Better by Measure: Two Tales of Disruption (Class 3, SVA Products of Design 2014)

BETTER BY MEASURE
TWO TALES OF DISRUPTION
Class 3 | September 18, 2014
BETTER BY MEASURE | WEEK 3: SEPTEMBER 18, 2014

OUTLINE
2
SCIENCE LAB: TWO TALES OF DISRUPTION
BUSINESS SCHOOL: LEAN CUSTOMER DISCOVERY PART ONE
CONCEPT REVIEW

SCIENCE LAB

4
V.
WHAT FEELINGS DOES THE TERM “DISRUPTION”
CONNOTE FOR YOU?

DEFINITION (NOUN): Disturbance or problems that interrupt an event, activity,
or process.
DISRUPTIVE… ANYTHING ELSE
“Finance. Food. Fuel. Water shortage. Resource scarcity.
Climate chaos. Mass poverty. Mass migration.
Fundamentalism. Terrorism. Financial oligarchies. We
have entered an Age of Disruption.”
– Otto Scharmer. “Leading from the Emerging Future.”
5
V.
DISRUPTIVE INNOVATION
“True disruption means threatening your existing product
line and your past investments. Breakthrough products
disrupt current lines of businesses.”
– Peter Diamandis. X-Prize Foundation, Singularity

FIRST WE’LL FOCUS ON THE LATTER TYPE OF
DISRUPTION. THE EARTH ON FIRE KIND.
6

WHAT DISRUPTIVE IMPACTS DO WE HOPE TO SOLVE FOR?
7
Climate Change
ENVIRONMENTAL
IMPACTS
SOCIAL
IMPACTS
HEALTH
IMPACTS
Child Slavery
Infections Disease
These negative impacts are the results of interconnected systems –
economic, social, ecological.

HOW DO WE SOLVE FOR THESE PROBLEMS?
“WE CAN’T SOLVE PROBLEMS WITH THE SAME KIND OF THINKING THAT
CREATED THEM.” – Albert Einstein
In order to solve for these challenges we need to start by understanding the
systems and dynamics that created them so we can begin to imagine ways
to intervene and create positive change while avoiding unintended
consequences.
8
Let’s start by mapping systems.

SYSTEMS THINKING IS A VERSITILE AND USEFUL
FRAMEWORK WHICH WE ACTUALLY USE ALL THE TIME
REBECCA’S SYSTEMS WORK
• Mapping Walmart’s supply chain, water and energy use
• Using LCA to understand the impacts of apparel for NRDC and the CFDA
9
JEN’S SYSTEMS WORK
• Unraveling healthcare networks
• Understanding the behaviors of hard to reach patients

GETTING TO THE CORE OF A SYSTEM
10
What is the purpose of the system?
What is your goal for understanding the system?
What are the boundaries, scale and context for the system?

THINKING IN SYSTEMS: ROCKAWAY BEACH
CHALLENGE: New York City Mayor’s office is working to rebuild Rockaway
Beach after super storm Sandy wreaked havoc on the area in 2012. They’ve
hired you to help them understand the system dynamics for the coastal region.
11 CLASS 2 | PARSONS | SUSTAINABLE SYSTEMS | REBECCA SILVER

What’s the purpose of the system?
What’s your goal for understanding the system?
What are the boundaries, scale and context for the system?

A SYSTEMS IS MORE THAN THE SUM OF ITS PARTS, BUT
LET’S START WITH THE PARTS
13
What are the variables in the system?
STOCKS: Material or information that has built up in a system over time. These
are the things that accumulate – the stuff you can count or measure.
What are the connections between variables in the system?
FLOWS: Stocks change over a period of time as a result of material or
information flows that enters or leaves the stocks.

UNDERSTANDING SYSTEM DYNAMICS
FEEDBACK LOOPS: Material or information that has built up in a system over
time. These are the things that accumulate – the stuff you can count or measure.
BALANCING FEEDBACK LOOPS
A stabilizing, goal-seeking, regulating feedback
loop that keeps stocks at a specific level.
14
REINFORCING FEEDBACK LOOPS
An amplifying or enhancing feedback loop, which
trends toward instability (entropy). These are
“vicious cycles” and “virtuous cycles.”

WHAT HAPPENS WHEN THERE’S A DELAY IN THE SYSTEM?
DELAYS: A delay in a balancing feedback loop
makes a system likely to oscillate. Changing the
length of a delay may make a large change in the
behavior of a system.
Stocking the right
number of Apple
Watches
Balancing of predator
& prey numbers in
ecosystems

HOW ARE UNINTENDED CONSEQUENCES CREATED?
FIXES THAT FAIL (UNINTENDED CONSEQUENCES): A solution is rapidly
implemented to address the symptoms of an urgent problem. This quick fix sets
into motion unintended consequences that are not evident at first but end-up
adding to the symptoms.
Pest control >
Invasive species
introduction
Bank bailouts >
Golden parachutes
New drug release >
unplanned side
effects

What are the stocks? What are the flows?
What patterns or “archetypes” emerge over time (feedback loops)?

SYSTEM DYNAMICS RESULT IN NEGATIVE IMPACTS
SYSTEM DYNAMICS: The behavior over time of a system or any of its
components.
SYSTEM
Public
Education
System
Unequal
Quality &
Access
Open
Internet
Tech. Divide
The US
Economy
2008
Financial
Crisis
Continuous
Consumption
Exhaustion
of Resources
Private
Healthcare
Obesity
RESULTING
BEHAVIOR
BETTER BY MEASURE | WEEK 3: SEPTEMBER 18, 2014 18

IMPACTS ARE INHERENTLY INTERCONNECTED BECAUSE
SYSTEMS ARE INTERCONNECTED
19
HEALTH
IMPACT
SOCIAL
IMPACT
ENVIRONMENTAL
IMPACT
WHO
KNEW?

HOW IS IMPACT CONNECTED TO BUSINESS MODELS?
Impacts occurs as a result of the operations required to create value for
customers and shareholders. In business lingo we call these externalities.
EXTERNALITY: “A side effect or consequence of industrial or commercial activity
that affects other parties without this being reflected in the cost of the goods or
services involved, such as the pollination of surrounding crops kept for honey.”
- SOURCE: Google
• Externalities are embedded in both what you do and how you do it
• Externalities can be created as the direct result of a company’s actions or
indirectly, as a result of a series of causal actions
• Externalities occur both inside a company and outside a company’s walls
• External impact can be singular events or repeated patterns and both types
of impacts can be the result of systemic risk and error
20

EXTERNALITIES CAN BE POSITIVE AND NEGATIVE
21
NEGATIVE EXTERNALITY
Cost to Society > Private Cost
The cost to a third party (the
environment, society or private
individuals) is greater than the cost the
consumer, or company producing a
good or service is paying for it.
POSITIVE EXTERNALITY
Benefit to Society + Private Benefit
Occurs when third parties (the
environment, society, or private
individuals) receive benefits as a result
of the consumption or production of a
good or service.
“Positive externalities flow to the top, negative
externalities to the poor.”
- Otto scharmer, Leading from the emerging future

OUR ECONOMY THRIVES OFF OF EXTERNALITIES

WHAT PARTS OF A BUSINESSS DO EXTERNALITES
STEM FROM? ANYWHERE
As function of product or service delivered to customers
Positive impact: Renewable energy providers
Negative impact: Weapons manufacturing
As (un)intended behavior change resulting from customer
use/consumption of service
Positive impact: Weight loss from joining online calorie counting service
Negative impact: Online dating platforms spurring STD outbreaks
Embedded in operations (supply chain & facilities)
Positive impact: Generous maternity and paternity time benefits
Negative impact: Hazardous chemical emissions from production facility
Investment (via direct investment or purchase of goods/services)
Positive impact: Investing in renewable energy credits
Negative impact: Purchase of conflict minerals for electronics equipment manufacturing
Corporate giving & policy
Positive impact: Donations to local community organizations benefitting disadvantaged youth
Negative impact: Funding of lobbying against environmental regulation
SOURCE: On left, icons from Business Model Canvas by Alex Osterwalder and XPlane
23

IMPACTS ARE INHERENTLY INTER-CONNECTED,
AS ARE THE ELEMENTS OF A BUSINESS
Product/Ser
vice
Function
24
HEALTH
IMPACT
SOCIAL
IMPACT
ENVIRONMENTAL
IMPACT
Investment
Supply
Chain/
Facilities
Corporate
Giving
Customer
Behavior

LEAN STARTUP
BUSINESS SCHOOL

NOW BACK TO THE GOOD KIND OF DISRUPTION
26

STARTUPS AS THE ORGANISM OF CHANGE
THE FOUNDERS DEFINE THE PRODUCT VISION AND
THEN USE CUSTOMER DISCOVERY TO FIND
CUSTOMERS AND A MARKET FOR THAT VISION.
-Steve Blank, The Startup Owner’s Manual

LEAN LAUNCHPAD:
LEAN LAUNCHPAD SIMULATES ENTREPRENEURSHIP
BY REQUIRING FOUNDERS TO GET OUT OF THE
BUILDING…AND INTO THEIR CUSTOMER’S WORLD.
28
Customer
Discovery
Customer
Creation
Customer
Validation
Company
Building
Pivot
FLIPPED CLASSROOM

29
LEAN LAUNCHPAD: BUSINESS MODEL CANVAS

LEAN LAUNCHPAD: BUSINESS MODEL CANVAS
KEY PARTNERS KEY ACTIVITIES VALUE PROPOSITIONS
CUSTOMER
RELATIONSHIPS
What key activities do our value
propositions require?
Our distribution channels?
Customer relationships?
Revenue Streams?
KEY RESOURCES
How do we get, keep, and grow
customers?
Which customer relationships
have we established?
How are they integrated with
the rest of our business model?
How costly are they?
CHANNELS
Who are our key partners?
Who are our key suppliers?
Which key resources are we
acquiring from our partners?
Which key activities do our
partners perform?
What value do we deliver to the
customer?
Which one of our customers’
problems are we helping to
solve?
What bundles of products and
services are we offering to each
segment?
Which customer needs are we
satisfying?
What is the minimum viable
product?
What key resources do our
value propositions require?
Our distribution channels?
Customer relationships?
Revenue Streams?
Through which channels do our
customer segments want to be
reached?
How do other companies reach
them now?
Which ones work best?
Which ones are most cost-effective
How are we integrating them
with customer routines?
COST STRUCTURE REVENUE STREAMS
CUSTOMER
SEGMENTS
For whom are we creating
value?
Who are our most important
customers?
What are the customer
archetypes?
What are the most important costs inherent to our business model?
Which key resources are most expensive?
Which key activities are most expensive?
For what value are our customers really willing to pay?
For what do they currently play?
What is the revenue model?
What are the pricing tactics?
SOURCE: www.businessmodelgeneration.com//canvas | Canvas concepts developed by Alexander Osterwalder and Yves Pigneur.

THE SHIFT: FROM PUSH AND MARKET TO CUSTOMER
DEVELOPMENT
THE CUSTOMER DEVELOPMENT MODEL
STOP STOP STOP
- The Four Steps to the Customer Epiphany by Steve Blank
Customer
Discovery
Customer
Creation
Customer
Validation
Company
Building
Pivot
Concept/Seed
Product
Development
Alpha/Beta
Test
Launch/
1st Ship
• Create marcom
materials
• Create positioning
• Hire PR agency
• Early buzz
• Create demand
• Launch event
• “Branding”
31
THE PUSH AND MARKET MODEL

FIRST CAME STEVE
The Customer Development
process changes the way startups
are built
Startups are not smaller versions of
large companies
A startup as a “temporary
organization designed to search for
a repeatable and scalable business
model”
Co-founded 8 startups.
1996: E.piphany | 1998: $3.4 MM sales |
1999: IPO raised $72 MM
Author of Four Steps to the Epiphany, Startup
Owner’s Manual
32

THEN CAME ERIC
CONTINUOUS CUSTOMER
INTERACTION
A STARTUP IS AN
EXPERIMENT
A HYPOTHESIS TO BE
TESTED
ASSUME CUSTOMER AND
FEATURES ARE
UNKNOWNS
LOW BURN BY DESIGN
ARE WE ON THE PATH TO A
SUSTAINABLE BUSINESS
Founded IMVU
Parallels between Lean and Agile, caught fire in the
startup community for software businesses, particularly
mobile and SaaS models.
33

WHAT CAME BEFORE STEVE AND ERIC
LEAN MANUFACTURING
TOTAL QUALITY
MANAGEMENT
KANBAN
CONTINUOUS
IMPROVEMENT
AGILE
34

DESIGN RESEARCH
(Ethnography)
DESIGN THINKING
(IDEO, Dschool)
AGILE AND LEAN INFLUENCES
36

KANBAN
The Kanban Method respects the human condition. People resist change for emotional
reasons. When change affects their self-image, self-esteem, or position with a social
group, people will resist and the resistance will be emotional.
The Kanban Method adopts the Zen Buddhism concept that "water goes around the rock."
Hence, it focuses on changes that can be made without invoking emotional
resistance, while visualization and limiting work-in-progress raise awareness of deeper
issues allowing for an emotional engagement that helps to overcome resistance.
37

BETTER BY MEASURE BUILDS OFF OF LEAN
LAUNCHPAD BY CONNECTING THE CUSTOMER’S WORLD
TO HEALTH, CIVIC SOCIETY AND THE ENVIRONMENT.
38
LEAN LAUNCHPAD GETS BETTER BY MEASURE
+

THE SHIFT: BETTER BY MEASURE’S CUSTOMER
DEVELOPMENT APPROACH
BETTER BY MEASURE CUSTOMER DEVELOPMENT MODEL
STOP STOP STOP
39
BETTER BY FOCUS
MEASURE
Eco/Social
Hypothesis
Testing:
By delivering your
value proposition,
what
ecological/social
values are
created/eroded and
how does this effect
the customer?
Designing for
Sustainable
Growth:
How might different
growth scenarios
affect
ecological/social
value
creation/erosion?
Measuring
Eco/Social
Outcomes:
How can we
measure and
sustain or improve
environmental/soci
al outcomes of
corporate
activities?
Co-Creating
Eco/Social
Solutions:
Can you co-create
value which
addresses both
customer needs and
ecological/social
values?
- The Four Steps to the Customer Epiphany by Steve Blank
Customer
Discovery
Customer
Creation
Customer
Validation
Company
Building
Pivot

LEAN LAUNCHPAD: BETTER BY MEASURE’S ADAPTED
BUSINESS MODEL CANVAS
KEY PARTNERS KEY ACTIVITIES VALUE PROPOSITIONS
CUSTOMER
RELATIONSHIPS
• What key activities do our value
• Our distribution channels?
• Customer relationships?
• Revenue Streams?
• What environmental and social
externalities might the key
activities drive?
KEY RESOURCES
• How do we get, keep, and grow
customers?
• Which customer relationships
have we established?
• How are they integrated with the
rest of our business model?
• How costly are they?
• Will customer
acquisition/retention drive
ecological and social impact?
• Can positive ecological and
social value be used to acquire
customers?
CHANNELS
• Who are our key partners?
• Who are our key suppliers?
• Which key resources are we
acquiring from our partners?
• Which key activities do our
partners perform?
• What key environmental and
and societal stakeholders might
our activities effect?
• What value do we deliver to the
customer?
• Which one of our customers’
problems are we helping to solve?
• What bundles of products and
services are we offering to each
segment?
• Which customer needs are we
satisfying?
• What is the minimum viable
product?
• What ecological and social
value could be embedded in the
core value proposition to
customers?
• What key resources do our value
• Our distribution channels?
• Customer relationships?
• Revenue Streams?
externalities might resource use
create?
• Through which channels do our
customer segments want to be
reached?
• How do other companies reach
them now?
• Which ones work best?
• Which ones are most cost-effective
• How are we integrating them with
customer routines?
externalities might these
channels require?
COST STRUCTURE REVENUE STREAMS
CUSTOMER
SEGMENTS
• For whom are we creating value?
• Who are our most important
customers?
• What are the customer
archetypes?
• What are the ecological/social
values and behaviors of our
customers?
• What are the most important costs inherent to
our business model?
• Which key resources are most expensive?
• Which key activities are most expensive?
• What key costs to the environment and
civic society are driven by our business
model?
• Which of these externalities is likely to
become future economic costs to our
business, and by what mechanism (policy,
public demand etc.)?
• For what value are our customers really willing
to pay?
• For what do they currently pay?
• What is the revenue model?
• What are the pricing tactics?
• What customer behaviors will revenue
generation drive which may affect the
environment and civic society, and how?
SOURCE: www.businessmodelgeneration.com//canvas | Canvas concepts developed by Alexander Osterwalder and Yves Pigneur.

STEP 1: CUSTOMER DISCOVERY
Customer discovery translates a founding team’s vision for the company
into a hypothesis about each component of the business model and
creates a set of experiments to test each hypothesis.
Customer discovery is not about collecting features lists from prospective
customers or running lots of focus groups.
41

ESTIMATE YOUR TOTAL ADDRESSABLE MARKET
Total addressable
market
Served
available
market
• Total addressable: how big is the universe?
• Served available market: how many can I reach with my sales channel?
• Target market: who will be the most likely buyers?
Target market
42

HOMEWORK
ESTIMATE THE SIZE OF YOUR TOTAL ADDRESSABLE MARKET, SERVED
ADDRESSABLE MARKET, AND TARGET MARKET.
1. Build a systems map for the company you’re focusing on.
2. How does your concept fit into the system?
3. From your concept/systems map identify 2 critical business hypotheses to test, and 2
associated environmental/social hypotheses to test.
4. What do you expect to be true? How do you validate what you think is true?
5. Talk to at minimum 10 humans in person that fit your market to do this (Photograph
every human you meet, we want to see them!)
6. Go to the climate march to find a captive audience.
READ: Steve Easterbrook, The Power to Change Systems:
http://planet3.org/2011/10/18/the-power-to-change-systems
OPTIONAL: Steve Blank, How to Build a Startup - https://www.udacity.com/course/ep245
43

THE PEOPLE’S CLIMATE MARCH
REGISTER: http://peoplesclimate.org/march/
44

CONCEPT CRITIQUE
TO THE BOARD WE GO

Better by Measure: Two Tales of Disruption (Class 3, SVA Products of Design 2014)

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