business model innovation 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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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
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

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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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Why is business model innovation important for competitive advantage?

If you have the same business model as everybody else it is very difficult to find sources of sustainable competitive advantage. In this post, I’ll explain why business model innovation is important for competitive advantage and what you can do about it.

Every business has its business model. In mature industries, these business models tend to be the same. This means that the business is working the same way as all the other businesses.

Why traditional business models get stuck in competition

For example, compare electricity-generating companies. They buy coal or oil from the same mining companies. Then they burn it in power stations made by the same group of civil engineering companies, using boilers and steam turbines designed and built to the same design, using similar control software and then pushing the electricity out onto the grid.

Their ability to generate better returns than anybody else is limited to how well they manage their staff and maximise their productivity, and how they finance, maintain and replace their assets.

All other things being equal outperformance in staff, IP, financial resources or assets will tend to revert to the mean over time.

Here’s another example. Car manufacturers have business models that design cars to very similar aerodynamic performance and regulatory standards. These are then built as a platform using components and supply chains that are shared across the car industry. Sources of competitive advantage, for example, IP like the Toyota Production system give an advantage for a while. As the knowledge spreads the manufacturers tend to revert to a challenging competitive environment.

It’s like playing football again and again with the same few teams. You win some, you lose some, but there’s nothing that you can do so that you will win the next 10 or 100 games in a row.

The promise of business model innovation

That’s the promise of business model innovation. It’s a way of breaking the deadlock, the stalemate. Instead of playing games where you are happy to grind out a draw, or being focused on getting 1 point ahead in the league tables, you start thinking. How do I change the game?

Let’s stick with the football game analogy.

If I wanted to win lots of games what can I do?

In normal operations, I can get more cash, hire better players, hire a better coach, and perhaps find better ways to train my players. In normal business terms, these are all standard operational plays. They are the ones that everyone learns at business school. A million MBA’s using the same tools on similar problems means that you get similar strategies and results. So no matter how clever the strategies or the operational plays are – you end up in the same grind. You play for draws and hoping to grab a point here or there.

Why business model innovation enables competitive advantage

Business model innovation changes the rules of the game.

It asks, are we here to play football or are we here to win games. Are we here to make cars or delight customers and make money?

There is a presumption that the old way of doing things is so mired in competitive difficulties that you have to take a different path.

Using the football analogy we have to think about the game in different ways.

why is buiness model innovation important for competitive advantage
Business model innovation moves us away from the familiar business models that we are co portable with, looking for new ways of playing that may seem weird to strange. In all cases they should enable you to create and capture more value AND disrupt the competition

What happens if we change the pitch shape – have a circular field?

What happens if we change the inclination – make it tilted, or humpy, or add bunkers in like they do in golf?

if we change the numbers of the team, the rules, the number of teams or the length of the game what will the impact be?

Industry insiders will argue that whatever you are doing,

it is not football

Business model innovation answers –

So what. We are here to win, we are not here to play football.

Why is business model innovation important for competitive advantage?

Business model innovation is important for competitive advantage because it changes the rules of the game. When you are playing a different game, dancing to a different tune, then it is difficult for competitors to respond. You are acting weirdly according to the normal competitive rules, and so most tactics don’t work nearly as well.

It’s harder for them to predict what you are doing, and why, and then come up with effective counters.

Because you have decided to see the world differently, resources and assets are valued differently. This means that you can find additional resources cheaply because others don’t value them the same way as you do, and sell existing assets off, prize assets even because they don’t offer you the value that they once did.

Above all business model innovation gives you a competitive advantage because it lets you out into an open space where, for a time, you are the only player. This gives you a chance to grow rapidly and establish a market share that gives you economies of scale and scope that restrict future competitive attempts by other players.

Why is business model innovation important for competitive advantage?

It gets you out of stagnant competition into a growth landscape

Why are companies stuck in competition?

Their business models are similar or identical making any source of competitive advantage transitory

What do companies need to do to get a sustainable competitive advantage?

They need to change their business models through a process of business model innovation. This may mean a big change in the business model or incubating new ones.

What is a sustainable competitive advantage?

It’s the ability of the company to be generating and capturing more value than its peers for a sustained length of time.

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Why is business model innovation important for competitive advantage?