Business Model Canvas Archives - Entrepreneurs with Denis Oakley

Entrepreneurs with Denis Oakley

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

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Business Model Canvas

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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.
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

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Guide to the Value Proposition Business Model Canvas

Today we’re going to look at capturing your value proposition on the business model canvas. So far we’re showing the problems that we want to solve and the people who have them. Today we’re starting to move on to solutions – otherwise known as value propositions.

This is always a challenge in real life.

‘What problem are you solving ‘ I ask

‘We make widgets that enable you to go faster than light’

‘But why? What’s the problem?

‘What do you mean?’

If there’s not a problem-solution fit, it is SO difficult to grow a business. Trust me I’ve tried multiple times over the years.

Adding your value proposition to the business model canvas

I’m going to dive right in and put ‘Design business models’ down on the example business model canvas for the value proposition.

Here we add a value proposition onto the business model canvas
Here we add a value proposition onto the business model canvas

Is this right? Well, not exactly. It’s not that simple, but there’s a reason why we have about 10% of the business model canvas to write our solution on. Most people will take pages and pages, and write down too much.

Here we are focusing on the big picture. Capture in a few words how you solve the problem. A useful way of looking at it is to think of the problem as the why.

Why are we here? To solve the problem of businesses dying because they don’t have the right business model.

What are we going to do? Help them to design better business models.

How are we going to do it? Writing a daily blog post on how to do it and posting it on LinkedIn. That’s too much detail.

You can break it down a little bit more. Here’s an example.

Add more detail to the value proposition business model canvas

I mentor leaders, I advise companies on how to design disruptive business models, and I educate as many people as I can through blogging, videos and public speaking.

On the canvas, these value propositions appear as Mentor, advise and educate.

The value proposition is expanded for clarity - this is what we will do. The next level of expansion is how to do it - but that is too detailed to fit on a business model canvas
The value proposition is expanded for clarity – this is what we will do. The next level of expansion is how to do it – but that is too detailed to fit on a business model canvas

When I’ve worked with companies figuring this out I’ve found that if there is a lot to write here and it all seems important, there’s usually more depth that you haven’t uncovered. If you can’t take the value proposition to the customer and have them understand almost instantly it’s an early signal that you haven’t got a problem-solution fit.

If the value proposition (or group of value propositions) are so complex that it takes time to explain then you aren’t working at the right level of detail.

Testing the value proposition again customers and the problem

We need to run tests. Test 1 checks to see if the value proposition does what the customers need. Test 2 checks to see if the value proposition solves the problem
We need to run tests. Test 1 checks to see if the value proposition does what the customers need. Test 2 checks to see if the value proposition solves the problem

There are two tests to run at this stage.

Is the value proposition clear to the customer at a high level? We want them to ask ‘Do I need this?’ not ‘What is sie talking about?’

Does the value proposition solve a problem for the customer? Does it solve THE problem that we’ve already written down?

Let’s try this now.

I design business models for companies.

That’s pretty clear. The listener may not know what a business model is but the grammar is in a clear form so even if they need more, they can get 90% of the way themselves.

At the next level down, Denis designs business models for companies by advising, mentoring and educating them. Again it’s pretty robust.

Now for the second test.

Does this value proposition solve the problems that we care about?

If a company needs a business model because its old one isn’t working, will designing a new business model solve the problem.

A qualified yes. A new design is useful, perhaps critical, but they have to do something to change the company from how it is now, to where needs to be. The same logic applies to the other segment.

Iterate the problem, customer and VP until you get a fit

What do we do here? There’s a choice. You can tweak your value proposition so that you solve the problem in full. We could change my value proposition to ‘Transform business models’ or ‘Design and build business models. The value proposition is then promising to solve the whole problem.

Alternatively, we revise the problem or the customer segment to improve the fit.

Let’s try changing the problem. Companies that need to change their business models but have no skill/experience in designing new ones. That would work. We need to go back and validate this narrower problem definition

Alternatively, we narrow the customer segment and target companies who have failing business models but are competent in organisation change and transformation. That way if our value proposition is to design new business models they can then implement them.

If we fail the tests then we iterate, we change the customer segment, the problem and the value proposition until it works.
If we fail the tests then we iterate, we change the customer segment, the problem and the value proposition until it works.

As you can see this is a highly iterative process. As we add more pieces in we keep having to make small changes and adjustments.

[note: it’s always worth using the value proposition canvas to do a deep dive into the design of the value proposition]

I have never done a business model where we sketched it out and got it right the first time. By continually backchecking how the pieces fit together, like a jigsaw we’re asking lots of how what and why questions that increase our knowledge and understanding very quickly.

Going further when you have gaps between the value proposition and the problem you are solving, or what the customer wants, can seem attractive. You don’t have to do lots of rework. There’s always a big cost later as your marketing and sales don’t deliver the numbers you expect.

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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
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.
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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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.

Beginners Guide to the Business Model Canvas: Part 1
I’ve highlighted in green where the pen needs to go when you are sketching the business model canvas. I know this sounds obvious, but that’s what the awesome team at Scriberia.com showed me when I started drawing

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.

Beginners Guide to the Business Model Canvas: Part 1
Start with the problem that you want to solve

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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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.

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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
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

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Why Do You Need a Business Model?