Product Market Fit (Tue Nov 6, lecture 17)
What is Product Market Fit and how to get tehre

Homework due for today

Legend: : Participation | : Early | : PDF | : Zipped

  1. Teams Read: Achieve product Market Fit. After reading it on your own, get together with your project team, spending 1-2 hours together. Based on the reading discuss and debate the “Value Proposition Canvas” and how it applies to your project. The purpose of this exercise is for you to better understand the value proposition your product is going after, as well as the customer segment that you are going after. Team Deliverable: Write up the results of the discussion about your overall value proposition and customer segment. Also include your ‘filled in’ vp canvas. Dont worry about making it fancy just include the info. Submit to Latte as a pdf.
  2. Continue working on Stage 2 of Term Project Outline. Continue refining your product, getting more feedback and supporting information and preparing your Term Project Final Deliverables

Background of the Business Model Canvas

(based on Business Model Generation and follow on research, books and tools)

  • Here is the: Business Model Canvas
  • One way to sructure strategic planning, analysis
  • Checklist helps cover all the bases when designing a business model
  • Handy if have one of several possibilities that you are examining
  • Note that a single business might operate based on two different models (but it’s more complex to do that and usually not the right way to go.)
  • Use this in combination with the Value Proposition Canvas from the homework
An interesting variant
  • Lean Canvas: Looks like a refinement of the Business Model Canvas, but very similar in concept. Worth a look. This is what’s used in the Spark/Sprout programs.

Building Blocks of a business model

Customer Segments (for whom)
  • What customer or groups of customers?
  • And who are the most important ones?
  • A segment is distinct if you can identify a set of customers require: A different offer, different channels, different types of relationships, different payment models, etc
  • Examples: Mass market? Niche market? Segment of larger market? Two sided market?
  • Note that you might be going after more than one!
Value Proposition (the offer)
  • Important: Use Business Model Canvas to analyze this in more depth!
  • What problem do we solve for the customer?
  • What product/service do we deliver to the customer?
  • How do we do that compared to what they do today?
  • There’s more than “solving a totally new problem/needs”
  • Examples: performance, customization, convenience, price, status, safety, etc.
Discussion: What did you learn from the Value Proposition Canvas, today's homework? Think about it by yourself for a few minutes. Next, meet with your team for 5 minutes to discuss what a few big things you took away. Make notes to be able to share with the class
Revenue Streams (or pricing model)
  • Per customer segment/offer, who pays and what do they pay for?
  • How do you set and adjust the price?
  • Examples: simple purchase; usage fee (“pay by the drink”); subscription; licensing; in-“game”-purchases; lending or leasing;
Channels (How do I reach customers?)
  • How do you reach a customer? How do they want to be reached?
  • Are you able to reach them in that way?
  • You need to figure out how to: generate awareness, allow evaluation, enable purchase, deliver the product, provide after sales follow up
  • Examples: Web site, Direct Sales, Reseller web site (e.g. Amazon), Stores, Wholesaler, social media
  • Why? Major cost driver
Customer Relationships (ongoing)
  • What kind of ongoing relationship does your customer want with you?
  • Examples: personal email; self-service support site; face-to-face; online community; co-creation
  • Why? Key part of the value proposition; also a major cost driver.
Resources (What do you need for success)
  • Go a level deeper than just “money”. Identify all the things you will need
  • For example: expertise (we need a bigdata person), IP (we need to license music), physical (we will need a shop floor to do assembly.)
(Top) Activities (To do list)
  • This might seem obvious but it’s worth calling out, because it’s so ‘obvious’
  • Examples: software development; packaging and shipping; manufacturing; support; marketing; manufacturing; licensing; etc.
  • What outside entities do you have to establish trust with for your model to work?
  • Suppliers? Resellers? Distributors? Maybe a web distributor like Amazon? Maybe Apple, because they have to approve your app. Are you licensing something from a partner?
Cost Structure
  • ‘Simply’ all the costs needed to run the businss model
  • Fixed costs, per-unit variable costs, per-employee variable costs
  • Based on Key resources, key activities and key partnerships

Conclusions - Business Model Canvas

  • Assures that you consider and address all the pieces of your business model
  • Is it a business or a hobby? Business includes much more than just the product
  • Gives you a way to partition the work, and present the results


Company and market exercise

Each team takes one of these

  1. Barnes and Nobel Nook
  2. Tesla Motors
  3. Olin College
  4. Apple iTunes
  5. Raspberry Pi
  6. Nest Thermostat
  7. Microsoft X-Box
  8. Makerbot Replicator
  9. Google Android
  10. Pocket Hose (google it)
  • 10 minutes: By numbered team, answer each of these questions
    • what market(s) is this company and/or product in
    • what segment and kind of segment does it compete in
    • what is it’s value proposition is it offering that market
    • how did it attack or enter the market
    • additional observations and/or insights?

Markets and Segments

What is a ‘market’ in this context?

  • How do you think about the market size?
  • Look at segments, value proposition and market entry
  • Segments: For your market or customer hypothesis, you need to understand the market(s) and segment(s) you are serving.
  • Notice that these are not black and white, they can be continuums or multi-faceted.
  • Types
    • Mass Market: Huge and undifferentiated. Horizontal, e.g. consumers age 12 to 18.
    • Niche: Highly specific: Vertical, e.g. Bicyclists
    • Segmented: your product serves more than one segment. Apple serves the consumer and education market segments
    • Diversified: your product serves very different markets: Amazon serves consumers and software developer
    • Two or multi-sided markets: brings two or more segments together: dating services, newspapers
    • there are others…

Value Proposition:

  • For each segment you need to express what value your product or service is creating.
  • If you cannot express it than you probably should not be trying to address that market.
  • It’s not just that you are offering something ‘new’ to that segment. It could also be:
    • cheaper (to buy or to use)
    • faster
    • more convenient
    • better designed
    • more customized
    • brand
    • safer/less risky
    • more available (segment couldn’t get it, use it, access it before)

Market Entry

  • Existing market
    • Your customers (kind of) understand the problem and your solution
    • You have (kind of) competitors
    • Your customers will have to stop using another product
    • Sometimes your entry can grow the number of customers, sometimes you fight it out (e.g. Facebook for Seniors. Is that a new or existing market?)
    • So you can:
      • ENTER an existing market, e.g. Android joining iPhone and compete directly
      • RESEGMENT an existing market - with one of value propositions above, e.g. iPhone joining Blackberry
      • RESEGMENT a market - by going after a sub-component of it, e.g. Tesla entering automobile market
  • New Market
    • Your customers may not know they have the problem
    • You have to teach/explain them why your product/service exists
    • They will have to find budget (money) to pay for it.
    • This is a very expensive process for you
    • So you can:
      • CREATE a totally new market, e.g. Palm, creating the PDA market
  • Discussion: Let’s see what advantages and challenges each example has