Business Models (Tue Nov 6, lecture 17)
Intro to the business model canvas

Homework due for today

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

1. Teams: Watch this brief video about the Business Model Canvas (by Alexander Osterwalter)

  • This assignment REQUIRES coordination among the team. Believe me, it works better and quicker if you do it together face to face.
  • Watch the video and download and look at the Business Model Canvas Poster. Try to understand really what is meant by the term business model. As a team, discuss and brainstorm about how that applies to your product. Think about what a business built around it would work. Osterwalter and his colleagues organize the business model space into nine building blocks which suggest a series of questions to think about in each block and start seeing the relationships between them. Make notes during the discussion.
  • Divide up the work of doing a writeup between the team members by splitting the Business Model Canvas ‘building blocks’ among your team. There are nine such blocks on the poster. Each team member must do some more web research on the Osterwalter’s Business Model Canvas to supplement the small summary in the video. Together or separately discuss and brainstorm what goes into each block.
  • Team Deliverable: Once the individual work has been completed, please combine them into one team deliverable, giving a mini-response to each of the “blocks”. Also include some comments about the discussion itself and how it went. Submit this as a pdf.
Ongoing work
  • Continue to work on Stage 2: Will be due on November 13. Decide on and do more out of the building testing: survey, 1-1 interview, landing page, anything else you can think of. Make sure you know and indicate what the hypotheses were that you were testing as well as the methodology and results of the test. Record your work and the results. Remember we are looking for non-trivial amount of outside testing. You will need it for your term report.
Interesting, but not required reading

Formal Project Review Checkpoints

  • This will be graded.
  • Starting this next wed for 1 week
  • For fairness, if you dont reserve a block or miss the 1 week window, 20 points will be deducted
  • Unless excused, all team members need to be present
  • Use this link to reserve a 45 minute spot: Reservation for 165 FPRC
  • TAs are meeting with you right now to help you prepare. Make sure you find the time
  • Prepare a presentation (maybe 10-15 minutes) which I will ask you to actually present!
  • This is not the same presentation you will give at the end (see Final Presentations), because that one will have more data in it and will be shorter. In this one I would like some more detail.
Suggestions for what to prepare
  • Project summary
  • What is it?
    • What problem does it solve?
    • How big a problem is this?
    • Why do you believe this?
  • Who is it for?
    • How specific can you be
    • How will you reach or market to this segment?
    • Why do you believe this?
  • How will it make money?
    • What pricing have you tested so far
    • Can you say whether that wil be a profitable business?
    • Why do you believe this?
  • What are the hypotheses and how did you test them
    • MVPs
    • Pivots
  • Show and tell:
    • data, diagrams, mvps, spreadsheets, etc.
    • Mockups, Web sites, Surveys, Results etc.


Discussion: What did you learn about what a "business model" is? You describe an idea you have and a friend asks you, what's the business model? What is your answer?

Business Model

  • Term’s definition is not set in concrete (as usual)
  • Blueprint for how a business will function
  • Describe how a business will creates, delivers and captures value
  • Incorporates the product, value proposition, the pricing, the growth model and more
  • In a way this is the final deliverable for the term project :)

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 Value Proposition 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”
    • More common is that there’s the old way, and then there’s our improvement on it
    • Examples: performance, customization, convenience, price, status, safety, etc.
Discussion: What new insights did you derive 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

  • It’s purpose is to help 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

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…

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

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)

Company and market exercise

Each team takes one of these

  1. Tesla Motors
  2. Olin College
  3. Raspberry Pi
  4. Nest Thermostat
  5. Microsoft X-Box
  6. Fidelity Investments
  7. Makerbot Replicator
  8. Google Android
  9. iRobot Roomba
  10. Carnival Cruises
  11. Amazon
  12. Twitter
  • 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?

Next Class