The Business Model Growth Map

You know you need to clarify where your business model is headed.

Whether you are just starting, scaling into growth, or you are the market share leader, you are always looking new ways to generate value.

The most valued companies today never stop creating new business models.

Profitable innovators change their business models twice as frequently as their peers.

> 90% of all business model innovations recombine existing ideas and concepts from other industries.

This sounds harder than it looks. How many times have you heard from your advisors, partners, investors, or senior management that you should “be more like Netflix.” Or maybe you’ve been told, “Let’s be the Uber of __________.” “You should be the Dollar Shave Club of _________.”

Right, so easy. All you need is 100 million dollars and a dream.

Maybe you genuinely have a vision for how to be the leading data aggregator in your field, the largest 2-sided marketplace, the most profitable subscription company in your category. But you don’t have everything at the start. Startups lack resources and leverage. Big companies lack the digital capabilities to move to new models. How do you get from here to there?

Here’s a tool we’ve been using at Reason Street with startups and corporate innovators with great success: The Business Model  Growth Map.

Business Model Growth Options

On the first axis you have time, and firm value. On the second axis you have the two biggest value drivers in digital business models:

  • Value of Data: creating value through data builds competitive edge
  • Trust of Network: attracting the largest, most engaged, high trust relationships with customers builds category leadership status

The goal is to develop scenarios to help understand which decisions will create the greatest value, measured in insights, data value, and trust.

The purpose of the Business Model  Growth Map is to acknowledge you have more than one path to achieve your vision. You have options.

You can use this tool as a foresight exercise, a competitive analysis tool, and it’s a way to understand business model innovators and how they’ve grown.

The Business Model Options Growth Map Steps: 

Let’s take a look at a startup meditation wellness company: MindTether. The founders of MindTether take meditation seriously, and they are concerned that the current app experiences provided by companies like Calm.com and Headspace are too singular, too self-oriented, too lonely. They want to create a shared experience and build a movement around meditation. Their core idea: a meditation social network.

They host a Business Model Journey session, where they define key scenarios and options for how to get started on the way to their big idea.

5 Steps to Breakthrough Business Model Options

  1. Define the North Star
  2. Explore business model archetypes
  3. Create multiple business model growth options
  4. Backcast to the present moment
  5. Build, measure, learn and generate new options

1/ Define the North Star

The first step calls upon your visioning and foresight skills. What is the ultimate business model in the sky, your big vision, your true north? Imagine 10 years from now. You succeeded and achieved your vision. You attracted the people, the resources, and the runway to achieve your vision. You have the largest group of meditators on the planet who trust you, engage with you and other customers everyday.

What happened? How were people’s lives changed? How many people were impacted by your company’s products, services, and ecosystem?

Business Model Growth Map North Star

MindTether sees a future in which 200 MM customers from all over the world participate in localized meditation groups every day, resulting in better overall health and wellbeing of the communities they serve. They have the largest subscription-based company, while members who cannot afford subscription are subsidized by health plans, workplaces, schools – because their benefit to society is so clear. That’s their big vision.

2/ Explore Business Model Archetypes

Next tour through relevant business model archetypes. Look beyond competitors and your core industry for inspiration to the rising business models of today’s economy. Ask team members to bring ideas to a business model generation session.

MindTether looks at the way business model archetypes are playing out in their core arena – mindfulness apps and meditation groups that meet in person. They look at brain training companies, and business models from health tech, and review multiple business model archetypes.

Remember the best business model innovations are just combinations of currently existing business models – so encourage your team to start sketching their ideas.

Reason Street's Business Model Library of Common Archetypes

REASON STREET’S BUSINESS MODEL LIBRARY OF COMMON ARCHETYPES

Take a tour through our Business Model Library for inspiration.

3/ Create multiple options

After you are inspired by other business model archetypes, host a brainstorming session to generate multiple business model growth options. Encourage ideas inspired by transformer-style mashups of archetypes and companies. Did you ever play garanimals as a kid? Allow for strange sounding combinations in your session.

Call on those with the closest customer proximity to develop value proposition concepts that address unmet needs and pain points.

You can ask for sketches, concepts, use the Business Model Canvas or Value Proposition Canvas, or focus your energy with this “Value Proposition Adlibs” tool.

Value Prop Adlib

Choose the best ideas (use group voting or filtering exercise) based on which business models generate the greatest value.

MindTether considers three primary options:

  1. Real world subscription: people join flashmob-type group meditations in the real world
  2. Virtual subscription: individuals sign up, and there is a discount for groups
  3. Value-based care: selling the benefits of MindTether to insurance companies and get paid for lowering anxiety levels in a population

Business Model Growth Map MindTether 2

They map how all of these options could get them to their true north – but they want to know which first journey propels them there the fastest.

4/ Backcast to the present moment

Now that you have your vision and core business model ideas – backcast to where you are today. Backcasting is often more effective than forecasting. You start with your vision – your North Star, and then you ask the question: “What do we need to do today to reach that vision?”

MindTether already defined their North Star: 2oo MM meditators connecting together, every day.

They look to the capabilities, resources, and network they have today, and what they don’t have.

MindTether is a 3 person team – an app developer, a designer, and a mindfulness coach, with ability to develop and lightweight app. They live in NYC, which seems to be the primary launching pad for these kinds of wellness meditation apps. They are not hardcore developers. They do not have strong command of artificial intelligence, data science, nor are they highly skilled in making a new wearable device. But they decide that all of those skills are not needed to get started.

What they do know is that they have the right set of skills and resources and network to begin testing their two core ideas – virtual “free for groups” meditation and in person meditation flash mobs or planned meetups.

Business Model Growth Map MindTether 3

5/ Build, measure, learn and generate new options

The MindTether team creates a plan for the next few months to maximize learning.

They don’t just start building the app.  MindTether’s team knows that the real value lies in their ability to connect engaged meditators in groups, which result in a network effect. Their first test is to understand who is in the most pain, what to build, and which business model best delivers.

To understand pain points and jobs to be done, the team starts in the real world, to deeply understand what people are looking for when they seek out meditation. By directly interviewing people in parks and coffee shops and meditation centers, the narrow in anxiety as the primary trigger for people to start meditating in the first place.

MindTether’s second hypothesis is to test how a group meditation solution would be a good match for the pain of anxiety. The team borrows a loft space from a friend and hosting their first daytime retreat. They start an Instagram feed to build interest in the event and to see which core message work best to get people to sign up and show up for the event. Not every message works. They find that anxiety is still taboo, or a lonely experience in search of a lonely solution. Their messages most resonate with a younger generation that is more willing to talk openly about anxiety and share their experiences publicly.

The third hypothesis helps MindTether narrow in on a target segment that has the most pain, but also respond to the call for group meditation and pay for the experience. They started to notice that those that were the most likely to follow up after the in person event were recent college grads, new to the city. These grads are overwhelmed with student debt payments, rent payments, and struggling to bring purpose and meaning to their first jobs out of school. They were also just forming and re-forming their friendships for their newly adult life.

 —

MindTether is now ready for an intense Lean Startup-style validation effort, but their approach is more strategic, and they’ve built up their business model pattern matching skills.

MindTether’s team decides to pursue option 2 as their first business model to start testing through prototypes, and they continue the build-measure-learn cycle until they have the early prototype and marketing messages tuned for product-market fit.

They know that once they find that high signal value-market fit, it will be time to focus their energies and attention on execution, customer development, product velocity, and later customer growth.

For now they need to keep their growth options open.

 —

Have you struggled to make sense of multiple business model options? Are there two or more paths you could pursue? Let us know at Reason Street – we’d love to hear from you.

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:

 

Personas, TAM/SAM/TM

Business 101.1 for ITP, Gallatin, Journalism, School of Professional Studies.

You’ll find the current team formation topics and people as of today 9/19/2016.

Contact Jen or Josh with any team changes – or reflect your changes next week.

6 core teams and recent changes in direction:

Fragrances Uber for Yoga

Prisons Social Community for Designers

Ergonomic Furniture

Assistive Tech – Colostomy Bag Assistive Tech, also Mental Health Provider Finder for LGBTQ

Fashion Social Enterprise

Social Listening Metrics Tattoo Artist Match

See you all next Monday

 

NYU ITP Business 101.1 Innovation + Entrepreneurship

NYU ITP Fall Semester

This course is about understanding the levers that drive business, and learning how to turn them into your favor.

You will learn through experience and work in teams to develop a concept from the generation of an idea to launch or market test. 

ITP NYU

Warning: the course involves a field work commitment of 5-6 hours per team per week. Much of the work of business model innovation is done outside of the classroom, in direct observation and conversation with your potential customers. The primary focus of the course is the work of developing your network capital – building connections with potential customers, partners, investors, and subject matter experts to help define opportunities that the concept is designed to solve, and early stage product development. A strong component of individual leadership development is built into the course- for students to identify your core values, and to work in teams to co-create a vision for your project, or your business.

We’ll bring the best thinking and methods from MBA school, Lean Startup, Design Thinking, Business Model Canvas, Innovation Accounting, Social Impact Entrepreneurship, Leadership Development, and Agile Methodology.

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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

 

Lean at ITP Workshop 2016

Changing to a workshop format this year to scale it up!

What: Lean @ ITP
When: Two weeks in January, 11-22
Location: NYU ITP 421 Waverly 4th Floor

Lean ITP

We embrace a creative, iterative, and collaborative approach to making things — but launching a product out into the world takes a somewhat different set of skills. How does one make sure people want to use what they make? How does one figure out how to support an idea with the right business structure? Is the idea strong enough to turn into a job — or a career? Enter Lean at NYU ITP – the experiential workshop in entrepreneurship.  (Please note:  this is a non-credit opportunity, it does not provide degree credit toward the ITP degree).

Who is this for: any student who wants to pursue a path to entrepreneurship, or work in an entrepreneurial company.

Format: 2 intense but fun-filled weeks in January with daily 1.5 hour orientation sessions and feedback each day, followed by outside in field ethnography and customer research.

Fee: Cost for the workshop: $200. Student fees will be pooled into a prototyping and marketing experiment fund – to run those first critical tests on the path to user growth and revenue. The fund will be made available to those student teams that show focus, commitment, and progress towards understanding their customer.

Modeled after Steve Blank’s Lean LaunchPad and the NYU Summer
LaunchPad Accelerator, we are applying the curriculum developed at
Stanford and Berkeley for the NYU community. This workshop has been
developed with support from the NYU Entrepreneurship Initiative, and
aims at mixing the best of the methods from the Lean LaunchPad
methodology with the spirit of ITP’s emphasis on exploring the
imaginative use of technology to augment people’s lives.Over a two week program in January, student teams participate in an
iterative approach to startup development, a combination of customer
development + business model design + personal exploration to
determine the most viable business scenario for their ideas. Alexander
Osterwalder’s Business Model Generation is used as the basic framework
for business model development, and we utilize interaction design
methods and tools to ground students in an understanding of how to
successfully move through the early generative stages of product
development.We will facilitate and organize student teams of 3-4 to develop the
company concept and business model over the two week course. The
primary focus of the course is the work of customer development,
speaking directly to potential customer to help define opportunities
that the startup is designed to solve, and early stage product
development. The ITP curriculum will augment the Lean method with
additional approaches from generative design, UX, and ethnography to
accelerate the understanding of both explicit pain points and more
latent or hidden challenges that people face, in their jobs and their
lives.

Participants from the NYC Venture Capital community and leading
successful startup entrepreneurs will serve as mentors and advisors to
student teams. The workshop is open to all enrolled NYU students.

Please indicate interest by signing up here (official registration to follow)

or email Jen van der Meer at jd1159 at nyu dot edu with questions.

The Promises and Perils of the Hollywood Style Pitch

How can organizations quickly and effectively gain support for new business ideas?

Hollywood

Hollywood wheeler-dealers are famous for pitching new movies to studios with a formula that combines two successful old movies. Robert Altman’s 1992 comedy The Player fictionalized pitchmen who proposed such fantastic ideas as “Out of Africa meets Pretty Woman” and “Ghost meets The
Manchurian Candidate
.”

Technology companies are also prone to ridiculous-sounding analogies when touting their potential. A recent survey of startups on AngelList, the angel investment platform, brought up these combinations:

Slack meets Kickstarter

Yelp meets Tindr meets Instacart

A Spotify with Pandora on top

eBay + Soundcloud

Think Flipboard and Hootsuite in one

The aim of these formulas is to simplify a complex idea and at the same time fasten it to the outsize growth and wealth-creation potential of wildly successful former startups that pioneered new business models.

Investors are just as likely to latch onto this kind of business-model combination when giving advice. If they’re trying to grasp your idea quickly, then they too have to lean on shorthand descriptions of its power and growth potential. They call this skill “pattern matching.”

Startup-technology-company value is driven mostly on this “comp”—the comparison between a company that has yet to show any revenue or profit and similar ones that have already unlocked massive growth potential. (“It’s like Netflix meets Pinterest.”)

Even big, fearless, world-changing public companies get prompted by large investors to mash up their business models. Morgan Stanley Equity analyst Adam Jonas recently increased his Tesla stock price target $280 to $465 by predicting how Tesla could become another Uber. He even gave the concept he envisioned a name, Tesla Mobility, an “app-based, on-demand mobility service.”

Jonas’s “Tesla meets Uber” idea would allow the carmaker “to conceivably more than triple the company’s revenue potential by 2029.”

Jonas’s analysis came after a question of his went unanswered during Tesla’s most recent second-quarter-earnings announcement call with analysts:

Jonas: Hey, Elon, Deepak. First question. Steve Jurvetson was recently quoted saying that Uber CEO Travis Kalanick told him that if, by 2020, Tesla’s cars are autonomous, that he’d want to buy all of them. Is this a real—I mean, forget like the 2020 for a moment—but is this a real business opportunity for Tesla, supplying cars to ridesharing firms, or does Tesla just cut out the middleman and sell on-demand electric mobility services directly from the company on its own platform?

Musk: That’s an insightful question.

Jonas: You don’t have to answer it.

Musk: I think—I don’t think I should answer it.

Jonas: Okay. Let’s move on. Second question is, there’s been—sometimes you can tell more from the non-answer than from the answer.

Jonas’s idea is far from crazy. After all, Tesla has a software expertise that positions the company well ahead of other automakers; it’s in the process of figuring out the complexities of electric charging and fleet management; and it is run by Elon Musk.

But what’s maddening to public-company executives and startup founders is the brazenness and the oversimplicity of these mashups:

Tesla meets Uber

Netflix meets AngelList

Quirky meets Zirtual

Still, as ridiculous as this shorthand may sometimes sound, it can be extraordinarily powerful—and thus extraordinarily frustrating to a company whose successful business model has been reduced to a clever portmanteau.

What’s valuable about business-model combinations

Clear and persuasive elevator-timeframe communication

By coming up with a quick description that compresses a complex idea into an understandable analogy, you open the door to a deeper, more nuanced discussion when time permits. The biggest benefit of an elevator pitch is that it gets you invited to explain more.

Business-model combination and replication

The growth of the Lean Movement and the widespread adoption of Osterwalder’sBusiness-Model Canvas have fueled the thinking of a new generation of entrepreneurs focused not just on product/service innovation but on novel business-model approaches as well. Large companies that have advanced far beyond startups engage in business-model combinations when they launch new services and acquire new companies. In fact, 90 per cent of all business-model innovations recombine existing ideas and concepts from other industries. (St. Gallen Business Model Navigator Survey. Gassman, Frankenberger, Karolin. 2014).

By creating a shorthand way of thinking about business models, innovators quickly demonstrate how a new business-model combination might unlock new value.

What’s frustrating about the Hollywood-style elevator pitch

Comparing an already successful company to something that doesn’t exist yet

Reducing business models to mere company mashups can mislead investors. The most often cited companies—Netflix, Amazon, Google, Facebook—are successful because they have a huge customer base, a well defended competitive advantage, and a profit formula that works well for them.

But each of them began business-model formulas that are completely different from the ones that describe them today.

Looking at business-model combinations vis-à-vis where you are today

So don’t just say that you want to Netflix your business, or that you’re worried that you’re about to be Netflixed. You need to be more specific. The company is a world-class business-model experimenter that’s constantly combining new business models with its already proven and successful original model.

Netflix started with a direct-to-consumer subscription model, delivering its goods in the mail. It then cannibalized part of its business when its switched to streaming video, frustrated customers with a change in the pricing model, but later weathered the storm and continued to grow. Netflix uses its enormous data-collection capabilities to optimize further sales—“If you liked My Little Pony, then you’ll like Strawberry Shortcake”—and to enhance its predictive algorithms as they apply to its original-content business (“House of Cards meets Orange Is the New Black”).

Every one of the company’s new business-model combinations creates further lock-in with the customer base.

So when your boss or board asks, “Have you thought about a model that’s more Netflix?” make sure that you know which combination of Netflix business models you’re being requested to consider. When a startup describes itself as “Kickstarter meets Spotify,” it may not fully comprehend the hurdles it will encounter starting a two-sided marketplace plus a social network plus an advertising model.

At Reason Street we’ve launched a Business Model Library for people who want to build their knowledge of how businesses work. Has someone told you to go Netflix or Spotify or to Uber your business, leaving you struggling to understand how? What business models are you thinking about? Let us know what business model or company you want analyzed, and we’ll add it to our growing library. We also conduct business-model-combination workshops to free up your thinking in constructive ways and put you on the path to business-model innovation.

NYU ITP Pitchfest Workshop 1

June 1: 2015

Why we do this

Get an audience outside of the cozy world of ITP Thesis feedback

Respond to genuine interest from investors

Help you understand how to launch ideas that just need to exist in the world

Which means we’ve expanded our aim – we are not just seeking high growth, high scale companies.

We welcome everyone that has a compelling concept

What we need from you

Purpose.

Know why you are driven to do this.

Motivation.

Know what drives you? Are you trying to control your own destiny? Or build the biggest thing that you can build? Or pay off your loans as soon as possible?

Vision. Vision First.

If it is clear enough and compelling enough it will attract the right people and resources.

If it is clear enough and compelling enough AND BIG ENOUGH it will attract the SCALE AND IMPACT-SEEKING people and resources (VCs, angels, future partners and team members)

 

How we get ready

 

June 1: First pitch. No visual aids. Concept review.

June 8: Purpose

June 15: Business model fun

June 17: PITCH

Whether or not you are seeking a scalable opportunity – spend the next few days going over investor pitch deck recommendations:

Sequoia

Cooley Co

Polaris (links to the first Foursquare pitch)

New York Angels Criteria

For lots of examples PitchEnvy

All will require you to know who your customer is. Talk to 10 per week for the next 2.5 weeks. (25 total). If you do not know how to do this, read Talking to Humans. It’s free.
Inspirational: Two Dots a Year Later

“What’s particularly great about the increase in revenue, is our team found a way to make money while sticking to our values, ensuring we’re always keeping our players’ interests and overall “fun” of the game front and center. Instead of looking for a quick win, we’re working to build our business and revenue responsibly by adding content and features that players (hopefully) find valuable enough to buy.”

Selling Science: Applying Lean at the NSF I-Corps

Published at the NYU Entrepreneurs Blog Part 1 and Part 2. —

Lessons Learned at the NSF’s I-Corps for Learning program:

“Parents didn’t even know what STEM was, nor STEAM!” exclaimed a conference participant.

Similar concerns could be heard from many of the academic and entrepreneurial educators this April, streaming out of the San Francisco Marriott after their first few days in windowless meeting rooms and actually talking to parents – their potential customers.

These would-be entrepreneurs were all grantees participating in a two month-long funded Lean LaunchPad course, developed by Steve Blank and run by the National Science Foundation (NSF) under the Innovation Corps for Learning (NSF I-Corps L) program. The goal of the program is to vet their educational ideas for sustainability and/or scale.

Lean methods have been embraced as a near religion in some startup circles, and is perceived to be the ideal method for driving potential unicorn-sized high growth market opportunities. Now the NSF is banking on Lean LaunchPad for social impact ideas to find their greatest impact.

The goal of NSF I-Corps for Learning is to foster entrepreneurship that will lead to the commercialization, greater scale and impact of STEM education, and learning innovations. The limited adoption and quality of STEM education is considered a crisis by the Committee on Science, Technology, Engineering and Mathematics Education under the National Science and Technology Council (NSTC). In response, the NSTC has developed a five-year strategic plan to address the US’s low ranking in STEM education and lack of skilled STEMdino workers.

I attended the NSF’s I-Corps L program as a mentor on an NYU team – Cognitive Toy Box – as I was curious to see how Lean LaunchPad works on social impact challenges.

I’ve participated in the adoption of the Lean LaunchPad method within NYU. NYU’s Entrepreneurship Institute has been a lead proponent of adopting Lean LaunchPad curricula in the Summer LaunchPad accelerator and supporting educators across NYU to prototype the course. I have had the privilege of teaching the first for-credit class at NYU at Tisch’s ITP program in 2014, which continues this year as we support a new batch of student teams to find their market potential.

There are a number of parallels in how the NSF teaches Lean LaunchPad and how we have adopted the curricula at NYU ITP. Because ITP is an engineering school in an art school, students are encourage to explore pre-commercial ideas and often struggle when they start to think of their concepts, projects, and potential businesses.

Most of the teams participating in NSF I-Corps L program faced a similar struggle – did their idea have the potential to be a scalable business, or even deliver a sustainable source of recurring revenue? What organizational structure would best propel their educational innovation? Where should they focus their efforts so that their innovation could achieve maximal social impact? Does the team have what it takes to pursue their innovation? While these questions may seem crazy to a Bay Area creator of the next wearable, dating app, or cloud-based big data analytics solution, they are deeply relevant to educators who are motivated not by profit potential, but by educational impact.

Part 2:

Customer Discovery Divines Sustainable vs. Scale Potential

In the first week indoctrination to Lean LaunchPad, the 24 teams in I-Corps L were encouraged to change their approach for how to scale curricula and teaching method innovations, under the relentlessly direct feedback of fellow Ed-Tech entrepreneurs, VCs, NSF advisors, and the Lean LaunchPad creators, Steve Blank and Jerry Engel. Each team, a triad consisting of an academic principal investigator, an entrepreneurial lead, and a mentor, were charged with taking their initial learning innovation and finding customers – fast. “Get out of the building” to discover potential customers.

The Customer Discovery approach is well suited to answer the question of scalable vs. sustainable. Most academic educators share the same bias as tech founders who fall in love with their solution without ever talking to more than a few potential customers. Customer Discovery forces the team out of the comfort zone of academic hierarchy and challenges the egos of the team, who are deeply humbled when they first try to sell their solution.

Almost every team had defined the STEM crisis as the “hair on fire” problem they were motivated to solve, and were shocked to learn a quick sample of parents at Union Square in SF, or the Exploratorium museum, had never heard of STEM or STEAM. The creators of an after school STEM curricula learned that a highly educated high income parent would pay a premium for these kinds of programs, but then the educators were disappointed that launching with this segment would delay their ability to reach students of all incomes.

Those teams that were successful in repositioning their value proposition to appeal to a potentially larger addressable market were on to a more scalable innovation. For example, a number of after school curricula creators learned that they shouldn’t be headlining their value proposition with the STEM crisis. After deeply listening to families of all incomes and educational advancement status, they learned that there were common themes for how parents described their deepest needs. More important than science, or design thinking, or engineering methods, these parents want the benefits these methods have to offer.

Parents want their children to develop team-building skills, collaboration skills, discovery and joy in learning, and reduce their fear of failure.

There is a huge addressable market in a society that seeks these outcomes. Recasting the value proposition based on these outcomes of learning, rather than the curricula itself, worked to expand the market.

Other teams confirmed potential sustainability rather than scalability. Defining how a certain curriculum or program could replicate within a local school system, or to other school systems. While these project teams were unlikely to see a hockey stick style growth curve in their future, they are well equipped to envision how their innovation can move beyond their initial experiments.

At the end of the program, the NSF has a particularly open stance to what becomes of the project team innovations.

The outcomes of the projects are expected to be:

  • A clear go-no go decision concerning the viability and effectiveness of the learning oriented resources/products, practices and services
  • An implementation “product” and process for potential partners/adopters
  • A transition plan to move the effort forward and bring the innovation to scale.

The prize for participation for academic entrepreneurs is high: The I-Corps programs feed the popular NSF Small Business Innovation Research and Small Business Tech Transfer Programs (SBIR and STTR), and successful businesses can earn multiple non-dilutive grants that rival seed or Series A investments.

NSF is very comfortable telling STEM educator / entrepreneurs that it’s ok to fail once you’ve gathered enough evidence that your project isn’t viable. At the start of the program, teams were assured that a decision to not continue a program is completely acceptable. Teams move to no-go when they learn the steep uphill climb it would take to scale their innovation, because they are too early, there is too much competition, or they are not cost effective enough to deliver in the current market environment. Teams also choose no go when the individuals involved decide that entrepreneurship is just not their calling.

What I learned from the experience in the end: parents want for their children what the NSF wants from educator entrepreneurs: learning how to take risks, collaborate, and reduce our fear of failure, and the joy of discovery.