Business Models – What you should know and how to apply it

Business Models – What you should know and how to apply it

05-Nov-2013 by Patrick de Zeeuw

It seems so simple. You are a startup and you’re ready to disrupt the market with your idea.To do so, you create a business model that explains how you intend to make money and you’re ready to go. Easy enough right? Truth is, its a bit more complicated than that. At least if you really want to do it right. The people who can explain how to design the perfect business model, are the guys from Business Models Inc. That’s why Maaike Doyer, their Business Director, came for 2 days to help our startups with it. And together with her, we decided to share the basics of these sessions with you. Because we reckon that the content is valuable for all startups out there and we are confident that it will help you tremendously. So, thanks to Maaike and Business Models Inc, this post can get you started on business modeling.

Why is it so important?

Because business as usual is dead and it has been for quite a few years. The rules of the game have changed. Nowadays sustainability, new technologies, the financial crisis, and the so called Online Revolution are important influencers to take into consideration for every company. Our values are changing, as is the power distribution in the world. Due to the Internet, the power is with the consumers now and you have to stand out in order to survive. So what should you do? You should play the game by the new rules. It all comes down to a simple choice: adapt or die. And of course there’s only one right answer: you adapt and design your business based on the new important influencers. But this is easier said then done. That’s where Business Models Inc. comes in. They have built a toolset that can help you design a better business, a sustainable business, that just may survive and become successful. And this better business is based on a better business model, a business model that will function as a solid foundation and the infrastructure for your success.

Phase 1: Understanding

Discovering the best business model is a journey. You might have to take some side roads to find the right direction, and you have to invest some time in it. If you’re looking for one simple solution, we have to disappoint you. There is not one perfect business model for you for the rest of your life. Your company is a living and growing thing, and so is your business model. However, it is possible to find the perfect fit for now. To do so you first have to understand some things, and evaluate where you are now.

The Business Model Canvas

Business Models Inc. has created the Business Model Canvas . It consists of 9 building blocks that you should fill out to see where you are now. It goes like this:

Maaike’s tips:

  1. Start with the Value Proposition, then move to the Customer Segment and from there work out the rest.

  2. Keep in mind that customers are not only the ones who pay, but also the ones that decide and receive. It helps to make a persona per customer segment and ask yourself “who is he/she, what does he/she want, what does he/she want to pay, and what can I do for him/her?

  3. Make a Customer Empathy Map and think about the Customer Journey, this will allow you to see every step they go through and how you can make it easier for them.

  4. Ask yourself: Is your value proposition about a gain (something that is really nice to have for your customers, for example a holiday) or is it about solving a pain (solving something that they really hate, for instance providing a better medicine)

  5. Keep your ideas movable and use Post Its, instead of writing directly on your business model. Keep it clear, write one item per Post It in capital letters. And if you can, keep in mind that drawing is the new writing! You have to think like a designer, because they are the ones who can see things before they exists.

The Cover Story Vision

So now you know where you are at the moment as well as where you want to be, and you’re almost ready to connect these dots. There’s only one more thing you need to do, because in order to move forward you need to know where you want to go in the long run. You need to figure out your vision and ambition, what you have to offer the world and how will you change it. It’s time to create your own Cover Story Vision. Your goal: visualizing where you will be in 2017.

Maaike’s tips:

Think of a magazine solely dedicated to you in 2017. Which magazine would that be? What would the cover look like? What are the important headlines? What are cool quotes and interviews? How does your timeline look so far? And last but not least: how about the financials? Map this all out, and it gives you a clear idea into where you are going.

The Context Analysis

So you know where you are now and where you want to be in the future. You’re almost ready to create a Business Model Canvas that will allow you to make this vision happen, but first there is one more thing you need it to do, a Context Analysis. Look at the forces pressing on your business model from the outside world. Factors you need to consider are trends, rules & regulations, economic climate, competition, customer needs, uncertainties, and technologies. Visualize your strengths, weaknesses, opportunities and threats based on your industry. Map them out and clarify for yourself which outside influences matter for you.

At this point you have your Business Model Canvas, your Cover Story Vision, and your Context Analysis. These are your design criteria. The understanding phase is over, it is time to innovate your business model.

Phase 2: Innovation

Ideation

Innovation is all about ideation, idea generation. Its a journey of exploration to where nobody has gone before. You have to create 6-8 Business Model Canvasses to find your perfect business model. This stage is about quantity, meaning you will have to draft multiple versions without spending too much time on them. Some will be too easy, some will be too hard, some will just be wrong, and hopefully one will hit bulls eye. To find the right business model you have to step outside of your comfort zone. Thinking outside of the box is not enough, you need to go into to space and think in extremes. Find your delusional business model. Ask yourself: “If I wouldn’t be doing what I do, what could I do with the skills and resources I have?” Let go of the “yes-but” attitude and just be open to all options. This allows you to end up with some rational ideas and some crazy ones. Exactly here, where these two overlap, is where the magic happens. This is where your X factor is, your real value. In each Business Model Canvas you make, try to find the hidden treasure, the unique point of this model. Take it with you to the next model and continue to draft until you hit jackpot.

Maaike’s tips & techniques to help you innovate:

  1. Fresh watching – look at successful business models from other companies and compare them with yours. What can you learn?

  2. Blue Ocean Strategy – Look at your industry, what things can you eliminate, reduce, raise or create? How do you improve your industry?

  3. Business Model Patterns – Look at existing patterns, such as:

    1. Bait & Hook – Give something away for free or cheap and charge customers for additional features they regularly need (Razor handle versus razor blades)

    2. The Long Tail– Due to the internet there are many niche markets you can provide for.

    3. Multi-Sided Platform – focus on more than one customer segment. One pays, the other one doesn’t to help you get volume fast. (Think: Google users and advertisers)

  4. What if? Ask yourself all possible ‘what if’ questions to think about every option. For example: what if my product is free, what if I would only sell online, what if I would charge 10 times more?

These fire-starters ought to help you generate a bunch of innovative ideas. But now you have to ask yourself; is there an idea amongst all these suggestions that can help me become successful?

Business Models Mechanics:

A tool to validate this is Business Model Mechanics. These are based on how the building blocks in your Business Model Canvas work together. Alex Osterwalder, writer of the Business Model Generation, has investigated crucial success factors in business models and identified seven important components. So ask yourself about:

  1. Switching Costs – How hard is it for your customer to switch from your product to another?

  2. Recurring Revenues – Do you only make money once, or can you generate recurring revenue?

  3. Earn before you spend – Is there a way that you can already make money before you start spending it?

  4. Game changing – Do you have a game changer, something that will disrupt your market?

  5. Get others to do the work – do you have to do everything yourself or can others do part of the work for you?

  6. Scalability – Is it easy for you to scale up fast?

  7. Competitors – How well are you protected from the competition?

At this point you have all the knowledge you need to design a great business model, but you’re not done yet. Actually, all you’ve done so far is make assumptions. That means that the next step is all about validation. Get out of the building and start talking to test your assumptions. The amazing tool Strategyzer will help you keep track of your progress.

If you want to get a better understanding check out Maaike’s session here and here. And remember, this is only the tip of the iceberg of all valuable knowledge that Business Models Inc. can bring your company. Want to know more, contact them!

Interested, check this out:

Business Model Generation

Business Model Canvas

The Business Model Canvas explained in 2 minutes

Business Model Innovation – Alex Osterwalder

Business Model Presentations

How to innovate your Business Model

About Maaike

We’d like to thank Maaike for the amazing workshop. You can also ask Maaike to guide your company to the right business model. We can recommend this to every company out there: whether you are a big corporate or a startup, and whether you’re in the B2B or B2C market. Maaike can add a lot of value to your company, and it will make a difference!

Keep following our blog to stay up to date on all Inspiration Sessions and the acceleration process.

Patrick de Zeeuw

Patrick is a Co-founder of Startupbootcamp Amsterdam and board member of Startupbootcamp Global. He is an active angel investor, building media, online and mobile companies. Patrick was the former CEO of Endemol Belgium & Poland, the Founder of 3Circles Media, CCO of SBSnet, and MD of United Broadcast Facilities International and Unitedesign. He coaches Start-ups in the online & mobile industry and sits at the advisory Board at Netgamix & Mobitto.