Business Models and Entrepreneurial Strategy at Parsons The New School for Design

Excited to teach a revised and redesigned version of Lean at Parsons The New School for Design’s BBA program.

Parsons

Here’s the syllabus:

BUSINESS MODELS AND ENTREPRENEURIAL STRATEGY

Course Code: PUDM4322 CRN: 7370 | Section: A

Instructor: Jen van der Meer

 

Fall / 2016

Monday / 9:00 AM

Location: 6 East 16th Street, Room 1108

Course Description

This course prepares students with a hypothesis-driven approach to company formation. Students will work in teams to generate a business concept, and then validate business model risks in direct collaboration with customers. This course is offered in conjunction with the Senior Project studios and allows the students to compare and analyze different business models and strategies for their Senior Project concepts. Students develop storytelling and financial skills to lead early stage companies from concept through launch.

Open To: Open to: BBA in Strategic Design and Management students; Seniors only; others by permission of BBA in Strategic Design and Management program.

Pre-requisites: Co-requisite(s): PUDM 4120 Senior Project 1. Pre-requisite(s): PUDM 3409 Financial Management

Learning Outcomes

By the successful completion of this course, students will be able, at an introductory level, to:

  1. DEMONSTRATE FAMILIARITY WITH hypothesis-driven innovation methodologies practiced in “real world” startup environments (Lean Startup, Business Model Canvas development, Minimum Viable Product/Proposition).

  2. DEMONSTRATE FAMILIARITY WITH presentation and storytelling skills necessary for early stage startup strategy, team formation, and capital raising.

  3. DEMONSTRATE FAMILIARITY WITH financial literacy, learning the basic building blocks of innovation accounting, generating financial assumptions and forecasts, marketing sizing, term sheets, and capitalization tables.

  4. DEMONSTRATE COMPETENCE IN developing realistic business model evolution scenarios, and ability to create, analyze, combine business model archetypes.

  5. DEMONSTRATE COMPETENCE IN business model validation: the practical strategy of identifying unique customer segment(s) and an early stage value proposition through real world customer discovery interviews and early stage prototype tests.

Course Outline

Business Models and Entrepreneurial Strategy

Week
Date
Class Theme and Activities
Assignment Due
Week 1
Aug 29
Class intro / concept formation
(None)
Week 2
Sep 12
Team formation, intro to the Business Model Canvas (BMC) and customer discovery
Early stage company concepts
Week 3
Sep 19
Customer discovery, customer validation, Market Size Analysis (Total Addressable Market, Served Addressable Market, Target Market or TAM, SAM, TM)
Company BMC analysis results
1 Business model archetype analysis
Week 4
Sep 26
Value, value propositions, and the purpose of business, team forms initial BMC hypothesis v 1.0, team develops customer interview plan
Team BMC 1.0, TAM, SAM,TM
1 Business model archetype analysis
Oct 3
No Classes – Rosh Hashanah
Week 5
Oct 10
Personal value, motivation, vision, and team, team continues to plan customer interviews
Customer discovery interview results, BMC 2.0
2nd Business model archetype analysis
Week 6
Oct 17
Customer relationships, channels, initial value proposition test
Competition, disruptive innovation theory. Innovation accounting
Customer discovery interview results, BMC 3.0 + Lessons learned
3rd Business model archetype analysis
Week 7
Oct 24
How to analyze
Customer discovery interview results, BMC 4.0
4th Business model archetype analysis
Week 8
Oct 31
Midterm: validated “front stage” of the business model, competitive analysis, initial value proposition
Midterm presentations, including BMC 5.0
Week 9
Nov 7
“Back stage” of the business model: Resources, Activities, Partners
Customer discovery interview results, BMC 6.0
5th Business model archetype analysis
Week 10
Nov 14
The money: revenues, costs, how to create financial scenarios 3 years out
Business model scenarios
Unit economics
3 year financial assumptions
7th Business model archetype analysis
Week 11
Nov 21
Investment strategy, cap tables, term sheets
Validated unit economics
8th Business model archetype analysis
Week 12
Nov 28
Turning customer discovery insights into a Minimum Viable Product
Draft cap table, term sheet, investment plan
9th Business model archetype analysis
Week 13
Dec 5
Storytelling and pitch clinic, how to create a “teaser” presentation and a longer form presentation for investors, employees, partners
MVP sketch
Week 14
Dec 12
Pitch practice
Short form presentation
Week 15
Dec 19
Lessons Learned – Final
Long form presentation

 

Assessable Tasks

 

The students will work in self-formed teams to simulate the experience of developing a startup from scratch.

Key tasks, all as group work:

 

  • Presentations: weekly presentation of lessons learned, updated Business Model Canvas versions based on customer interview findings, formulation of new hypotheses to test (over 10 weeks).
  • Field research: customer discovery interviews (at least 30 interviews per team or until key business model hypotheses are sufficiently validated).
  • Financial analysis and industry analysis: market sizing (total addressable market, served addressable market, target market estimations.
  • Value proposition test and test results for midterm
  • Financial scenario development, calculating and validating unit economics, investment strategy, cap table, term sheet
  • Pitch development and delivery.
  • Final lessons learned presentation.

Final Grade Calculation

10% participation in class, giving constructive feedback to your peers

30% progress in customer validation, customer interviews

20% midterm validation test and presentation

20% financial analysis, scenarios, and projections

20% final pitch and lessons learned

Extra Credit Policy

No extra credit

Required Reading

Textbooks may be purchased (new or used), rented, or downloaded through standard sources such as Amazon, Barnes & Noble, or Chegg. Be sure to use the ISBN number in order to ensure that you are ordering the correct edition.

Book available on directly from the publisher:

Lean Analytics, Alistair Croll and Ben Yoskovitz, 2013

Articles, Papers:

The End of Competitive Advantage, by Rita Gunther McGrath, HBR, 8, 2013.

What is Disruptive Innovation? By Clayton Christensen, Michael E. Raynor, and Rory McDonald, HBR, December 2015

A Friedman Doctrine–; The Social Responsibility of Business is to Increase Its Profits, by Milton Friedman, The New York Times, 9, 1970. (paywall)

The Founder’s Dilemma by Noam Wasserman, HBR, 2008

The Role of the Business Model in Capturing Value from Innovation: Evidence from Xerox Corporation’s Technology Spinoff Companies Henry Chesbrough and Richard S. Rosenbloom, Oxford University Press, 2002

Why the Lean-Startup Changes Everything, by Steve Blank, HBR, 2013

Recommended Reading

The following two books are recommended for your reference and for help in writing and conducting research:

Business Model Generation, Alexander Osterwalder and Yves Pigneur

Talking to Humans, Giff Constsable and Frank Rimalovski (fre download)

Interviewing Users: How to Uncover Compelling Insights, Steve Portigal, 2013

Traction: How Any Startup Can Achieve Explosive Customer Growth, Gabriel Weinberg, 2015

The Founder’s Dilemma, Noam Wasserman, 2013

Value Proposition Design, by Alexander Osterwalder

Resources

Lean LaunchPad videos on Udacity by Steve Blank

Lean Startup video by Eric Reis

 

6 Signs the Future Will Not Be Advertised

Photo Credit: Dragan

Steven Spielberg’s 2002 movie Minority Report was for many dark and dystopian. Tom Cruise’s character walks through an invasive screen-lined lobby bombarded by ads. When a camera identifies him with a retinal scan, a dancing 3-D video calls out to him, “John Anderton! You could use a Guinness right about now.”

Some would say that future is already here, but will advertising keep encroaching on our lives like that?

Here are six signals that show a potential future without advertising and one giant reason we should celebrate.

1/ Ad Blockers on the Rise

In her her 2016 Internet Trends report, KPCB Partner Mary Meeker reported that ad spending is at all time highs, but ad blocker use is growing, faster. Ad blocker users grew to 420 million, up 94% from last year. Growth is global, and the leading ad blocking countries are China, India, and Indonesia.

From: KPCB Mary Meeker Internet Trends Report

2/ Subscription Streaming Accelerates

Music, TV, and movie subscription streaming services continue to grow. 46% of all US households have access to a streaming video on demand service,according to Nielsen.IFPIfound that there were 68 million streaming music subscribers in 2015, up 45% from 2014. The most popular streaming services, Netflix and Amazon Prime, both offer completely ad-free experiences.

3/ Fraud is Big Business in Digital Ads

Have you bought digital ads for your latest campaign, and wondered why performance was so low? One culprit could be fraud in digital ads. In the most recent Bot Baseline Report predicts that advertisers will lose $7.2 billion globally to fraud bots in 2016. The study deployed detection tags to measure “bot fraud,” or non-human traffic. While direct media buys had lower fraud, ad formats such as programmatic video ads had 73% more non-human traffic than the study average.

4/ Media Companies Hunt for Models Old and New

The decline in print advertising has decimated the newspaper and magazine industry. The companies that survive are shifting their focus to the future, or back to the subscription model of the past.

The New York Times’s new Public Editor, Liz Spayd described the company’s shift to focus building an audience of paying subscribers, who already generate more than half of the company’s revenue.

The NYC Media Lab is on the hunt for new business models made possible by new technology. Justin Hendrix, the Lab’s Executive Director, says, “The rise of defensive user behaviors like installing ad blockers has created a context for experiments with business models for media that look beyond advertising.”

5/ Advertising Forces a Tradeoff

If you live inside of a company dependent on advertising for revenues, then you know the perils of a business model with inherent trade-offs and frictions. You are constantly having to balance the needs of your audience with the needs of your advertisers, and if you make one side too happy, the other side is not happy. This is true for any advertising-driven company, from Google to The New York Times to a YouTube vlogger.

The best public example is Facebook, who is always adjusting the pendulum to favor advertisers vs. users and then back again. In June, Facebook limited news and other advertising updates to “focus on friends and family.” Just yesterday, Facebookannounced they would disguise ads to fight ad blockers — essentially forcing advertising on ad-blocking users. You can track these shifts backwards and forwards on a quarterly basis — they are always searching for the right tradeoff between giving their users what they want and monetizing those users with advertising.

6/ Advertising is No Longer Cool

The young and hungry entrepreneurs of tomorrow are favoring other business models over advertising. In the early days of the internet, the idea was to build an audience first, monetize later. Monetize later typically meant earn money through advertising.

From: TheMacro.com

At Y Combinator, one of the leading startup incubators, applications for ad-supported business ideas are at a historic low. New companies are seeking revenue through more popular business models such as Software-as-a-Service.

Why We Should Celebrate a Future Without Advertising

If the company founders of Silicon Valley can’t see advertising in their future, maybe this is the strongest signal of all. We’ll live in a science fiction future fantasy of a calm, focused life, free from the distractions of advertising.

Better yet, perhaps this hunt for the better business model will direct more innovation to better alignment between customer needs and value created. 100% focus on pure customer engagement, with no advertiser trade-off, may be the strongest position in the long run.

So what do you do if you’re dependent on advertising in your business model? Start thinking of business modeling as a verb, not a noun. Don’t fret, or bury your head in the sand. Begin the path towards business model innovation. Try to envision new models, experiment new ways to create and capture value, and co-create with your current and future customers. You may just find out that other models out there are better for your business.

Jen van der Meer is the Founder of Reason Street. Jen is on a mission to decode business jargon and distracting panic that keep us trapped in old ways of thinking, and explain business potential in human terms. You can explore the Business Model Library, read If You Have Innovation in Your Job Title, The Non-Linear Growth Competency Gap, The Day the Business Model was Born, and Models that We Live By.

Can You Define Your Strategy on One Page?

Here’s a roundup of one page strategy tools our opinion of which tools work best.

BMC

The idea of the one page strategy tool has been around since the 1880s when French managers sought to see the world beyond mere financial and accounting metrics. The rise of Business Model Canvas and other tools like it take visual strategy out of the wonky heads of MBAs and into the hands and sketches of teams with diverse skills and perspectives. The tools are most popular in organizations faced with uncertainty and complexity. If you need to tap the diverse skills and expertise in a team-based approach to define the future, try a strategy canvas tool on for size.

We start with the Business Model Canvas and conduct a roundup of other tools we’ve seen in startup, non profit, and corporate innovation settings. We’ve eliminated any tools with paywalls under the assumption that a paywall is a bad business model for strategic thought leadership!

The Business Model Canvas 

Osterwalder, 2009 available at Strategyzer.com

Business model innovation is a fairly recent concept in strategy circles, going back 20+ years ago in sync with the Netscape IPO. Suddenly, seeing the future potential of a fast growing company became more complex, with more options, combinations, and possibilities.

Back then, it didn’t make sense to invest the time and effort to develop a full business plan for every possible combination. We tended to choose one directional path, write a long form plan, and march forward. Often, founders would end up marching to their quick demise following the illusion that a plan was a roadmap, or playbook.

Fast forward to the present day. Business model innovation is popular in startup circles, but also in corporate innovation, nonprofits, and social impact entrepreneurship. The magical tool: The Business Model Canvas, by Alexander Osterwalder and Yves Pigneur.

BMC for UberThe Business Model Canvas Canvas includes all 9 building blocks and is based on Osterwalder’s PhD thesis – Business Model Ontologies (don’t click on the PhD thesis link unless you are an extreme business model geek with hours to spare).

The Canvas enables you to see your business model potential as something sketchable, involving sticky notes, and Sharpie pens. Design thinking meets a whole company view. Osterwalder encourages a sketch and prototype approach, and to use the Canvas in group meetings to create a shared language and understanding about business model options.

The Business Model Canvas is best used as an iterative tool, to create shared understanding and document team learning. Osterwalder’s strategy firm, named Strategyzer, and Steve Blank’s Lean LaunchPad curriculum both use the Canvas to test and validate assumptions over time.

Continue reading

Admit it, No One Likes Failure

But there is Joy in Trying

Miss

In Silicon Valley, failure is “accepted, even encouraged.”

Not according to my sample size of Uber drivers.

I’m in San Francisco today, where Uber drivers are the new bartenders, and represent potential bellweather for what’s really going on in the Bay Area. From a sample size of 4 Uber drivers, representing an average of 200 rides each, I learned that the primary themes discussed with their rides were bankruptcy, lack of funding, or fear of running out of cash. If you can’t tell the truth to your investor or fellow co-working-space co-workers, then maybe the dark confessional of the Toyota Camry is your only outlet.

Let’s face it, we really don’t want to fail, but we do want to learn.

Perhaps we just need a few more words to describe failure, so that we know what we’re talking about.

The Failure Learning Curve:

Failure of Not Trying

Let’s start with a true form of failure: the failure to not even try. All would agree that there is cowardice in not showing up.

Ooops

Did you make an oops? A clumsy blunder? Did you swing, and miss? Well then fear not – we all do, and in fact this is the kind of mistake we should celebrate. See Ben Zander coaching a young cellist to say “how fascinating!” with each flub rather than wince and shut down emotionally.

Starting at the 11 minute mark in this video:

Disqualify

Did you try something, expecting a specific outcome, but you found out you were wrong? Well that’s reason to celebrate. You have invalidated your assumptions. The next time you present your results to your team, make sure to include all of the assumptions you have dutifully disqualified – proof that you are saving time and focusing your energy on more promising paths. Answer the most important question – what insights do you have now that you didn’t before, and what did you learn?

“An inventor fails 999 times, and if he succeeds once, he’s in. He treats his failures simply as practice shots.” ~Charles F. Kettering

Strike Out

Did you uncover a big opportunity, an opening to go big or go home? But then did you swing big and strike out? This is the kind of failure embraced by many in Silicon Valley. Investors are taking big risks, and are willing to let nine out of ten porfolio companies fail in order to see one company get exponentially substantial returns.

When you play on this particular game board, you will be asked to speed up your product timelines, spend more on marketing and sales, and go for the ultimate prize: being the winner that takes all in the category you are creating. If you strike out under these conditions, well they were worth the effort.

The Epic Failure

Did you build a giant business plan, model out five year financials, and burn through millions or even billions of dollars without vetting the risks? Did you march your team forward refusing to listen to your customer or to market signals? Did it take you many months to get your first version to market, only to attract few customers  at launch? Well then, that is failure. It’s epic failure. Feel the shame.

If you are recovering from a major failure and get back on that learning curve as you try again. You will have to shift from the false comforts of planning through Powerpoint, and learn how to cultivate new business models. Allow yourself a few more moments of “oops” this time, focus your efforts and disqualify bad ideas, and hunt down the bigger opportunities. And you’ll have much more fun.

Design for the Angry Citizen

Airbnb and Systems of Trust

I was angry. It was 3:00 in the morning, and there was yet another springtime alleyway party in the Airbnb hotel behind my building. I live in the West Village of New York, which is home to a number of these buildings.

Let me describe how the Airbnb hotel works.

The Airbnb Hotel: An absent landlord owns a large building with multiple small units in a hard-to-reach location. The building itself is not well maintained, and the few rentals that exist suffer from high turnover because there are no services. When Airbnb came along, the landlords found that their profits rise substantially, sometimes generating 4-5 times what could be earned through longer term rentals.

The result: if you live near one of these buildings, you learn that they can change your life and your sleep patterns for the worse. You suddenly have 50+ short term one night tenants so the greater the likelihood of a loud late night.

The dance between Airbnb and the citizens, State and City of New York has been complex. Short term rentals are technically illegal. But most acknowledge the problem is not the long term tenant letting out her apartment for a weekend, but instead in the density of these multi-unit landlords churning through people. Various legislators have proposed bills and fines to punish bad actors in the system.

Don’t Galvanize Me

Airbnb’s initial attempt was to try to mobilize customers as citizens to protest and advocate on behalf of Airbnb renters throughout the city. The company covered highly trafficked subway stations and took out television and Youtube ads with heartwarming tear jerking stories. The widow who made pancakes for her guests was the most memorable.

I received emails urging me to protest against various measures – one in particular from Airbnb’s Global Head of Public Policy, urging me to: “Tell the City Council to protect middle class home sharers, not punish them. Sign this petition right now.”

I actually responded to this request, asking for a better interaction with the company. One that was more interactive. A chance for customer/citizens dealing with the unintended consequences of massive growth to have a considered dialogue with the company, to give constructive and even helpful feedback. I didn’t hear back.

Last week, Airbnb attempted to take one step forward to more interactive dialogue with citizens.

Airbnb Neighbors

Airbnb now wants to hear from neighbors like me. “If you think your neighbor is an Airbnb host and you have a complaint, we want to know.” The company asks you to submit a complaint, and if you do the extra work to find the actual listing on their service, they’ll follow up with you.

Airbnb Neighbors

 

Systems of Scale, Systems of Trust

Airbnb is one of the fastest growing revenue-generating systems we’ve ever seen in the history of business. The designer-founders who started the company and their design-minded team have put careful thought into how they encourage trust-based interactions between hosts and guests with messaging, and layers of reviews and reports.

It’s a beautiful system they’ve designed. But it’s not the whole system.

We are hosts, guests, but also citizens, and the way you feel about the company changes if you experience the negative consequences.

The neighbors interface on Airbnb is a baby step, but it’s a critical moment for companies like Airbnb to officially acknowledge citizens as stakeholders.

Stakeholder management is a theory for how to run a business in contrast to the shareholder-centric view. The belief is that companies need to engage all stakeholders in a system, including angry citizens, government bodies, and the environment. The reality is that stakeholder management is often just a theory, or relegated to “corporate social responsibility.”

Perhaps the future is to move stakeholder management outside of the communications silo and into product and service design. Stakeholder engagement shifts from theory to a designed and deliberate interaction.

Where could this future take us? How could you see design for the angry citizen affecting a company in a positive way? How would you design a more citizen-engaged Airbnb, Uber, or Amazon?

Customer Delight is Elusive – Focus on Customer Pain

Last week it was one of those rare perfect sunny days in New York City, and I found myself looking up at the sky as I crossed West 4th Street. I was soon to be punished for my reverie. While enjoying the sun, my glasses had slipped out of my pocket and onto the middle of the street, but I hadn’t noticed this yet.

ouch

Once I arrived at my destination a few yards away, I had that phantom limb panic. Where are my glasses? (If you’ve ever misplaced your phone – you know the feeling). As I retraced my steps, I found the remains of my Warby Parker frames and lenses strewn about, run over by a car, and unrepairable.

I was in the midst of a pain point. An ouchy, panicky pain point. How awesome for Warby Parker! Curious to see how Warby Parker dealt with broken  glasses – keep reading – but first…

What’s a pain point?

An emotional experience your customer is having

The pain is clearly identifiable in a customer journey

The pain is common to many customers, and customers use similar words to describe this pain

The pain is real, clear, and present, and she’s hunting for a solution, now

In innovation circles, pain points are what we seek when we introduce a completely novel solution – because it is typically only at that moment of clear and conscious pain that a customer will consider an alternative.

Clay Christensen, father of disruption theory, introduced this idea in his 2003 bookInnovator’s Solution. The secret to successful a successful innovation: don’t sell products and services to customers, but help people address their jobs-to-be-done. Once you look at the competitive solutions, analyze the pain points. Have any pain points been overlooked? Great! Now you know where to invest in emphasizing your distinctive strengths.

Before you move forward though, make sure the pain is clear, and present, and actually felt by the customer, versus something you think is painful. In my glasses story – you might have been in empathetic pain the moment my glasses fell out of my pocket. But I didn’t feel the pain until I had that phantom limb feeling, and then saw them on the street.

The distinction is critical – often when we build solutions, we try to solve problems that the customer doesn’t even know they have, rather than solve for the pain that customers are feeling. The only way to truly understand a customer’s pain is to talk to them, ideally when they are in pain, so that you can work through an ideal solution.

So here’s what happened. With poor eyesight, I used my friend Siri to find the 1-800 number and call Warby Parker. A kind man answered the phone. At that moment, I would have just re-ordered my glasses, but he pointed out that I was in a 30 day window, a no-questions-asked return policy. He would be sending me my new glasses for free, as long as I agreed to return what was left of the frames.

“Really? Really? But they were run over by a car!” I said.

“It’s ok. It’s a no-questions-asked return policy. We’ll send a label via email. Just send us the frames back when you get your new ones. We also expedite these to you. You’ll get them in 3-5 business days.”

That, my friends, is how you design for customer delight. Find the pain point, and solve the pain beyond all manner of recognition. I can say, in that moment, I actually wept a teeny bit out of a feeling connection, feeling cared for. I had already decided that I loved the Warby Parker experience, but now, I love the company.

In that moment, Warby Parker became better than the retail, in store, in person alternative. If I had purchased my frames at one of the stores like LensCrafters and Pearle Vision owned by Luxottica, the world leader in eye frames with over 80% market share, it would have been a different story. The 1-800 number would not have resolved the problem. I’d have to go the the store. I’d have to wait the typical number of weeks to have my lenses re-cut. In short, my pain would have been amplified at my most crucial moment of pain by the world leading solution in the market today.

When I received my new glasses two business days later, I danced a small jig, in public. I’m a practical curmudgeonly New Yorker type. But there they were again, exceeding expectations.

Net Promoter Score (NPS) is considered a key performance metric by e-commerce experts – the number one survey response you should track and optimize for throughout the customer journey. You know NPS: How likely are you to refer Warby Parker to a friend or colleague, on a scale of 0 to 10? If you score above an 8, you’re likely going to be ok.

Warby Parker, you get a 10.

To be sure, Warby Parker probably took a hit on my unit economics that day:  two pairs of glasses, in a short time frame, plus shipping costs and the customer service costs – I bet their margins were unfavorably reduced. But in exchange, I commit my lifetime value allegiance to Warby Parker, since it’s clear I’m not going anywhere else. I’ll also be back soon to get those prescription sunglasses. And of course, I will be telling this story to everyone I know and meet – and hope those turn into referrals for my favorite company.

What’s the lesson for your business? Talk to customers. Map your customer journey. Map their pain, described in their words. Move beyond observations and assumptions you may have about their pain, and talk to them about the role of the product, service, or experience in their lives. To affect your profit and value, look beyond the consideration and purchase funnel to the aftercare, use, and repeat purchase. Most critically, take risks in the short term for payoff in the long term and you may well be rewarded in repeat purchase and referral.

Life Hack Tips to Reduce Decision Bias

One of us is not like the other

We know that unconscious bias happens in all of us. We categorize, we find patterns, and we like to group people. We decide who is in our “in group” — and then we favor our group. This ability to tell who is a friend, and who is a foe, helped early humans survive.

We like to think we are all reasonable open-minded humans who do not pre-judge other others, but much of bias happens hidden away from our conscious decisions. We all have bias. Our unconscious mind is wrong, often, especially on matters that truly would benefit from thinking rationally.

Daniel Kahneman, the creator of behavioral economics, pointed out in his bookThinking Fast and Slow: our unconscious mind is fast, and our deliberate mind is slow. Human reason left to its own devices is likely to engage in systematic errors. In order to make better decisions, we need to be aware of these biases and seek workarounds.

The RSA recently published an animated video and position briefing covering much of the scientific consensus adapted by Professor Uta Frith on why we suffer from unconscious bias, and what we can do about it.

The most impressive aspect of this analysis what the RSA then prescribes for itself. The RSA stands for The Royal Society, a Fellowship of the world’s “most eminent scientists” and has substantial influence over which scientists gets recognized, and determines whose science is more valid and worthy of acclaim. In order to achieve more fairness and improve the quality of decision making on panels, members are encouraged to do the following:

  • Deliberately slow down decision making
  • Reconsider reasons for decisions
  • Question cultural stereotypes
  • Monitor for unconscious bias

In sum — slow down, learn from others, reconsider, and question your stereotypes. What stands out is the rare advice in our busy life hacking get-things-done world to actually take a moment to slow down and think.

We know we need to slow down. Through the collective sharing of life hacking tips we recommend taking time for ourselves, journaling, meditating, doing yoga. But when do we move from the benefits of individual self-care to the moments in our life that have massive impact beyond our individual sanity: the decisions we make as individuals, in groups, in organizations. We can overcome some of our limitations through learning and through enlightenment.

Let’s adopt this great life hacking tip for all of us that have unconscious bias. The next time you make a big decision about a person you are about to hire, or invest in, or back, take a moment, deliberate, reconsider, reflect, and question your assumptions.

Jen van der Meer is the Founder of Reason Street. Jen is on a mission to decode business jargon and the hidden assumptions that keep us trapped in old ways of thinking, and explain business potential in human terms.

Why Your HealthTech Market Analysis is Probably Wrong

Broken Eyeglasses on White Background

Have you had an eye exam at Warby Parker? If you’re in health tech, or just healthcare, and you wear glasses, I recommend you make your way to a Warby Retail location soon just for the experience. Go to the website – you can make an appointment Apple-Genius-bar-style. (Sorry Bay Area folks – their first eye exam locations are East Coast and Midwest).

Why? Because how we look at trying to predict the future, current market dynamics, and competitive threats is wrong if we’re only looking at incumbent competition.

The optician was brisk, thorough, and sophisticated about my questions. When I asked about her experience working at Warby Parker, she took extra time to tell me the best part. She was able to spend time to help people, without having to worry about insurance codes and billing and revenue lifecycle management.

She told me a story about a man who walked around with masking tape on his 20 year old glasses – not just on the bridge – but holding together the lenses and obstructing his vision. He was finally able to afford the exam ($75 flat fee), and the replacement glasses ($95), verses his previous pair from 20 years ago that cost him $400. Thanks to Warby Parker.

If you’re an incumbent in the healthcare field, or a startup aiming to disrupt, there are lessons in this story for both sides.

1/ Look beyond competitors

Are you conducting a competitive analysis for your hospital, pharmaceutical product launch, or medical device? Is Warby Parker’s $75 flat fee eye exam on your map?

“The strategy playbook today needs to be based on the idea of transient competitive advantage- that is, where you compete, how you compete, and how you win is very different when competitive advantage is no longer sustainable” – Rita McGrath, The End of Competitive Advantage.

McGrath recommends a new level of analysis at a granular level – connecting the market segment, offer and geographic location. She calls this looking at an Arena – not focused on “near substitutes” seen in competitive analysis – but down to the level of customer needs, and connections with customer solutions.

I’d recommend also creating space in your analysis for emerging successful business models versus cool tech. Sure we can all imagine drone-based emergency services and virtual reality doctor visits. What insights can you extract from Airbnb’s marketplace model, Netflix’s subscription model, or Amazon Web Services’ pay-per-use model?

2/ Practice radical customer centricity

In the healthcare field, customer centricity is NOT a given. In fact in many conferences and panel discussions in health tech, leading luminaries predict that we will not have a consumer-focused healthcare system for many more years to come.

What’s in the way? Healthcare is a massive $3 Trillion that is 17.5% of our GDP, and is based fundamentally on delivering services, paid through third parties, and doctors and healthcare administrators who are more resistant to change.

While the Centers for Medicare and Medicaid Services (CMS), private insurers and self-insured employers aim to shift a bulk of those payments to value based care, a type of pay for performance measured in health care outcomes, everyone expects a hybrid system for the foreseeable future. Value-based programs (payment deals tied to health outcomes) will exist on top of a dominant logic business model that is still based on services (payment tied to the quantity of hospital stays, MRIs, or hip replacement surgeries).

Sure, you can aim to disrupt with your consumer tech solution or wearable by working outside the system – but even the $3.2 Billion Fitbit market cap (down from a high of $10.7 Billion) is but a rounding error on in that $3 Trillion. You’re not going to move the mountain.

Yet the fact that something like Warby Parker absolutely disrupted my customer experience of eyecare is a sign that maybe it could be possible to be radically customer centric, now. The lower cost, brisk efficient service was 10x better than the hassle of visiting an eye doctor, dealing with the billing codes, and paying for my last pair of $800 glasses from the Luxottica Corporation. Let’s compare that experience to the not-yet-awesome retail clinics and you can begin to see how a new front line health services offering could emerge.

3/ Compete to win on business model, not product or experience

To be sure, charging for eye exams in a retail location is not radical nor breakthrough innovation. Luxottica, which owns LensCrafters and Pearle Vision, have been offering this service from the start, competing with local optometrist offices. Luxottica is the world leader in frames, lenses, and eyewear, with over 80% of the market.

What is radical? Warby Parker recognized the weaknesses in Luxottica’s business model – high margins for frames and lenses – and built their own vertically integrated system to reduce costs, reduce prices, and still afford a buy-one give-one model.

The social impact story is no mere marketing gimmick; the company is a certified benefit corporation and strongly advocates a stakeholder management model, emphasizing its treatment of workers, the environment, and helping provide eyeglasses to the developing world. Social impact is built into their business model and powers Warby Parker to take on a true giant in their field.

What does this mean for an emerging or incumbent health tech player? It’s worth looking at the current incumbent models in health and thinking through the shifting business models. But make sure you’re tracking companies and sectors outside of health for ideas and experiences – what may be an inspiration today may be a competitor tomorrow. Finally while incumbents dance slowly towards a pay for performance business model, imagine how your organization can leapfrog ahead and actually deliver superior quality and experience, demonstrated in actual end customer value.

So You Want to Control Your Own Destiny, Do You?

Founder motivations and control for impact entrepreneurs

Lean Startup  is great for finding scale opportunities, quickly, You make assumptions, discover your customer needs, run some tests, and you can quickly get feedback that you’re either on the right track, or need to start again.

Yet one thing that tends to stop founders from even asking the right questions in the first place is the reason why they are starting a business.

Why are you doing what you are doing? What’s your motivation?

I like to ask this question of very new founders. I got to ask this question twice last week:  at NYC Media Lab’s kickoff of their intensive customer discovery program, The Combine, and at in my two week Lean class at NYU ITP.

There are two basic patterns in the answers – and often the two answers coming from the same founders:

1] I want autonomy. I don’t want anyone looking over my shoulder. I want to control my own destiny.

2]  I want to see my technology/product/service reach as many people as possible (only a few publicly admit to seeking wealth but will acknowledge this in private).

Yet these two motivations set up a dilemma, The Founder’s Dilemma, to be precise, as researched by Noam Wasserman. A Harvard Business School professor, Wasserman studied tens of thousands of companies to understand founder motivations and the high rates of entrepreneurial failure.

He found that entrepreneurs often make choices that do not maximize their wealth.Founders are often torn between wanting to control their company, and wanting to grow their company.

“The need to negotiate a trade-off between wealth and control, between building financial value and maintaining a grip on the steering wheel… founders’ early choices can have delayed and unexpected but significant effects, sometimes because natural inclinations such as passion, optimism and conflict avoidance lead to shortsighted decisions.”   – Noam Wasserman

In Wasserman’s analysis, you can aim to be “King” – seeking complete control over your company, self-funding and maximizing your ownership stake. Or you can aim to be “Rich”  – seeking external investment, and sharing equity to attract and motivate cofounders and employees. Control-oriented companies tend to achieve well below their potential because they fail to attract capital, and also fail to attract strong co-founders and world-class employees.

Meanwhile, founders seeking to build for financial value have a higher hit rate for reaching their potential.

I’ve loved Wasserman’s work ever since I read the findings of his early research. I’m a recovering control freak and have learned how my own desire for control has limited my upside.

But I’ve been struggling with Wasserman’s Rich Verses King concept when working with a the new crop of impact entrepreneurs. These are founders who want to grow and scale their businesses, but they have defined a core purpose beyond financial outcomes. They want to help people. They want to restore the planet.

Rich v. King

 

When we talk about the Rich vs. King dilemma, they want to consciously choose King. The path of Rich means making decisions oriented towards maximizing wealth. Yet these founders find this goal tantamount to greed, which they define as the root cause of much of the capital industrial system they aim to disrupt and unwind.

More critically, they fear the motives of investors who may not share their same values, or who may want them to simply maximize shareholder value, and not seek a social impact goal. They are researching B-Corp status, LC3, and even considering not-for-profit structures in order to protect their mission, and vision from the likes of misaligned investors.

When we break it down further, these impact entrepreneurs do not follow the classic control pattern. They are open and willing to attract strong equity-sharing co-founders, and want to give decision rights and control to employees. Specifically it’s the fear of investors who want a different outcome that limits their growth. They tend to self-fund and bootstrap, and aim for a corner of their market, rather than go for the biggest possible impact.

The double dilemma of the impact entrepreneur

The desire to control the destiny of the company leads to avoiding external funding, which limits the company’s potential. Impact entrepreneurs settle for a smaller corner of a market, a known problem, and may even compete with non profits in the space. More critically, they fail to make the big, disruptive shifts that would manifest the world they want to see.

“The best problems to work on are often the ones nobody else tries to solve.” – Peter Thiel, Zero to One.

What’s the way out of this? My cynical, Wall Street self says, “That’s the way business works. The spoils go to those who seize the power, and maximize for their personal wealth. The markets are geared to find the most efficient financial returns.” But my meditation-and-yoga-practice-self sees a new possibility.

We are witnessing a grassroots movement of entrepreneurs, globally, seeking to contribute to a  better world, by creating a business. They are motivated by the act of creation, they want to be connected to their community, and to the world.

There will always be enough money to chase wealth maximizing business ideas. But my bet is that we’ll see a new form of capital, with more evolved expectations.

We we can hope for: We can encourage impact entrepreneurs to aim big. To go after those problems we can’t figure out how to solve. To back these high potential, high impact companies to private investors with aligned values. We can see a future where high impact companies get the backing and support they need to grow and attract the best talent. To trust that giving up control will lead to the greatest outcome. We may then become clear about what it truly means to flourish and prosper.

The Rules of the Game are Changing

 

Exploring how our changing expectations for capital, met with near zero marginal cost technology, is completely changing the rules of the game, over at Reason Street:

Innovation

3 Questions to Predict Who Will Survive in 2026

The faulty dominant logic mindsets that keep the big companies from actually finding exponential models for growth. Innovation and the Non-Linear Growth Competency Gap. Looking at the recent Ford and GM’s move into the Uber/Lyft space.

Can We Change the Rules of the Game?

Are the rules always set for a winner-take-all outcome? In an era of connected, complex, and connected webs of business and relationships, can we imagine different rules of the game?

The Fed Rates Rose: Let’s Panic!

The 1 reason why smart business leaders don’t have to worry:

If you have a solid plan to get to profitability and growth, or you’re already there (how quaint) then you will likely attract the funding you need. Business fundamentals and smart thinking about how you will actually make money, or grow without losing tons of money, will soon become valuable again. There is no need panic about the rise in rates – money is always attracted to strong business fundamentals. So sleep well tonight, you deserve it.