This post is an extract of my forthcoming book on business model innovation. The innovation book looks at why business model innovation is needed and how it works. You can read more about it here. These posts are early drafts of planned content and I’m putting them out to get feedback. Please do comment below, or subscribe to these pages to get each new section as it is published. In today’s post, we will be looking at finding opportunities in this new world.
In this section, what I will do is walk you through the process of creating your business model using the business model canvas. This is a great tool developed by Alexander Osterwalder at Strategyzer.com.
We’ll look at each of the 9 nine segments of the business model canvas in turn, and I will explain the thought process behind how I developed the business model canvas for Denis-Oakley.com, which specializes in supporting early-stage entrepreneurs.
Customer Segments
When I set up Denis-Oakley.com, I’d been working in an entrepreneurial role for about 15 years. I’d recently separated from my wife and had little more than a suitcase, a laptop, and enough to live on for a month.
The first question I asked was “Where can I add value?” That then begged the question “Who am I adding it for?” That in turn generated a third question “Well, what problem do they have which needs solving?”
I knew a few things about entrepreneurs having been one for many years.
Summarised, these were:
- Most fail
- Most don’t know what they are doing
- And most know where they want to go
I also knew that my experience was in the early-stage startup scene. That is getting started and getting your first customers all the way through to running a team of 10 – 20 people and making sales of $2-3 million.
- That helped me to define my target customers
- Entrepreneurs 25 – 50
- Sole founders or solopreneurs
- English speaking
- University educated
- Working part-time or with a source of funding
- US/UK/Australia based
The value proposition was a bit more difficult. It’s amazing how many entrepreneurs are clear on what they want to do and yet cannot clearly state their value proposition. Here a lot of the ideas behind lean startup are good as you iterate through various formulations to find the best match with your customer’s pain point.
So, I knew that I wanted to support entrepreneurs. There are a lot of free resources out there and a huge number of small business consultants. What was the best value proposition that fitted my skill set and which added value?
My value proposition focuses on clarity, speed, and risk. There is a lot of noise, and there are literally millions of things that an entrepreneur can be doing. Which should YOU be doing? You have a limited runway – either cash, time, or market opportunity – to get things to work. I have lots of experience and tools to help you accelerate faster. Finally, the value proposition was about risk.
I have seen so many failures. Bad ideas, bad execution, bad luck. Lots can go wrong, but much of this is avoidable. The third part of my value proposition was to make sure that their plane didn’t get damaged on the runway as it took off.
The value proposition is captured as
- Simple strategies to get startups focused on the key things they need to achieve
- Using tools and processes to accelerate the startup process saving money and time
- Reduce the chance of failure through testing and careful resource allocation
Customer Relations
If you read all that, it’s difficult to see how I can do that without quite a lot of one-to-one interaction with customers. I’m selling customized advice and experience which delivers better results. It’s not an automated hands-off experience like Uber. So not a lot of thought needed to go into this part.
Channels
When it came to channels, this was a lot more difficult. In most cases, a startup consultant can go along to local startups, talk, make friends, and get hired. I was 10,000km away from potential clients. I needed to find effective ways of finding them apart from traditional networking. To work out which marketing channels I wanted to use, I used a list of 19 different traction channels and considered how easy it would be to reach my audience on each. To start with Upwork.com was great. It was an existing platform, and all I needed to do was turn up and bid.
The next channel was LinkedIn. Traditional networking lets you interact with 10-20 people a night. LinkedIn gave me a potential pool of millions. The final channel was content marketing. This was twofold. First entrepreneurs do read a lot, and I could write well about entrepreneurship. This would pull organic traffic. Secondly, as it’s a B2B sale, the authority that a good blog would generate would then help to convert prospects.
What Resources Do I Need?
I needed a little bit of money to get things set up. It’s not on the same scale as $4 billion chip foundry, and so it’s not that relevant. Consultancy is not capital intensive. What it does need is experience. So I’d got 10 years of engineering experience and another 15 years of startup experience with a good dose of consulting mixed in. That was a key resource. Without the deep knowledge of the subject and experience as a practitioner, it’s difficult to get going.
The other key resource was the size of my network. With a bunch of startups under my belt, I had over 2,500 connections on LinkedIn. That gives me access to about 400,00 2nd connections and 130 million third connections. That makes it easy to connect with people and research potential clients. Other networks – such as Quora help leverage that even more
What do I Need To Do On A Day-To-Day Basis?
One of the key tasks is leveraging that network and using my experience to generate sales. At a top level, that’s good enough. When it gets into the details it does get very complicated. There are 21 top-level process steps in my LinkedIn lead generation funnel, for instance. All of those will change over time as LinkedIn, and the business evolves – the top-level Lead Generation on LinkedIn probably won’t.
There is a lot of content generation. Initially, I had one idea – generate reports for clients and then repackage those reports for other clients and turn them into case studies. Now it more often works that We see a new tool and think – how does this work. We create content around that. Again – what is the top-level activity? Focus on that. Finally, the key value-creating activity from my customer’s point of view – spending time doing the consulting work that they pay me for.
As you create your business model canvas, one of the things that start to intrude is – How do I do this operationally? In this case, I have three activities – Lead Generation – Consulting – Content Creation. How do I get the internal flow right so that the business works smoothly? That’s something we will come back to later and is one of the valuable outcomes of the exercise.
Partnerships Are Critical.
To start with, I had no partnerships, and the business struggled. There was too much to do, and the flow didn’t work. So first, Leander came on board (we run a business model guru together). Secondly, there is a VA team to help operationalize everything.
In some cases, startups may have critical partnerships with open source software providers, or they may require a network of resellers. Partners are the third parties that you need to make the business model work.
In some cases, costs and revenue can become quite complicated. With two-sided models, you may have one customer segment paying nothing and another customer segment paying for something – Google’s Search/Adwords product is like that.
In my case, not a lot of thought went in. There are marketing and salary costs. The revenue is straight-up hourly rates or project-based fees.
Tips on How to Produce a Business Model Canvas
That should have given you a little bit of an insight as to how to produce a business model canvas. The next step is to do it yourself.
The way that I do it is as follows.
- Go through each segment and brainstorm. If it seems vaguely reasonable throw it in.
- Look at the big picture and understand whether you are selling B2B, B2C or B2B2C, or another variant.
- Think of a similar company and see how your business model canvas varies from theirs.
- Prune and edit it. Simplify everything.
- Then stand up in front of the mirror and talk through it.
- Iterate and improve again
Step 1 I normally try to keep each entry to two to three words. Lots of text is difficult to absorb. If you can use images that can be awesome. They have to be clear.
Step 5 normally creates the most value. It is relatively easy to put something down. Taking it off the paper and verbalizing it. Explaining it. Explaining it just to yourself before you try on a partner, client or investor makes the flaws stand out.
You can spot the weaknesses because your voice loses confidence or you elide over the point. It’s either a weakness or not important.
A useful step is to break each component on the business model canvas down into three bullets or sentences on a separate piece of paper. That’s repeatable and can start to then give you the outline of a task list or project plan (or Trello cards).
If You Want to Read More
I keep everything structured on my niftily titled business model innovation book page. Head there to browse, binge, read straight through, or cherry pick. Please do take a moment to comment below or upvote comments that you agree with
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