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BUILDING
BUSINESS
MODELS
®
Building Business Models
(MBA crash course)
Editor
Jose Berengueres
Edition
First Edition. September 24th, 2014.
Text Copy...
Video, Audio & Artwork Copyright
Artwork appearing in this work is subject to their
corresponding original Copyright or Cr...
1 | Stanford View
Building Business Models is a subject taught
online at Stanford University in California.
Joseeee!!! Why...
Why This Book?
Would you build your house without putting
together a blueprint first? No. Similarly, an
innovative idea nee...
- In Chapter two we review the continental
(Lausanne) view on business Models, namely
the Canvas tool invented by Alex.
- ...
But
what if I only
have two parts?!
“Everything in life can be divided in three parts
-- Haim Mendelson
Add a 3rd part
as ...
Value Creation (model)
	 – Who are our customers? (Market Fit)
	 – How does the offering create differentiated value?
	 – Wh...
8
1 | Stanford View - The Value Creation Model
“Sitting in a San Antonio bar with a business partner in 1967, the
entrepre...
Value Creation (model)
	 – Who are our customers? (Market/product Fit*)
	 – How does the offering create differentiated valu...
Value Creation at SW: What’s different?
-Low Cost
-Low cost was achieved via simplification and
standardization of operation...
This value creation was achieved by :
-Simplify. Use of only one aircraft model: the B-737
- Use of secondary non congeste...
1993 CEO Herb buys Neeleman’s Morris Air
watch on Bloomberg TV 9:40 to 11:40 http://www.bloomberg.com/video/profile-david-n...
Thrill Example (Real) at SW
https://www.youtube.com/watch?v=TxNrizGdhtY
13
1 | Stanford View - The Value Creation Model
Commercial of 1971
https://www.youtube.com/watch?v=tAbGW3i3LM0
http://www.youtube.com/watch?v=oHnqnyzegfc
14
1 | Stanford ...
The B737
The Boeing 737 is a short- to medium-range twinjet narrow-body airliner. Originally developed as a shorter, lower...
Value Creation (model)
	 – Who are our customers? (Market Fit)
	 – How does the offering create differentiated value?
	 – Wh...
SW did a cunning innovation here. They realized that there
are basically two types of customers. The ones that pay with
th...
At the time (and today) Airlines had a very complex pricing
structures on how they priced and marketed air tickets. They
u...
Key drivers of profitability and Key Performance Indicators (KPIs)
This is McKinsey jargon. What it means is that you can i...
20
1 | Stanford View - The Profit Model
+
Profit
-
Driver of Profitability
Action
(cause)
SW is based in what we call operational excellence: $ is
important but it is not everything: timeliness,
convenience count...
Auto industry example
Ford Model T. The trick that made the car affordable (2 years salary). If door knob outlast other par...
Product Leadership is about producing a stream of lead products
“A car for every one”
23
1 | Stanford View - Operational E...
ValueCreation (model)
	 – Who are our customers? (Market Fit)
	 – How does the offering create differentiated value?
	 – Wha...
How did an upcoming airline in 1968 become
the largest US carrier? In other words:
How do you scale up without
screwing up...
What part of the biz model is explained here?
http://www.youtube.com/watch?v=UTHlXb0PXh4#t=58 (55 to 2:30)
26
1 | Stanford...
What part of the biz model is explained here?
http://www.youtube.com/watch?v=sxRStrx8xtc
27
1 | Stanford View - Wolf of Wa...
What scenes correspond to value creation?
28
1 | Stanford View - Wolf of Wall Street Test
Adoption curves
Fact. Any new product is subject to an
adoption curve. Rate accelerates and then
decays. It cannot be any ...
The Adoption Chasm
One thing that happens is that some early adopters buy your product (pioppio) but then ... it is incred...
Laggards
For example, some people will not by a Mac until 95% of their
friends have one, no matter what.
Early adopters
On...
Network effects
When the adoption rate is higher because the number of users that already use your product is larger, and w...
Critical Mass
In such cases, if the number of users reaches a certain number it is possible that it number will grow endog...
Early Adopters
34
1 | Stanford View - Adoption Curves
35
1 | Stanford View - Adoption Curves
PROCLIVITY TO ADOPT NEW PRODUCT (IPOD 2004)PROCLIVITY TO ADOPT NEW PRODUCT (IPOD 20...
36
1 | Stanford View - Adoption Curves
0
25
50
75
100
0% 20% 40% 60% 80% 100%
Marketpenetration
Market penetration
y =x re...
37
1 | Stanford View - Adoption Curves
y =x required penetration (Y) for X to adopt
0
25
50
75
100
0% 20% 40% 60% 80% 100%...
38
1 | Stanford View - Adoption Curves
0
25
50
75
100
0% 20% 40% 60% 80% 100%
Pioppio adoption curve (example)
Marketpenet...
2 | Continental View
Business Model Canvas. Invented at
EPFL by Alex Osterwalder
Alex What’s the
biz canvas about?
----
.....
Zara A / B
Workshop
40
2 | Continental View - Alex Osterwalder's Biz Model Canvas
THE KEY
ELEMENTS
VISUALIZED
Many students in Mexico told me that the Biz canvas left them
as cold as a cold pizza. I can understand why. Doing a biz
c...
42
2 | Continental View - Alex Osterwalder's Biz Model Canvas
The Business Model Canvas
Revenue Streams
Channels
Customer ...
43
2 | Continental View - The Lean Canvas
NEW
Start up focused
ppl find this
version more
useful
Zara A/B Workshop
Many students in Mexico told me that the Biz canvas left them
as cold as a cold pizza. I can understand ...
3 | Cases
Zip Car case
Relay Rides case
Dropbox case
Vibrasol case
XINE249 Ex.4.1
J Berengueres
Friday, 8 August 2014
Vibr...
Cambridge. Founded in 2000 by Antje
Danielson and Robin Chase. Sold to Avis in
1014 for $500
46
3 | Cases - ZipCar & unit ...
Value creation Model
-I offer car freedom in four steps
-Owning car in city is expensive. Parking. Maintenance
47
3 | Cases...
Profit = Revenues - Costs
Profit = N x unit profit
48
3 | Cases - ZipCar & unit economics
Profit Model
- Profit Model (how to model it?)
- Find the key drivers via unit economics. (What would you calculate?)
- Ex. ...
Source of revenue per individual member
Customers’ fees:
Annual fee $300. (they copied of E.U. membership fee model)
per m...
We have,
4 trips x 22 miles x 4 hours… per customer per month.
Per year amounts to:
300 + 12 x 4 x (22x0.4 + 1.5x4)
300 + ...
Anual cost per member
cost car 6500
memeber / car 18
maintenace $24 anual fee per member
other: 0.06 / mile
What is the un...
Cost per member
6500/18
+
12x4x22x0.06
+24
-------------------
361 + 63 + 24 = 448
Member economics (annual)profit = rev -...
Now that we have the unit economics, What are the key drivers of zip car’s
profit?
- car cost ?
- members per car?
- the mo...
Biz Logic
Are u going to sing up? (yes if it has to reduce my cost.) It has to
be convenient to where I am going to be. Ke...
RelayRides is a peer-to-peer car sharing service.
Shelby Clark founded RelayRides in 2009, but the
service was first launch...
Value creation Model
- Who are RelayRides’ customers?
- What is their product/service offering?
- How does the offering crea...
RR is a typical platform model that matches supply and demand. In this
case supply is owners of idle cars willing to rent/...
Value chain of RR
- Car owner has idle car
- lists on platform
- car gets booked
- hand over car
- receive $ - RelayRides ...
To car owners: "Put your idle car to work for you". A guy who listed a
Tesla, made the money back in a few months I heard ...
61
3 | Cases - DropBox and the MVP
Dropbox, was founded in 2007 by Drew Houston
and Arash Ferdowsi, as a Y Combinator comp...
Lean startup.
Drop Box is a Lean startup
1. Lean startup = prototype or die
1. Try things out (with an MVP)
2. Test hypoth...
Dropbox cycle - adoption curve
	 	 How to overcome the CHASM between early adopters/techies and
mainstream…
	 	 Techies ar...
Dropbox demo video of 2008
http://techcrunch.com/2011/10/19/dropbox-minimal-viable-product/
64
3 | Cases - DropBox and the...
DropBox MVPs
-2007. They posted a video on Hacker news.
-2008 posted a video Digg 2008 but they posted a
video not a beta....
Viral Marketing
- How to acquire customers?
- Adword too expensive
- What is VM?
- Marketing as a by-product of use (this ...
Value Creation (top benefits)
1.Help you coordinate (“synchronize”) across
multiple devices (PC, smartphone, etc.)
2.Share ...
Fremium economics of DropBox
-100k pay for 4M
-Why they do it? because it helps Acquire future
customers!
-Churn rate
-Che...
Let’s calculate the Unit economics of DropBox
(Based on HBR Dropbox case 9-811-065)
- Two customer types
- paying
- free
-...
- What are the mck drivers of profitability?
- Cost of bandwidth?
- if you now that you will grow, can u pull a Steve jobs ...
The Market Fit
- When you start a business it is really important to find the right
customers. Not just the early adopters....
This is an example of a
three page biz model document
the Stanford way
72
3 | Cases - Vibrasol - How to Write a formal Bui...
Background
- I have been suffering three foot deformations called hallux
valgus, bunion and pronation for 10 years now. Rec...
Value Creation Model
-People will pay anything to get rid of foot pain
-People prefer natural methods
-Vibrasol treats the...
Profit Model
- Market size:
- 80% of american will have a foot pain at some point
- Orthotics, insole industry is $10bn yea...
Business Logic Model
- Iterative prototyping used to evolve fast design cycle
- Works closely with physical therapists to ...
Parts of compelling Investment pitch
- The Hook
- ( you have limited amount of time so… focus! high level message)
- Value...
The Business Model in Video Format
https://vimeo.com/103532118
78
3 | Cases - Vibrasol - How to Write a formal Buisness Mo...
79
3 | Cases - Vibrasol - How to Write a formal Buisness Model
Dr. Jose Berengueres joined UAE University
as Assistant Professor in 2011. He received
MEE from Polytechnic University of
...
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Building Business Models

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Building Business Models

  1. 1. BUILDING BUSINESS MODELS ®
  2. 2. Building Business Models (MBA crash course) Editor Jose Berengueres Edition First Edition. September 24th, 2014. Text Copyright © Jose Berengueres 2014. All Rights Reserved. i ©
  3. 3. Video, Audio & Artwork Copyright Artwork appearing in this work is subject to their corresponding original Copyright or Creative Commons License. Except where otherwise noted a Creative Commons Attribution 3.0 License applies. Limit of Liability The editor makes no representations or warranties concerning the accuracy or exhaustivity of the contents and theories hereby presented and particularly disclaim any implied warranties regarding merchantability or fitness for a particular use including but not limited to educational, industrial and academic application. Neither the editor or the authors are liable for any loss or profit or any commercial damages including but not limited to incidental, consequential or other damages. Course This textbook is based on Business Models Innovation taught at CEDIM in summer 2014. ii
  4. 4. 1 | Stanford View Building Business Models is a subject taught online at Stanford University in California. Joseeee!!! Why should I learn about Business models? To avoid: 1. Rokie mistakes 2. Reinventing the wheel according to Stanford these are the main parts of a solid Business Model* Profit Model (How money is extracted) Value Creation (What) (According to Haim Mendelson) Biz Logic ( Why does the biz work )
  5. 5. Why This Book? Would you build your house without putting together a blueprint first? No. Similarly, an innovative idea needs a structured process before you bring it to market. How you make it, how you sell it. The business model is the blueprint used for planning, building and, evolving your company. It describes, in short, the rationale of how your company makes money and why. When you try to commercialize and innovation there is a lot of chaos and unstructured activity. This is textbook will help you navigate the process from idea creation to successful commercial innovation by giving you a set of proven tools and structured processes so you do not waste time reinventing the wheel. How this book is organized The book is divided in three chapters: - In Chapter one (here) we teach you what you can learn at Standford, the Stanford most MBAish view on business models. 4 1 | Stanford View - Stanford View TheHSBCBuildingbyFoster+Partners
  6. 6. - In Chapter two we review the continental (Lausanne) view on business Models, namely the Canvas tool invented by Alex. - In Chapter three ( going deep) we drill down by means of exploring business cases. By the end of the course you are expected to know how to: - Build a Business Model - Articulate a Business Model This book is based on the weekend course: Business Models Innovation Module at Centro de Estudios de Diseño e Interiorismo de Monterrey 2014 (CEDIM), Mexico. Build a business model... Articulate a business model... 5 1 | Stanford View - Stanford View
  7. 7. But what if I only have two parts?! “Everything in life can be divided in three parts -- Haim Mendelson Add a 3rd part as a combination of the previous two. 6 1 | Stanford View - Stanford View
  8. 8. Value Creation (model) – Who are our customers? (Market Fit) – How does the offering create differentiated value? – What is the value chain? – What is our go‐to‐market strategy? Profit (model) How – What are our sources of revenue? – What is our cost structure? – What are our key drivers of profitability? Logic (model) Why it works 7 1 | Stanford View - Stanford View
  9. 9. 8 1 | Stanford View - The Value Creation Model “Sitting in a San Antonio bar with a business partner in 1967, the entrepreneur Herb Kelleher grabbed a (now-legendary) cocktail napkin and sketched out a simple triangle while posing this question: What if we were to create a small, local airline that connected these three cities?” - Southwest started in 1968 and is now the largest airline in the USA. We will use it as an example on how to analyze a biz model. http:// www.thehiredguns.com/blogs/2011/10/24/the-art-of-napkin-sketching-a-simple-powerful-way-to- generate-and-communicate-ideas/ It all started with a napkin
  10. 10. Value Creation (model) – Who are our customers? (Market/product Fit*) – How does the offering create differentiated value? – What is the value chain? – What is our go‐to‐market strategy? Profit(model) – What are our sources of revenue? – What is our cost structure? – What are our key drivers of profitability? Logic(model) 9 1 | Stanford View - The Value Creation Model
  11. 11. Value Creation at SW: What’s different? -Low Cost -Low cost was achieved via simplification and standardization of operations (what is called operational excellence). -Thrill factor This value creation was achieved by : 10 1 | Stanford View - The Value Creation Model
  12. 12. This value creation was achieved by : -Simplify. Use of only one aircraft model: the B-737 - Use of secondary non congested airports, which resulted in ---> Less delays - Reduction of TurnArround times (from 45 to 30 minutes). TA time is the wait time of refueling, cleaning, loading plane for the next trip. Due to standardizing the plane model to one, this could be done faster because people knew what they had to do. - Question: How much % operational improvement is a 15 minute drop in TA time? - If operating expense of airplane is $1.3 M per month, how much saving is that on the Dallas to Houston route? - Switch from Hub&spoke model to triangle model. (No waiting for delayed planes) - Fun (like Virgin America) and thrill factor - A stewardess might sign during the flight. Also, SW could hire a younger more beautiful hostess than legacy airlines 11 1 | Stanford View - The Value Creation Model
  13. 13. 1993 CEO Herb buys Neeleman’s Morris Air watch on Bloomberg TV 9:40 to 11:40 http://www.bloomberg.com/video/profile-david-neeleman-MP4EMVi3QomUmlAVmmnrNw.html 12 1 | Stanford View - The Value Creation Model
  14. 14. Thrill Example (Real) at SW https://www.youtube.com/watch?v=TxNrizGdhtY 13 1 | Stanford View - The Value Creation Model
  15. 15. Commercial of 1971 https://www.youtube.com/watch?v=tAbGW3i3LM0 http://www.youtube.com/watch?v=oHnqnyzegfc 14 1 | Stanford View - The Value Creation Model
  16. 16. The B737 The Boeing 737 is a short- to medium-range twinjet narrow-body airliner. Originally developed as a shorter, lower-cost twin- engined airliner derived from Boeing's 707 and 727 Introduced: 1968 . The company lists the price of a 737 as between $51.5 million and $87 million. Source: http://www.boeing.com/boeing/commercial/prices/ 15 1 | Stanford View - The Value Creation Model
  17. 17. Value Creation (model) – Who are our customers? (Market Fit) – How does the offering create differentiated value? – What is the value chain? – What is our go‐to‐market strategy? Profit (model) – What are our sources of revenue? – What is our cost structure? – What are our key drivers of profitability? Logic(model) 16 1 | Stanford View - The Profit Model The Profit model deals with the ‘How’ do we extract the money from the customers pockets ---- How the money is extracted
  18. 18. SW did a cunning innovation here. They realized that there are basically two types of customers. The ones that pay with their own money, and the ones that pay with other’s peoples money. Milton Friedman said it before. (And he got the Nobel prize for it) 17 1 | Stanford View - The Profit Model ---- ---- http://www.youtube.com/watch?v=5RDMdc5r5z8 It is not the business of the Government to sponsor public parks. This should be carried by private initiative. ---- M. Friedman
  19. 19. At the time (and today) Airlines had a very complex pricing structures on how they priced and marketed air tickets. They used segmentation to try to carve out every niche so the extraction of dollars is maximized from all the potential customers. Even today most airlines use a software called PROSPricing. This software regulates the amount of seats made available to each country route and they change the price dynamically in order to maximize the amount of extracted dollars. For example, if you are using a Mac to buy a ticket the price is higher. Checking the price and coming back to the website might increase the price. Some of the practices involved in dynamic pricing are not legal in the EU but are legal in other countries. Operational Excellence through Simplification SW decided to simplify. They would lose about 20% of revenues by doing so, but they would save on headaches, costs and stream line the sale of tickets. So SW just sold two types of tickets, hugely simplifying the sales process. Standardizing the price of tickets had also an added advantage. Customers who before paid different prices to be in the same class would not be put in that awkward situation anymore when they crosschecked what they paid. Low-cost (uncanny)Revenue streams Low cost bare bones means you can upsell All sorts of Add ons, upgrades, food... It is a way inflight segmentation. 18 1 | Stanford View - The Profit Model
  20. 20. Key drivers of profitability and Key Performance Indicators (KPIs) This is McKinsey jargon. What it means is that you can isolate a single element in your business that has the most influence on profitability and use it to predict future profit. Is actionable? For example, let’s assume a simplified SW. Levers: plane occupancy ratio, price of ticket, price of fuel, labour costs. Which one is a good driver of profitability? 19 1 | Stanford View - The Profit Model in fixed costs type biz such as restaurants and airlines usually occupancy rate is a good predictor (driver) of profitability ---- Good drivers are actionable see also McKisney’s “Levers” ----
  21. 21. 20 1 | Stanford View - The Profit Model + Profit - Driver of Profitability Action (cause)
  22. 22. SW is based in what we call operational excellence: $ is important but it is not everything: timeliness, convenience count too. Another example is FEDEX, that uses hub-spoke system for sending packs. This works well for sending packets around the US. Spoke is when you need to make sure that the packets will arrive on time: less emphasis on cost and more on reliability. The cost leader Another: Wall-Mart. .5 trill in sales. Largest in the world. Wall- Mart is the cost leader. Every day low prices. The Key is more Volume = more leverage with suppliers. (spiraling process). Quote Super Lopez famous meeting with suppliers at VW: make the money somewhere else Benchmarking Wall-Mart and (Intel factories) stores all look same. This a l l o w s f o r r a t - r a c e benchmarking of store against each others… sharing of good p r a c t i c e s t h a t c a n b e propagated to other stores. 21 1 | Stanford View - Operational Excellence If you want operational excellence best practices, talk to McKinsey Lean Practice
  23. 23. Auto industry example Ford Model T. The trick that made the car affordable (2 years salary). If door knob outlast other parts their cost should be lowered. 22 1 | Stanford View - Operational Excellence
  24. 24. Product Leadership is about producing a stream of lead products “A car for every one” 23 1 | Stanford View - Operational Excellence
  25. 25. ValueCreation (model) – Who are our customers? (Market Fit) – How does the offering create differentiated value? – What is the value chain? – What is our go‐to‐market strategy? Profit(model) – What are our sources of revenue? – What is our cost structure? – What are our key drivers of profitability? Logic (model) - How it works in detail - The growth strategy (spiral) - How business objects interact with each other (ERP insides) 24 1 | Stanford View - The Business Logic The nitty gritty
  26. 26. How did an upcoming airline in 1968 become the largest US carrier? In other words: How do you scale up without screwing up? The Growth Spiral If you start an airline based in secondary airports, it will never go mainstream. So how can you market it? How can you make it grow? SW did something smart. They marketed it to cash strapped students. After it became popular with them, it was just a matter of time that parents themselves would start using it. How to grow the business smoothly without breaking it is one of the hardest things to do. A tool called adoption curves can help in managing the process. The Biz Logic part explain why the business functions 25 1 | Stanford View - The Business Logic
  27. 27. What part of the biz model is explained here? http://www.youtube.com/watch?v=UTHlXb0PXh4#t=58 (55 to 2:30) 26 1 | Stanford View - Wolf of Wall Street Test
  28. 28. What part of the biz model is explained here? http://www.youtube.com/watch?v=sxRStrx8xtc 27 1 | Stanford View - Wolf of Wall Street Test
  29. 29. What scenes correspond to value creation? 28 1 | Stanford View - Wolf of Wall Street Test
  30. 30. Adoption curves Fact. Any new product is subject to an adoption curve. Rate accelerates and then decays. It cannot be any other way. However, it is useful to know the exact shape of the curve for purpose of marketing. Don’t believe it? Choose the Apple mac book for example, look among your friends. See if you can find a friend that fills each group. 29 1 | Stanford View - Adoption Curves
  31. 31. The Adoption Chasm One thing that happens is that some early adopters buy your product (pioppio) but then ... it is incredibly hard to convince the Majority, the mainstream. This is what it is called a chasm. 30 1 | Stanford View - Adoption Curves ? chasm
  32. 32. Laggards For example, some people will not by a Mac until 95% of their friends have one, no matter what. Early adopters On the other hand, there are groups of people that like to try new things, be the first, or where really waiting for your product and do not care of how many people are using it already. Lady Gaga is an early adopter of herself. The Chasm When I started pioppio.com (a twist on Twitter in Barcelona) There were 400 users using it. But it was very hard to gain more users. This is called the chasm. At the end pioppio.com died. How to Cross the Chasm The Best strategy to cross the chasm is the slice-and-conquer strategy. Target a subgroup of the main stream and repeat. For example, at Dropbox they added a photo friendly feature to convince the main stream photo enthusiasts. 31 1 | Stanford View - Adoption Curves
  33. 33. Network effects When the adoption rate is higher because the number of users that already use your product is larger, and when its lower if the number of users is low chances are that your product is subject to network effects. Network effects appear when the value of your product depends on others already using it. Case in point is the walkie talkie. One walkie talkie is useless. Two walkie talkies is more useful. If every body owns one it is more useful. Phones, email, Uber and others are subject to network effects. 32 1 | Stanford View - Adoption Curves
  34. 34. Critical Mass In such cases, if the number of users reaches a certain number it is possible that it number will grow endogenously (without any marketing help). Those points in the adoption curve are called critical points. Facebook was an example of an adoption curve where the critical mass number was very very low. 33 1 | Stanford View - Adoption Curves
  35. 35. Early Adopters 34 1 | Stanford View - Adoption Curves
  36. 36. 35 1 | Stanford View - Adoption Curves PROCLIVITY TO ADOPT NEW PRODUCT (IPOD 2004)PROCLIVITY TO ADOPT NEW PRODUCT (IPOD 2004) NAME # OF USERS THAT SHOULD ALREADY BE USING THE SERVICE OR PRODUCT DO THAT I ADOPT THIS PRODUCT Juan 0 Ana 0 Bob 1 Rike 2 Mikimoto 3 Jose 9
  37. 37. 36 1 | Stanford View - Adoption Curves 0 25 50 75 100 0% 20% 40% 60% 80% 100% Marketpenetration Market penetration y =x required penetration (Y) for X to adopt A B 1. Early adopters 2. If point A is reached we will arrive to B automatically with no marketing expense
  38. 38. 37 1 | Stanford View - Adoption Curves y =x required penetration (Y) for X to adopt 0 25 50 75 100 0% 20% 40% 60% 80% 100% Facebook adoption curve (example) Marketpenetration Market penetration 3. Skeptics We all have some friend who says she will never join ---- A
  39. 39. 38 1 | Stanford View - Adoption Curves 0 25 50 75 100 0% 20% 40% 60% 80% 100% Pioppio adoption curve (example) Marketpenetration Market penetration y =x required penetration (Y) for X to adopt THE CHASM -.-’ Estimated curve A B KNOW YOUR ADOPTION CURVE!
  40. 40. 2 | Continental View Business Model Canvas. Invented at EPFL by Alex Osterwalder Alex What’s the biz canvas about? ---- ...it is just a brain hack...to cut the blah blah blah at board meetings ---- Alex Many students think the Biz Canvas is useless... But what is happening is that they try to practice it without any real in depth knowledge of the case
  41. 41. Zara A / B Workshop 40 2 | Continental View - Alex Osterwalder's Biz Model Canvas THE KEY ELEMENTS VISUALIZED
  42. 42. Many students in Mexico told me that the Biz canvas left them as cold as a cold pizza. I can understand why. Doing a biz canvas without real insights of a company is boring. The aim of this A/B workshop is to change that perception*. B (B is for Before) Workshop Teams of 4 print the canvas in A3 size. Goal: Do the canvas for Zara in less than 20 minutes with the purpose of understanding and visualizing all the biz components. B Workshop Be Genchi Gembutsu and watch the best and only documentary on Zara ever done. (“Planeta Zara” video, Ch4 The Brown Book of Design Thinking). After watching the video let them improve (kaizen) the canvas again. Reflection The video contains many insights into the biz model of Zara this are the top ones: 1. KA - Every employee acts like a trend-spotter 2. Channel - delivery of camion is twice weekly 3. Value Prop - Smaller batches, sold out quickly, customers know that if they visit the shop they will always find something new. --> Zara shoppers visit stores x4 times more often than H&M shoppers 4. Local customization of stock depending on area where shop is. 5. CR - Eye contact training 6. Cost Structure - Two tiered. High fashion garments are produced locally. Low fashion items or basics, such as jeans are produced in China. 41 2 | Continental View - Alex Osterwalder's Biz Model Canvas * I got this idea from Ben Graham’s Company A company B teaching methodology Company A
  43. 43. 42 2 | Continental View - Alex Osterwalder's Biz Model Canvas The Business Model Canvas Revenue Streams Channels Customer SegmentsValue PropositionsKey ActivitiesKey Partners Key Resources Cost Structure Customer Relationships Designed by: Date: Version:Designed for: designed by: Business Model Foundry AG The makers of Business Model Generation and Strategyzer This work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License. To view a copy of this license, visit: http://creativecommons.org/licenses/by-sa/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive? is your business more Cost Driven (leanest cost structure, low price value proposition, maximum automation, extensive outsourcing) Value Driven (focused on value creation, premium value proposition) sample characteristics Fixed Costs (salaries, rents, utilities) Variable costs Economies of scale Economies of scope Through which Channels do our Customer Segments want to be reached? How are we reaching them now? How are our Channels integrated? Which ones work best? Which ones are most cost-efficient? How are we integrating them with customer routines? channel phases 1. Awareness How do we raise awareness about our company’s products and services? 2. Evaluation How do we help customers evaluate our organization’s Value Proposition? 3. Purchase How do we allow customers to purchase specific products and services? 4. Delivery How do we deliver a Value Proposition to customers? 5. After sales How do we provide post-purchase customer support? For what value are our customers really willing to pay? For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues? For whom are we creating value? Who are our most important customers? Mass Market Niche Market Segmented Diversified Multi-sided Platform What type of relationship does each of our Customer Segments expect us to establish and maintain with them? Which ones have we established? How are they integrated with the rest of our business model? How costly are they? examples Personal assistance Dedicated Personal Assistance Self-Service Automated Services Communities Co-creation What Key Activities do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue streams? catergories Production Problem Solving Platform/Network What Key Resources do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue Streams? types of resources Physical Intellectual (brand patents, copyrights, data) Human Financial Who are our Key Partners? Who are our key suppliers? Which Key Resources are we acquairing from partners? Which Key Activities do partners perform? motivations for partnerships Optimization and economy Reduction of risk and uncertainty Acquisition of particular resources and activities What value do we deliver to the customer? Which one of our customer’s problems are we helping to solve? What bundles of products and services are we offering to each Customer Segment? Which customer needs are we satisfying? characteristics Newness Performance Customization “Getting the Job Done” Design Brand/Status Price Cost Reduction Risk Reduction Accessibility Convenience/Usability types Asset sale Usage fee Subscription Fees Lending/Renting/Leasing Licensing Brokerage fees Advertising fixed pricing List Price Product feature dependent Customer segment dependent Volume dependent dynamic pricing Negotiation (bargaining) Yield Management Real-time-Market strategyzer.com Employees as trendspotters Empowerment of store manager Employees spy what trends are popular with customers and inform HQ Short lead time driven savings Armani at affordable prices Special Trainings eye contact No Advertising Lot of R&D in Window dressing Segmentation Zara, Oysho, BRSHKA.... Dual Tier High /Low fashion Company B Op profit GAP 3% H&M 5% ZRARA 7%
  44. 44. 43 2 | Continental View - The Lean Canvas NEW Start up focused ppl find this version more useful
  45. 45. Zara A/B Workshop Many students in Mexico told me that the Biz canvas left them as cold as a cold pizza. I can understand why. Doing a biz canvas without real insights of a company is boring. The aim of this A/B workshop is to change that perception*. B (B is for Before) Workshop Teams of 4 print the canvas in A3 size. : Do the canvas for Zara in less than 20 minutes with the purpose of understanding and visualizing all the biz components. B Workshop Be Genchi Gembutsu and watch the best and only documentary on Zara ever done. (“Planeta Zara” video, Ch4 The Brown Book of Design Thinking). After watching the video let them improve (kaizen) the canvas again. Reflection The video contains many insights into the biz model of Zara this are the top ones: 1. KA - Every employee acts like a trend-spotter 2. Channel - delivery of camion is twice weekly 3. Value Prop - Smaller batches, sold out quickly, customers know that if they visit the shop they will always find something new. --> Zara shoppers visit stores x4 times more often than H&M shoppers 4. local customization of stock depending on area where shop is. 5. CR - Eye contact training 6. Cost Structure - Two tiered. High fashion garments are produced locally. Low fashion items or basics, such as jeans are produced in China. 44 2 | Continental View - The Lean Canvas
  46. 46. 3 | Cases Zip Car case Relay Rides case Dropbox case Vibrasol case XINE249 Ex.4.1 J Berengueres Friday, 8 August 2014 Vibrasol - Foot pain & natural posture correction! Background: - I have been suffering three foot deform ations called hallux valgus, bunion and pronation for 10 years now. Recently it just got so bad even a short hike would end up in swelling and pain. For about 10 years I was not really properly diagnosed. One day a podiatrist diagnosed the following: “O h my goodness! Your feet! Your feet, are terrible! Take a photo with iPhone form behind and you will see! ” I did and the photo showed a terrible pronation of the feet, (rolling in, sunk arches, knee looking inward). The doctor prescribed “custom insole for posture correction”. To which I replied: “O K... How much do they cost, Doc? and for How long will I have to wear them?” The Doc. shook his head smiling… “This is like glasses my friend. You will have to carry them forever. You see, the only thing we can do is to slow-the-progress of the deform ation.” This interaction exemplifies the dominant thinking in podiatry today, that bunion deform ity progress can only be slow down by wearing insoles or by a cheilechtomy surgery. However, other more forward-thinking practitioners have different views: “Slowing the progress is not only possible, but Hallux valgus, bunions and other ailments can be reversed in many cases - if you start walking correctly and using the right shoes. (Dr. Ray McClanahan)”. Back at the old Doc office… I asked: “W hat if… I just walk correctly” . The doc said: “You can try but you will forget in 5 minutes”. After the visit finished I went to a friends lab nearby and connected an Arduino, a pressure sensor and a coin cell vibrator motor. Put the sensor in my shoe insole to monitor my pronation degree. It worked! I named this device Vibrasol, and what it does is that it vibrates when you walk wrong. Traditional orthotics thinking is like this: The more comfortable, the more ergonomic. We disagree. Vibrasol reeducates your muscles, so you can achieve a healthy body posture naturally without artificial orthotic shapes - just by giving you feedback. That is how barefoot child learn to walk anyway.! Business Model (1st + 2nd cut) - Value Creation Model! • People will pay anything to get rid of foot pain! • People prefer “natural” methods! • Vibrasol treats the root cause of foot pain not the sympthom so it is prescribed more by physical therapists ! - Profit Model! • Market size! 1 In this chapter we drill down
  47. 47. Cambridge. Founded in 2000 by Antje Danielson and Robin Chase. Sold to Avis in 1014 for $500 46 3 | Cases - ZipCar & unit economics In this chapter analyze the Profit Model via unit economics
  48. 48. Value creation Model -I offer car freedom in four steps -Owning car in city is expensive. Parking. Maintenance 47 3 | Cases - ZipCar & unit economics
  49. 49. Profit = Revenues - Costs Profit = N x unit profit 48 3 | Cases - ZipCar & unit economics
  50. 50. Profit Model - Profit Model (how to model it?) - Find the key drivers via unit economics. (What would you calculate?) - Ex. One restaurant profitability. Multiply by number of restaurants. In case of zip car unit economic is one customer. How much does one customer cost us? 49 3 | Cases - ZipCar & unit economics
  51. 51. Source of revenue per individual member Customers’ fees: Annual fee $300. (they copied of E.U. membership fee model) per mile $0.4 and per hour $1.4 Average customer monthly usage is: four trips per year average length is 22miles and average trip time is 4h What are the uni economics (per customer per year?) 50 3 | Cases - ZipCar & unit economics
  52. 52. We have, 4 trips x 22 miles x 4 hours… per customer per month. Per year amounts to: 300 + 12 x 4 x (22x0.4 + 1.5x4) 300 + 44x(8.8+6) 300 + 44 x(14.8) ---------------------- Revenue per customer is $933.6 51 3 | Cases - ZipCar & unit economics
  53. 53. Anual cost per member cost car 6500 memeber / car 18 maintenace $24 anual fee per member other: 0.06 / mile What is the unit cost? 52 3 | Cases - ZipCar & unit economics
  54. 54. Cost per member 6500/18 + 12x4x22x0.06 +24 ------------------- 361 + 63 + 24 = 448 Member economics (annual)profit = rev - costs = 931 - 448 = 500!! (high margin?) 53 3 | Cases - ZipCar & unit economics
  55. 55. Now that we have the unit economics, What are the key drivers of zip car’s profit? - car cost ? - members per car? - the more members sharing the lower the quality of service. Trade-off identified? - Can we reduce the annual membership? What would you do? Why $300 initially? - Zipcar tried replicate the original EU rental car ops. These high fees are used to FUND their car buying… BUT zip car was funded! So they didn't need the $300. The EU car ops… didn't have external VC funding. 54 3 | Cases - ZipCar & unit economics
  56. 56. Biz Logic Are u going to sing up? (yes if it has to reduce my cost.) It has to be convenient to where I am going to be. Key elements: - Availability, enough cars in enough location. it requires substantial capital investment… - Logistics - Measuring device in car 55 3 | Cases - ZipCar & unit economics
  57. 57. RelayRides is a peer-to-peer car sharing service. Shelby Clark founded RelayRides in 2009, but the service was first launched in June 2010, in Boston. 56 3 | Cases - RelayRides In this chapter we analyze the Value Model
  58. 58. Value creation Model - Who are RelayRides’ customers? - What is their product/service offering? - How does the offering create differentiated value for them? - What is the value chain? What parts are they in? - What is their go-to-market strategy? 57 3 | Cases - RelayRides
  59. 59. RR is a typical platform model that matches supply and demand. In this case supply is owners of idle cars willing to rent/ lend their car for a fee and the demand is anyone that needs/wants to rent a car. Relay rides makes profit by being the middle man facilitating the transaction to both parties. Where is the value created here? 1. Two customers: owners of idle cars and that are willing to lend them for a fee, and pple who need a individual transportation solution. 2. You would not lend your car to a stranger. RelayRides offers you some guarantees (!), insurance, and simplifies paperwork to car lenders. 58 3 | Cases - RelayRides For more on model types check: McKinsey 783457 Innovation Company Profiles
  60. 60. Value chain of RR - Car owner has idle car - lists on platform - car gets booked - hand over car - receive $ - RelayRides fee - Car renter - Need for transport/ want specific model - search for car - book - Pay, use 59 3 | Cases - RelayRides
  61. 61. To car owners: "Put your idle car to work for you". A guy who listed a Tesla, made the money back in a few months I heard somewhere. To car renters: Availability to rent cars models that are not usually available at Avis? 60 3 | Cases - RelayRides
  62. 62. 61 3 | Cases - DropBox and the MVP Dropbox, was founded in 2007 by Drew Houston and Arash Ferdowsi, as a Y Combinator company. Idea came after forgetting his USB at MIT in 2006 - The unfinished Zen Temple (perfect vs. complete) - MVP
  63. 63. Lean startup. Drop Box is a Lean startup 1. Lean startup = prototype or die 1. Try things out (with an MVP) 2. Test hypothesis 3. Iterate 4. Revise biz model 2. The key is: How to accelerate this process. 3. We do not know if we have a good biz model, no matter how smart you are. 62 3 | Cases - DropBox and the MVP
  64. 64. Dropbox cycle - adoption curve How to overcome the CHASM between early adopters/techies and mainstream… Techies are willing to accept an incomplete solution. Show it to me. pioppio chasm. 63 3 | Cases - DropBox and the MVP
  65. 65. Dropbox demo video of 2008 http://techcrunch.com/2011/10/19/dropbox-minimal-viable-product/ 64 3 | Cases - DropBox and the MVP
  66. 66. DropBox MVPs -2007. They posted a video on Hacker news. -2008 posted a video Digg 2008 but they posted a video not a beta. -DropBox is a mission critical product no one will use it to store critical data at the beginning. -MVP = lowest resolution prototype for purpose of testing (in this case video was the lowest resolution prototype!!) 65 3 | Cases - DropBox and the MVP
  67. 67. Viral Marketing - How to acquire customers? - Adword too expensive - What is VM? - Marketing as a by-product of use (this is one of the most effective) - If i am a user and my friend is not… I will PERSUADE my friend and get value out of it BOTH of us. - Skype… want to talk to grandma in australia? - In the case of DropBox - Pay for referral incentives - in product storage GB… etc. 66 3 | Cases - DropBox and the MVP
  68. 68. Value Creation (top benefits) 1.Help you coordinate (“synchronize”) across multiple devices (PC, smartphone, etc.) 2.Share files with friends or colleagues 3.Back‐up your files 67 3 | Cases - DropBox and the MVP
  69. 69. Fremium economics of DropBox -100k pay for 4M -Why they do it? because it helps Acquire future customers! -Churn rate -Cheaper than adwords? Yes… ppl don’t know what it is. they wont try it… unless… it is FREE! 68 3 | Cases - DropBox and the MVP
  70. 70. Let’s calculate the Unit economics of DropBox (Based on HBR Dropbox case 9-811-065) - Two customer types - paying - free - Paying customer revenue Total revenue last year is $19M - $120/year - 19M/120 = 158k users - Cost of Revenue - total costs = 9M (bandwith) - 9M / 158k =56$/paying customer 69 3 | Cases - DropBox and the MVP
  71. 71. - What are the mck drivers of profitability? - Cost of bandwidth? - if you now that you will grow, can u pull a Steve jobs maneuver and negotiate a better deal with bandwidth selling utilites?) - Ratio of free to paying (1:40) Assume 25 m users as total base, assume unit profit = $20) - 25M users - Profit contribution of paying customers: 25M/41 x 20$ = 12.2 - Overhead: 25 engineers x $150k/salary = 3.75M - 12.2 - 3.75 = 8.44M 70 3 | Cases - DropBox and the MVP
  72. 72. The Market Fit - When you start a business it is really important to find the right customers. Not just the early adopters. Tesla - Elon knew that to sell electric cars you had to appeal to the sexyness of the product. People don’t just but Electric cars because it is good for the environment. - They want to feel sexy and they want to broadcast that they are green. Tesla got it right! It took ten years to make the product. This is called market fit. You have to find your product-market fit. - The customers that are going to become your evangelists - the trendy- environmentalists, the Leonardo DiCrapio’s that made driving a Prius cool, - The zipsters of Zipcar. Peter Thiel (2014) Peter Thiel’s Start Zero. Tesla Chapter. Trendy Environmentalists. Tesla - Roadster - Prius 71 3 | Cases - DropBox and the MVP
  73. 73. This is an example of a three page biz model document the Stanford way 72 3 | Cases - Vibrasol - How to Write a formal Buisness Model XINE249 Ex.4.1 J Berengueres Friday, 8 August 2014 Vibrasol - Foot pain & natural posture correction! Background: - I have been suffering three foot deformations called hallux valgus, bunion and pronation for 10 years now. Recently it just got so bad even a short hike would end up in swelling and pain. For about 10 years I was not really properly diagnosed. One day a podiatrist diagnosed the following: “Oh my goodness! Your feet! Your feet, are terrible! Take a photo with iPhone form behind and you will see! ” I did and the photo showed a terrible pronation of the feet, (rolling in, sunk arches, knee looking inward). The doctor prescribed “custom insole for posture correction”. To which I replied: “OK... How much do they cost, Doc? and for How long will I have to wear them?” The Doc. shook his head smiling… “This is like glasses my friend. You will have to carry them forever. You see, the only thing we can do is to slow-the-progress of the deformation.” This interaction exemplifies the dominant thinking in podiatry today, that bunion deformity progress can only be slow down by wearing insoles or by a cheilechtomy surgery. However, other more forward-thinking practitioners have different views: “Slowing the progress is not only possible, but Hallux valgus, bunions and other ailments can be reversed in many cases - if you start walking correctly and using the right shoes. (Dr. Ray McClanahan)”. Back at the old Doc office… I asked: “W hat if… I just walk correctly” . The doc said: “You can try but you will forget in 5 minutes”. After the visit finished I went to a friends lab nearby and connected an Arduino, a pressure sensor and a coin cell vibrator motor. Put the sensor in my shoe insole to monitor my pronation degree. It worked! I named this device Vibrasol, and what it does is that it vibrates when you walk wrong. Traditional orthotics thinking is like this: The more comfortable, the more ergonomic. W e disagree. Vibrasol reeducates your muscles, so you can achieve a healthy body posture naturally without artificial orthotic shapes - just by giving you feedback. That is how barefoot child learn to walk anyway.! Business Model (1st + 2nd cut) - Value Creation Model! • People will pay anything to get rid of foot pain! • People prefer “natural” methods! • Vibrasol treats the root cause of foot pain not the sympthom so it is prescribed more by physical therapists ! - Profit Model! • Market size! 1 The Vibrasol case: Sourced in California. Made in China. Assembled in Dubai.
  74. 74. Background - I have been suffering three foot deformations called hallux valgus, bunion and pronation for 10 years now. Recently it just got so bad even a short hike would end up in swelling and pain. For about 10 years I was not really properly diagnosed. One day a podiatrist diagnosed the following: “Oh my goodness Your feet! Your feet, are terrible! Take a photo with iPhone form behind and you will see! ” I did and the photo showed a terrible pronation of the feet, (rolling in, sunk arches, knee looking inward). The doctor prescribed “custom insole for posture correction”. To which I replied: “OK... How much do they cost, Doc? and for How long will I have to wear them?” The Doc. shook his head smiling... “This is like glasses my friend. You will have to carry them forever. You see, the only thing we can do is to slow-the- progress of the deformation.” This interaction exemplifies the dominant thinking in podiatry today, that bunion deformity progress can only be slow down by wearing insoles or by a cheilechtomy surgery. However, other more forward-thinking practitioners have different views: “Slowing the progress is not only possible, but Hallux valgus, bunions and other ailments can be reversed in many cases - if you start walking correctly and using the right shoes. (Dr. Ray McClanahan)”. Back at the old Doc office... I asked: “What if... I just walk correctly” . The doc said: “You can try but you will forget in 5 minutes”. After the visit finished I went to a friends lab nearby and connected an Arduino, a pressure sensor and a coin cell vibrator motor. Put the sensor in my shoe insole to monitor my pronation degree. It worked! I named this device Vibrasol, and what it does is that it vibrates when you walk wrong. Traditional orthotics thinking is like this: The more comfortable, the more ergonomic. We disagree. Vibrasol reeducates your muscles, so you can achieve a healthy body posture naturally without artificial orthotic shapes - just by giving you feedback. That is how barefoot child learn to walk anyway 73 3 | Cases - Vibrasol - How to Write a formal Buisness Model
  75. 75. Value Creation Model -People will pay anything to get rid of foot pain -People prefer natural methods -Vibrasol treats the root cause of foot pain not the symptom 74 3 | Cases - Vibrasol - How to Write a formal Buisness Model
  76. 76. Profit Model - Market size: - 80% of american will have a foot pain at some point - Orthotics, insole industry is $10bn year in USA alone - Estimated TAM: 10bn x 20% (bunions + hallux valgus) - Estimated penetration rate vs. practitioners that do not like the idea (based on sample of 3) = 100% - SAM=$2bn - Cost Structure: - After six months of prototyping we realised that to build a first run in China we need to rise $100,000.00. Each unit would cost $60 to make. So it would have to retail for +$199. Production and recall risk are very high. We decided to make a simple, no frills, no electronics protoype (MVP) - MVP: This prototype has the shape of an arch support and works by being uncomfortable when the foot is in a wrong posture and being less uncomfortable when the patient walks in a better posture. Thus biofeedback is achieved and the patient can correct its posture naturally by being aware of the posture - Cost of the no-frills device is $2 to 3D print, 2$ if made of silicon injection in Hanzou by a supplier of a leading phone manufacturer. The devices are supplied at no upfront cost to physical doctors that then sell it to patients with foot pain etc.. - Selling through physical therapists works. Selling online does not work because online it is hard to communicate the value. We plan to sell each for $20 75 3 | Cases - Vibrasol - How to Write a formal Buisness Model
  77. 77. Business Logic Model - Iterative prototyping used to evolve fast design cycle - Works closely with physical therapists to iterate prototypes fast by using 3D printers. -Work closely with selected forward looking practitioners from Kaiser, holistic disciplines and other -Initially, to increase production volume, ( to achieve operational excellence and evolve the product faster), we give a high sales commission to the physical therapist (+50%) -Costs of evangelists -Virality: The device is composed of a support and an elastic band that keeps the support from moving around inside the shoe/sandal/high heels. We only have flashy colorful bands. We want to position this as a cool, no-shame, no stigma orthotic and to have people ask: What is that cool thing on your foot -Profit/Loss Drivers -Commission to doctor -Cost of Sales force that evangelizes doctors (it takes about 3 days to evangelize a doctor) -Regulation permits -Value chain: win win for doctor-patient 76 3 | Cases - Vibrasol - How to Write a formal Buisness Model
  78. 78. Parts of compelling Investment pitch - The Hook - ( you have limited amount of time so… focus! high level message) - Value proposition - SAM = TAM x penetration rate (Addressable Market Size) - Body - blah blah - Closing - Action Step step for investors - How much money you need, - Why and - When do you need it 77 3 | Cases - Vibrasol - How to Write a formal Buisness Model
  79. 79. The Business Model in Video Format https://vimeo.com/103532118 78 3 | Cases - Vibrasol - How to Write a formal Buisness Model
  80. 80. 79 3 | Cases - Vibrasol - How to Write a formal Buisness Model
  81. 81. Dr. Jose Berengueres joined UAE University as Assistant Professor in 2011. He received MEE from Polytechnic University of Catalonia in 1999 and a PhD in bio-inspired robotics from Tokyo Institute of Technology in 2007. He has authored books on: The Toyota Production System Design Thinking Human Computer Interaction/ UX He has given talks and workshops on Design Thinking & Business Models in Germany, Mexico, Dubai, and California.

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