Entrepreneurs with Denis Oakley
I HELP BOLD LEADERS TRANSFORM THEIR BUSINESSES AND THE INDUSTRIES THEY COMPETE IN
Designing better businesses requires an idea and a process. In this post, I’ve distilled a huge amount of my knowledge on the practical stuff of how to design better businesses.
A business is not something that happens or is copied, it is something that is designed so that it can do the job better than anyone else.
[Read more…] about The Ultimate Guide to Creating Powerful Business ModelsThere’s a lot that goes on under the hood when you are designing better businesses. In this post, I’ve collected a decade of thoughts about the theory behind the design of better business models.
This post gives you deep insight into how to develop business model strategies and why these strategies are so powerful at enabling your to turbocharge your value proposition and disrupt the competition.
[Read more…] about Business Model StrategyWhat’s a business model? It’s always better to show than tell. And show I do with over 30 business models of high growth companies, normally with accompanying commentary of how the business model works, and why it is so successful.
[Read more…] about Business Model Canvas ExamplesThere are five big reasons why it is important for a startup to get their business model right
Let’s look at the first
I worked with an entrepreneur, I’ll call him Nico, who claimed that he was making $10 million a year. He wanted his business model captured so that he could explain to investors what he was doing.
Great chap, really enthusiastic but after 5, 10, 15 hours I still had absolutely no idea what he was trying to do. Every business model canvas that I sketched out missed what his vision was.
In the end, we parted ways and when I checked back a few months later the website had gone.
When I have worked with other customers with a similar whoosh of ideas we’ve focused down on a single business model and they have gone on to get customers and grow into successful businesses
A clear business model is critical for persuading investors, customers and partners to join your journey
I worked with an older entrepreneur. He’d been one of the earliest dot com entrepreneurs and sold his startup to NewsCorp for a nice valuation in the early ’90s. With his new venture, he planned to change the nature of the internet.
Again there were a lot of good ideas, but it slowly dawned on me that he had one business model in mind, the dev team had another business model in mind and marketing was working on yet a third.
Needless to say, things did not end well. A clear business model that everyone had bought into in the early days would have saved a lot of money, time and emotional pain. He lost his house in order to pay the developers.
If you don’t have a clear business model your team can’t work together
I’m a big lean startup fan. Actually I though Isaac Newton dropping apocryphal apples was fun when I did physics. Experiments are good as they quickly help you decide which of your beliefs around the world are……problematic
One entrepreneur I worked with had what was on paper a good business model. It should make money fairly quickly and if it could grow would start having a strong disruptive impact on the sector.
The trouble was that the business model was not structured so as to make it easily testable and a lot of money was spent on the software. When we got out into the field all of the first five experiments that we undertook to connect with customers failed. The target customer did not exist and that left the startup in crisis.
If you can’t test your business model the chance of failure massively increases
One of my customers, one of my best friends as well, introduces himself by saying “My name is Shaun and in my first startup, I raised $50million” and then mentions the name of one of the top 5 Silicon Valley VCs.
He’s a hardware guy and does some super innovative things. He can build products of high quality quickly and cheaply. The trouble is that the overall business model is a mess. Even though he has raised $3 million for his current startup it’s a hard sell to investors.
It’s an equally hard sell to get customers because all the parts seem somewhat disjointed and there is no story for them to buy into. So life is a series of difficulties and disappointing sales.
If you don’t have a good business model it’s hard to grow
I worked with a great entrepreneur called Jasmine. She’s currently raised $10 million for her Asian based startup and is experiencing rapid growth. Aspects of the business model are unique and very powerful.
Can she be really disruptive? Has she got a really innovative business model? It’s difficult to say because of the wall of money that is being thrown at the sector. She can certainly scale but the underlying innovation is in just one part of the business model, and that process can be imitated by all the other market players.
So to scale, she has to hope that she can get a leadership position at a low enough cost so that she has enough money to build a moat. That seems unlikely and so she will likely stabilise at less than 1% of her available market.
An innovative business model enables you to disrupt competition and the market, not just profit alongside them
Are you copying a business model?
Are you creating a new one?
I can help you get it right
This week I was working with a customer looking at on-demand business models as part of my 5 step business model design process. Specifically, we were looking at home-services, like plumbing and electrical work, in a non-US market.
The process went like this. We started off with ten competitors. In each case, it was pretty simple to say how they made their money. Company A makes money by matching buyers and sellers and charging a commission on every sale.
What was far harder was to understand how they actually did this. Often it meant trawling through every page of their website, looking at glass door or jobs sites to see who they were hiring and what people did inside the company, and dozens and dozens of reviews.
One analogy that kept coming to mind. I can map out the skeletal structure pretty quickly. A skeleton doesn’t tell you what an animal looks like. Elephant skeletons give you no idea if you don’t know what an elephant looks like, of their super long trunk. (side note: This is why it is so difficult to figure out what dinosaurs look like). As we do more and more research we can figure out the muscle structure which then gives a lot more insight on how they move, which in turn tells us how they can act.
As you pull the information on a company that you know nothing about you can start seeing the business model in two ways.
On one side there are business models where all the components seem pretty cool and smart. They are all individual structures. There is a block labelled customer service, for example. It’s not clear how ‘customer service’ fits into the larger story. Everything makes sense, up to a point…then it just doesn’t all fit together.
If you didn’t get that, don’t worry. I’ll now explain the other type of business model and you’ll see the difference.
The other type of business model lets you see how everything relates to everything else. A success in one area means that another area will deliver better, which creates a better value proposition, which then delivers happier customers, which leads to more orders.
For example. One of the startups that we looked at has received series D funding from some well known Silicon Valley names. They’d started off with a social mission. This was so strong that when I first started researching them that I thought that they could have gone a non-profit route.
This social mission was focused on empowering and uplifting their workers. This had a huge impact on customer relationships and key activities. This translated into a better quality of workers and more loyal workers (with none of the retention and disintermediation problems that many platforms face) and that delivered a far better value proposition to the end-users who paid about 2X what they would have paid off the platform.
Everything in the business model has a logic that makes the core driving components of the business model move faster and faster.
Most of the time as we get faster air resistance increases and it makes it harder to go faster, or even maintain the same speed. I have a wheel on my triathlon bike (A Zipp Sub 9) which actually makes you go faster as you go faster. Aerodynamic drag is overcome.
What was clear as we worked through 10 very similar business models in the same industry was that some had this ‘accelerant’ characteristic. Unsurprisingly they were the ones who were achieving market dominance.
Right now I can only describe this in qualitative terms. It’s like porn, in the words of Supreme Court Justice Stewart “I know it when I see it“. What I’d like to do is figure out a way to quickly identify and measure whether a business model is greater than the sum of its parts. Or is a model simply a pile of disjointed parts.
There’s a big difference to carers, valuation and customer satisfaction right there. Stay tuned and let me know your thoughts.
Are you copying a business model?
Are you creating a new one?
I can help you get it right
Ash Maurya came up with the lean canvas a few years ago. The business model canvas is a powerful tool for many companies, and startups, to understand what they do and how to change. It’s not always that great for a startup trying to do something innovative. I was reminded of that today when I was working on a business model for a customer. Frankly I was struggling to get the business to work and reconcile what we wanted to do. We were going round in circles.
So I got out a copy of the lean canvas and started scribbling. Whether it was serendipity- or just a change of frame – everything started to come clear quite quickly. In the business model canvas the focus is often the Value Proposition – Customer Axis or the Value Proposition – Resources/Activities Axis.
In contrast the lean canvas is problem focused. The biggest box on the bard is the one that says PROBLEM. In the model I had been working on we’d been looking at how to design a marketplace. We’d focused as is the wont on the consumers problems not on the underlying problem that was the reason we felt a marketplace needed to exist.
So when we refocused everything on the problem(s) that the business side of the market faced it then became very clear that we could provide a single solution to the problem that would be acceptable in different ways to the different B2C segments. Cutting out the jargon – by changing the way that we looked at it it was super easy to make customers happy.
Everything fell into place in less than an hour because we used the lean canvas rather than the business model canvas.
This is the Lean Canvas
As you can see it is very similar to the business model canvas. We keep the majority of the customer facing components – revenue – channels – customers and value proposition. At the same time we also remove the components that focus on delivery of the value proposition – Activities – Resources and Partnerships.
These are replaced by four new segments
Ash Maurya has a great description of how the lean canvas works and you can read it here.
Every business solves a problem for their customers. If they don’t they tend to fail. One of the major problems that startups had during the dot com boom and after was that they tended to build first and hope to get customers after. This often meant that they built something that didn’t really solve a problem for the customer. The lean canvas corrects this by putting the problem front and centre.
The starting point is the key problems that you need or want to solve. These need to be validated so that you know that the problem is a real one. Once you have confirmed with the potential customers that the problem exists, it’s not trivial, they are willing to pay for a solution and are willing to switch from whatever solution the use at the moment we are in business.
The next step is to look at the solutions to the problem. How can you solve the problem? This is something that the business model canvas doesn’t pickup very well. The solution is similar to the value proposition. The way I look at it the solution is more practical and technical. It is the mechanism by which the value is delivered.
If we think about the original Amazon business model for a minute. The problem was that bookshops never had enough books in them to offer a good selection. The solution was to build a website where all books were available. The value proposition was Amazon was a place where it was simple and easy to buy any book that was in print in seconds (one click purchasing).
I often think of this as the defensive moat. It plays back to Michael Porter and his idea of sustainable competitive advantage. Many business models can be quickly and easily copied. Computing and design skills are plentiful. What is it about the model that gives you enough of an advantage to beat the competition? It’s normally something, for an internet company, that gives you an advantage until economies of scale, scope or the network effect kick in.
A classic unfair advantage is a patent or an official monopoly. Others could include a proprietary data set or even a particular culture at the company.
Key metrics is probably the weakest component of the Lean Canvas. If I’m not starting a company using a lean methodology it’s the easiest to leave out. Using a lean approach you are data focused. Life is a series of measured experiments. How else do you measure your success than by holding the results of your experiments to some standard of progress?
Thinking right at the beginning as you start your company what you want to measure is incredibly valuable. If you are driven by a profound “why” then the key metrics enable you to always be checking that you are delivering that why even as you grow the company. I don’t think that Google had a way of internally measuring whether it lived up to it’s “Don’t be Evil” ideal (dropped this year) and its interesting to think of what would have been different if it had.
