Business Model Innovation

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  • Doesn’t need to be managed: someone else will do it… THERE IS NO ONE ELSE!!
  • … GREAT (*if most of them still believe) Cause you need to be delusional to be a successful entrepreneur ! You need to believe that you can be the one to beat the odds and change the world.. That is the true mindset of a good innovator! And you will fail on your way to success, probably multiple times, but as long as you learn from your failures it is okay to make mistakes! *very important rule!   Entrepreneurship and innovation is an extreme sport! One of the greatest entrepreneurs and angel investors in world is Reid Hoffman, and he has a great analogy about entrepreneurs…*change slide *(http://en.wikipedia.org/wiki/Reid_Hoffman)  
  • Founders of Airbnb were not having such an easy time.. Went through YC, and Paul graham didn’t believe in them.. They had spend all their own money and the seed money from YC and still hadn’t started making money..
  • The culture of Silicon Valley is the secret sauce, not the money, not the smart people, not the big corporations.. The culture is really the key aspect to a well functioning entrepreneurial ecosystem.. Work smarter and harder
  • "Lean Startup" is an approach for launching businesses and products, that relies on validated learning, scientific experimentation, and iterative product releases to shorten product development cycles, measure progress, and gain valuable customer feedback. In this way, companies, especially startups, can design their products or services to meet the demands of their customer base without requiring large amounts of initial funding or expensive product launches Too many startups begin with an idea for a product that they think people want. They then spend months, sometimes years, perfecting that product without ever showing the product, even in a very rudimentary form, to the prospective customer. When they fail to reach broad uptake from customers, it is often because they never spoke to prospective customers and determined whether or not the product was interesting. When customers ultimately communicate, through their indifference, that they don't care about the idea, the startup fails.
  • The question is not "Can this product be built?" Instead, the questions are "Should this product be built?"
  • Okay my friends, now it’s time to get REAL. In the previous stages you have worked on an idea, now we will turn that idea into a viable business. it’s time to think through all the details of your idea and start testing if you are actually right about all your assumptions – have you really understood the core problem? Does the user like your idea? What will it cost to build your product? We will now introduce a powerful framework called The Business Model Canvas. The canvas is one of the most popular tools that startups use to sketch out their ideas in order to get a complete overview of the whole business. The canvas can be used to identify potential threats and see new opportunities, it will help you get a better understanding of the entire value chain of your business and help you build a strong competitive advantage. *Before giving this presentation please spend 5 minutes looking through this video by Steve Blank and feel free to use some of his examples: http://www.youtube.com/watch?v=teURBW6qnRY
  • The framework was created by Alexander Osterwalder who says that “any company can be described in 9 building blocks”. We will now show you a quick video that explains the canvas and then we will have a chat about the different components *play video ‘ Go through the following slides one by one and free to add good examples
  • Every business – even though you think it starts with the product –starts with the customers. Who is your customer? Do you have more than one customer? What is their pain (the problem you are solving)? Maybe you are creating a non-profit organization where you have both non-paying customers who receive help, and another customer segment who are able to pay you (paying customers). It can be a good idea to differentiate between non-paying and paying customers, so try to call the non-paying customers for USERS and the paying customers for CUSTOMERS.
  • What is the value that you are offering to your users and customers? How does your product help them? Why are they willing to pay you?
  • How are you delivering your product or service to the customer/user? Is it an online service or a physical product that has to be delivered?
  • How are you going to make the customers come back to you? You don’t want the customers to only stop by once, so you need them to fall in love with you and your company and find a way to build those relationships.
  • How are you going to make money? How much are the customers willing to pay? How does the customer like to be charged? It’s not that great to have a one-time transaction so maybe you want to find a way to get recurring revenue from the customers - like a license model where the customers pay you every week/months/year?
  • Which key resources to you need to have in your company in order to win in the market? It is engineering talent? It is lean manufacturing?
  • What key activities are your doing in order to create and deliver value to the customer?
  • Most businesses need a number of key partners in order to succeed. You need to identify which partners that are crucial for your business and create a strategy on how to convince these partners to work with you. Who are your partners? What do the partners get out of the deal? Why do they want to work with you?
  • Now you can get an overview of the cost structure of your business. What will it cost to build the first version of your product? What are the ongoing maintenance costs? What about staff and marketing?
  • So this is what it looks like – the entire canvas with all the 9 building blocks
  • This is the version that we will hand out to you in a minute so you can start sketching out your own business model..
  • Your task is now to spend the next 40 minutes on sketching out your entire business model on one sheet of paper
  • When you start mapping out your business model, remember that this is just the first version.. It won’t be perfect and that’s fine! You only have 40 minutes so it’s important to move quickly. Try to use sticky-notes so you can change things around quickly. It can be a good idea to hang the canvas on the wall and stand up around the canvas while brainstorming.
  • *Ask how they are doing, if they have any questions and if they got some good feedback from their buddy teams.. As you can see they business model canvas is a great tool for prototyping and describing your business. It can also be a powerful tool to understand your competitors and create competitive advantage. Some companies use the canvas to sketch out the business model of their competitors and thereby gain new insights about how to differentiate their products and services from those of their competitors. *click Whereas traditional innovation has been around a service of a new product *click
  • You can also innovate around your business model. You need to create a good business model around your products, otherwise you will never be able to make money in a sustainable way.
  • You have now sketched out the very first version of your business model, but it’s important to know that there can be many alternative models that might work even better…
  • Therefore we well shortly start sketching out some alternative models and see if we can find an even better model..
  • And maybe it will take many different versions before you find the perfect model..
  • I will now introduce three generic business models for your inspiration.
  • The first one is called The Bait and Hook model. The concept is that you throw out the bait and try to hook the customers.. The bait is one type of products that you sell very cheaply to the customers in order to get their attention and afterwards be able to sell more products at a higher margin (where you earn more money).
  • *explain the drawing… Your company is on the left hand side.. You can see how you have a one-time transaction with the customer where you sell one type of products at a low margin.. And then afterwards your customers will continue to buy another type of products from you where you earn a higher margin. *ask the students: Can you think of any companies that use the bait and hook model? *typical examples: games (buy the game for $1 and then buy more upgrades in the game), buy a car and then you need to pay for ongoing service, Cell phones you buy with a 2-year plan, playstation/Xbox where you buy the console very cheap and then you spend a lot of money on games that fit your console..
  • A classic example is how Gillette makes money.. Their customers on the right hand side are males age 16-99 who need a good shave. In this model you can see that Gillette has two different products – the razor handle that they sell very cheaply to the customers in order to hook the customers and then make the customers pay loads of money on overprized razor blades for the rest of their lives  pretty smart right!
  • Freemium is a business model by which a product or service (typically a digital offering such as software, media, games or web services) is provided free of charge, but a premium is charged for advanced features, functionality, or virtual goods
  • The business has two different customer segments – group 1 who are non-paying customers (users), and group 2 who are paying customers. In a freemium business the vast majority of your customers will be freemium users (non-paying), but over time you are hoping that an increasing number of users will convert and become paying customers. As you can imagine you will typically need a lot of funding to start a freemium business since the revenue doesn’t start coming in until your users over time see enough value in your product to convert and become paying customers. The paying customers can of course take advantage of the additional features you offer to those who pay (premium account) but most people will probably be happy just using the free version of your product, which is ok! Can you think of examples of companies that use the freemium model? *fx. Many web services like Dropbox (online storage), free online games where you can get more levels if you pay (angry birds),
  • Another classic example of freemium is SKYPE. They offer free VOIP (voice Over Internet Protocol) to most users *ask how many use skype… then ask how many pay for Skype? Some users convert into paying customers if they also want to use Skype to call cell phones or access wifi hot spots in airports and that is the way Skype make money.
  • The last model I want to present is the connection platform. It is also the most complex model to understand because the company is serving so many different customers and users. The economic logic is that you get a ton of users to use your platform and because you now own a lot of relevant data you can charge some customers who wants to gain access to your freemium users.
  • Here is a model where you as a company are providing value to group 2 and 3 without getting anything in return, but because you have all these users on your platform you can serve group 1 who are willing to pay you money to gain access to your freemium users – typically through targeted advertisement or by getting access to your data. Can you think of any business that use this model? *Fx. Most social networks like LinkedIn, Instagram, and Facebook
  • The example here is Facebook *ask how many who use Facebook, then ask how many who pay to use Facebook? *Point out that Facebook provides value to all their users without charging them.. But because they now have 900M users, they can earn a lot of money from advertisement by selling data and provide targeted adds on their platform.
  • So that’s it.. Any questions about the three models? I hope this inspired you to come up with some new ideas.. See you can use some components from these three models.
  • Some of you might consider advertisement as a way to create revenue for your business.. That is of course okay, but does any of you know how online advertisement work? When you visit a website, you often see video ads and other advertisements that -- if clicked on -- direct you to another webpage. These are CPM ads and they take the form of clickable advertisements and commercials for webpages. CPM means "cost per 1,000 impressions" --- that is, the set rate each advertiser pays per 1,000 times a customer views that advertiser's CPM ad on a publisher's webpage. Advertisers and publishing networks pay varying rates for CPM ads but generally the price is between $1 and $4 per 1,000 impressions. *click So you obviously you need A LOT OF USERS before you start earning any significant revenue from adds
  • Alright so now it’s time to get back to the drawing board and start thinking about alternative business models for your business. Spend the next X amount of minutes on coming up with alternative models *time depends on your schedule.. Try to give them 45 minutes if possible
  • Good - now you have created a lot of alternative models and it’s time to take the best components from each of the models and merge them together into your final business model… you can work on this the rest of the day..
  • Here is a resource for more information and a link to the book Business Model Generation that provides more info on how to innovate around your business model.
  • During the past stages of the process we have tried to understand the user’s core problem and we have come up with a great idea that we think can help solve this problem.. But it’s important to remember that all we have really done is sit here in this room and come up with a lot of assumptions (guesses) about the user – we now need to realize that there is no truth in this room, only guesses! The only way to make sure we are right about all our assumptions is to go out of the building and talk to the potential users of your product or service! This process is what we call Customer Development and it is one of the absolute most important parts of being an entrepreneur and innovator – cause as we’ve mentioned before “nobody will pay you to solve a non-problem” – you need to understand the real pain point before you can find the right solution.
  • One of the experts on customer development is a serial entrepreneur called Steve Blank, who is now a professor at UC Berkeley, Stanford and Columbia University in California. Steve describes a startup as “a temporary organization designed to search for a repeatable and scalable business model”. He stresses the importance of understanding that your role as a founder of a new company is to SEARCH – to write down all your hypothesis (guesses) about your business in the business model canvas and then go out and test them one by one.. Search for the truth about your idea before you start spending money on creating a product that nobody wants! So… *change slide
  • I now want you to spend the next hour on testing your guesses by getting out of this building! Go out and meet potential users of your product, present your idea to them, ask them if they experience the problem you want to solve for them and if it would be valuable to them if you could solve this problem. Would they be willing to pay you money for a solution to their problems? How much would they pay? Remember to take all criticism as a gift – smart entrepreneurs always realize that negative feedback is a gift.. That someone will spend the time to complain is GREAT for your business cause that is an opportunity for you to improve your product/service. If you can’t reach your customer physically within an hour then pickup your phone and call some potential users/partners – try to focus on testing your most critical components of your business model.. If you need a specific partner to work with you try to call them, if you need a certain supplier to produce your product – call them and ask if it’s possible and how much it costs.. Most importantly make sure to validate your value proposition for your users (test if the users want to use your product).
  • When you are done with the user description template we will make use of our buddy teams during the first #Watering hole session. The watering hole is were all the animals meet on the savanna do drink peacefully together. Just like the animals we will meet up with our buddy team and help each other to improve our problem statement and user understanding. An important part of being an entrepreneur is to network and meet people who can give you good feedback on your ideas. During the camp you can use your buddy team to get valuable feedback on your ideas. It is always good to try to present your thoughts to someone else and then get their input. Remember that ideas are cheap – it’s only execution that matters.. So the benefit of getting feedback when you share you ideas always exceed the risk of somebody stealing your idea..
  • The watering hole session is divided into 4 sections. 1. one of the teams present what they have accomplished in the stage – what are the results and why did they end up with these results. While the first teams presents, the other team takes notes on post-its. You can take two kinds of notes what you will later give as feedback – 1. Elements you really like and 2. other cool ideas that you can think of… this is a positive feedback loop so don’t be too critical, try instead to mention what you like and come up with additional suggestions and ideas. You have 20 minutes in total – 5 minutes presentation, 5 min feedback, 5 min pres, 5 min feedback… find your buddy team and sit down next to them – you are in charge of the time keeping yourself  *alternatively you can have a big count down timer on the big screen: http://www.timeanddate.com/timer/#
  • If you’re not growing you’re dying!
  • Two of today’s most popular gaming systems also stemmed from the work of intrapreneurs. Sony’s Playstation was born out of Ken Kutaragi’s critical reception of his daughter’s Nintendo console, while he was working at Sony Labs. While still working at Sony, he started putting together a cd-rom based gaming system that eventually became the Playstation. A few years later, Robbie Bach and J Allard’s Microsoft team saw the Playstation dominating the market. They started an enormous project that would have been impossible without working under the umbrella of Microsoft research. It became the wildly successful Xbox console.
  • Business Model Innovation

    1. 1. Business Model Innovation By Henrik Scheel www.startupexperience.org
    2. 2. What is a Startup? A temporary organization designed to search for a repeatable and scalable business model - Steve Blank A Human institution designed to deliver a product or service under conditions of extreme uncertainty. - Eric Ries
    3. 3. What makes a good founder?
    4. 4. A Founder… • Works before the money is available • Will do ANY job • Won’t give up • Doesn’t need to be managed • Intelligence; Drive; Integrity
    5. 5. 5 Entrepreneurship... is an eXtreme sport
    6. 6. 5 Disciplines from Silicon Valley? • Networking - sharing knowledge and connections • Build the right team • Global ambitions from day 1 • Fail faster – fail cheaper! • Work smarter and harder - and have fun doing it
    7. 7. What is LEAN STARTUP?
    8. 8. Eliminate uncertainty through validated learning Work smarter and harder! Develop an MVP Learning Pivot Persevere
    9. 9. Pivot Change direction but stay grounded in what we’ve learned
    10. 10. Exercise
    11. 11. Three generic Biz Models
    12. 12. (USERS)
    13. 13. WARNING Don’t just rely on advertisement!!! CPM = “cost per 1000 impressions” = cost per 1000 times that an add is viewed on your website = CPM = 1$ to 4$
    14. 14. Watering hole
    15. 15. ● Green hats (positive feedback) ●What’s most valuable? ●What did you like and why? ●Only positive feedback! ● Red hat (constructive feedback) ●What is missing? ●How can the value be improved? ● Blue Hat (Eyes of the customer) ● What’s missing in the proposition? ●How does this compare to my alternatives? ● White hat (potential funders) ●What would a funder need to hear? ●Investment opportunity (why/why not)?
    16. 16. Henrik Scheel henrik@startupxp.com www.linkedin.com/in/henrikscheel www.startupexperience.org Facebook.com/startupexperience www.slideshare.com/startupexperience Enjoy your entrepreneurial journey!

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