At Columbia Business School, many of us have adopted Alexander Osterwalder and Yves Pigneur’s Business Model Canvas (BMC) as a template to guide students through the business model development process. Over the past few years, as we teach and discuss how best to apply the BMC to numerous new venture ideas, we have developed tools and approaches to support the testing and refinement of your business model. However, the application of the BMC in the startup environment is not without its detractors. Colleague criticisms range from the vagueness of the terminology to the absence of specific elements that they deem essential. I will explore these issues in this and future posts.
Business Model Applications
To get started, let’s discuss the reasons for developing a business model for your new venture. Business models have been part of management best practices for many years, helping business leaders articulate how they provide value to the customer over a sustained period. Business models help define all the business activities and operations required to deliver products and services to customers. Modeling your business helps to ensure that all the elements of your business work together for the customer’s benefit.
In large part due to the lean startup movement, the application of business models has become standard practice in the new venture realization process. I think there are several reasons for this increased application:
- One of the central tenets of lean startup methodology is that a new venture can be considered a temporary enterprise organized to search for a repeatable and scalable business model through continuous experimentation.
- Business models provide a structured framework for founders to design their new venture as an interrelated set of hypothesized business activities.
- You can view it as a continuous process by making assumptions about specific business activities and interrelationships with other elements in your model for future testing.
- Business model frameworks like the BMC provide a visual dashboard to articulate how the business works to all stakeholders.
- By embedding scientific methodology and hypothesis testing to the business model assumptions, founders create a team culture of experimentation, a critical element of sustained innovation.
- One identifies essential metrics to monitor as the venture develops by encouraging the quantification of various business model elements.
- Generating innovation across all business model elements creates opportunities for competitive advantage in the marketplace.
Business modeling helps the entrepreneur identify all the business elements required to bring value to the customer. Using a structured business model forces founders to take every aspect of the business into account. What quickly becomes apparent is that there are many ways for your venture to stand out in the marketplace beyond just unique product features. By looking at what is currently in the market through the lens of a structured business model, you can discover many ways to differentiate yourself from existing solutions. In addition, it opens up possibilities for innovation beyond the product, including unique marketing channels, customer engagement programs, revenue models, and strategic partnerships. As a result, I have seen plenty of ventures build sustained competitive advantage through business model innovations.
Founders’ Tunnel Vision
Unfortunately, I see many aspiring entrepreneurs focusing on one or two aspects of the business, such as product development and marketing, with little thought into customer engagement, supply chain management, or strategic partnerships.
Many founders focus on one part of the business, usually the product offering itself. You can have the most unique and high-quality product in the market, but you don’t have a business if the customer does not see the value. Therefore, it is essential to focus on aligning your product offering and customer needs and value expectations early in the process. I will highlight this in later posts as a critical first step in the modeling process. Even with solid alignment between your product and the customer, your business will not succeed if you don’t have a strategy for distributing your product to the market or serving the customer with quality. Using a structured business model helps the entrepreneur to think holistically about the new enterprise.
One thing to consider as you decide on the relevance of BMC for your venture development is when to start fleshing out the model elements. Some argue, especially in the design thinking community, that creating an entire business model makes little sense until you have the customer problem and its context clearly defined.
Is applying the BMC premature before problem identification? From my experience, there is always a tension between problem focus versus solution-driven approaches. How do you suspend judgment in early BMC iterations? It is helpful to look at the value proposition more generically, as the value from a practical solution and not a specific product idea. I give founders the option to add their initial solution concept at the end of the value proposition section.
From the perspective of lean startup practices, most experts agree that the main focus for the entrepreneur is to validate assumptions made throughout the business model, learning what optimal combination of elements is required to build a repeatable and sustainable business. In the next post, I will discuss each BMC element specifically and its relation to the others. Next, I will look at the definitions and add clarity for founders who want to apply the BMC to their venture realization process. Finally, I will introduce specific tools that founders can use as they develop their business models.
For more on this subject and other entrepreneurship topics, get a copy of Patterns of Entrepreneurship Management, 6th Edition.
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