I’m going to talk about this great book called Business Model Generation by Alexander Osterwalder and Yves Pigneur. I’m doing this one, because often people come up to me and ask me about how to structure a business. Especially young people for careers in the white collar industry. It’s easy to talk about things like management structure and follow your passion. In the old days we used to do a business plan. This is a fifty page or more-ish document where you list all these things regarding your business and you do crap like five year business plans, which are absolute bullshit. If anyone tells you that they’ve followed their five year business plan run far and run fast, because he is a liar. I’ve done a lot of businesses and a lot of business plans and never has a five year plan worked out.
The business model canvas is a single sheet of paper, you need to make it pretty big, but it is a single sheet of paper, that you can go through and sketch to the structure of your business in many different facets. So let’s break down those nine blocks in the business model canvas:
1) Key activities
What do you have to do to get your value proposition out to a customer segment?
2) Key resorts
What do you need to get your value proposition to the market?
3) Key partners
Who do you need to get your value proposition to market?
4) Value proposition
Which value do you deliver to each of your customer segments? What problem of each customer segment are you solving?
5) Customer segment
Who are you creating value for?
How do you reach each customer segment?
7) Customer relationship
How do customer segments relate to your company? How do you acquire them, engage with them, retain them?
What are the most important costs inherent with this model you’re creating?
What are your customers willing to pay or how much of them are willing to pay for it and how much to solve these problems right now?
The business model canvas is laid out in a seemingly random structure that is actually not random. It groups together the customer side and the infrastructure side and down the middle is the value proposition. You have a customer segment at the beginning and a value proposition. Then you go into channels and ask yourself: How do you reach these customers? How do you relate to them and how do you make your money? That is the customer side. The other side is the infrastructure side. You start out with: What do you need to get there? What do you do to get there? Who can help you and what is all that going to cost you?
Those are the two chunks and these are the orders you normally fill it out in in. You end up with one page as opposed to fifty pages and it’s very clear and invigorating in the way that it’s put together to help you get business ideas. You can’t do all that by yourself and that’s the second half of this book. It has patterns and that’s kind of like business model examples that use similar stuff in these blocks. I think it’s the most helpful part, because you really need help in figuring this out, at least at the beginning and also some of them offer new ways of combining the blocks which gives you some insights into structuring your business. The patterns are really helpful.
Number one is unbundling and that’s where you break down that business model canvas into three sections and those are three distinct businesses, maybe inside of one company but three distinct businesses each with its own value proposition and customer.
The second is The Long Tail made famous by the book by Chris Anderson. You focus many products. And the examples in the book are Book Publishing which is a new kind of book publishing, like self publishing, not for an individual but as the company.
The third business pattern is the multisided pattern and that’s where you bring together two or more interdependent groups of customers. And your value proposition is facilitating these introductions. To do this you have to control the platform for introduction and that’s why the examples are things like Google or ebay, because they are connecting two groups of people together.
Number four is “free as a business model”. You have one customer segment, which continuously ongoing gets benefit from you, offering some value proposition for free and another part of this model or perhaps a different customer segment is the thing that generates your revenue and you have some sub patterns which is freemium, where you get people in for free and then that customer segment itself starts paying or bait and hook, where you get people in with a seemingly free offer, but what they really need to make that free offer work is something that costs money. Think of the razor blades from Gillette or printers and printer ink.
The fifth pattern here is the open business model. This is collaborating with outside partners. For example, you have assets that are sitting around being unused and partners come in and use those assets. Like if you have a laboratory for instance and let other companies use it for a fee.