Business Models & Business Model Canvas

1. Business Models & Business Model Canvas Minder Chen, Ph.D. Professor of Management Information Systems Martin V. Smith School of Business and Economics CSU Channel Islands E-Mail: minder.chen@csuci.edu Web site: http://faculty.csuci.edu/minder.chen/

2. Resources • Alexander Osterwalder & Yves Pigneur, Business Model Generation, Wiley, 2010. (preview edition https://assets.strategyzer.com/assets/resources/business-model-generation-book-preview-2010.pdf ) • **Business Model Canvas Poster (pdf file) • What Is a Business Model • https://hbr.org/2015/01/what-is-a-business-model • Johnson, Mark W.; Christensen, Clayton M.; Kagermann, Henning, "Reinventing Your Business Model," Harvard Business Review, Dec2008, Vol. 86 Issue 12, p50-59. • https://cerpp.usc.edu/files/2015/08/HBR-Clay-Reinventing-Your-Business-Model-R0812C-PDF-ENG.pdf • Four Paths to Business Model Innovation • https://hbr.org/2014/07/four-paths-to-business-model-innovation

3. Videos • **Business Model Canvas Explained (video, 2.22m) • Osterwalder explaining the Business Model Canvas (video 45 minutes) • **Alexander Osterwalder: Tools for Business Model Generation (video 53m ) • Steve Blank, How to Build a Startup (Udacity class on YouTube) • https://www.youtube.com/watch?v=VZvgj6B2JZs&list=PLAwxTw4SYaPnxzSuovATBMrNowGaaEBmW or • https://www.udacity.com/course/how-to-build-a-startup--ep245 • From Idea to Business - Animated Series (6 EPs) https://www.youtube.com/watch?v=wwShFsSFb-Y&list=PLBh9h0LWoawphbpUvC1DofjagNqG1Qdf3 • EP6: Learn how to use Business Model Canvas to pitch your business idea and prototype (video). • Webinar #4: Ways To Present The Business Model Canvas (video) HILTI Case using BMC started at 25m; • Tool Fleet Management https://www.us.hilti.com/fleet-case-studies

4. A Starting Point of Innovation A customer friction is a (re)discovered of relevant and often unmet needs in a recognizable situation from a target group. • Adapted form http://www.innovationexcellence.com/blog/2011/07/08/solve-customer-frictions/ Customer Friction Pain points, Unmet customer needs (link)

5. What is a Business Model? “Assumptions about what a company gets paid for” … “these assumptions are about markets. They are about identifying customers and competitors, their values and behavior. They are about technology and its dynamics, about a company’s strengths and weaknesses.” -- Peter Drucker’s “theory of the business.” https://hbr.org/1994/09/the-theory-of-the-business “All it really meant was how you planned to make money” -- In The New, New Thing, Michael Lewis https://hbr.org/2015/01/what-is-a-business-model

6. What is a Business Model? Business models are “at heart, stories — stories that explain how enterprises work. A good business model answers Peter Drucker’s age-old questions, ‘Who is the customer? And what does the customer value?’ It also answers the fundamental questions every manager must ask: How do we make money in this business? What is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost?” https://hbr.org/2002/05/why-business-models-matter Andrea Ovans, What Is a Business Model, https://hbr.org/2015/01/what-is-a-business-model

7. Business Model Innovation “The key to sustained success is business model innovation.” • Clay Christensen, Harvard Business School Johnson, Mark W.; Christensen, Clayton M.; Kagermann, Henning, "Reinventing Your Business Model," Harvard Business Review, Dec2008, Vol. 86 Issue 12, p50-59. https://cerpp.usc.edu/files/2015/08/HBR-Clay-Reinventing-Your-Business-Model-R0812C-PDF-ENG.pdf

8. Elevator Pitch • Who is the target customer? • What is the customer need? • What is the product name? • What is its market category? • What is its key benefit? • Who or what is the competition? • What is the product’s unique differentiator? Elevator Pitch Sentence For (target customer) who has (customer need), (product name) is a (market category) that (one key benefit). Unlike (competition), the product (unique differentiator). http://gamestorming.com/games-for-design/elevator-pitch/

9. Elevator Pitch:6 Steps to Success Present it with Clarity/Simplicity Show Passion Make a convicting case Do your home work

10. The Use of the Business Model Canvas • Describe • Discuss • Design • Challenge • Improve • Innovate • Invent • Pivot • Choose Your Business Model https://www.youtube.com/watch?v=QoAOzMTLP5s 2 minutes Alex Osterwalder - From Business Plan to Business Model Summer of Startups 2011. https://www.youtube.com/watch?v=jMxHApgcmoU 1 hr long http://www.alexandercowan.com/business-model-canvas-templates/

11. Business Model Canvas by Alex Osterwalder • A business model describes the rationale of how an organization creates, delivers, and captures value. • A business model can best be described through 9 basic building blocks that show the logic of how a company intends to make money. • The nine blocks cover the 4 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 organizational structures, processes, and systems.

13. What How Who Cash Flow Watch this video Source: Alexander Osterwalder & Yves Pigneur, Business Model Generation (Preview version), 2009.

14. Efficiency vs. Value Back-end Front-end Offer Customer Value Infrastructure Efficiency Financial Viability

15. Describe a Business Model: 9 Building Blocks How What When/Who Why Partner Network Customer Relationships CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS Offer CLIENTS Key Issues To Solve Customer Segments CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS Competencies, Activities, Resources CLIENT SEGMENTS Distribution Channels CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS Cost Structure Revenue Streams CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS How Much? Source: adapted from Describe and Improve your Business Model

16. Reverse Engineering Facebook’s Business Model with Ballpark Figures http://www.businessmodelalchemist.com/

17. Business Model Canvas in Detail CS: Customer Segments CR: Customer Relationships • Get • Keep • Grow • WOM KP: Key Partners KA: Key Activities VP: Value Proposition - Marketing/ Sales - R&D - Operations Products/ service -Functional - Social -Emotional - Job-to-be-done - Customer journey - Persona - Pains/Gains - Unmet needs - Consumer/biz - Market sizeTAM/SAM/TM • Product suppliers • Service outsourcer • Resource providers KR: Key Resources CH: Channels • Physical • Virtual • Online to offline • Talents • Technologies • Cultures of Tolerance • IPs C$: Costs Structures R$: Revenue Streams - Customer acquisition costs -Tech/product building costs - Distribution costs - Salary - Revenue stream - Profit margin - Registered users - Freemium - Active users - Retention rates - CLTV by cohort http://www.taiwan-innovation.org.tw/manage/admin/tiny_upload/BMI_1.pdf http://www.wizxpand.com/what-is-persona/

18. Source: “Why the Lean Startup Changes Everything“ HBR 2013

19. Make Business Model Canvas Actionable • No business plan survives its first contact with customers. -- Steve Blank • Use BMC to generate ideas, de-risk guesses, and make sure they are solving the right problems for the right people. • Business Model Canvas encapsulates and identifies a series of hypotheses/assumptions/risks. • Get out of the building with prototypes to test the hypotheses/assumptions in your BMC. • Revise/pivot your BMC based on reality check. • Keep searching and creating a series of BMC versions until you find the find the right product/market fit.

20. Business Models vs. Business Plans • The U.S. Small Business Administration refers to the business model as a company’s foundation and the business plan as its structure. • The foundation, or business model, is the original idea for your business and a general description of how it functions. • The structure, or business plan, elaborates on the details of your business idea. http://smallbusiness.chron.com/business-plan-vs-business-model-58223.html

21. Business Models vs. Business Plans https://www.pinterest.com/pin/567664728006743461/

22. Business Model Pattern https://hbr.org/2015/01/what-is-a-business-model

23. Case Study: Business Model Competition Presentation Owlet Baby Care: New Way to Work Final Pitch ** https://www.youtube.com/watch?v=f-8v_RgwGe0 or **https://vimeo.com/84423056 Pay attention to how they pivoted based based on users/market feedback. Another one: https://www.youtube.com/watch?v=DlGULe9WBmE Short commercial: https://vimeo.com/132213520 IBMC 2014: Veritas Medical - 1st Place Rollins Center for Entrepreneurship & Technology at BYU https://www.youtube.com/watch?v=-FGTTFMEDHU

25. Create a Business Model Canvas for RTR Exercise Watch the video *Rent the Runway: An inside look at the tech startup's success  • https://www.youtube.com/watch?v=cyvfsi3MX-M • Visit https://www.renttherunway.com/ • Create the Business Model Canvas based on what you learn from the video and the visit of the company’s site. • Use the BMC template in the next slide.

26. BMC Template • What Key Activities do we require? • Manufacturing? Software? Supply chain? • How will we Get, Keep and Grow Customers? • Who are our Key Partners? • Who are our key suppliers? • What are we getting from them? Giving them? • Which of our customer’s problems are we helping to solve? • Which customer needs are we satisfying • What are the Key Features of our product that match customers problem/need? • Who are our most important customers? • What are their archetypes? • What Job do they want us to get done for them? • Through which Channels do our Customer Segments • want to be reached? • What Key Resources we require? • Financial, physical, IP, HR? • What are the most important costs inherent in our business model? • Fixed? Variable? • How do we make money? What’s the revenue model? Pricing tactics?

27. Backup Slides

28. Elevator Pitch   Our business [list name] will deliver [list key deliverables] to [list key beneficiaries] to enable them to [list key benefits]. The business is headed by [list founder and key executives, investors, and advisors] that have [list key background and qualifications]. The business [will launch/was launched] on [date] and we [will begin/began] delivering [first product or service] on [date]. We expect to prove our business model and achieve profitable growth on [date] and anticipate that the terminal value of the business will be [list anticipated value], which represents a [list return] to investors. The total cost to achieve this goal will be [total cost], which includes the following key cost categories [list]. We have currently received [list dollars of funding secured to date] from the following sources [list]. We anticipate receiving the remainder of the funding by [date] from [list sources]. The key risks for the project are [list risks]. These risks will be managed by [list key approached to managing each risk]. • Source: Applegate and Saltrick, “Developing an Elevator Pitch for a New Venture.”

29. Elevator Pitch • Elevator Pitch – What is it? • In the time it takes to ride an elevator from the 1st to the 10th floor – explain the gist of your business idea to a stranger! • An elevator pitch conveys the businesses’ key features and rationale in a clear, concise way so that it can be communicated easily to others • Who is the primary audience? • Potential investors, customers, suppliers, partners, employees • Anyone who has or could have a stake in your business • Why does it matter? • Communicate – What, why, how, where and when • Teaser to generate interest – the upfront hook! • Share a coherent vision of the firm’s goals and high level strategy for achieving these goals • And, last but not least - Raise $$$! • Plus, it might be your only shot! http://nuvc.innuvation.org/Elevator_Pitch_Workshop_v2.ppt

30. Key Issues • Overview of the problem your business will solve and opportunity it will address • Why does this problem matter? • How severe is it? • How big is the opportunity? • How fast is it growing? • Why has it not been solved yet? • Why can you solve it when others could not? • What value is being created? • Who are the primary beneficiaries? • Think about who is capturing the value • Consider that some groups may capture more than others – these represent the ideal first customers

31. Products/Services and Competitors • What are the products and services that you will deliver to solve the problem • How do these products and services meet the unsolved market problem? • Do they immediately solve the entire problem? • Or what is the product and service “path” for getting there? • Who are the competitors and why are your products and services superior? • Focus on direct competitors • Consider segmenting direct competitors by type • Why, where and how does each competitor or type fall short?

32. Revenues and Resources • How do you plan to generate revenues • Short term • Longer term if there is a twist or kicker • Hit the high points of your business model • Profitability • Leverage – As revenues and size increases, do gross and/or operating margins improve? • Scale efficiencies - how do the mechanics and economics of your business model scale • What are the resources required? • Money – Capital intensity? • Time – core development, unique product versions for different customer types, distribution channel build, etc • Team background and expertise – what are the critical competencies of the team?

33. Teaser and Vision • Teaser to pique interest • Punchy, crisp and clearly articulated • Incentivizes stakeholders to care by logically presented the case for how the business benefits them • Delivered with confidence but not cockiness • Should leave them wanting to hear more about the details at a later date • Communicate a common vision and goals • Everyone on the same page, working toward the same goal • Minimize non-productive activities, speeds up time to market

34. Raising Money • Raise $$$ • Distilling the essence of your business idea into a few critical points reflects well on you • Strong elevator pitch results in more favorable assessment of your talents by potential backers • VCs would rather back a Grade A management team with a Grade B product than vice versa • Decisions to proceed forward with due diligence are often made on the basis of the elevator pitch and the accompanying follow up conversation by seasoned VCs