Business Model Innovation

1. Business Model Innovation

2. Activity: The World’s Tallest Marshmallow?

3. The Marshmallow Challenge Rules Build the tallest freestanding structure The entire marshmallow must be on top Use as much or as little of the kit Break up the spaghetti, string or tape The challenge lasts 18 minutes

4. Nail It then Scale It Phases

5. One Approach

6. Management Science of Uncertainty Certainty / Known Uncertainty / Unknown Traditional Management Entrepreneurial Management

7. Key Element of Uncertainty Uncertainty = Assumptions

8. A Tool to Identify Assumptions

9. Nail It then Scale ItThe Fundamentals

10. Fundamental #1: Get Into the Field “Get the heck outside the building!” –Steve Blank

11. Fundamental #2: Fail Fast • The goal is to fail fast and inexpensively • Redefine failure • The only failure is wasting your time and money when you could avoid it • 1000 Markets Example

12. Fundamental #3: Intellectually Honest Learning • Common Learning Traps • Confirmation bias • Motivation bias • Familiarity bias • Superstitious learning • Goal: Listen to understand the world as it really is • Attitude of wisdom • Willingness to be wrong and to fail • Example: Mike Cassidy, Xfire

13. Fundamental #4: Inexpensive, Rapid, Simple Experiments • Experiment with virtual prototypes • Identify your assumptions and turn them into facts • Power in low cost, simple, rapid • Example: Jam experiment • Example: Classtop and the $300 software package

14. Nail It then Scale It:Nail the Pain

15. Separate Problem Search from Solution Which Problem Is Worth Solving (Nail the Pain) Which Solution Solves that Problem (Nail the Solution)

16. Custer versus Napoleon

17. Phase 1: Nail the Market Pain • Objective: • Discover the Monetizable Market Pain • Discover the “job” your customer is trying to get down without being biased by the solution • Develop the Big Idea Prototype • Steps: • Step 1: Don’t build anything • Step 2: Write down Monetizable Pain hypothesis • Step 3: Write down Big Idea Prototype • Step 5: Quick test with customers • Step 5: Quick exploration of markets • Test: • Customers return your cold call

18. Monetizable Pain:Mosquito Bites vs Shark Bites • The bigger the pain the easier to build a business • Motive Communications • Problem search What about Instagram?

19. Monetizable Pain:How to Discover It? • Customer observation and empathy • Put yourself in your customers shoes? • What keeps them up at night, causes them trouble, leads them to develop work-around? • Test your assumption with customers • Example: Motive Communications

20. How to Get Out There?

21. Practice It:Storyboard • Step 1: Profile customer segment • I am ___________________________(who, with at least 3 characteristics) • I am trying to ___________________ (outcome/job trying to solve) • But it’s difficult because ___________(identify problems/barriers)

22. Practice It:Storyboard • Step 2 • Story board of the journey of how customer solves • Step 3 • Identify biggest pain … do root cause (five whys) • Step 4 • Identify most important root cause • Step 5 • What questions do you need to answer about the root cause • Who could you talk to in order to answer these questions?

23. Nail It then Scale ItNail the Solution

24. Phase 2: Nail the Market Solution • Objective: • Discover the Minimum Feature Set that drives purchase • Steps: • Test 1: Virtual Prototype Test • Test 2: Prototype Test • Test 3: Solution test • Test: • Customers purchase

25. Problem Most entrepreneurs build products … Customers don’t want

26. Key Task • Achieve Product / Market Fit • Exact match between pain and solution

27. Key Tools • Prototypes • From virtual prototypes to actual prototypes

28. Key Tools • Minimum Feature Set

29. Virtual Prototypes • Can be • Drawing • Powerpoint • Video • Test • What will customers purchase • Even before you build it

32. Practice It:Virtual Prototype • If you had to sell a customer today … • For the skeptics … AtTask

33. Phase 3: Nail the Go-to-Market Strategy • Objective: • Discover customer buying process and unique sales process for your customers • Steps: • Test 1: Buying process discovery • Test 2: Market infrastructure discovery • Test 3: Pilot customer validation

34. Customer Buying Process

35. Market Communication Infrastructure 5 Target Customer 4 Advertising / Marketing / Social Media 3 Influencers 2 Partners 1 Company

36. Practice It:Map It • Draw a map of customer buying process • Prioritize 3 most important inflection points • Set two dates on your calendar to investigate

37. Phase 4: Nail the Business Model • Objective: • Validate financial model & ignite business model • Steps • Leverage customer conversations to predict business model • Validate the financial model • Iteratively launch product and go-to-market strategy • Business dashboard with continuous information flow • Adjust speed depending on market type • Examples: • Webvan • Webmetrics, Knowlix, Yahoo

38. A Tool to Identify Assumptions

39. Phase 5: Scale It • Objective: • Scale discovered model until it breaks • Phase change recognition & management • Recognize changes • Shift process, structure and employees • Emphasize with visual management • Consciously define culture • Succession and transition • Leaping between markets • Examples: • Intuit, Fusionsoft, Craigslist, SodaStart, IMVU

40. Summary of Five Stages Product development • Before you build anything: • Identify hypotheses about customers • Test those hypotheses as cheaply as possible • Identify exactly customer pain and your solution with customer • Use a virtual prototype • Sales development • Discover exactly how customers buy • Develop a replicable sales model