How To Bring New Business Models To Life and Resurrect Outdated Ones: Alexander Osterwalder and the Business Model Generation

Photo: businessmodelgeneration.com

Thanks a lot, Alexander Osterwalder.

No seriously. Thanks a LOT.

Business Model Generation is a book that ties some important threads together into one very important thread. It is a book that everyone on the planet should probably own. It goes beyond language, it’s driven by visuals. It’s universal feel makes it like the cave art of business design.

As I read it, I can almost picture our distant ancestors sketching out their transition from the hunter-gatherer business model to the agricultural business model on cave walls using the Business Model Canvas, or in the sand below their feet.

And I think that’s where this book’s strengths lie.

The Business Model Canvas that is the “spine” of the book is simple and straightforward. It makes me want to build an interdisciplinary team with my grandma and my 1-year-old cousin. I think we could build something pretty cool with this tool.

Anyways. Here’s my review…

Enter Business Model Generation

The Book in 3 Sentences or Less

Business Model Generation takes a look at new business design and mature enterprise innovation. The book provides a design tool, the Business Model Canvas, to aid leaders in diving deep. If you’re feeling slogged down in your existing organization, or overwhelmed by options in your start up, your model is almost certainly in need of clarification and/or redesign. Here’s how.

Photo: businessmodelgeneration.com; Business Model Canvas

Backstory

2004 – Alexander Osterwalder finishes his Ph.D. dissertation on the topic of business model innovation with Professor Yves Pigneur at HEC Lausanne, Switzerland
2006 – The approach he outlined in his dissertation goes “viral” through Alex’s blog. 3M is using it, Ericsson, Deloitte, and Telenor – to name a few. Patrick van der Pijl asks, “Where’s the book?”

At this point, Alexander and Yves decide to take the challenge on. They also decide to break form and create a subscription website where they share all of their material from day one. This enables them to innovate based on the feedback they get from entrepreneurs, consultants, and executives across the board and around the world.

As the book evolved the team grew to an impressive group of designers, editors, entrepreneurs, artists, and practitioners. The creation story in and of itself is worth the cost of admission. More on that later.

Number One Takeaway: The Nine Building Blocks of Business Model Generation

Akin to the genetic building blocks of your organization, you business model comes before all else. Start with a strong design process surrounding your business model, and the strategic questions –  your actual business plan, organizational structures, culture, incentives, and information flows – will all but answer themselves.

According to Alexander, every business model includes nine building blocks:

1. Customer Segments – The groups you serve
2. Value Propositions - The problems you solve/needs you satisfy
3. Channels - How you deliver your Value Propositions (communication, distribution, sales)
4. Customer Relationships - How you maintain relationships with your Customer Segments
5. Revenue Streams - How you get paid (OR, in the case of a social or triple-bottom-line model, the ways in which you deliver an environmental or social benefit)
6. Key Resources – The assets required to offer and deliver all of the above
7. Key Activities - The most important things you do day in and day out to deliver all of the above
8. Key Partnerships - The groups who perform activities and the resources that come from outside of the enterprise
9. Cost Structure - Major costs as a result of the model

The business model generation process essentially consists of answering these questions in as many different ways as possible, analyzing connections between the elements, synthesizing insights, prototyping your top 2-3 solutions, testing, and implementing.

Key Leadership Lessons

In my reading of the book, it’s clear to me that a businessperson who wants to master business model generation leadership should focus on three goals. They are:

1) Thinklike a designer

The mindset of a designer is one of relentless inquiry, tireless option generation, a strong capacity for synthesis, and powerful storytelling skills. Sound useful? It is. The designer’s “way” is the way of constant improvement, based on insights into past, present, and future system conditions that may wholly escape the non-designer.

2) Master the tools of a designer

The Business Model Canvas is a template for your business model prototype, so start by understanding how it works. Other skills that are going to come in handy include:

• Field research - Establish empathy for your Customer Segments, be able to literally see through their eyes into the problem
• Ideation - Ideation consists of generating options, and it is the bedrock of true innovation. Without ideation, you are limited to incremental changes that marginally improve the status quo. Ideation is the process of generating breakthrough ideas.
• Visual thinking strategies - Being able to distill complex concepts into simple pictures and images is indispensable. “A picture is worth a thousand words.”
• Prototyping - Get comfortable with what Tim Brown calls “building to think”. Creating a model of your best ideas makes abstract concepts tangible and facilitates deeper inquiry.

3) Assemble and facilitate multidisciplinary and diverse teams

This, I’m sure, is where most business design projects falter. Learn to lead a team so that, at the end of the project they say “Look what we did!” Your role is to assemble the right team (use kids, multiple ethnicities, age groups, and sexes; pull people from all corners of the organization and many different walks of life), help set the ground rules, and get out of the way! It is also a valuable role for a facilitator to “cull” ideas and make sure that all phases of the process are duly represented.

Key Brand and Marketing Lessons

I’ve come to a deeper understanding of the unarguably elusive idea of “brand” through this reading. The Business Model Canvas seems to suggest that a brand is… well… like the “spirit” behind the model. At the very least, it’s certainly not limited to “Channels”. Marketing is much easier to find a home for on the canvas – it’s the strategy that behind those channels. I’d argue that the “brand” extends the model into intangible, emotional realms.

Without a doubt, the canvas provides a sturdy framework for expanding on both.

Key Business Strategy Lessons

There was a time when industries were made up of – at most – a few different models. Today, in part thanks to the state of technology, we see disruptive business models shaking up industries daily (look at Napster in the music industry, or democratized, free digital content in the  news and publishing industries; look at Amazon.com in the retail industry). Business model assessment and redesign should ideally take a prominent place at the center of your strategic activities. It’s a routine that, today more than ever, has become vital to your continued relevancy – no matter what your industry.

Most Challenging and Disruptive Ideas

Business Model Generation is actually, in most senses, a compilation of all of the best ideas in business model innovation and design. The way that Alexander has synthesized this data and presented it (exceedingly visual, and, once you get into the flow, easy to read) is remarkable. The most disruptive thing about this book is the way it was created.

1. Using their own protocol, the authors design the book’s business model.
2. The authors create “The Hub”, an online platform where users (US $243.00 / month) can read the material as it is created, comment, contribute, and give feedback. Every comment adds something. The content passes through multiple iterations in this way, and the book funds itself through this and other income streams.
3. A soft launch in Amsterdam gives collaborators from around the world the opportunity to meet up, and share their experiences with the process.
4. The book is finalized, and launched.

Pretty exciting. They did a good job.

Unique and Helpful Tools and Tactics

The following are all different ways to use the Business Model Canvas at different “magnifications”. Each view of the business model has different advantages and communicates a unique perspective.

Napkin Sketch – Use your memory of the business model canvas and draw your business model on the back of a napkin. Your goals are to outline the idea, include the Value Proposition, and include the main Revenue Stream. Use this to build interest with Key Partners.

Elaborated Canvas -  Blow up the canvas, put it up on a wall, and go to work in more detail. Goals at this magnification are to develop a full and detailed Canvas, think through your logic, estimate market potential, understand the relationship between building blocks, and to do some basic fact checking.

Business Case - Turn the detailed canvas into a spreadsheet to estimate earning potential. Goals: create a full Canvas, include key data, calculate costs and revenues, estimate profit potential, and to run financial scenarios based on different assumptions.

The next step would be to field test. Always test, test, test. Fail early, fail often, fail inexpensively. That’s the mantra, after all.

Closing Thoughts and Next Steps

I hope you’ve enjoyed reading these book reviews from my “business design series”. Here are the links to a few more:

• Business Design Series Book Review #1: Disciplined Dreaming by Josh Linkner
• Business Design Series Book Review #2: Change by Design by Tim Brown

You have to remember – we can apply ALL of these concepts outside of the business world.

If you’re a non-profit, a teacher doing her best inside of a system that’s really not cooperating, or a leader of anything anywhere – what are you learning from all of this? How are you applying design, innovation, and the entrepreneurial mindset to your projects? Need help applying these lessons? We REALLY want to hear from you in the comments!

Onward ho! More coming very soon.

Have a great week.

***Can’t get enough of Business Model Generation? Watch this video…***

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Have you read Business Model Generation? What are you learning? We all look forward to hearing from you – that’s what comments are for!

Tagged as: Book Reviews, Business Design, Prototypes