Will Your Health Business Model Survive?

Stress-testing your business for a new policy agenda

Since the election, US stocks are mostly up. Except hospital stocks. Public hospitals like HCA are worth looking at the stock charts to see how wrong we were about the election – rising high the day before, tanking the day after.

HCA Post Election Ticker

Then there are the health insurance companies like Aetna and Cigna are on the rise. United Healthcare is the best-performing stock of the year.

United Healthcare Ticker

The promised repeal of the Affordable Care Act (ACA, a.k.a. Obamacare) is expected to impact hospitals more negatively than insurers. A recent Barrons survey of C-Suite executives in healthcare found that “MCO (Managed Care Organization) executives are more optimistic than acute-care hospital executives about the outlook for the respective fundamentals in their industries.”

But as of today, we only know which way the winds are blowing. We do not know exactly how the ACA will change, or when, or what it specifically means for any given company strategy.

Do the same trends play out if you are a startup? Were your pre-election business model assumptions correct? Does the recent shift in political stance change your trajectory?

In short, yes. No matter what your political views, it’s time to stress test your assumptions, and determine how dependent you are on policy-driven shifts in your future plan.

First, Re-Locate that North Star

Look up from your to-do list, your weekly calendar, your scrum, sprint, or annual operating plan. Why did you get into healthcare in the first place? Answer that question on a personal level. Convene a futuring session with your team.

Has the ACA been positive for your business or are you still struggling to implement technology and systems to manage and measure care? How should healthcare happen? What are your ideas for a better future?

For inspiration, The Institute for the Future published a Health Futures Map to help navigate the post-ACA decade. The Institute for Health Improvement recently partnered with five foundations to produce the Better Care Playbook to help accelerate system transformation. What questions do these future statements and best practices generate for your team?

IFTF Post ACA Care Models

Ask big questions to frame and reframe your company’s direction. What role do you have to play in healthcare transformation driven not by federal policy shifts, but through connections and partnerships with other companies in the healthcare industry, not-for-profit organizations, advocacy groups, and your local community?

Second, Check Your Customer Target Assumptions

Who are your core customer segments? Were you selling to hospitals? Insurance companies? Pharma? Should your priorities shift in preparation for what comes next?

Even if you’re up and running and executing against your defined plan, it’s worth re-engaging in customer discovery. Pick a selection of health systems leaders, clinicians, administrators, and ask everyone how they envision the shift. You may find that your question is the first time they have stopped to pause and think about what is to come.

Third, Re-Validate Your Core Business Model Hypotheses

It’s time to go back to your original business model assumptions. If you haven’t been tracking changes to your assumptions using a Business Model Canvas tool, now is a good time.

Value Proposition Design

List your target customer segments, in order, and based on your customer discovery findings, consider how your core value proposition may need to shift.

Take a hard look at your core resources, activities, and partners – do you need to think about what you do differently?

Lastly, your biggest and boldest question is to re-consider your costs and revenues and stress-test where you fall in the shift to value-based reimbursement.

Fourth: Take a Stand on Value-Based Reimbursement

The hardest element to predict is how and when we start to shift to value-based care, payment based on outcome, rather than traditional fee-for-service.

The shift to value-based payment and care will cause health providers and everyone delivering to the healthcare system to change the way they bill for care. Instead of being paid by the number of visits and tests they order, devices used, and pharmaceuticals prescribed (fee-for service), providers’ payments will start to be based on the value of care they deliver (value-based care).

This shift is happening, but not everywhere. A number of health systems, not-for-profits and health companies and startups have each chosen where to play; with a number of stakeholders claiming bold stakes and risks, and others avoiding the change for as long as they can.

A rollback of key elements of the ACA will affect the contours of this shift, but the “train has left the station” according to many health leaders. Payers are demanding value-based payment models, integrated hospital systems are taking on population risk, and startups are experimenting with pay-for-outcomes and pay-for-performance models. Will you be a leader? Or a follower?

Finally: Rinse, Repeat and Lead

To be sure, those that work inside of healthcare complain that the pace of change is slow and incremental, particularly in front line health delivery systems. Startups have had to play at the edges, selling solutions consumers who can afford to pay, to workplace wellness efforts where ROI can be proven, or are living off of a derivative data-selling business model. Incumbent technology and service vendors are deeply locked in and want to protect their market share and flows of revenue and profit.

But one thing is certain – there is no comfortable status quo in healthcare. Even in the heart of the most cynical, money-minded hospital administrator, there is an acknowledgment that patients matter. The US is an outlier in health, and “not in a good way:”

US Healthcare System

 

If you believe your initiative or technology innovation can bend this curve away from more cost/worse outcome, then it’s time to double down. Change will come from government, but progress will come from leaders in the patient communities, advocates, caregivers, healthcare systems, and innovative companies that can move beyond our current trend. We only have our health and our lives to improve.

Moving Beyond the Post-Election Confusion in Your Company

An exercise to re-engage and build the future you want to see

“I don’t care what you say about this election, our stock price is at an all time high so it can’t be that bad. This administration might be the best thing ever.” said Rogerio, who voted for Gary Johnson, the Libertarian candidate.

“How can you say that!!! That is so cold. Do you know what it’s like to be a person of color in America right now? I’m more afraid than ever for my family and friends. I am worried about the future.” said Collette, a Bernie supporter.

“Stop it with the election talk. We have work to do. We will all be fine. Let’s get down to business” said Marina, the manager of the group, who quietly voted Republican as she has done in every prior election. She is sick and tired of all of the election noise, and like many people, she justs wants to move on. But she knows she has to respond to recent events, the daily news gauntlet, and figure out how all of this affects the business.

We Were All Bad Predictors

Whether you see the new administration as a crisis, or opportunity, or both, take a moment with your team to think about the future productively. No matter which side you were on pre-election, we all have to admit, together, that we were wrong. The election results were a surprise, especially to the President-elect and the Republican leadership. All of our leading poll indicators, our think tanks, even our guiding hand of the stock market failed to predict the outcome.

We were all wrong.

Everyone except for Michael Moore. He was right. But Michael Moore likely can’t help you with your 2017 annual operating plan.

It’s critical that business leaders reflect on this main point: the entire world failed to predict the future. This means that your underlying assumptions about the economy, policy, culture, and reactions to technological innovation may also be wrong. So take a moment. Take stock. Work with your team to re-envision the future of your project, your plan, and your company based on shifting macro trends.

Polls didn’t work. Access to the biggest datasets we’ve ever seen didn’t help. The guiding hand of the market was surprised. Those of us who build predictive models (like me) received a wake-up call. Predictive models are based on assumptions. Our assumptions were flawed.

There was a strong desire to go deep into the spreadsheets just after the election. To run the “Trump scenario” that so few thought would happen. But more modeling and analysis won’t get us closer to a more certain future.

Instead, it’s time to get personal and connect with your team. Your fellow employees, peers, and partners are struggling through the same post-election confusion, and trying to make sense of what happened and what will it mean. Invite your team to a futuring session to generate scenarios of the future you want to build.

How to Co-Create a Future Vision:

The things you will need:

1 room that can fit multiple small tables (fitting 4-5 people each)

1 roll of brown “butcher” paper

1 roll of artist tape (sticks easily but comes off without tearing)

3 different colored Sharpie or thick markers for every participant

Rolling white boards + easels

Water, coffee, tea

At least 2 hours of time for your team – no cell phones or emails or disruptions

The recipe described below is adapted The World Café method which provides further resources and ideas for your futuring session.

1/ Invite the team

Look for a minimum 2 hour window that you can set aside without cellphones or laptops. Don’t organize on a critical day for sales or finance or during a big market launch. You want to be able to create space for presence and participation.

Let them know why you are inviting them to a futuring exercise, that your aim is to create a number of possible and preferable scenarios.

2/ Find trends that describe different versions of the future

In prep for your futuring workshop, evaluate and prepare to share trends that derive from different sources and diverse views. Focusing in on your sector can help uncover these ideas: The Future of Media, The Future of Health, The Future of Non-Profits. But there are overarching trends that affect every company and organization.

Here is a selection describing of posts and reports describing The Future of Work – the key here is to show a range of opinions:

Institute for the Future: Workable Futures, Ten Strategies for a Workable Future

The World Economic Forum: The Future of Jobs 2016, and Infographics

The American Enterprise Institute: 4 Possible Futures for US Workers in 2040, America’s Future + Robots

The International Labor Organization: Future of Work, Results-Based Management

McKinsey: The Four Fundamentals of Workplace Automation, The Future of Work in Advanced Economies

Look for compelling quotes, provocative infographics, and surprising visuals. Don’t look for ideas to confirm your thinking, rather look for trends that will challenge your thinking. Print out a selection to kickstart your team’s thought process.

The Future of Work

Institute for the Future

WEF Top 10 Skills of the Future

 

3/ Craft your initial questions

Why are you calling people together? To frame a future you want to see, collectively. You all work together – you have that in common. Choose to ask and explore a big question, a question that matters to the future of the organization. When you can frame your futures conversation as a question (vs. problems, concerns, gripes, or short-term expectations) you engage your team is learning something new together.

You can make it simple: “What is the future of x industry?” You can focus on the organization’s position. “What does it mean to be the world’s leading x?” Make sure your question is open-ended and invite inquiry and discovery. You’ll know you have a good question when is received with good energy encourage new questions, new ideas and new possibilities.

Prepare 3 key questions for the day that build on each other. You don’t have to be right in your question that you ask. Know that the deeper question-behind-the-question that you should be asking will emerge in your session.

4/ Prepare the room

Choose a venue or meeting room that can host several small conversations within one space. Your futuring exercise does not have to take place at a fancy off site – but you do have to set boundaries for no interruptions. You want to create a welcoming space, so pay attention to lighting and find ways to make a dull room more inviting.

You’ll want to have multiple small tables, café style, fitting 4-5 people per table. On the day of the event, cover each table with the brown butcher paper, taping down the edges underneath. Provide enough Sharpie pens for each table participant in each of the three colors on each table. Take your printed out featuring quotes, infographics, and images and distribute them among the tables for conversation fodder.

5/ Facilitate the day

Begin with a welcome and introduction and remind everyone why they are here, with the core questions visible on flip charts in the room. If you choose to follow World Café guidelines and etiquette, post them on flip charts or cards on each table. Create a safe space where participants are encouraged to be open and honest and connected to the people in the room.

If you have a number of people on your team who have expressed their post-election fear, personally or more generally, acknowledge their experiences. Ask everyone to bring their most creative energy to the work of defining the future.

Now comes the hard part: ask everyone to put their phones away for the full 2 hours.

Ask for volunteer hosts: The logistics are fairly self-organizing, but you do want to explain that you are looking for volunteer hosts to remain at each table throughout the 3 rounds of questions. Their job is to welcome people to each round, ask the core question, and review what occurred during the last round.

Ask participants to converse, reflect, capture, and sketch: The role of the participants is to join in the conversation, and use the pens to sketch, doodle, and capture the conversations at the table. Participants can choose to stay at their table, or to continue to circulate for each round.

As the facilitator, your role is to move around among the tables, encourage everyone to participate, and to remind people to sketch, draw, capture key ideas. Time each round with a smartphone timer set at 20 minutes, and gently move people onto the next round of conversation and the next table.

When you’ve completed three rounds of discussion, it’s time for the hosts to share and for the teams to circulate and review, reflect, and find patterns. Capture the notes and thoughts with cameras and ask everyone to reflect on their own – how will the insights generated today inform the work they do going forward.

The learning that occurs happens in the experience of the people in the room, forming connections and building their own inquiry-based strategic capability to think and explore. What do you do if your futuring exercise is successful? Replicate, and repeat.

6/ Replicate strategic conversations

You can choose to repeat these conversations when you find your team getting stuck, or responding to an unplanned crisis or event that sends all of your predictions off course. In a larger company, you can ask the participants to host their own futuring conversations with their teams.

In an increasingly volatile, uncertain, complex and ambiguous times, we have to get used to the notion that we’ll be mostly wrong, most of the time, when we predict the future. Rather than clamp down and tell people to move on and “just get over it” – it’s time to open up the biggest questions that drive people to do great work every day. Through in person futuring conversations, we can restore trust, remind everyone of their humanity and humility, and become resilient together.

Business Model Myths in the Circular Economy

Today at 11 EST I’ll be giving an online talk for the virtual Circular Economy “Dif” Festival put on by the Ellen MacCarthur Foundation.

What was planned to be a thorough analysis of common business model mis-conceptions has changed in light of recent events.

We will discuss:

  • Equitable outcomes.
  • Ray Anderson.
  • Circular economy. Business model myths.
  • People-centered capitalism.
  • Business model innovation as the strongest tool for survival and resilience

 

Join us online at 11,

Jen

 

Designing for Human Dignity in the New Economy

Competing Design Philosophies in the Two-Sided Marketplace of Time

carme

The Sopranos series was violent. But the most painful scenes for me drew a hyper realistic version of my Northern New Jersey upbringing.

There’s that scene in season one, episode three, when Carmela hires her restaurant owner friend Charmaine to do some catering for a fundraiser. The scene is subtle. You may even miss it. Charmaine witnesses Carmela dressing down Oona, her maid. She beckons her with a hand gesture to come and take a look at fingerprints left on an unpolished glass. She is not pleased.

Later, we see Carmela summon Charmaine, her friend/helper, in the same hyper-controlling gesture. “Come here,” the gesture says, “you are working for me, “do this for me now.”

I remember that summoning hand from my first babysitting jobs in my Northern New Jersey town (not far from the fictional Soprano family). The hand would summon me, the cleaning lady, the tutor, the help. Clean this now. Control this child now. The same long, well-manicured nails as Carmela. It still makes me cringe.

Work is cultural. How we treat people that work for us is based on our own personal experiences, practices, stories, and our cultural norms. How we behave when we are being summoned is also shaped by culture, but also presumably by the fact that we want the money, so we comply.

Work is shifting. Our hours are starting to be shaped by millions of interactions in the so-called new economy. Uber. Lyft. Fancy Hands. Task Rabbit. Honor. Managed by Q. Upwork. Fiverr. 99Designs. Upwork. Instacart, Care.com.

I can press a button, swipe my credit card, turn on my GPS, and I get a ride, a home health aid, an event planner, a virtual assistant, a web designer, a stylist, a massage therapist.

All of these companies run on a two-sided marketplace business model. On one side you have the paying customer: the busy bee in a big hurry who has the disposable income to hire some help. On the other side you have the worker: the driver, the home health, the massage therapist, who is there to give up their time to help you, the customer. These marketplaces are arbitraging expertise, but mostly time – brokering those who have more time than money with those who have more money than time.

I spend a great deal of time with the business model of two-sided marketplaces, recognizing that inherent in these systems are competing design philosophies. I’m wondering, Service Designers, where are you when the big decisions get made?

1/ The Task Rabbit Design Philosophy: Your Time is My Time

You can “book” a “tasker” – just like that. If you have a box that needs lifting, t-shirts that need folding, expenses that need to be organized – just go on to Task Rabbit, select from the vetted taskers, and boom. They are booked.

Taskers can turn down the booking and refuse unreasonable requests, but the default design is to assume the Tasker already said yes.

It’s Carmela Soprano’s come here gesture in app form.

2/ The 99Designs Philosophy: The Crowd Will Help You, But One Will Get Paid

Need a new logo? Try 99Designs. 99Designs takes a practice common in writing, design, and advertising practice – creating work “on spec” and turns it into crowdsourcing.

You upload a brief, choose a level of designer like you choose a credit card (Bronze, Silver, Gold, Platinum) and your design is disseminated amongst a pool of designers. These designers produce work “on spec” which means for free. You get to choose who wins your logo design contest, and only the winner gets paid.

3/ The Managed by Q Design Philosophy: The Karma System

Managed by Q is a new type of office services company that provides cleaning, IT, and other support services to help companies grow. They follow the advice presented in the book “The Good Jobs Strategy” by Zeynep Ton, professor of operations management at MIT. The crazy concept: pay above the standard wage to keep overall costs low, and earn a profit.

Workers are not a cost, they are an investment, and Managed by Q promotes office cleaners into selling and front-line relationship manager roles, moving up in pay and benefits the more they drive the company’s bottom line.

As The New York Times reported this year, the CEO Dan Teran, “doesn’t see his cleaners as simply cleaners. Instead, they are the essential link between Q and its clients.” The traditional signals of success in this model prove to be not as relevant. Instead, mindsets of optimism and empathy tend to drive the most successful employees.

By being good to their employees, Q’s employees are good to their clients, and good for the company.

Can You Design for Human Potential?

There are certainly more patterns out there than the three mentioned in this post. But you can see through these three examples that the future is in the hands of the people who create and design these systems.

Cameron Tonkinwise wrote an extraordinary reflection on the role of service design as a practice of thinking through the intention and consequence of service on economies and ecology. Most critically, he highlighted the role and influence service designers play in redesigning work and interaction.

“Human-centered service designers must be mindful of these tactical renegotiations involved in service work. Or rather, service designers must be wary of demanding that service workers and customers seek authenticity only within the confines of utilitarian commercial transactions.”

The next time you find yourself at the helm of designing the service of a two-sided marketplace, take a moment. Ask yourself – are you merely automating human behavior, turning the task into a machine-like process? Are you taking advantage of a global, hungry, borderless world. Or are you bringing the best out of the humans engaged in your task?

Do You Suffer From Value Proposition Confusion?

A word battle may be increasing your product fail rate

“I’m not sure if we’ve fully described the pain points for the patient customer, let’s take another crack at that one,” said the product manager. She was trained as a computer scientist and was practicing a method she recently learned at a “Lean Startup for the Enterprise” workshop.

“Customer pain? Why are we talking about pain points? That shouldn’t be anywhere near the value proposition!” – said, the marketer, who was graduated from business school in 1998. “We need to outmaneuver competitors! We need to better define our segments and figure out how we’re different! What are the reasons to believe?” he cried with escalating agitation.

They’d been at this for days.

What’s going on here?

It turns out, one of those business terms that should be well understood by now, with  clear consensus across all disciplines, is still causing regional and generational confusion.

The experts and gurus of strategy, branding, startup methods, design thinking, business models, and marketing are not speaking the same language. Yet.

Let’s go over the two primarily opposing viewpoints on what, exactly, value proposition means.

Reasons to Believe: Strategy and Mad Ave Camp

If you went to business school before the year 2000 (or work for someone who did), your definition for value proposition was more linked to branding and corporate strategy concepts. In the olden times before the internet, companies were thought of as value chain: “a set of interconnected activities that a company performs to deliver a valuable product or service to the market,” according to Michael Porter, godfather of strategy.

Conceptually, this was an industrialized view of how a company works. The arrow starts with the supply chain, with the customer at the end. Most S&P index companies founded before the internet era still operate with this value chain mindset. As one consumer packaged goods CEO told me once, “Our job is to shuffle products out to consumers, and wrap products in a big marketing bow at the end.”

Value Chain

For Porter, a Value Proposition is an exercise in strategic choices about customers, needs, and price. The goal is to compete on uniqueness and differentiation. Strategy is then a set of choices about how value is configured within the value chain.

David Aaker, a prominent brand strategist and author of Building Strong Brands, encouraged marketers at the end of the chain to think deeply about the customer.

He defined the value proposition as a marketing exercise, creating a “statements of the benefits delivered by the brand that provide value to the customer.”

In a classic marketing view of the world, the Value Proposition communicates the functional and emotional benefits that add value, why we are different, the brand-customer relationship, and gives customers an ‘RTB’ or reason to believe.

The method encouraged marketers to define new customer segments determined by demographic studies. Marketing involved generating new feature and benefit promises as the primary strategy for product introduction. Pricing would be set based the right combination of features, benefits, and their intended customer segment.

Value Proposition Porter

In the 1950s and 1960s, when we used to crowd around 3, maybe four TV channels and all watch the same shows, marketers had more power to communicate these messages. and the work of branding was all powerful. Watch Mad Men the Kodak Carousel episode for one of the greatest examples of the value proposition advertising effect on a wonky new technology launch.

But today, the fastest growing companies do not seem to be neatly organized or understood in value chain boxes or marketing promises alone. Airbnb, Google, Facebook, Netflix and Uber did not reach their growth potential by fiddling with the number of people in the inbound logistics box, or buying Superbowl ads.. Something else is going on today, which can be best described by another flavor of value proposition.

Pain Points and Jobs to be Done: The Innovator’s Camp

What’s going on with all of these new companies? It traces back to the father of Disruption Theory, Clayton Christensen. In his  2003 book Innovator’s Solution, Christensen outlined 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.

But he saw a key limiting factor that kept incumbents from adopting the jobs-to-be-done method. In a diatribe published in Harvard Business Review called Marketing Malpractice, Christensen criticized the features-benefits-segmentation model.

“The great Harvard marketing professor Theodore Levitt used to tell his students, ‘People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!’ Every marketer we know agrees with Levitt’s insight.

Yet these same people segment their markets by type of drill and by price point; they measure market share of drills, no holes; and they benchmark the features and functions of their drill, not their hole, against those rivals. They then set to work offering more features and functions in the belief that these will translate into better pricing and market share. When marketers do this, they often solve the wrong problems, improving their products in ways that are irrelevant to their customers’ needs.”

– Clayton Christensen, Marketing Malpractice, HBR 2005

The lowly milk shake is Christensen’s example for how this insight plays out. A fast food company attempted the classic marketing method to increase milk shake sales. They defined their features and benefits, and drew up clear segmentation profiles of customers. When they tested variables of features – thicker, more chocolatey, cheaper, chunkier, they got clear feedback. But the improvements made had no impact on sales.

Milkshake Job to be Done

When the question was turned to ”What job is the customer hiring the milkshake to do?” the answer was revealed. Many milkshakes were purchased in the early morning, by commuters, traveling alone, sipping slowly in their cars. The milkshake offered a cleaner and more entertaining option than a messy breakfast sandwich, donut, or banana. The fast food company then used these insights to make deliberate improvements to the product for these to different jobs-to-be-done, sales improved (along with obesity rates, but that is for another day).

For Christensen, a Value Proposition is therefore a product that helps customers do more effectively, affordably and conveniently a job they’ve been trying to do. He used this theory to explain the rise of eBay and Google. “Pierre Omidyar did not design eBay for the ‘auction demographic.’ He founded it to help people sell personal items. Google was not designed for the job of finding information, not for a ‘search demographic.’”

We can see in this example how two views of the world, both originating from living Harvard Professors, play out in new product development meetings today. While Christensen’s theories are still not as widely accepted in corporate marketing circles, startup disruptors have fiercely embraced disruption theory and jobs-to-be-done concepts for their benefit.

The One Page Strategy School: Lean Startup and Business Modeling Camp

Suddenly, it seems everyone in technology and the startup sector is talking about pain points. Within the past five years, there has been rapid adoption of Christensen’s theories in incubators, university entrepreneurship programs, venture capital firms, and even grant-giving government agencies like the NSF and the NIH. “Jobs to be done” and “pain points” are natural shorthand for everyone in the Lean Startup movement, and are embedded in a widely popular on page strategy “canvas” tools like the Value Proposition Design canvas.

Value Proposition Canvas

Business Model Canvas was introduced in Alexander Osterwalder’s well-designed coffee table book Business Model Generation. Osterwalder observed that business model innovation exercises were often plagued by “blah blah” language, with everyone talking over each other, no clear decipherable path to actually understand and generate new business model concepts. (So true!).

The canvases serve as visual tools, meant to be used with stickies, and sketched. When practiced well, teams work together to understand their current business model and value proposition design, and are freed to experiment with potential new changes for growth.

The original Business Model Canvas was hugely popular in startup circles, and spawned a number of variations and twists on the original canvas as founders and practitioners began to experiment with the tool (see our roundup of popular one page canvas tools). Osterwalder followed up with the Value Proposition Canvas in order to create more clarity and focus to the customer-to-value proposition connection. Osterwalder cites Clayton Christensen for the concept of “jobs to be done.”

A working value proposition is designed to meet a specific customer segment’s jobs to be done. First, you understand that segment deeply, observe and discover what job a customer is trying to do. What are her biggest pains? How does she define gain?

Then when you develop the value proposition, you are defining your core features, and prioritizing which ones to build first, based on this architecture of pain and jobs to be done. Which features alleviate the pain? Which create a new unexpected gain?

pain points

The focus on pain is critical for a startup. The status quo is the biggest competitive barrier for any new technology or innovation. Customers are unlikely to change their behavior and try a new untested brand without experiencing identified pain or discomfort in their routine. By making strategic choices about which customers, which jobs, and which pains to solve for, a startup can turn on the engine of growth.

How does differentiation play into the mix? The radical idea is that competitive advantage is “transient” – according to Rita McGrath of Columbia Business School in her book The End of Competitive Advantage. The world is too volatile and uncertain to base strategy on competitive advantage.

“..Virtually all strategy frameworks and tools in use today are based on a single dominant idea: that the purpose of strategy is to achieve a sustainable competitive advantage.” She argues that executives need to stop this, and offers to explain the alternative of transient competitive advantage. “..To win in volatile and uncertain environments, executives need to learn how to exploit short-lived opportunities with speed and decisiveness.” In fact, the deeply ingrained systems and structures “are outdated and even dangerous in a fast-moving competitive environment.”

– Rita McGrath, The End of Competitive Advantage

What does that mean for competitive differentiation? It means that it may be a bit of a trope. The best companies compete not with each other, but for a core customer. By understanding the rapidly shifting world of the customers, companies do well when they can constantly reconfigure their strategy and structure to deliver a well-defined proposition.

You still have to understand competitive moves and explain how your strategy differs from your competitors when you build a business case or ask a venture capitalist for funding, but your core strategic activity no longer focuses on competitive chess moves. Instead, the entire organization is built and constantly rebuilt to identify, predict, and deliver new value propositions to the customer. Whew!

Know Your Mental Models

So you’re back in that windowless room, and Jasmine from R&D is still yelling at Tom from marketing. Tom wants to focus on differentiated features and selling tactics based on outmaneuvering competitors. Jasmine wants to talk about pain points. How do you help them resolve their differences?

Recognize the benefits of holding multiple mental models, and encourage a moment of cross-silo communication and understanding.

Building your strategy on competitive differentiation alone may be dangerous, but spending time thinking about competitor moves, shifts, acquisitions, and combinations could be a helpful exercise to jar thinking. Even more fun, bring in companies from outside your narrow competitive set and see what happens when Google, Target, Coca Cola, Uber, Netflix, Ford or Tesla move into your territory.

The jobs-to-be-done view of the world is a useful starting point for a product that do not yet exist, and has the added benefit of uniting everyone’s focus on customer needs (rather than competitive moves). That’s a good thing. But jobs-to-be-done is an awkward starting place for many to wrap their heads around.

The best move? “Get out of the building,” says Steve Blank, the godfather of the Lean Startup movement in his Stanford Lean Launchpad course. Go observe customers. Listen to customers, Ask key questions. Don’t pitch your idea (yet). To get to jobs-to-be-done, ask them to tell you about a typical day. To understand pain points, learn what keeps your customer up at night. Dig under the known and obvious challenges in your customer’s life to uncover unarticulated needs and pains.

Iceberg

Then you can reconvene your product launch team with quotes, artifacts, photographs and observations about your customer to create a valuable value prop. And don’t stop there – go back out and test your value proposition directly with your customers.

Now, you’re rolling. You’ve stopped a turf war. Tom from marketing and Jasmine from R&D are colleagues. You’ve built your team to focus on customer needs. Build a rigorous commitment to deep customer centricity, ongoing learning, and the opportunity for meritocracy-based high accountability culture. You will have to shift from the false comforts of planning through Powerpoint, and learn to build markets and demand. And I promise you’ll have much more fun.

So start now. End the language war in product launch rooms everywhere. Get out of the building, Feel the fear, and learn a new way of working.

Here’s an armchair MBA reading list of books mentioned in this post:

Competitive Advantage: Creating and Sustaining Superior Performance by Michael Porter, 1998.

The Innovator’s Dilemma, by Clayton Christensen (first edition 1997 but read the most recent from 2011).
The Innovator’s Solution by Clayton Christensen,

Business Model Generation  by Alexander Osterwalder and Yves Pigneur, 2010

Value Proposition Design by Alexander Osterwalder, 2014

The End of Competitive Advantage by Rita McGrath, 2013

Here are previous Reason Street articles that relate to this post: 

Can You Define Your Strategy on One Page? August 2016

Customer Delight is Elusive – Focus on Customer Pain, May 2016

Finding Your Customer Pain Points: How Far Do You Go? November 2015

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Business 101.1 NYU ITP: Values, Value Proposition, and The Future of Business

We recently covered competing value proposition mental models as they relate to The Business Model Canvas and Lean Startup.

We also took a pause to uncover the core motivations, values, and inherent friction in starting a social purpose-driven company.

And customer relationships, customer channels, and running your first test:

 

Lean Validation for Social Impact + Design Entrepreneurs

There’s something social impact founders and design entrepreneurs have in common  – a shared allergy/yuck factor when asked to make business models. We try to dispel that myth – business modeling as an iterative act of emergent and divergent discovery, pattern association, and everything fun.

 

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.

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