How to Design Business Models Archives

March 3, 2023 By Denis Oakley

Pretotyping

A few weeks ago I asked some of the other 500 Global mentors what they’d recommend reading on startups. I got a lot of great advice – many of the books I’d already read. A few I’d never heard of and they were the first that I bought.

One of these was Pretotyping.

It was an absolute joy to read as Alberto was writing about many of the things that I preached over the years. I called it stupidly simple MVPs.

Imagine that you are an investor. A bright young chap comes to you with an idea that could change the world. (Yep, let’s yawn).

The chap, who was Singaporean or Malaysian, had read about flexible video screens and how there was a possibility that they could be woven into t-shirts.
So he connected the dots. T-shirt with Video screen + advert + 8 billion people = $$$$$$

The problem was that he didn’t have the technology and he didn’t have the money to create the technology.

So he needed an investor.

The sums he’d done meant he was looking for $ 2-4 million just to get a product to a proof of concept stage.

What do you think his chances would have been with a VC?
I thought they were slim too.

Working on the pitch deck was unlikely to lead to great results.
The key thing was…

Is this a stupid idea?

Does it have legs?

How can we test this in the few hours that we had?

Because it was hackathon or similar we’d been given some free t-shirts.

I scouted for some masking tape and a pair of scissors.
Then we cut a hole in the t-shirt, tape the iPad behind it and downloaded a coca-cola advert to play on repeat.

We used the Coca-Cola advert because Coke we knew it worked – Coke had a big marketing budget and great production quality.

Then it was off in a taxi to the local mall.
The entrepreneur walked around – feeling uncomfortable – as the advert blared out from his chest.
That told us something but it wasn’t the experiment.

Pretotyping — Here’s me holding an iPad Pro to my chest to replicate the experiment. Originally it was a smaller iPad, ugly masking tape and a handsome model. When we did the prototype we also realised that it wasn’t a gender-neutral product…

The real experiment was the two people who shadowed him. One counted the number of people who looked at the screen. The other tried to count how long they watched.

In a busy Asian mall on a Saturday afternoon, it bombed. Nobody cared. A few people glanced, no one commented, vision didn’t linger.

The cost of the experiment was a few hours and an event t-shirt.

The benefit – the entrepreneur didn’t waste months/years of his life pursuing something that didnb’t work.

I have no idea what he did after that – I certainly didn’t see him back in the mall the next week with an improved version – so I guess he took the failure as the kiss of doom.

This is what prototyping is all about. How can we get the simplest faster possible test of the idea in front of people so that we can validate it early?

When do you use it?
Frankly, as soon as you have an idea – try prototyping it. DO NOT waste any time building anything before you do!

If you can’t spend some more time thinking about it, read Alberto’s book, or call me!

November 2, 2021 By Denis Oakley

Building Feedback Loops into Your Business Model

Now that we have spent some time thinking about other business models in the market place let’s start developing this one. Today we are going to look at key resources in the business model, and how feedback loops make your business model more powerful.

A good place to start next is to look at the key resources that you have or need. These are the building blocks that you use to create the value proposition. In other words, it’s what you know (in this case), the factories you have, the skilled staff, the patents and processes.

Business Model Key Resources

In our example, my key resource is ‘Denis Oakley’ as all the IP is contained within my head. Well, most of it. A lot of it can be found on this website (like this article) and other social media websites. Let’s separate this out.

IP
Brand & reputation
Platforms – website & social media accounts

Business model key resources - these are what you need in order to create the value that is going to solve your customers problem — Business model key resources – these are what you need in order to create the value that is going to solve your customers’ problem

We can phrase that in several different ways, I could break down IP into experience and processes for example. This is a good starter and lets us start exploring how we can develop the business model.

This key resources approach works better when you have an existing business. You want to leverage existing assets. Some may be relevant and useful. Others you may not want to use.

Key Resources in New Ventures

If you are creating a business model from scratch the approach here is to ask – what do I need to build the value proposition. If I was a new venture in car hire I could start by asking, what are the different types of key resources that I could use to create my value proposition.

Here are a few

I buy lots of cars
I lease lots of cars from a car leasor or manufacturer
I resell cars from an existing car rental company
I get consumers to lease me (or other consumers) the cars.

Straight off there are 4 different ways of getting the key resources. 1 asset-heavy. the others asset-light.

Business Model Feedback Loops

Let’s now have a look and check out the logic model that we are building for consulting. Experience and IP (key resources) enable me to deliver the value proposition. That solves the customer’s problem, and as I do that it generates more experience and IP making it easier to deliver better results as we keep doing this.

Business model feedback loop - here is an example of a feedback loop, where the better the business model works, the better it will work in future. — Business model feedback loop – here is an example of a feedback loop, where the better the business model works, the better it will work in future.

What we have now is a feedback loop.

These feedback loops are critical. What they do is they bring the different parts of the business model together. The better they are the tighter all the pieces are tied together. The tighter the pieces are tied together the strong and more powerful the business model is as a system for generating money and disrupting competitors.

Spend time to identify all your feedback loops

As we design the business model we will keep identifying them. I’m not going to do all of them as we go through each step. It is something that you should be doing. The value in the exercise is not the few minutes you spend writing on the paper. It’s the time that you spend suckling your pencil as you start seeing how things work.

As a rule of thumb – every component of the business model should be in one or more feedback loops. If you have written something down on the canvas and it is not in a feedback loop, then why is it there.

The feedback loops show how each component is critical to generating value or profit. If something is in the model and you can’t create a logical argument (feedback loop) for it to create value… cut it out.

As you look for feedback loops, sometimes you are going to spot gaps. Sometimes you will see that you need something else to make the feedback loop work. Fill that gap, and play with the new structure.

Uber Feedback Loop Example

Here’s an example that I have abstracted out of the canvas for Uber.

Uber business model feedback loops showing the power of driver acquisition

As they get more drivers they get more coverage. That means that Uber can do faster pickups, which delights customers, and so Uber is used more, and that creates more demand for drivers.

At the same time as coverage increases, drivers get more trips, which allows uber to offer lower prices (spreading fixed costs over more trips) which again generates more demand.

Use Feedback Loops to improve your business model

As you start seeing feedback loops like these arising from your business model it does a number of things.

You start to:

optimise the feedback loops

look for and design in feedback loops

These are critical ways to transform the way that you compete with other companies in the space.

What next?

If you don’t want to come back to the blog every day click this link to get posts in your inbox – http://go.denis-oakley.com/newsletter .

Do explore these links to get more insights on how to build better business models

November 1, 2021 By Denis Oakley

Don’t Copy Business Models

You have customers, value to offer them and a real problem that you are solving. That’s the core of your business model. A lot of entrepreneurs and business leaders get this far. It’s not rocket science. You can make some awful mistakes (not solving a problem). Once you know what the big mistakes are they are avoidable.

Don’t Copy Other People’s Business Models

What comes next isn’t rocket science either. It’s a simple insight that changes everything for a lot of those who hear it. Most startups and businesses at this point take the first business model that comes into their head and use it. This is a mistake. A bad one.

For example, if you are making a widget, your first thought may be, outsource to a factory in china and sell using Fulfilled by Amazon. Not a bad idea… but how many other people have done exactly the same? One reason why it came to mind so quickly.

Copying competitors business models can work in mature markets, but will generally lead to tough competition. Done unthinkingly it is a quick road to underperformance.

Diversify or Differentiate Your Business Model

The insight that you need to get is this. If your business model is the same as everyone else you are at the mercy of the market. If the market grows fast, you will. If the market is brutal competition, you will suffer it. If the market tanks, you will sink with it.

Choosing a standard business model, not thinking about how you will get your value proposition to market will make everything so much harder. That wastes your time and your energy.

How do we make life easier for you?

Choose what your business model should look like

We pause at this stage and think about what the rest of the model should look like. You have choices. Lots of choices. Choosing to do something different here, makes you different and that can give you a huge competitive advantage.

When I work with clients I don’t let them go beyond this stage without doing a very simple exercise. I ask them for a list of their biggest competitors. Let’s say there are 3 of them.

Sketch Competitors Business Models

The first step is to draw out a business model canvas for each. Draw out that business model with what you can see on their website, off Glassdoor, google search ‘company name + business model’ and put it together.

If they are all the same, then doing the same thing is a bad idea a lot of the time. You need to do something different. If they are all very different your business model needs to be designed to exploit their weaknesses and break them.

Assume that they are all the same. The next step is to look at a number of big ideas about how you can pull your business model together.

Get a set of ideas

Let’s go back to the example that we have been working with, a consulting company that helps businesses that need to change their business models because they face too much competition, or their market is dying.

Once you have your value proposition in place and know your customs, pause, don't copy other business models, but start thinking about how you will choose your business model. — Once you have your value proposition in place and know your customs, pause, don’t copy other business models, but start thinking about how you will choose your business model.

What are some big ideas that we can play around with here?

Traditional consulting. I wine and dine clients to build relationships so I can get big contracts. I deliver these using bright young graduates (McKinsey/BCG model)

Thought leadership: I use the Philip Morgan colosseum model for independent consultants – develop amazing expertise and then create a number of products to upsell people who buy into the idea I am selling.

Silver bullet solutions – I target smaller customers with a high-pressure automated sales process. This is designed to upsell products, constantly maximising ticket prices.

Famous Author – I write a book and build a social media machine. This helps me become a new Gary V or Simon Sinek. I make money from speaking and high ticket consulting.

I’m going to leave it there. With another hour of thought, I’d have come up with another 10-20 ways of delivering the value that we identified in the previous post.

These are all business models that work and critically have lots of other people using them to deliver a similar value set.

Easy Approach: Niche

The simplest way of designing a business model is to niche. Choose a specific pain, solution and audience and use a standard business model. Are there enough people out there with the pain? Is the niche small enough that competitors won’t flock to it? Yes? Then that may be a good enough point for your business model innovation.

That’s what is taught in MBA courses. If someone else muscles in on you, your only defence is to be operationally better than they are.

If you want a better business model than that you have to put more thought in. That is what we are going to cover next time.

What next?

If you don’t want to come back to the blog every day click this link to get posts in your inbox – http://go.denis-oakley.com/newsletter .

Do explore these links to get more insights on how to build better business models

October 28, 2021 By Denis Oakley

Beginners Guide to the Business Model Canvas: Part 2 – Customer Segments

Yesterday we started off sketching out our business model canvases. Today we’re focusing on customers in the business model canvas. The goal is to quickly and easily extract the essence of your business into a business model. Use that to focus your attention on where you are, and then how to change to where you need to be.

If you missed yesterdays post – it’s here.

At the end of yesterday we had a business model canvas – almost totally blank, but we’d added the main problems that you are solving. I left it there because I wanted you to let your subconscious work on them overnight.

We added the problems that we are solving to the business model canvas to keep us non the straight and narrow. So making solutions for non-existent problems

Often we think about solutions, not problems. It’s a classic trap that many engineers and logical people jump into. Powerful business models are built around customers. When we solve their problems we do better. Selling our solutions is always harder, especially if they are not solutions to real or important problems.

Have a look at the problems you wrote down. Are they real problems? Do have evidence for them? Real hard numbers, or just stuff inside your head. Think about it a bit more.

Now let’s get started for the day.

Customers in the Business Model Canvas

Starting with customers

We’re going to head over to the right side of the canvas and think about customers. You may have one group of customers. You may have a number.

The business model canvas works well when the value you create for each customer is similar and done in similar ways. This also includes platform designs where one group of customers has synergies with another.

If you are selling petrol to consumers and armoured vehicles to customers, these are too different to go on one sheet of paper. Create two. If you are in doubt just do one business model for each customer segment to start. Simplification is everything. The smaller steps everything is broken down into, the easier it is to understand and manipulate.

If you go-to simple, that’s ok. It’s easy to add more detail. If you have too much detail it’s also ok, you just spend a bit more time being confused and trapped in thorns. You can’t get it wrong.

Who are our customer segments in the business model

Let’s choose our target customers.

If we remember – the problems that I am solving are

Old business models are not working for lots of companies in many industries because of the pace of change – technological and environmental (used broadly)

New Ventures need business models to stand out from all the other startups chasing the same opportunities.

So who are my customers?

Adding customers onto the business model canvas.

The people who have problems with a changing competitive landscape are SME owners (lump in directors and CxOs). The people who see opportunity in a changing competitive landscape are entrepreneurs.

At this stage, the customers should be able to say ‘I have this problem’. Here’s an example

The CEO of the Columbus Dispatch says the paper’s longstanding business model just isn’t working anymore
Colombus Business First

Can your customers say that they have the problem you think they have? If not, change problems or change customers, or change the way that you say it.

The other thing to look at is how large your customers are.

‘Mums’ or ‘Working women’ are huge segments. I haven’t looked up ILO data but I’d imagine the first is about 3 billion people and the second isn’t a lot less. That’s including everyone from New York, to Kyrgyzstan, to Kuala Lumpur, across dozens of cultures, social classes, religions and mindsets.

Do all of them care about the problem? Probably not. Or at least to a greater or lesser degree. Who has the problem more? Can you narrow down the focus on them? The fewer you are targeting the more resources you’ll have to solve each one’s problem (and persuade them that you can.)

We've now added customer segments to the business model canvas and shown how they relate to the problems they have — We’ve now added customer segments to the business model canvas and shown how they relate to the problems they have

Better Definition of Customer Segments

So let’s reformulate my answer because I made this mistake as well.

SME owners in the UK Midlands who have undifferentiated business models in at threat industries.

Global technology English speaking entrepreneurs pre Series A with a TAM greater than $1billion.

I’ll highlight what’s on the canvas – because that’s way too much text to clutter it with.

A useful tip is to always put what you write on the canvas in bubbles. It seems to act as a focus and allow you to absorb and manipulate information faster. If that works for you – let’s do it now.

Here we've added examples of customers to the business model canvas and circled them to make them stand out a little better — Here we’ve added examples of customers to the business model canvas and circled them to make them stand out a little better

At the end of today’s little exercise, you should have

checked that your problems are real
selected your customer segments
checked your customer segments againt the problems you are solving.

We’ll carry on tomorrow and start looking at the solution.

Bonus Tip

Bonus tip: At this point, it’s always worth trying to size your market. To do that you figure out how many customers there are in the segment. Then consider how much money they have. In the case of the SME’s, I’d go to the Office of National Statistics (ONS) in the UK and see how many SME businesses there are in the Midlands. Then I’d filter that down by the SIC (NAICS) codes that I am interested in. Then figure out their turnover. It can take a couple of hours. The maths is usually easy, finding the data requires a bit of imagination 😉

Go back to yesterdays post and start from the beginning

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October 27, 2021 By Denis Oakley

Beginners Guide to the Business Model Canvas: Part 1

How do you use the business model canvas? I am going to walk through how to do your business model canvas and use it to make better decisions in a number of small steps. It will take a few days but we will slowly, together, layer levels of understanding . All you need to do is stech as I sketch, note as I note, and your own business will emerge.

This is ideal if you run, own, manage, lead or study a business. A little bit of learning in less than 5 minutes a day.

Let’s start.

Sketch the Business Model Canvas

Grab a piece of A4 (or any other size that works for you)

Sketch out the business model canvas

Beginners Guide to the Business Model Canvas: Part 1 — Sketching the business model canvas out quickly makes it easy to use where and when you need it – even on a napkin in a restaurant.

An L on its side. Then another one to close the square. Don’t worry about making it pretty

Draw a line across, about 1/4 of the way up. Then Cut it in half.

Then four strokes in the upper block, equally spaced. Then cut the two middle panels in half.

That gives you your basic business model canvas.

It’s that simple

Don’t bother using a template unless you have an easy way of keeping them handy. Being precise just slows you down and your mental focus is on the drawing, not your business.

Starting on Your Business Model

To make this a little bit more real and give you an example to follow I’m going to put my business in. This makes it easier for you because like me, you’ll have a bunch of thoughts about your business and the process will help you structure them.

The first thing that I usually do is to write down the problems that the business is solving. I use the space at the bottom of the value proposition section.

Hit the Problem

In this case, I’ve written

The old business models don’t work any longer
finding new business models that work is tough

That captures the heart of it. Is it the best formulation? Probably not. As you repeat and iterate you get it smoother. It is however good enough – and gives us the focus that we need to build the rest of the model.

Really, what I want you to appreciate here is that you can’t get this wrong. Putting together a great business model is an iterative process.

It’s always going to be solving a problem. A big problem. A painful problem.

The data shows me that over the next couple of decades tens of millions of SMEs will be destroyed by market forces. At the same time, a similar number of startups will form. Trillions of dollars and hundreds of millions of lives will be affected.

Is that a problem worth solving? I think so. What’s the problem you are solving?

Condense it down into 2-3 bullet points. A couple of words in each. If you need to write an essay you aren’t there yet. You’re not wrong, so much as focused at the wrong level. You need to come up to a higher level.

As we go through the process, if you change the problem, that’s ok. Come back to this point and start over. As many times as you need.

Tomorrow we’ll carry on 🙂

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October 26, 2021 By Denis Oakley

When to use the business model canvas?

When do you think about your business? That’s when you should be using the business model canvas. Is that simple enough?

The business model canvas is a tool that quickly allows you to focus on what is essential in a business. Most of the time we don’t see what is essential and we make mistakes as a result. We focus on the wrong thing or take too long to get there.

Years ago I ran a startup with my wife. She was good at some things, I was good at others. When it came to discussing how to run the business we both looked at it from our perspective and end up going round and round.

With the financial crisis of 2008 hit, we lost that luxury. Our customers still loved what we were doing, in fact, I had an email from one just as I wrote this, over a decade later, but none of the customers had any work. There was no demand for what we were selling.

It got close to Christmas and we looked at the cash we had. Christmas presents were out. It was a matter of buying some rice to eat, or some baby milk to feed the baby. Not, an ideal situation.

Sketch, Iterate Whenever Your Debate

That’s when I first started using the business model canvas. We’d sit down on a Friday evening, sketch out the business model again and look for a path to success. During the week we’d run another experiment. And repeat. We did this for 27 iterations. Every week a slight variation on the business model, changing operations or marketing, trying to find that golden path out of the meh situation we were in.

There are lots of different ways that we found that it worked. The touchstone is this.

A big report gives you data. The canvas gives you a space to explore that data and visualise it.,

When you can visualise your business more clearly, you have the ability to change it faster and with more confidence.

When you can visualise your business better you can explain it better.

So when should you use the business model canvas?

Use the business model canvas when you are confused, hesitant or uncertain about the future.

You should use it every single time when you are confused, worried, uncertain, doubtful, hesitant about the path ahead.

By visualising the business model, and how it works, you are able to run a thousand mental experiments about what to do next.

That gives you clarity of thought and allows you to make better decisions.

Over the next few days, I’ll walk you through exactly how simple that is. . .

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Pretotyping

Building Feedback Loops into Your Business Model

Business Model Key Resources

Key Resources in New Ventures

Business Model Feedback Loops

Spend time to identify all your feedback loops

Uber Feedback Loop Example

Use Feedback Loops to improve your business model

What next?

Don’t Copy Business Models

Don’t Copy Other People’s Business Models

Diversify or Differentiate Your Business Model

Choose what your business model should look like

Sketch Competitors Business Models

Get a set of ideas

Easy Approach: Niche

What next?

Beginners Guide to the Business Model Canvas: Part 2 – Customer Segments

Customers in the Business Model Canvas

Who are our customer segments in the business model

Better Definition of Customer Segments

Bonus Tip

Read More

Beginners Guide to the Business Model Canvas: Part 1

Sketch the Business Model Canvas

Starting on Your Business Model

Hit the Problem

Get the Rest

Read More

When to use the business model canvas?

Sketch, Iterate Whenever Your Debate

So when should you use the business model canvas?

Get daily emails

Read More

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How to Design Business Models