Goals of Business Model Innovation Archives

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

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 20, 2021 By Denis Oakley

Business Model Innovation in Entrepreneurship

Business model innovation in entrepreneurship is designed to kill other startups and help you unlock value from incumbents

Do you need business model innovation as an entrepreneur? Do you need to come up with a shiny new business model? Is all the extra effort required to think about business models even worth it? I’m biased, but even with that bias, the answer is still yes. If entrepreneurs don’t do business model innovation they are probably doomed.

There are two reasons why entrepreneurs need to spend a lot of time on business model innovation. One is defensive. one is offensive

Cull the herd

First the defensive one.

Business model innovation in entrepreneurship: Part 1 - Use BMI to fight off the startup swarm and get a larger share of TAM — Business model innovation in entrepreneurship: Part 1 – Use BMI to fight off the startup swarm and get a larger share of TAM

Entrepreneurs swarm to an opportunity like flies to a rotting corpse. You never just see one fly on a dead animal. Entrepreneurs who only see their business and no other competition are normally delusional. They can’t see the other flies or the corpse isn’t there to start with. That’s a rule of thumb, if it doesn’t seem true to you get an advisor to ask you tough questions and listen to hir’s advice.

Don’t rely on luck

In almost every opportunity there will be a lot of new entrants going after the same opportunity as you. With similar resources, skills and market access there are normally two differentiators. Luck and business model.

Luck is by far the most important thing for entrepreneurs. It probably accounts for as much as 90% of individual success. Did you meet the right VC at the right time? Did you enter the market at the goldilocks point? Did the right technical tools exist? Had someone else done much of the hard work of educating the market?

What you can control though is the business model. Whilst most startups focus obsessively on the product (and somewhat fewer on the customer) few think that much about business models. From 10,000 feet this means most startups are pretty identical in a market. A horde of lemmings.

In the market shakeout

Markets shake out and of a thousand startups chasing an opportunity, 5-10 will have substantial market share after a decade or so. the rest will be dead, eaten, rotten, or desiccated corpses by the roadside.

In 1900 there were about 1300 manufacturers of cars in the US alone. two decades later there were only three of any note – Ford, GM and Chrysler.

You need a business model that helps you win

So for a startup to survive that long they need a business model that helps them fend off and eat the other startups. It’s that simple. If you don’t have any competitive advantage over them, then you are relying on luck and the odds don’t favour you.

You need to design your, business model, to be cutting down and thinning out the horde of competitors. Yes, you need to grow bigger and fatter. At the same time, you need to be killing them off quickly. That’s the job of your business model to enable that.

Take down incumbents

The offensive play is equally aggressive.

Business model innovation in entrepreneurship: Part 2 - Unlock value by using BMI to disrupt and kill incumbents — Business model innovation in entrepreneurship: Part 2 – Unlock value by using BMI to disrupt and kill incumbents

Entrepreneurial swarms happen in two closely related areas of the business cycle. When a new technology opens up a new market – for example, blockchain, crypto, self-driving cars, or even automobiles to use an example from earlier.

Incumbents own value that belongs to you

A second swarming happens when an existing successful business model starts to fail. Good examples from the last few years are publishing, music, banking, law. The incumbents are deeply entrenched and have a great deal of cash and resources. They are also troubled. They can’t give up on the existing franchise which still generates lots of cash, but they see the problems facing them.

There is a huge amount of market share here to be taken.

Product design only gets you so far

Now you can design an awesome product or service and go head to head and slowly win market share. You might even get bought in a lucrative private sale that sets you up for life. To make real money you have designed your business model to exploit the weaknesses of the incumbents.

Going back to the nature analogy a bunny rabbit isn’t going to take down a mammoth. A sabre tooth tiger with long fangs will.

Use business models to change the game

A good example here is how Apple systematically designed features into its business model(s) that enabled it to take down the camera film industry, the digital camera industry and the music industry in the 2007-2013 period. That’s 4-5 fortune 100 companies that it gutted and captured the value from.

Competing at a product level works in favour of incumbents. Competing at a business model level works in favour of the disruptors. Salesforce in the period 2000-2015 competed at a business model level against the big software providers – Oracle and SAP with its no software – SaaS model. By 2015 or so the incumbents had caught up and Salesforce was forced to then compete on the product level going into a very different competitive environment.

October 9, 2021 By Denis Oakley

Why Do You Need a Business Model?

Why do you need a business model? Every business has a business model. Just like every piece of ground can be mapped. It doesn’t matter if you’ve ever looked at the map.

I’ve worked with well over 1,000 entrepreneurs and business owners now. There’s one group of them who are super smart and focused. However, when I ask them a single question it all starts to unravel.

What does your business do?

The question is

What does your business do?

There are several variations on that question – “How do you make money?” is another favourite. When the entrepreneur is still talking after 5 minutes I begin to worry. When he (or she) is still talking after half an hour I know that they have no idea of their business model

Why do you need a business model? So you can simplify everything in your head and make your business mode effective

You can sketch out the business model onto a piece of paper, you can condense it down into an elevator pitch. The business model is the essence of your business. It is how it works at a high level. Easy to explain, easy to understand. Easy to act on.

Why do you need to understand this? All business models aren’t equal.

When I first started out as an entrepreneur I almost started a kebab shop. I can’t remember why I didn’t now. My business model, there was the same as every other kebab shop. The crucial difference was that I didn’t have a young immigrant family to provide cheap or slave labour to run it.

I had no idea about that, and so it was fortuitous that I didn’t open the shop. My business model was going to be crap and I’d have underperformed compared to all the other kebab shops out there.

Why do you need a business model?

Most entrepreneurs and SME owners are like me then. They don’t look at the business model and so they end up being significantly less competitive than they should be.

If you don’t know your business model you are driving a second-hand car without an MOT.
If you don’t know your business model you can’t improve it

What do you need to do?

The first aid step is to quickly sketch out on a napkin what you do.

Who are your customers? Choose your best 3 types
How do you change their lives? What you are selling isn’t what they are buying?
What do they give you in exchange for changing their lives?
How do you reach them?
How do you make them feel when you are helping them?
What are you doing to create the change in their lives?
What do you need to make that change? A factor? A chip fryer? a big heart?
Do you need other people to help you? outsourced workers or factories, government licences
Where is your money going to go?

Nine simple questions. Most can be answered in a word or two. Don’t worry about making a full sentence.

That’s your basic business model. If it’s still fluffy or unclear spend some time on it. If there are big holes, spend time on the business model now! and if what you wrote is the same as all your competitors start thinking about how you can change it.

FAQ

Do I need a business model?

Yes. You have one even if you don’t know it. Knowing what it gives you another tool to become more competitive?

What’s my business model?

Use the 9 questions above to find the skeleton of your business model – then write the answers onto the business model canvas

Why do I need a business model?

Because having a good product or service and delivering it well is no longer enough. The business model is your business system. If that system works better than your competitors you will face far less competition

What happens if my business model is the same as everyone else?

Then you can only get the same results as anyone else. And if the industry gets hit by a technological, environmental or economic crisis then you will die alongside them. Just like the dinosaurs did

I’ve never done a business model before…

Don’t sweat it. You can’t get it wrong. Draw the first map of your business. Then keep thinking about it. After a while, you’ll realise that you could have done it better. So spend a few minutes making it better.

What’s the business model canvas?

It’s a sheet of A4 with some nice guidelines that help you write down your business model. There’s more stuff on the business model canvas here.

What happens when I draw out my business model?

Stuff that is complex and messy in your head becomes clearer. That makes it easier to create strategies, brief staff, sell to customers and raise money from investors