Entrepreneurship and Innovation Management Autumn 2017
Photo: FryskLab/flickr Lecture 2: Customer development, and the business model
The course structure Introduction to entrepreneurship and innovation Opportunity Entrepreneurial identification and idea pitching creation Customer Funding of development & entrepreneurial the business ventures model Corporate entrepreneurship and innovation 14/11/16 3
Agenda for today Understand and reflect on: 1. The principles of the lean startup and canvas type approaches Practice: 1. A full, fast-paced cycle of developing a solution through design thinking 2. Clarifying the components of the business model of an entrepreneurial idea Photo: Ewan McIntosh/flickr 14/11/16 5
Lean startup
Ideas WILL change: “93% of all innovations that have ultimately become successful started off in the wrong direction; the probability that you’ll get it right the first time out of the gate is very low” Clayton Christensen, Harvard Photo: Betsy Weber/flickr
Initially podcasting idea - then an internal communication system becomes the company’s main product Photo: Rosaura Ochoa/flickr
Photo: Robert Scoble/flickr From free search engine to licensing to paid search listings to targeted ads for other websites
Lean startup: Eric Ries, Steve Blank build > measure > learn > … Photo: Betsy Weber/flickr
Photo: Heisenberg Media/flickr Startup: a temporary organization designed to search for a repeatable and scalable business model
Get out of the building! Who is the customer? What is the problem? What are the potential solutions? Photo: glasseyes view/flickr
A day in the life of the customer Understand how they spend the day, commute, work, eat, have fun, ect. Not only how they would buy the product! Photo: Johanan Ottensooser/flickr
Addressing a customer PAIN! Has or can acquire a budget Has put together a solution out of bits and parts Has been actively looking for a solution Is aware of having a problem Has a problem Source: Adapted from Blank, S. The four steps to the epiphany 14/11/16 14
Must-have (pain killer) vs Nice to have (pain vitamin) Photos: SimonQ 錫濛譙 , Mitch Altman/flickr
Where is the customer of your idea in the pyramid? Is the solution a must-have or a nice-to-have?
Product - market fit: a solution that matches the problem Minimum viable product (MVP): a bare-bones product with just enough features to allow useful feedback from early adopters
“if you’re not embarrassed by the first version of your product, you’ve launched too late” Reid Hoffman, Linkedin founder Photo: TechCrunch/flickr
Source: http://learn.onemonth.com/if-youre-not-embarrassed-by-your-startup-you-launched-too-late 14/11/16 19
Source: http://learn.onemonth.com/if-youre-not-embarrassed-by-your-startup-you-launched-too-late 14/11/16 20
Source: http://learn.onemonth.com/if-youre-not-embarrassed-by-your-startup-you-launched-too-late 14/11/16 22
Photo: Daniel Go/flickr Develop early prototypes!
Pop-up store Photo: Dave Pinter/flickr
Launch page or website Photo: http://www.cmsmind.com
Storyboard or ppt presentation showing how the product or service works Photo: visualpun.ch/flickr
Rapid prototyping for Google Glass http://ed.ted.com/lessons/rapid-prototyping-google-glass-tom- chi 14/11/16 29
State your hypotheses and then test them: interest in solution characteristics of customer willingness to pay price point …
Photo: Martin Fisch/flickr Pivoting: a major change in a company’s direction based on user feedback
Putting the process together Source: Blank, 2013 14/11/16 32
Failure is part of the process! “Do not be embarrassed by your failures, learn from them and start again” Sir Richard Branson, Virgin Group founder Photo: Cynthia Smoot/flickr
Getting out of the building! https://youtu.be/lLEebbiYIkI?t=3m15s 14/11/16 34
So should we a l w a y s apply the lean startup approach?
Critique of the lean startup approach • Might not be suitable to all industries (health industry..) • Might not be suitable for creating radical innovation: - (the lean startup approach) "...might lead to a local maximum, but it won’t help you find the global maximum. - “If I had asked people what they wanted, they would have said faster horses”, Henry Ford (allegedly) - All investors had been turning down airbnb’s founders idea during the early stages – after all, why would anyone put strangers into their house? 14/11/16 36
Photo: Ewan McIntosh/flickr Design thinking
Empathize T est Define Prototype Ideate Source: adapted from the Bootcamp Bootleg, Stanford d.school 14/11/16 38
Be an ethnographer! ”Seeing and hearing things with your own eyes and ears is a critical first step in creating a breakthrough product.” Design Agency IDEO
Design thinking mindsets Embrace experimentation Focus on human values Be mindful of process Show, don’t tell Bias towards action Craft clarity Radical collaboration Illustrations: Bootcamp Bootleg, Stanford d.school 14/11/16 40
Photo: Steven Depolo/flickr Let’s practice design thinking!
What are the similarities and differences between lean startup and design thinking?
Lean startup vs design thinking • Both focus on customer definition, then problem definition, then development of solution – not vice versa! • Both focus on prototyping and testing solutions early on • Both accept failure and iteration/pivoting as part of the process • Design thinking emphasizes observation / ethnography /creativity techniques instead of asking the customer directly / testing online 14/11/16 43
Business models & revenue models
Business model: “the rationale of how an organization creates, delivers, and captures value” (Osterwalder & Pigneur, 2009) “a structural template that describes the organization of a focal firm’s transactions with all of its external constituents in factor and product markets” (Zott & Amit, 2008)
Business model canvas Designed for: Designed by: Date: Version: The Business Model Canvas Key Partners Key Activities Value Propositions Customer Relationships Customer Segments Key Resources Channels Cost Structure Revenue Streams This work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License. To view a copy of this license, visit: http://creativecommons.org/licenses/by-sa/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. designed by : Strategyzer AG strategyzer.com The makers of Business Model Generation and Strategyzer Source: http://www.businessmodelgeneration.com/downloads/business_model_canvas_poster.pdf 14/11/16 46
Lean Canvas Source: www.leancanvas.com 14/11/16 48
Suggestions to avoid common mistakes • Be lean! Focus on most promising problem / customer / solution / revenue stream, not the entire universe of possibilities. • When assessing revenue remember you need to have sufficient margins as to generate profits after subtracting your costs. If you use retailers these will command high margins (e.g. 50% of final price). • If the paying customer is other than your user then address this explicitly and make sure you can deliver strong value to the intended paying customer. • Platforms are challenging: you need to generate supply and demand at the same time to be successful, you need to think both sides when developing your solution across each canvas component. 14/11/16 49
Revenue model: what types of revenue? • One or more revenue streams • Types of Revenue streams: - Asset sale: sale of a physical product - Usage fee: sale of the use of a service - Subscription fees: sale of continuous access to a service - Lending/renting/leasing: sale of exclusive right to an asset - Licencing: sale of the use of intellectual property - Brokerage fees: sale of intermediation services - Advertising: fees for advertising Source: Osterwalder & Pigneur, 2010 14/11/16 50
Asset sale Usage fee Subscription fee Lending/renting Licensing Brokerage Advertising Logos: Wikimedia Foundation, Photo: jm3/flickr
Revenue model: Who pays? Hint: Your paying customer is not always your user! • B2B • B2C • C2C • B2B2C 14/11/16 52
Revenue model: How is price set? • Fixed Pricing - List price - Product feature dependent (e.g. ”Freemium”) - Customer segment dependent (e.g. ”Cross-subsidization”) - Volume dependent • Dynamic Pricing - Negotiation/bargaining - Yield management - Real-time market - Auctions Source: Osterwalder & Pigneur, 2010 14/11/16 53
Revenue model: How often? Two options: - Transaction revenues (one-time payments) - Recurring revenues (ongoing payments) Source: Osterwalder & Pigneur, 2010 14/11/16 54
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