjust rapidly with a product and solution based on ____________ (instead of assumptions).

change in the product or service solution

Oftentimes the largest outcome of a business model exercise is the exercise itself (not the output) because it forces the founder to prove their assumptions AND proves their assumptions false, which forces what?

False; it does not equal non profit

T/F: Social Entrepreneurship = non-profit

False; most will never attain product/market fit, and will fail

T/F: While more products & services are launched than ever before, most will attain product/market fit, and will succeed

Customer Development

Term coined by Steve Blank that describes the parallel process of building a continuous feedback loop with customers throughout the product development cycle

1. Completely "idea" focused, which reinforces the Innovator's Dilemma 2. Does not encourage rapid testing of assumptions 3. Inward facing approach ("Inward looking Out")

The Business Model Canvas (BMC) is great as a visualization tool, but what are the 3 negatives?

1. Document (visualize) your Plan A 2. Identify the riskiest part of your Plan 3. Systematically test your Plan

The Lean Canvas is a process tool that helps to do what 3 things?

Primary

The ___________________ activities on a value chain have to do with the physical creation, sale, and service of a product or a service.

Support

The ____________________ activities on a value chain provide reinforcement for the primary activities

Business Plan

The __________________________ has historically been the go-to document when assessing an opportunity.

Lean Canvas

The ____________________________ takes the same fundamental ingredients that are in the business plan and the business model but with an updated process and better visualization tools

actual ; just

The best evidence of a plan that will work isn't pitching a fictional story of what could happen, but an ____________ story of what ___________ happened when your idea collided with reality

"no-plan" or a "just do it"

The other extreme to not having a business plan is opting for __________________ or ___________________ approach while searching for traction; this isn't any better than a business plan

Should it be built?

The question when assessing opportunities is no longer "can it be built?", but is instead what?

primary and support activities

The value chain consists of what two kinds of activities?

Lean startup

This synthesis of customer development was coined by Eric Ries and uses smaller, faster iterations for testing a vision

insourcing

This takes place when a service provider comes inside a partner's facilities and helps the partner both design and manage its supply chain

1. A complete misread of the customer (product must have customers to be successful) 2. Utterly unsound economics (the customer is not willing to pay the price point to make the business viable)

Two fatal flaws can render a business model untenable from the beginning:

Social Entrepreneurship

Using entrepreneurship and the capitalist economic system to solve important problems in society

1. Continually asks the question, "Does this business make sense?" 2. Focuses attention on how all the elements of a business fit together and constitute a working whole 3. Articulates a company's core logic to all stakeholders, including investors, mentors, employees and especially co-founder or early stage hires

What 3 things should you do when looking at a business model value chain?

1. Firm infrastructure 2. Human resources and management 3. technology and development 4. resource procurement

What are the 4 support activities of a value chain?

1. inbound logistics 2. operations 3. outbound logistics 4. marketing and sales 5. service

What are the 5 primary activities of a value chain?

1. Value proposition 2. Key partners 3. Key activities 4. Key resources 5. Customer Relationships 6. Channels 7. Customer Segments 8. Cost structure 9. Revenue streams

What are the 9 segments of the Business Model Canvas (BMC)?

Loving the solution and not the problem

What is innovator's bias?

1. Avoid innovator's bias (love the problem, not the solution) 2. Prove traction or fail FAST (opportunity cost)

What two things should you consider when business planning? (what two goals should you remember)

Right after the feasibility analysis stage of launching a new venture

When is a firm's business model developed?

Lower startup costs & no reason to launch based exclusively off assumptions

Why is the business plan dead?

Because the technology had outpaced the framework for building products and pursuing opportunities

Why was customer development (coined by Steve Blank) revolutionary in 2005?

Because starting a business USED TO BE highly capital intensive and the only option was to make a compelling case for investment and "pitch the perfect plan"

Why was the business plan primarily a fundraising instrument?

sustainable

You can't create value and spread it to others if your business model isn't ______________________.

fulfillment and support

_________________________________________ describes the way a firm's product or service "goes to market" or how it reaches its customers.

Business Plan vs. Business Planning

a document investors make you write that no one reads vs. a critical thinking exercise for avoiding the innovator's bias

value chain

a model that many use to identify opportunities to enhance competitive strategies. (also explains how business models emerge and develop)

core comptency

a resource or capability that serves as a source of a firm's competitive advantage over its rivals

Strategic assets

are anything rare and valuable that a firms owns

mission statement

describes why the firm exists and what its business model is supposed to accomplish

Customer interface

how a firm interacts with its customers

Operations

involves all the activities required to manufacture a product

supplier

is a company that provides parts or services to another company

value chain

is the string of activities that moves a product from the raw material stage, through manufacturing and distribution, and ultimately to the end user

Lean Canvas

it's a visualization tool (Osterwalder) that focused on Customer Discovery (Blank) and drives a tight process for multiple, short, iterations (Ries)

supply chain management

the coordination of the flow of all information, money, and material that moves through a product's supply chain

resource leverage

the process of adapting a company's core competencies to exploit new opportunities is referred to as _____________________________.