25 Dec 2011 Review of Alexander Osterwalder, Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers
The Business model generation book is based on the Business model canvas. It’s a method easy to use and available for free. On the canvas there are nine building blocks covering all areas from customers, offer, infrastructure, and financial viability.
Why is this book worth reading? Because the book is greatly designed. But really. Because this book itself was published as an innovative business model. A book. How’s that possible? Because this book can easily change your life. If you don’t believe me, read this review.
A description of a business model in the book says that a business model describes the rationale of how an organisation creates, delivers, and captures value. Wikipedia adds to that value could be economic, social, or other forms of value. From the experience in this book, I would add that in the first place there is design thinking needed to generate business models because you have to combine rational and intuitive thinking. Design thinking.
If you would like to remember only one thing about or from this book, then remember the business model canvas. It has nine building blocs, the left side presents the rationale and the right side presents the intuitive part. The canvas covers four main areas of business: + customers; + offer; + infrastructure; and + financial viability.
In business model canvas the intuitive or value-side is presented by: + customer segments, + customer relationships, + channels, and + revenue streams. The rationale or cost-side of canvas includes +key activities, + key resources, key partners, and cost structure. Bost sides are connected with value propositions.
You may freely download the business model canvas at the business model generation web-site. So until now, you probably know that design approach or design thinking is necessary for every innovative, competitive, and/or growth business model. Authors of the book have proven it on the case of this book, which is also a management book of the year 2011, in Germany at least. Dan Roam’s has designed a great visual presentation of the business model canvas with the best visual approach I’ve seen, presenting all nine building blocks of building model canvas:
In business model canvas you have already mentioned nine building blocks. On the left side, we have are so-called rational blocs: + key partners, + cost structure, and + key activities. On the right side, we have + customer segments, + customer relationships (excellently presented in Dan Roam’s sketch as yin:yang), and + channels. That part is an intuitive side. Both sides are connected with the value proposition. The whole method, therefore, demands a productive combination of rational and intuitive thinking, which is actually design thinking.
What other details could be of interest to you? Really a lot of them. The book has had a great impact on me. I even managed, with the help of my twitter profile and my followers to get to the Business models workshop and Masterclass held in Munich. I can really recommend this workshop to you too. If you are from a start-up company, you will usually have the promo options to get the workshop for just 1 €. Check-out Business Model Generation events web-site.
Business model patterns are models with similar characteristic or behaviour and include patterns such as: +Unbundling, +the Long Tail, +Multi-Sided Platforms, +Free, and +Open Business Models.
On a broad scale business models could be divided into cost-driven vs. value-driven but many business models fall in between these two extremes. Business models with + similar characteristics; or + similar arrangements of business model building blocks; or + similar behaviours are called business model patterns. Where it is worth knowing that a single business model can incorporate several of these patterns. Concepts described in this book include patterns such as Unbundling, the Long Tail, Multi-Sided Platforms, Free, and Open Business Models. Every pattern is described with its context (before), challenge, solution (after), rationale, and really nice examples.
This part of the book helped me to find a way how to unbundle the design services of my company. It is still very interesting to see the explanation of unbundling the business of mobile telecommunications firms, explained in the book on the cases of France Telekom, KPN, and Vodafone. The authors have mentioned also Bharti Airtel, one of the first mobile telcos that unbundled really in a strategic way, and is now one of India’s leading telecommunications companies focusing on its core competency: building Customer Relationships.
One other case was also very interesting to me, namely the transformation of the book publishing industry. Every author today has the possibility to publish his or her book. Because the publishing business models have changed. While in the past the publishing houses had to decide if it was profitable for them to copyedit, design, print, and promote a book, today costs of self-publishing can be taken almost completely by the author with connection to publishing platforms like Lulu.com. And many others, including WordPress. And in case of failure nobody gets hurt (well, the self-esteem of the author, maybe).
If you are going to try to sketch your business model remember: the entire business model design process should be guided from a customer perspective. The authors call it: it’s about THEM! Customer-centric business model design. It means shifting your and everybody’s perspective away from YOU (as an organisation or company). Away from organization-centric business model design. Just forget this perspective. Otherwise business models could also be: + resource-driven; + offer-driven; + customer-driven; + finance-driven; nad/or + multiple-epicenter-driven.
The entire business model design process should be guided from a customer perspective. It’s about THEM! Customer-centric business model design means shifting yours and everybody’s perspective away from YOU (as a organization or company). Go away from organization-centric business model design.
Once you have your business model canvas you have the opportunity to look at your canvas from the broader environment. You should or could include the key trends, market forces, macroeconomic forces, and industry forces. Add some other details like your team, finance… and you have almost completed your business plan. But before you start planning and writing a hundred pages of your business plan, test your business model first. And this is the greatest advantage of business model generation, you don’t need to make a whole plan to see or realize if your idea/product/service works or not.
One other very interesting use of business model canvas is with the Blue Ocean Strategy concept. Especially when you are designing your value proposition it could be very useful and efficient way to use four actions framework of what to eliminate, what to reduce, which factors to raise and which to create new? Or use the empathy map to design or find your customer profile. What does the person feel, what does she see, what does she say and do, and what does she hear. Out of that, you’ll be able to find out your customer profile pains and gains.
You don’t have to be some serious manager to design a business model. Sometimes it’s even better if you are not one. Because ideation is the crucial art to be mastered if you are to design a viable new business model. At least a little bit of creativity is therefore needed and we all know managers are not really creative most of the time. Children could do much better.
To warm up before you start designing or generating the business models you may use the silly cow exercise. Here’s how it works:
“Instruct participants to sketch out three different business models using a cow. Ask them to first define some characteristics of a cow (produces milk, eats all day, makes a mooing sound, etc.). Tell them to use those characteristics to come up with an innovative business model based on a cow. Give them three minutes.
Keep in mind that this exercise can backfire, as it is indeed quite silly. But it has been tested with senior executives, accountants, risk managers, and entrepreneurs, and usually is a great success. The goal is to take people out of their day-to-day business routines and show them how readily they can generate ideas by disconnecting from orthodoxies and letting their creative juices flow.” Danny Beckett Jr.
Innovative business models are more important if you wish to succeed than your great idea, product or service.
Prototyping of your next business models could be done at different scales: from napkin sketch to simple or elaborated business models canvas or to the field test. Remember that your breakthrough ideas may encounter strong resistance. Either inside of your organisation or outside in your environment. Don’t let that stop you. Remember, innovative business models, are more important if you wish to succeed than your idea, product, or service.
For big picture assessment, you may use a simple or detailed SWOT analysis of each building block of the business model canvas. So you should be able to: + first have a snapshot of where are you now (strengths and weaknesses), and + second you should be able to realize some future trajectories (opportunities and threats).
You don’t need a lot of knowledge about business to start your idea, because every business model design project is unique, so design your business models ASAP.