Business Model

Overview

  • Explain what is a business model and why it is important
  • List the nine blocks of the Lean Canvas       
  • Explain the Lean Approach and how it helps in the venture creation process
  • Create your own business model using the Lean Canvas template in 20 minutes and identify the Riskiest Assumption/s in your business model

Session 1: Basics of Business Model and Lean Approach (CORE) - 4 Item[s]

Business Model

The Lean Approach

“No business plan survives first contact with customers.” — Steve Blank

[1950s] Lean Manufacturing - Efficiency

  • Whoever produced fastest and cheapest won

[1970s] Waterfall - Staged

  • Started building software with old approach
  • Requirements ============= Building ==============> Release => Market Validation [Staged]
  • Altering product was very costly
  • Barrier to entry was VERY HIGH

[1990s-2000s] Agile - Iterative

  • PCs and Internet
  • Became difficult what customers wanted as their need changed midcycle.
  • Change management won
  • Requirements ========> Building => Release(feedback) => Market Validation [Iterative]
  • Barrier to entry was HIGH

[2010-Today] Lean Startup - Continuous

  • More onnected to customers than ever
  • Demands/choices of customers change really fast
  • Requirements => Building => Release(feedback) => Market Validation [Continuous]
  • Barrier to entry is VERY LOW. Hence the competition. Customers have more choices, hence less patience.
  • Not the products, the whole business model fails

In the last 15 years, 52% of the fortune 500 companies have gone extinct. Life expectancy of such companies has decreased from 75 years to 15 years. That is supposed to decrease further.

We are living through a global entrepreneurial renaissance

  • Equal access to tools and knowledge
  • Cheaper and faster to build products
  • Launch and grow a business from anywhere

Some big companies are also following suit to not get disrupted by startups

  • Google - 7000+ experiments per year
  • Amazon - 2000+ (AWS, Amazon Prime)
  • Facebook - 100k+
  • Netflix - 1000+
  • P&G - 7000+
  • Intuit - 1300+

It’s not about speed of execution, but speed of learning. Disrupt yourself before others.

Outlearn the competion => Build what customers want => Stay relevant to customers => Grow your business model

How to learn fast?

  • [No Business Plan Approach] With processes built around execution of the plan.
  • When there’s lots of uncertainty, we need dynamic models, not static plans.
Old World New World
The Business Plan The Business Model

Scientists start with models. Run experiments to (in)validate models

Case Study: Tesla

Tesla imagined to create an all-electric car (as opposed to hybrid). Biggest question: How to make people switch Biggest challenge: Creating a battery which lasts long enough, and gets charged fast.

They figured, they have to create a battery. So, ended up creating a battery which they deployed in a Roadster car (after collab) and lauched their MVP.

Later, they build infra to manufacture car.

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Session 2: Sketch the Lean Canvas - I (CORE) - 6 Item[s]

Business Model: 20 minutes Business Plan: Several weeks or months

The perfect plan is a myth.

66% drastically change their original plan on the way.

  • You don’t start with the perfect Plan-A, but reach a path to a plan that works before running out of resources.
  • Not rhetorical reasoning but empirical testing.
  • Time is our scarcest resource. Hence, timebound your analysis. 20 minutes is enough for first pass.
  • Perception is not the goal initially.

Steps

Step 1: Split broad customer segments into smaller ones. => Different Business Models (i.e. Different canvas)

Case-Study: CloudFire > >Really broad category: Anyone that shares lots of photos and videos. > >More Specific: >1. Photographers >2. Videographers >3. Graphic Designers >4. Architects >5. Doctors >6. Parents >7. Consumers

Step 2: Pick your strongest customer segment. - You most want to service - You know most about - You have most channels to reach

(CloudFire) - chosen customer segment

Parents

Step 3: Start Filling (CloudFire):
1. Customer Segment Distinguish between customers and users.

  • Eg1: In a SaaS application, you have users, some of which turn into paying customers [Single Canvas]
  • Eg2: In a Multisided business, driven by advertising, users are who create value, which is then monetized by the customers. For google search, users do searches, customers are advertisers [Single Canvas]

Create multiple canvases for more complex models.

  • Eg: Marketplace businesses (two or more parties work simultaneously to create value such as EBay, AirBnB)

(CloudFire) - Customer Segment

Parents (customers) Family and friends (users)

Early Adopters: Narrow your early adopters

(CloudFire) - Early Adopters

Parents with young kids

2. Problems List 1-3 problems you are trying to solve.

Technique 1: Five Whys root cause analysis (Symptoms to Problem)

(CloudFire) - Five Whys

  1. Why is this a problem? Time consuming

  2. Why is this a problem? There are lots of baby pictures

  3. Why is this a problem Organising and uploading takes time.

  4. Why is this a problem? Parents have no free time.

  5. Why is this a problem? There is lots of external demand from family.

Technique 2: What is the job the customer is hiring you to do?

  • Clayton Christensen

(CloudFire) - Problem

  • Sharing lots of pics/videos is time consuming
  • Parents have no free time.
  • There is lots of external demand on this content.

Existing Solutions: How do they solve the problem today?

Describe your customer’s current reality. Doing nothing is also an alternative. This step helps in properly pricing your product.

(CloudFire) - Existing Solutions

  • Flickr Pro
  • SmugMug
  • Apple MobileMe
  • Facebook

3. Solution An MVP is the smallest solution that delivers customer value.
BONUS: And caputures customer value. (gets you paid)

(CloudFire) - Solution

  • Instant, no-upload sharing
  • iPhoto/folder integration
  • Better notification tools

4. Unique Value Proposition For new products, the initial battle is getting noticed at all.

  • May be refined later.
  • Craft your UVP around #1 problem and ‘finished’ story benefit.
  • Avoid empty marketing promises: words like simple, fast, easy, 

  • Be specific.

Technique: Instant Clarity Headline End Result Customer Wants + Specific Period of Time + Address the Objections.

Eg:

  • Hot fresh pizza delivered to your door in 30 minutes or it’s free.
  • Get your dream job in 30 days.
  • Not more numbers, but actionable metrics.

(CloudFire) - UVP

  • Get back to the more imortant things in your life. Faster.
  • Share your entire photo and video library in under 5 minutes.

Create a high-concept pitch

(CloudFire) - High-level Concept

  • Photos and video sharing without the uploading.

5. Revenue Streams

  • Pricing is part of your product.
  • Pricing determines your customers.

Price relative existing alternatives (instead of cost-based pricing). Keep it simple. Don’t have multiple plans. Place a value on derivative currencies like attention if you aren’t directly charging.

(CloudFire) - Revenue Streams

30-day free trial then $49/yr.

6. Channels How will you build a path to customers?

  • Start testing from day 1.
  • Okay to start with outbound channels to jumpstart learning. Finding initial prospects (outbound):
    • Make a list of 1 degree contacts
    • Ask for introductions
    • Email list from teaser page
    • Blog readers
    • Facebook, LinkedIn, Twitter
    • Cold call/email
    • Sponsor groups/events
    • Other
  • Identify a few scalable channels you might employ
    • Content Marketing
    • Advertising
    • Sales force
    • Referrals

(CloudFire) - Channels

  • Friends
  • Daycare
  • Birdthday parties
  • AdWords
  • Facebook
  • Word of Mouth

7. Key Metrics The key numbers that tell you how your business is doing. These change as the product moves through various stages.

  • List the customer action that drives value. Post for blogging, Posting a tweet for Twitter.
  • How will you define success? Revenue, impact on world, etc.

(CloudFire) - Key Metrics

  • Key action: Sharing an album/video.
  • Success metric: Build a $5M/yr business.

8. Cost Structure How will you afford your creative addiction?

  • Outline your fixed and variable costs.
  • Calculate your break-even point
  • Evaluate against your metric for success

(CloudFire) - Cost Structure

  • Hosting costs: Heroku (Currently $0)
  • People costs: 40hrs * $65/hr = $10k/mo

9. Unfair Advantage How will you defend against competition? Also called “Competitive Advantage” or “Barrier to Entry”
Mistaken choices by young entrepreneurs:

  • First to market? Toyota, Ford, Apple, Microsoft, Google, Facebook - weren’t first, but fast followers.
  • More features? Less features? Design? Passion? Determination?

“A real unfair advantage is something that cannot be easily copied or bought.” -Jason Cohen, Founder WPEngine.
Real unfair advantages:

  • Insider information
  • Personal authority
  • A dream team
  • Existing customers
  • The ‘right’ celebrity endorsements
  • Large network effects
  • Community
  • Organic search (SEO) ranking
  • Patents (maybe)
  • Core values

What is your unfair advantage story? - Tested by competition and copy-cats
If you don’t have one yet, leave it blank for now.

(CloudFire) - Unfair Advantage

Community

! [[ 31226356_1609401488.pdf ]]

Example: AirBnB ! [[ 12916343_1573123497.pdf ]]

Example: Facebook ! [[ 12916345_1573123499.pdf ]]

Template: ! [[ Lean Canvas Template.docx ]]

Session 3: Sketch the Lean Canvas - II (CORE)

! [[ 12916352_1573123504.pdf ]]

Session 4: Risks and Assumptions (CORE) - 3 Item[s]

Risks and Assumptions

It’s like playing Jenga, trying to build the tower (model) removing all the weakest links, to get a solid structure which stands on its own.

Big bets ==> Many small bets

The best way to find a big idea is to quickly test lots of ideas.

Don’t get stuck in local maxima. Keep trying multiple ideas simultaneously.

! [[ 12916363_1573123512.pdf ]] ! [[ 24432127_1592465570.pdf ]]