BREAKING DOWN 'Business Plan' A business plan includes a description of a company or small business, its services and/or products and how the business will achieve its goals. The plan includes the overall budget, current and projected financing, a market analysis and its marketing strategy approach. In a business plan, a business owner projects revenues and expenses for a certain period of time and describes operational activity and costs related to the business.
The idea behind putting together a business plan is to enable owners to have a more defined picture of potential costs and drawbacks to certain business decisions and to help them modify accordingly before implementing these ideas.
BREAKING DOWN 'Business Model' Business model is a buzzword that everybody used (or overused) during the dotcom boom. In fact, poorly thought out business models were the downfall of many dotcoms.
However, the business model dates back to the earliest days of business; it merely describes the way in which a company makes money. A business model can be simple or very complex. A restaurant's business model is to make money by cooking and serving food to hungry customers. A website's business model might not be so clear, as there are many ways in which these types of companies can generate revenue. For example, some make money (or try to) by providing a free service and then selling advertising to other companies, while others might sell a product or service directly to online customers.
The starting for any good discussion on business model design should be a shared understanding of what a business model actually is. WE need a business model concept that everybody understands: one that facilitates description and discussion. We need to start for the same point and talk about the same thing. The challenge is that the concept must be simple, relevant, and intuitively understandable, while not oversimplifying the complexities of how organizations function.
So let’s have a look how many types of business model exist? Believe, if I start (by the way I don’t know all of them) talking about all the different types of business models, we’ll need to stay up until Monday. So I’ve chosen 4 examples for you. Let me start with the Open Innovation Model.
This is a tool that I find useful when working with firms to improve their innovation process. There are several key ideas that come from using this framework:
The first is that, all elements of the business model are interconnected. This means that when one part of the model changes, the rest probably need to as well. For example, one of the key points that Mitch Joel makes in his book and on his blog Six Pixels of Separation is that because of the web, we are now connected to many more potential customers than we were previously. This means that our market has almost certainly changed from the local people that are interested in our services to potentially everyone. Trying to reach everyone is a fatal mistake, but this is still an important change in our possible market. Few business models scale up without requiring changing. If we decide to try to reach this market, it is likely that we will need to change our value proposition and our revenue generating mechanism.
The second point is that we often get locked in to using the first business model that works for us, even if that is not a good model as our business expands. The example that Chesbrough uses to illustrate this is Xerox. Their original model was built around providing high-volume photocopying services for very large corporate customers. So when they tried to bring all the great ideas coming out of their Palo Alto Research Center to market, they used the same model. However, this model was poorly suited for selling ideas with broader appeal, such as the graphical user interface, or ethernet systems. Consequently, these ideas failed for Xerox because they didn’t not fit in with their dominant business model logic. Innovative new products will often have a value proposition that differs from that of your current core products. If you are going to successfully bring them to market, you probably need different customers and possibly even a new value network.
A third point is that business model innovation can be extremely powerful. For example, the Apple iPod was as much a business model innovation as a design innovation. There were other mp3 players before the iPod – it wasn’t especially innovative as a product. However, it really took off when it was coupled with iTunes. By linking the mp3 player to a convenient, legal source of downloadable music, Apple created a new value network. Adding music, artists and distributors into the network made a new ecosystem for the iPod – and this innovation was more important to its success than any of the new ideas actually embedded within the product itself.
Innovation is not about having the best ideas – it is about having the best execution of new ideas. The business model framework is a tool that can help you improve your execution, and that is why I think that it plays a crucial role in linking innovation to your strategy.
This is a strategy tool developed by Hambrick & Fredrickson. They talk about the importance of having an integrated strategy. In their original article on the diamond, Hambrick and Fredrickson take issue with statements like Google’s – saying that these statements of intent are insufficient as guides to strategy. They contend that a sound strategy requires all five elements, and that these need to be integrated and consistent with each other.
There are a couple of key ideas to take from the diamond model.
First, innovation must be integrated with strategy. When you work on implementing new ideas, you need to think about how it fits in with what you’re currently doing.
Second, all elements of strategy are interconnected. This is critical when you think about innovations over a longer time horizon. If you are aiming to create a different value proposition, or to move into a new customer segment, all the other parts of your strategy will likely have to change as well. This is a large part of why large firms find it difficult to react to radical innovations – everything has to change. Nevertheless, the strategy diamond can at least help you think through how to approach these more radical changes.
Dr. Osterwalder is an author, speaker, and adviser on the topic of business model innovation. His practical approach to designing innovative business models, developed together with Dr. Yves Pigneur, is practiced in multiple industries throughout the world by companies including 3M, Ericsson, Capgemini, Deloitte, Telenor, and many others. Previously he helped build and sell a strategic consulting firm, participated in the development of a Thailand-based global nonprofit organization combating HIV/AIDS and malaria, and did research at the University of Lausanne, Switzerland.
What´s the difference to existing business model theories? Alex Osterwalder replies: “Well, when we started out eleven years ago I was working on my dissertation on business models and there were a lot of people talking about business models. There were lots of conceptual models out there. The key difference is that we took all those concepts, made a synthesis, tried to simplify them and then designed a model which we rigorously tested in the market with companies, with entrepreneurs, and with senior executives. It was a scientific approach. We called the output “Business Model Ontology” before it became “Business Model Canvas” later on. Once the dissertation was published, the method was increasingly used throughout the world. So the model was “stress tested” by the market. Today a lot of companies around the world use the “Business Model Canvas” to describe their business models, to challenge them and invent new ones.”
“The Business Model Canvas has been downloaded more than 5,000,000 times on our website. We asked survey respondents to highlight how the Business Model Canvas creates value for them. The main contributions lie in providing a shared language, leading to better strategic conversations and better ideas on the table.”
You could take your hypotheses and blow them up into a 30-50 page business plan or go the other way and shrink them down to a 1 page business model. As convincing as your hypotheses might sound to you, it’s important to recognize that they are still largely untested guesses that will almost certainly change.
Writing a business plan, at this stage (or ever?), is a form of waste – You can capture the same level of information in a 1 page business mode and have it be more portable and accessible. But more importantly, it’s a lot harder to distill the essence of your business down to a single page which is great practice for articulating your hypotheses – whether you’re pitching a customer or investor, you only get a tiny slice of time to make your case.
“I particularly like Alex Osterwalder’s 1 page canvas approach to business model generation. It visually captures the essential components of a business model. I do find some of Osterwalder’s blocks a bit too general for a lean startup and specifically my type of business – web apps. For instance, before product/market fit, I need to see more emphasis on Problem/Solution than key partners or a customer relationship model.
Rob Fitzpatrick created a great adaption of Osterwalder’s canvas that better captures the “4 Steps of Epiphany” type of hypotheses. Rob’s goal is to version each update so you get an automatic way for tracking the evolution of your model/pivots. However, after using the Rob’s Startup Canvas, I found it unfortunate that he left out a few critical blocks like the cost/revenue pieces which make up the foundation of the business model.
So I decided to iterate on this one more level and created a new version.
Let’s see why he Ash changed 4 blocks of Business Model Canvas and replaced them with Problem, Solution, Key Metrics and Unfair Advantage.
“My main objective with Lean Canvas was making it as actionable as possible while staying entrepreneur-focused. The metaphor I had in mind was that of a grounds-up tactical plan or blueprint that guided the entrepreneur as they navigated their way from ideation to building a successful startup.”
Problem Most startups fail, not because they fail to build what they set out to build, but because they waste time, money, and effort building the wrong product. I attribute a significant contributor to this failure to a lack of proper “problem understanding” from the start. That is why I chose to make the “Problem” box explicit and not a derivative of something else like Value Proposition.
Solution Once you understand the problem, you are then in the best position to define a possible solution. That said, I purposefully wanted to constrain entrepreneurs (through the use of a small box on the canvas) because the solution is what we are most passionate about. Left unchecked, we often fall in love with our first solution and end up cornering ourselves into legacy. Keeping the solution box small also aligns well with the concept of a “Minimum Viable Product” (MVP).
Key Metrics Startups often drown in a sea of numbers in an attempt to bring order to the chaos of uncertainty. At any given point in time though, there are only a few key actions (or key macro metrics) that matter. How is this a risk? Failure to identify the right key metric can be catastrophic – leading to wasteful activities like premature optimization or running out of resources while chasing the wrong goal. Initially these key metrics should center around your value metrics and later they shift towards your key engines of growth.
Unfair Advantage This is another name for competitive advantage or barriers to entry often found in a business plan. I was cognizant of the fact that few startups have a true unfair advantage on day one which means this box would be blank.
“A true unfair advantage is something that cannot be easily copied or bought.” – Jason Cohen
This box wasn’t intended to discourage you from moving forward on your vision but rather to continually encourage you to work towards finding/building your unfair advantage. Once a startup achieves some level of initial success, it is inevitable that competitors and copy-cats will enter the market. If you don’t have a defense against them, you stand a real risk of being made extinct by these fast-followers.
There is a specific canvas fill order for Lean canvas.
And there is risk iteration path available while thinking about Lean Canvas, based on three components: product, customer and market risk.
Business Model vs Lean Canvas
Business Model Design
Startupbootcamp Istanbul | 04.09.2015
Lycée Saint Joseph
Boğaziçi Üniversitesi Turizm İşletme
IVME Marketing Group
Bilge Adam BT Akademisi
Pure New Media
DAM Startup Studio
DAM Growth Hackers
What’s in it for you?
10.00 - 10.45 Part 1
Why we need a model for designing
your business flow
What is Business Model Canvas?
Why should you use Business Model
What is Lean Canvas?
Why should you use Lean Canvas?
What are the differences between
Business Model and Lean Canvas?
10.45 - 11.00 Coffee break
11.00 - 11.45 Part 2
Let's see how they used Business Model
Let's see how they used Lean Canvas
Let's build a Business Model Canvas
Let's build a Lean Canvas
11.45 - 12.15 Q&A
12.15 End of course
Why do we need
a model for designing
your business flow?
THE BUSINESS PLAN
A written document that describes in detail
how a new business is going to achieve its
goals. A business plan will lay out a written
plan from a marketing, financial and
THE BUSINESS MODEL
The plan implemented by a company to
generate revenue and make a profit from
operations. The model includes the
components and functions of the business,
as well as the revenues it generates and
the expenses it incurs.
Business Plan ≠ Business Model
A business model describes the rationale of how an organization
creates, delivers, and captures value.
It is simple, intuitively understandable and suitable for iterative development.
not Business Plan
Business Plan: A document investors make you write that they don’t read.
Business Model: A single diagram that describes your business.
- Steve Blank
Heny Chesbrough - Open Innovation
New innovations often require new business models. This is where the idea of business model innovation really started to gain
traction. Chesbrough didn’t just describe business models, he also discussed how changing a business model can be an
innovation just by itself.
Further reading - http://www.slideshare.net/SiliconValleyST/business-model-innovation-by-h-chesbrough
The first key point here is that a good business model is integrated. All of the elements need to be consistent with and support
the others. If you change one element, it’s likely that you’ll need to change all of them. Second, this model illustrates how closely
linked strategy and business models are. When you design a business model, you can’t do it without clearly articulating a
Further reading - http://www.provenmodels.com/598/strategy-diamond/donald-c.-hambrick--james-w.-fredrickson/
Patrick Staehler - Business Models in the Digital Economy
Leadership Style, Relationship Style and Values. Think about that in relation to the point above about integration. If you change
the relationship style within your organisation, you’ll likely need to change the rest of your business model as well. Furthermore,
this business model innovation could be a source of competitive advantage. This is a very powerful point.
Further reading - http://blog.business-model-innovation.com/tools/
What’s about this famous
Business Model Canvas?
Born in Winterthur, Osterwalder obtained his MA in Political Science
in 2000 at the University of Lausanne, where in 2004 he also
obtained his PhD in Management Information Systems under Yves
Pigneur with the thesis, entitled "The Business Model Ontology - a
proposition in a design science approach.” In 1999 Osterwalder co-
founded his first startup Netfinance.ch, which supplied education in
online trading and investing. He was journalist for the Swiss business
magazine BILANZ in 2000-01, and Senior Research Fellow back at
the University of Lausanne from 2000 to 2005 in the time he finished
his PhD research.
In 2006 he founded BusinessModelDesign.com, and in 2010 he co-founded the consultancy firm
In the late 2000s "Osterwalder and a team of 470 co-creators published a very attractive and popular
model for describing business models: the Business Model Canvas. The Business Model Canvas
offers you an excellent model to further develop your ideas about the business model for monetizing
Further reading - http://businessmodelalchemist.com/
Business Model Canvas
“We believe a business model can best be described through nine basic building
blocks that show the logic of how a company intends to make money. The nine blocks
cover the four main areas of a business: customers, offer, infrastructure, and financial
viability. The business model is like a blueprint for a strategy to be implemented
through organisational structures, processes, and systems.”
Business Model Canvas
“The business model canvas — as opposed to the traditional, intricate business plan
— helps organizations conduct structured, tangible, and strategic conversations
around new businesses or existing ones.
Leading global companies like GE, P&G, and Nestlé use the canvas to manage
strategy or create new growth engines, while start-ups use it in their search for the
right business model.
The canvas’s main objective is to help companies move beyond product-centric
thinking and towards business model thinking.”
"Life's too short to build something nobody wants."
I have been an entrepreneur for more than a decade, and throughout
that time I have been in search of a better, faster way for building
Then I ran into early works on Customer Development and Lean
Startup pioneered by Steve Blank and Eric Ries. I joined in on the
conversation and have been rigorously applying and testing these
principles since then. I started sharing my learning on this blog,
which then turned into a book, and subsequently into a series of
products aimed at helping entrepreneurs raise their odds of success.
That is my mission and reason for being.
Further reading - http://leanstack.com/
“I particularly like Alex Osterwalder’s 1 page canvas approach to business
model generation. It visually captures the essential components of a business
model. I do find some of Osterwalder’s blocks a bit too general for a lean
startup and specifically my type of business – web apps. For instance, before
product/market fit, I need to see more emphasis on Problem/Solution than
key partners or a customer relationship model.
Rob Fitzpatrick created a great adaption of Osterwalder’s canvas that better
captures the “4 Steps of Epiphany” type of hypotheses. Rob’s goal is to
version each update so you get an automatic way for tracking the evolution of
However, after using the Rob’s Startup Canvas, I found it unfortunate that he
left out a few critical blocks like the cost/revenue pieces which make up the
foundation of the business model.
So I decided to iterate on this one more level and created a new
a new version of Business Model Canvas
Further reading - http://leanstack.com/books/
“Lean Canvas is designed for entrepreneurs,
not consultants, customers, advisors, or investors. That said, the entrepreneur can
greatly benefit by engaging all of those people while validating their canvas.”
Business Model and Lean Canvas
Element Business Model Canvas Lean Canvas
Target New and existing businesses Startup businesses purely
Focus Customers, Investors, Entrepreneurs, Consultants, Advisors Entrepreneurs purely
Lays emphasis on customer segments, channels and
customer relationships for all businesses
Does not lay much emphasis on customer segments
because startups have no known or tested products to
It lays down the infrastructure, lists the nature and sources of
financing and the anticipated revenue streams of the
It begins with the problem, a proposed solution, the
channels to achieving the solution, costs involved and
the anticipated revenue streams
It focuses on value proposition in quantitative and qualitative
terms as way to stay smart in the market
It assesses whether the business has an unfair
advantage over the rest and how to capitalize on it for
It fosters candid understanding, creativity, discussion and
It is a simple problem-solution oriented approach
which enables the entrepreneur to develop step-by-