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Entrepreneurs with Denis Oakley

I HELP BOLD LEADERS TRANSFORM THEIR BUSINESSES AND THE INDUSTRIES THEY COMPETE IN

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Value Proposition Design QuestionaireWhen I work with customers to help them understand and develop the value that they offer I use this questionnaire to help develop the value proposition. The value proposition design questionnaire is based on Alexander Osterwalder’s book and I’ve been slowly tweaking it as I see opportunity for improvement.

These are some great questions to ask when you are thinking about your value proposition. They are grouped into six sections. The first three are focused on your customer and help you dig into what problems they face. The second three focus on the value that you provide that solve the problems.

Jobs

First of all think back to your customer persona. Forget about what you are selling right now. Think of the customer as a person, as someone important. Then start imagining the answers to the questions below. So for example if they are entrepreneur in a CO-working space think about what they are doing in the CO-working space and why they are there? Are they their to meet your needs for a customer or do they have their own goals and vision. Why are their big problems? I’m writing this in Worq.Space in Kuala Lumpur. A few minutes ago someone saw me writing this on my huge iPadPro with my Apple Pencil and said “Cool”. Do you think that helped me gain my need for status?

  • What tasks are your customers trying to perform and complete?
  • What problems are they trying to solve?
  • What needs are they trying to satisfy?
  • What functional jobs are they trying to complete? (focusing on specific tasks or problems?)
  • What social jobs are they trying to complete?
  • How do they want to look good?
  • How do they want to gain power?
  • How do they want to gain status?
  • How do they want to be perceived by others?
  • What emotional jobs do they have to do?
  • Are they seeking a specific emotional state?

Pains

Many entrepreneurs and businessmen have a narrow definition of pain.

Pain is the problem that the customer has that is going to let me sell to them

That is so wrong. You start by thinking back to the customer’s job and thinking about what they are trying to do. Then you think about the pains that they have in trying to achieve those goals, or deliver that vision. Pain is everything that is stopping the customer having the perfect life.

Ok. You can say this is too broad. When you do you are making a number of judgements about what the customer finds important without testing them. Simply put, if you identify many small pains, as well as he big pain you are solving, you have so many more ways to identify and create a powerful value proposition.

In the CO-working example above one of the pains for entrepreneurs is that they get hungry and have to slow down. So the CO-working space has a terminal where they can order a takeout from Food Panda. That additional value is small. It’s also a trivial cost (Food Panda provide the terminal). However it creates another point of difference versus competitors AND is a step closer to ensuring that as many of the customer’s pains are solve by the overall value proposition.

  • How do your customers define too costly?
  • What makes your customers feel bad?
  • What are their frustrations, annoyances, or things that give them a headache?
  • How are your current value propositions underperforming for your customers?
  • How are your competitor’s value propositions underperforming for your customers?
  • What features are they missing?
  • Are there performance issues that annoy them or malfunctions that they cite?
  • What are the main difficulties and challenges that your customers encounter?
  • Do they understand how things work?
  • Do they have difficulties getting certain things done?
  • Do they resist particular jobs for specific reasons?
  • What negative social consequences do your customers fear?
  • Are they afraid of a loss of face, power, trust or status?
  • What risks do your customers fear?
  • Are they afraid of social, financial or technical risks?
  • Are they asking themselves what could go wrong?
  • What’s keeping your customers awake at night?
  • What are their big issues, concerns and worries?
  • What common mistakes do your customers make?
  • Are they using a solution the wrong way?
  • What barriers are keeping your customers from adopting a value proposition?
  • Are there upfront investment costs, a steep learning curve or other obstacles preventing adoption?

Gains

Like the pains the gains are the things that would make the customer happy. They are not necessarily anything to do with you, your product, or your value proposition.

Again this is an exercise in imagination, or far better, questioning. Knowing what the customer wants is far far better than guessing.

Some of the gains may be absolutely impossible to achieve (I should have said something similar for the pain). That does not matter. It’s what the customer wants. It’s their perception of reality, their reality perhaps. So you, and your competitors have to play in it.

  • What savings would make your customers happy?
  • What savings in terms of time, money and effort would they value?
  • What quality levels do they expect?
  • What do they want more or less of?
  • How do current VP’s delight your customers?
  • What specific features do they enjoy?
  • What performance and quality do they expect?
  • What would make your customers lives or jobs easier?
  • Could there be a flatter learning curve?
  • Could there be more services?
  • Could there be a lower cost of ownership?
  • What positive social consequences do your customers desire?
  • What makes them look good?
  • What increases their power or status?
  • What are customers looking for most?
  • Are they searching for good design?
  • Are they searching for guarantees?
  • Are they search for more features or specific features?
  • What do customers dream about?
  • What do they aspire to achieve?
  • What would be a big relief to them?
  • How do your customers measure success or failure?
  • How do they gauge performance or cost?
  • What would increase your customer’s likelihood of adopting a value proposition?
  • Do they desire lower cost?
  • Do they desire less investment?
  • Do they desire lower risk?
  • Do they desire better quality?

Products and Services

In the products and services section we come to what YOU do. What do you do for the customer? What do you get paid for? What do you offer for free?

  • What physical/tangible goods do you provide
  • What intangible goods do you provide
  • Copyright
  • After sales assistance
  • What digital products do you provide
  • Downloads
  • Services
  • Information?

Pain relievers

The pain relievers aren’t strictly features or benefits. The way that I use them is to say that feature X delivers benefit Y and this relieves Pain Q. A trivial CO-working space example is that they have power extenders on the tables. That’s a feature. The benefit is that there is always a plug within a metre of me and so I always have power for my iPad. That relieves me of the pain of fearing that I’ll run out of power and can’t work. It is always worth asking, if my feature or benefit does not solve a pain or deliver a gain for the customer, why am I wasting my money offering it? There are many reasons for doing this. They include, doing what everyone else has always done, not understanding the customer, thinking that the feature/benefit solves a pain etc etc.How do your products and services:

Produce savings in terms of

  • Time
  • Money
  • Effort
  • Making your customers feel better

By killing

  • Frustrations
  • Annoyances
  • Anything else that gives them a headache

Fix underperforming solutions

  • By introducing new features
  • Better performance
  • Enhancing quality

Put an end to difficulties and challenges your customers face

  • By making things easier
  • By eliminating obstacles

Wipeout negative social consequences your customers encounter or fear in terms of

  • Loss of face
  • Lost power
  • Lost trust
  • Lost status

Eliminate risks your customers fear in terms of

  • Financial risks
  • Social risks
  • Technical risks
  • Generalised fear of things going wrong

Help your customers sleep better at night by addressing

  • Significant issues
  • Diminishing concern
  • Eliminating worries

Limit or eradicate common mistakes customers make

Help them to use a solution the right way

Eliminate barriers that are preventing customers from adopting value propositions

Introducing

  • lower or no upfront investment costs
  • flatter learning curve
  • Eliminating other obstacles preventing adoption

Gain Creators

Gain creators work just like pain relievers. They are how your features/benefits work together to deliver a gain for the customer. So, back in my co-working space I want as a gain to have a hugely productive day. One of the features of the CO-working space is the hot desk that I can jump into when I find home too distracting. The benefit then is that it provides everything that I need to work with none of the distractions that I get at home.With no distractions I get shed loads of work done.Could your products and services:

Create savings that please your customer?

In terms of

  • Time?
  • Money?
  • Effort?

Produce outcomes your customers expect?

Produce outcomes that exceed customers expectations by offering

  • Quality levels
  • More of something?
  • Less of something?

Outperform current value propositions and delight your customers?

Regarding

  • Specific features?
  • Performance?
  • Quality?

Make your customer’s work or life easier?

Via better

  • usability?
  • Accessibility?
  • More services?
  • Lower cost of ownership?

Create positive social consequences?

By making them look good?

Producing an increase in power or status?

Do something specific that customers are looking for?

In terms of

  • Good design
  • Guarantees
  • Specific features
  • More features
  • Money?
  • Effort?

Produce outcomes your customers expect?

Produce outcomes that exceed customers expectations?

By offering

  • Quality levels
  • More of something?
  • Less of something?

Outperform current value propositions and delight your customers?

Regarding

  • Specific features?
  • Performance?
  • Quality?

Make your customer’s work or life easier?

Via better

  • usability?
  • Accessibility?
  • More services?
  • Lower cost of ownership?

Create positive social consequences?

By making them look good?

Producing an increase in power or status?

Do something specific that customers are looking for?

In terms of

  • Good design
  • Guarantees
  • Specific features
  • More features

Fulfill a desire customers dream about?

By helping them achieve their aspirations?

By providing relief from hardship?

Produce positive outcomes matching the customer’s success or failure criteria in terms of

  • Better performance?
  • Lower cost?

Help make adoption easier through

  • Lower cost?
  • Fewer investments
  • Lower risk?
  • Better quality?
  • Improved performance?
  • Better design?
  • a desire customers dream about?

By helping them achieve their aspirations?

By providing relief from hardship?

Produce positive outcomes matching the customer’s success or failure criteria in terms of

  • Better performance?
  • Lower cost?

Help make adoption easier through

  • Lower cost?
  • Fewer investments
  • Lower risk?
  • Better quality?
  • Improved performance?
  • Better design?

We’ve covered a great deal here. The best way to use this questionnaire is to print it out, or copy and paste the whole thing into a Word document. Then write down the answers to all the questions quickly. Don’t worry about grammar. Use bullet points or notes. Let your experience flow out through the pen or your finger tips. Invariably when I do the exercises rigorously, not reading the questions and then moving onto the next in a fugue, I develop detailed insight into the value proposition that creates massive value. Please do the same. If you’d like me to help you develop or improve your value proposition do set up a meeting for an initial consultation.

What is a business model?

The first question that many entrepreneurs are asked is

“What is your business model?”

In a nutshell, the business model answers 3 separate but related questions

• What problem are you solving for the customer?

• How are you solving the problem?

• How much more does the customer pay you than you pay your suppliers

In my first startup, my wife and I answered all these questions. What was our business model? Oil rig manufacturers could not get 10cm thick steel plate that met the oil and gas industries fast enough to meet their project deadlines. We built relationships with steel stockholders across Europe and were able to deliver in days or weeks, rather than 6-9 months. Customers paid us 20% more than we paid for the steel and the logistics. A few years later when the oil price fell and there was no demand for oil rigs the business model fell apart and the margins shrank

What Problem are you Solving?

The first question is the first place that entrepreneurs fail. Many read “What problem are you solving?” as “What is your idea?” An idea is an amorphous death trap. It is enough to generate passion and enthusiasm. It is not enough to base years of effort on. You may have some insight. At that point, you have to step back and start talking to potential customers.

• Do they have a problem?

• Is the problem real?

• Does the problem hurt?

Far too often entrepreneurs realise that their initial idea or insight does not match what potential customers are saying. Sometimes they can’t find customers to ask about the problem. This is a really good thing. Just imagine how painful it is to build something and then discover that no one wants it.

What is Your Solution?

Once you know what the problem is you have to come up with a solution. This is the bit that entrepreneurs love. It’s building out the idea and making it happen. If you haven’t nailed the problem is it is common to build solutions that don’t really solve the problem.

• Does the solution solve the problem?

• Is it better than other solutions?

• What are the solution’s downsides

The key here is getting the fit between the customer’s pain and the amount of effort you put in. A trivial problem requires amazing solutions to capture the customers’ interest. An exceptionally painful problem is much more tolerant because it is far easier to improve on the status quo

How can you Make Margin?

All of the above is easy if you don’t mind spending more on your solution than the customer is willing to pay. When I was a systems engineer at one company we built amazing safety-critical systems that were bulletproof. They were the gold standard. The customers only wanted and paid for brass. This is not a point about the pricing though. It’s designing how you deliver the value so that you maximising the benefit for the least input.

  • Does the customer need dedicated customer service? Google thinks not. Tiffanys thinks so
  • Do we need to own our own assets? Uber thinks not. E.on, the power company, thinks it does
  • Do we need to deliver our core competencies? Forbes thinks not, the Economist uses its own writers

Each of these approaches has an impact on cost and value delivered. Your business model is finding the right balance between the two

What is the Best Way that We Can Do This?

As I’ve built business models for over 300 entrepreneurs I’ve seen many attempts to answer the question “How can we do this?” There are always lots of answers. There are lots of ways to solve customers’ pain. This is the wrong question. The right question is to ask “What is the best way that we can do this?” The answers challenge the customers’ assumptions and delight them. They also challenge the entrepreneur’s assumptions and empower her.

What is Your Business Model?

If you’ve read this far I hope that you’ve been asking yourself the same questions. A business is rarely a static entity. Customers change, competitors change and so does the environment. Taking the time to think things through is a great way to gain competitive insight and then turbocharge your business.

What is your business model? Is it innovative or trying to break the mould. Send me an email and tell me all about it.

How an MBA can Help Startups Warwick Business School is the world’s best distance learning MBA. That’s pretty cool as I got my MBA from WBS. This is according to the latest Financial Times MBA Ranking. For me the online MBA worked far better as I had a young family in Malaysia. Doing a full time MBA in the US or UK was not an option that I was interested in – especially as I was on an entrepreneurial track rather than a Fortune 500 Management track

An MBA is Valuable For Entrepreneurs

A lot of people say that an MBA is not of great use for entrepreneurs. There’s an attitude that hustle is more important. There is certainly an argument that the traditional MBA approach of gather data and make a decision is too slow for the mad chaotic world that most startups often are. That’s more of a case of the wrong type of people being hired rather than the MBA lacking value.

Yesterday I spent a lot of time with 5 startups looking at their operational problems. These guys were really early stage and didn’t have much traction – they were still struggling with the same class of operational problems that much larger companies face. They didn’t have much data. In some cases they didn’t even collect any! However the same tools that we use on a much larger scale are incredibly helpful in solving real world operational problems.

An MBA gives You Critical Knowledge You can’t Acquire Online

The question is whether it is worth spending a couple of years on an MBA before you start your startup? Is it better to get knowledge as you need it rather than a large storehouse of knowledge that may be useful one day IF your startup grows large enough? In my case when I started my first company – Oakley Steel – there wasn’t a lot of entrepreneurial education out there. Now there is a lot more. However much of it is focus on the marketing aspects of managing the startup. Huge chunks of what you require to manage a startup effectively aren’t covered. The MBA fits that gap.

An online MBA – like the distance learning one at WBS fit my need perfectly. It allowed me to spend 60+ hours a week building a business. With 10 hours of learning at one of the world’s best business schools each week we were able to do far more than we ever expected. Entering the steel business in 2007 was bad timing. We’ve seen 3 recessions in 11 years – market conditions have been as bad as they have been since the 70’s. The MBA knowledge allowed us to flourish when the majority of our competitors didn’t survive. That’s an edge and it was definitely worth paying for.

Do check out Warwick Business School and feel free to send me a mail if you want to know more about the experience, or know how my startup & MBA knowledge can help you grow your business.

 

 

A business model canvas is a simple way of capturing everything important about your business on a single piece of paper. Using 9 simple categories you can use the canvas to draw out what your business looks like now and what it should look like in the future. The business model canvas makes almost any idea quick and easy to explain. It also helps you to understand your business model and how you can use make it better.

The Digital Nomad Business Directory

Many of my customers aren’t based in the same country I live in. I live quite happily in rural Malaysia. My customers are found in many of the world’s great cities:

  • Sydney
  • London
  • New York
  • Boston
  • Los Angeles
  • Chicago
  • Stockholm
  • Singapore

Some of them are companies that have been established for decades. Others have taken many ideas from Tim Ferriss and have become digital nomads themselves.

This makes it fun and interesting to connect with new customers. Traditionally consultants and advisors find new business when they meeting people at networking events or conferences. The Digital Nomad Business Directory helps fill some of this gap and as it grows it will become even more useful. You can find me on it here

A business model can be a range of things. It can be really simple – “I sell fruit from a cart by the side of the road” – or really simplified– “We extract oil and turn it into petrol” (Shell). At the other extreme it can be a number of interlinked spreadsheets or process diagrams that explain how the business works in huge detail.

Shell is changing its business model to avoid disruption
Photo by James Wainscoat on Unsplash

A business model is a way of quickly capturing what a business does, at the right level of detail, for the decision that you need to make.

The fruit seller can have several different types of business model. He could have an orchard where he grows his fruit. Alternatively, he could buy the fruit from the farmer. In the one case he has lots of assets. In the other he has none. Which is better? It depends on how much capital he has, or how easily he can access capital and his appetite for risk.

The oil company has a research and exploration part that finds the oil, a production arm that turns the oil into petrol. It also has a distribution arm that sells the petrol in petrol stations. It’s profits are made based on how cheaply it can find, extract and process the oil. If oil gets harder to find, or other companies process oil more cheaply it’s profits start to suffer. So it may chose to change its business model by leaving the exploration part of the business.

That’s a couple of simple examples.

Everything that a company can be described in terms of who it’s customers are, how it provides value to them, how it creates that value and how the money flows.

Business Models Get Disrupted

Most companies that have been around for a while have stable business models. With stability comes complacency. With complacency comes a new group of companies in the sector looking to make money. They try and disrupt the stability

Here a few examples:

  • Fracking in the US has disrupted the oil industry
  • Clean power disrupts electricity supply and distribution
  • Online retail disrupts malls
  • Ride sharing disrupts taxis
  • Budget airlines disrupt full service national carriers
  • Mobile phones disrupt fixed line incumbents
  • Instant messaging disrupts mobile phone companies

The list goes on….

Disruption is all about changing the way that an industry or sector operates. It’s a step change. It is not something that you can get out of by being better, faster or cheaper than the competition. You all face the same problem. How you react determines whether you will survive and prosper

Changing Your Business Model

When you are in a situation where your industry is being disrupted then you face choices. You can either retreat into profitable niches that are small and defensible. You can ignore the changes and suffer years of declining revenue and irrelevance. Or you can change.
None of them are pretty and all involve big risks.

A great first step if you are in this situation is to step back and start thinking about who your customers are and the problems that they have. This is both strange and obvious. Shell thinks it sells petrol. Actually, it provides the power that allows customers to drive their cars. The problem that customers have is that they need a power source for cars. For 100 years that has been petrol. What should Shell do now people are going electric AND autonomous?

How should it change? Shell is now starting experiment with it’s business model and believes that it can sell electricity to car owners – staying in the same place between them and their problem. The product changes. The value that they provide doesn’t.
This is how business models help businesses. They show you the current situation and how you make money. Then as you start stressing the current business model – looking at environmental and competitive threats, for example – you can then see opportunities for change

How does your business model stack up?

Part of the process of building a startup is figuring out your systems and processes. Stuff does not just happen by magic. One of the big problems that many entrepreneurs have is that they have a dream. When they have a dream they think that some parts of the dream automatically happen. The unfortunate truth is that things only happen when the entrepreneur’s attention is focused on them.

I was talking with a Malaysian startup on Friday. They have been hugely successful and have set up 3 bricks and mortar locations in their first 18 months. This year they want to set up another 4. What they have found though is that the staff in many cases don’t do what they are meant to do. Why is this?

The staff are qualified and well paid. The problem is that there was an assumption on the part of the entrepreneur that hiring qualified staff meant that they would know what to do. They are given broad rules – but this is not enough to get them to do the amazing job that the entrepreneur wants.

Requirements for Startup Systems

When we worked through the problem on Friday one of the key issues was that there were no systems and processes in place. A system is simply recipe. If you take these ingredients:

  • Checklist
  • Training
  • Detailed Instructions
  • Qualified staff
  • Materials
  • Good attitude
  • Measurement
  • Management review
  • Customer

And then you cook them in the right way you get the outcome that you are looking for. As every corporate oven is a little different you do need to experiment, iterate and refine to get the food tasting great. In this case we don’t have checklists, training, detailed instructions, good attitude, measurement or management review. As a result the outcome for the customer an the business was not what was intended or desired.

This is stuff that is ‘easy’ for big corporations because they have had decades or centuries to refine and optimise the way that things should be done. It is baked into their corporate culture. It is part of their institutional memory. Startups however have to learn this as they go along.

Key Steps for Setting up A Startup System or Process

  1. The most important first step is that they are aware that they do have a process.
  2. Usually a great second step is to map out what the process is, how it should work and how you determine whether it is actually working.

That last one is a classic failure. One startup I worked for had some wonderful standard operating procedures. The trouble was that the entrepreneur thought that these were like the Bible and that everyone would follow them. Like the Bible they sat on the side and were only referred to when things went wrong.

This leads me to a final point. Alway build and test the processes yourself to start with. Then work out how to ensure that you can train someone how to do it and set up a way of ensuring that you can QUICKLY and EASILY ensure that they are doing it right. It’s only when you can do this that you should hire someone to do the job for you.

If you are that stage hire a VA to test out how effective the system is. Only when it is smooth should you then hire permanent staff to deliver it.

Full disclosure: Wishup.com wrote an article about me and asked if I could mention them in a blog post. I didn’t get paid and don’t benefit from any affiliate commission. I haven’t used their service so I don’t endorse it

Use a stupidly simple MVP to ensure that you have good foundations for your startup. Photo by Christian Joudrey on Unsplash

MVPs, or Minimum Viable Products are great. The trouble is most entrepreneurs over complicate them. They focus on solutions and not problems. That may be great if you have enough data. Many times you don’t. You need some sort of product in order to get data to improve. Hence the stupidly simple MVP. The stupidly simple MVP is the absolute least amount of work that you need to do to prove your product-market fit.

There are some rules.

  1. No Code
  2. No Software
  3. Pen and paper
  4. Real people

Part of the attraction of being an entrepreneur is the desire to build things. Building is far more important than anything else. Once you have a good plot of land, it’s in the right place, its got customers, you have design and the foundations are in place. If you don’t have those in order then the building becomes a lot more stressful than it has to be. It really sucks when you have gaps between your walls, or the door frame is a metre wider than the door.

The stupidly simple MVP helps with this problem. It gives the entrepreneur something to build but it keeps him away from flights of fantasy and grounded firmly in the real world. Simply put he has to build a product that can work with pen, paper and a phone.

These aren’t arbitrary constraints. Software is a set of algorithms. An algorithm is a recipe, a set of instructions. A lot of those instructions are to provide features that are not vital to the essential purpose of the process. For example if you are coding for a questionnaire you only need to code for the ‘submit’ button because you are using software to run the algorithm. It only has value to the programmer, not to the functioning of the programme. It’s a layer of totally unnecessary complexity.

Pen, paper and phone (P3) forces us to focus on the critical aspects of what we are trying to achieve. In most cases that is how do we gather information from the customer, act on it and then pass information back to the customer. For physical products we may need to add a loop so we have

  • Get information from customer
  • Act on it
  • Send physical product to customer
  • Send information to customer (the physical product could be the information)

Right away you have a stupidly simple MVP of a retail store. This you can then start modelling, role playing, with the team, to understand interactions. With a few iterations you can start offering this to the customer and making sales.

I was running through with with a mentee recently. He was doing an Uber for X type of business and fretting about coding the app and project managing it. Within 15 minutes we had developed a stupidly simple MVP that he was able to start testing in hours.

It went something like this

  • Stand in front of mall and talk to people (modelling marketing)
  • Ask for phone number (signup)
  • Send out regular whatsapp blast (engagement)
  • Act on incoming message (app automation)
  • Send out information that they require (vendor-supplier matching)

That destroyed a shed load of assumptions, unearthed some new information that changed the app design significantly and most importantly got them their first few thousand customers. The day after they did this they also got some great attention from an investor. No deal, just credibility because they knew they had something that they could monetise – with cold hard data – even before they had built anything.

Is this stupidly simple MVP too stupidly simple? The product is chucked out before even being built. There are two objections.

First the product is too X to have this treatment. To me this is a red flag. That screams

I know what the solution is and I cannot see any other way that this product can be built so help me God!

It is a failure of imagination. If you cannot cut all the extraneous detail away from your idea and see how to test it in its most basic form, a stupidly simple MVP, then you do not understand your business model.

The second is that it is too simplified. You cannot learn something without building something. This misses the whole point of entrepreneurship. The point is to solve a problem. More specifically the point is to solve a problem in the simplest and least expensive way possible. The earlier and simpler your tests the faster the development process is. You save vast amount of money and time.

Almost every startup that have worked with (in the thousands now) that has built a product early has failed or had a much harder path than necessary. Almost every entrepreneur who has used the stupidly simple MVP and done something in the real world, consciously or unconsciously, has had a much easier path.

Simplicity is the route to insight. A stupidly simple MVP makes it f****ing obvious that you have a problem. It makes it clear that you cannot blame the problem on the code or the software. It makes it clear that you have a problem with your business model. That is priceless.

Let me know how your stupidly simple MVP worked in the comments below and feel free to ask me any questions

Key Resources in the business model canvas are the main inputs and assets the business uses to function effectively. Phrased differently it is what you need. For example,

  • Plant and Equipment
  • Buildings
  • Employees
  • Intellectual Property
  • Computer Software
  • Expert Knowledge
  • Political Connections

The key resources overlap to a certain extent with tangible and intangible assets on the balance sheet. However, it goes much further. In the Business Model Canvas, we only state those resources that make you unique compared to your competitors in the market.

Video of the Key Resources in the Business Model Canvas

A video of Denis Oakley talking through how key resources in the business model canvas work

Examples of Key Resources

Let’s say you have a fashion outlet. You sell large quantities of overcapacity stock outside the city centre. Your key resources are:

  • the cheap location with
  • good access and
  • contracts with fashion producers.

In my analysis of the Google Business Model I identified Google’s key resources as the:

  • Index,
  • the algorithm, and
  • its computing power.

Computer power included – hardware, software and the engineers to write the code and configure the software and hardware.

In all three of these cases, the companies have far more resources than they use. The resources that we focus on are the ones that are absolutely critical to the success of the business model. If you don’t have them you are toast.

  • Oil Fields – British Petroleum, Exxon
  • Car Factories – Ford, Toyota
  • Planning Permission – Property companies
  • Patents – GlaxoSmithKline, Bayer
  • Monopolies – British East India Company
  • Customer Data – Google, Facebook
Key resources

Physical Key Resources 

These are tangible resources. For example, equipment, buildings, machines, transportation or distribution networks. Dell’s distribution network was a Key Resource, enabling them to deliver PC’s at home – years before others did the same.

One example of key resources in the business model canvas is Tesla. Tesla’s business model includes the Giga Factory which produces a significant proportion of the world’s large batteries. This gives Tesla the advantage of economies of scale in cost in its electric car production.

Physical resources are tangible things that you can touch and feel. For a company distributing beer in rural Kenya, the key resources could be:

  • the lorry, and
  • the reliable supply of petrol.

In contrast, for a logistics company in the UK the key resources could be:

  • the route planning software, and
  • the warehouse automation system.

Both companies do something similar but the market and the competitive environment mean that what they see as key resources are quite different.

Human Key Resources

Human resources are the people that you need to do the work. People are often how you transform key resources, through activities into the value proposition. In most cases, human resources are either bodies or knowledge.

When I ran a food delivery operation we needed lots of motorcycle delivery riders. We weren’t really concerned about the quality or the skill set of the people. We just needed enough of them who could ride a bike and had insurance. An even starker example would be the West Indies sugar plantations. Slaves were imported from Africa and put to work on plantations. Output was correlated to the number of slaves on the plantation, not to their willingness, strength or knowledge.

In contrast, knowledge is all about particular domain knowledge or relationships. A consulting company’s key resource may be the lead consultant’s knowledge of economics that he has acquired over 30 years and won a Nobel prize for.

Conversely, it could be a different consultant’s Rolodex of all the property developers he has drunk whisky and played golf with over the same time period.

Financial Key Resources

Many businesses need cash for operations or capital projects. If you are going into chip fabrication or jet engine design you need scads of money to invest in the research, development and plant construction.

As a startup going into a new category, for example like Uber, then money becomes a critical key resource as you can use your wall of money in a land grab as you attempt to build market share ahead of competitors.

Intangible Key Resources

It is also important to remember that key resources may be more intangible. A patent that allows you to have a monopoly on producing a drug or which blocks a competitor’s access into a market are also key resources. Trade secrets and know-how are also important.

A good example of a know-how that is a key resource is the Toyota Production System which has enabled Toyota to consistently increase its productivity and quality over decades through process improvement.

Another example is the Audible business model. In this case, some of Audible’s key resources are the network effects that come from the number of audiobooks on its platforms and the sunk costs of many customers with hundreds of books that they have access to.

How to Determine Your Key Resources

There are four key questions that you need to ask

  • what key resources does the value propositions require?
  • what are the key resources required by our marketing and distribution channels require?
  • which key resources are required to deliver our customer relationships? and,
  • How do key resources support our revenue streams?

When you do this exercise it is often useful to talk through the customer’s user journey.

For example, if we look at the Rent- the- Runway business model

  • the customer goes to the website – we need a website – and,
  • chooses a dress – we need a stock of dresses, then
  • has it delivered – do we deliver it ourself or get this outsourced
  • wear it out for the night, and
  • returns it to be drycleaned – another requirement

So from the user journey, we can see that we need

  • website
  • dresses
  • delivery
  • cleaning and repair

The next step is to ask

How do we deliver all these?

When I build a business model there are two or three ways of deciding the key resources.

The first is the simplest. I look at what other similar companies are doing and look at their key resources. Then I tailor the current business model to reflect how other companies in the industry work. This is a safe middle of the road approach. It’s not desperately interesting but you have a reliable outcome.

Working backwards from the Key Activities

Alternatively, you work backwards from the key activities in the business model. Here you have worked out what it is that you need to do in order to deliver the value proposition.

Then you work on what you need to have in order to deliver the key activities. You can think of it as building a bridge. You know you have to design the bridge and construct it. What are you going to need to design it? Engineers and Architects. What are you going to need to construct it? Building materials, planning permission, construction equipment and more engineers.

With startups, you can make this very powerful by looking at very different ways of delivering the key activities. For example, in the Apple business model, all the manufacturing is outsourced and Foxconn is a key partner supplying the manufacturing resource.

Starting from the Value Proposition

The final approach is to look at your value proposition and decide what are the resources that you need in order to make it happen. If I wanted to build a search engine for recruiters then the key resources would be a search engine and a large number of CVs. My key activities would then ask how do I get these and make them accessible to recruiters in order to generate revenue.

Playing with Key Resources In the Business Model Canvas

One of the things that I love about the business model canvas is that it makes it easy to open your eyes to more possibilities. The key resources are great for this. As an entrepreneur, you always have a choice of make, rent or buy. This depends on your appetite for risk, expected returns and available cash. It also has a huge impact on your cost structure

If you were designing the Airbnb business model, you could decide to build your own custom website and have everything just the way that you want.

Alternatively, you could pay another company a monthly fee to white label their commercial product, or you could buy an existing room-sharing website and rebrand it.

Airbnb decided that it would make its website. The Uber business model is based on not making or owning its own cars. Instead, it rents them and the drivers.

You can make this decision with all your key resources. In fact, if you don’t make these decisions then you are missing a trick and could make significant improvements to your business as a result.

You can apply this to all your key resources.

These are your Key Resources. Add these to your canvas.

Business Model Innovation

Business model innovation is all about combining all these factors with the other nine segments of the business model canvas and finding potential patterns that match the problem that you are trying to solve. They also have to deliver lots of value to your customers and solve their pain.

Business model design is frequently far harder than many entrepreneurs realise and it is good to have a guide to help bring things together. It is also critical to have a clear idea of how you are going to test your business model. This is so that you can validate it early and save time and money, or pivot whilst you still have a runway.

How to Build a Great Business Model Canvas – The FREE Course

This free course is in 10 lessons – each with a video and accompanying text. It describes how the business model canvas works and how to use it.

  1. Introduction 
  2. Customers
  3. Value Propositions
  4. Marketing & Distribution Channels
  5. Customer Relationships
  6. Revenues
  7. Key Resources
  8. Key Activities
  9. Key Partners & Suppliers
  10. Costs

Are you an Entrepreneur?

Are you copying a business model?

Are you creating a new one?

I can help you get it right

Review YOUR BUSINESS MODEL

Read More

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