Business Model Alchemist

As business people we have a powerful tool in our hands: the knowledge of how to build, run, and manage businesses. Let us be ambitious and put that knowledge to work for things that really matter.

But please don’t get me wrong. I’m not talking about so-called “social corporate responsibility”. Nor am I talking about “pro bono work” for social projects, or about “giving back”, a phrase that so many successful business people like to use. No, what I am talking about is the ambition to build sustainable business models that have a social, environmental and/or development impact written in to their DNA. In other words, business models that make a difference by their “mere” success.

Business Models that Matter

Take Grameen Bank, to use a very popular and widely discussed business model with an impact. The Bangladeshi institution makes micro-loans, mainly to women in Bangladesh. This allows the women to build micro-businesses and earn sustainable incomes for them and their families. The success of Grameen Bank’s business model has a substantial impact on poverty alleviation and the social status of these women entrepreneurs.

A completely different example is Max Havelaar, an originally Dutch and now pan-European fair trade label. The organization behind the concept has been self-financing its business model since 2001 through licensing fees. Products bearing its label (e.g. coffee, bananas, flowers) are sold through supermarkets at a competitive price. The label provides consumers with the assurance that a fair price was paid to the producing farmers in the South. To make that possible a minimum of intermediaries are used to bring those products to markets in the North.

Another inspiring example is Acumen Fund, founded by Jacqueline Novogratz, the author of The Blue Sweater. The fund invests in business models that generate financial and social returns. It particularly looks at business models that can be effective in reaching the “base of the pyramid” (BoP)—or the billions of poor without access to clean water, reliable health services, or formal housing options.

Real Ambition

Business models of this type is what we should really aspire to build as business people. Trying to tackle business issues of this level of difficulty and relevance, is what I call real ambition. “Difficulty”, because it’s not “just” about weaving profits into the business model’s DNA, but also impact. “Relevance”, because I sincerely believe that innovative business models can make a substantial contribution to helping solve some of the pressing global issues of our times (poverty, sustainability, inequality, healthcare…).

Building business models that merely pursue profits almost pale as a hedonistic or pecuniary quest aside the grand challenge of building business models that matter. Let us at least allocate some of our time and intellectual capacity to this quest of designing and implementing relevant business models. I am convinced that powerful innovative business models are one of the major tools (besides regulation, etc.) that can bring systems level change and transformation. Let us take up the challenge

Peepoople – a case study to challenge your creativity

To seduce business people to think about business models that matter, I get them to work on a different type of business model in my workshops. I get them to brainstorm on innovative business models for Peepoople, a Swedish organization that has developed a self-sanitizing toilet bag that is biodegradable and turns into fertilizer after usage. With the right business model this organization could potentially bring toilets to over 2 billion people who lack proper sanitation infrastructure.

Check out the video interview with Peepoople’s CEO Karin Ruiz and propose some innovative business models that could help her organization to scale and succeed. I use the video to introduce the case study challenge.

(never mind the video quality – we did this interview over Christmas with Skype when Karin was on vacation in Uruguay / also, please note that I didn’t really know how to make a natural-sounding voice-over…)





Last but not least: check out our new project on business models that matter: BusinessModelsBeyondProfit

Mapping out a business model with a group of people is like playing a game. That’s what I came to realize when my friend and leading visual thinker, Dave Gray, introduced me to his new project called Knowledge Games.

I was instantly fascinated by the project, because it is extremely relevant for anybody who wants to understand how creative work is starting to be organized in today’s organizations. Yet, most interestingly, the Knowledge Games project is utterly practical, since it aims to outline a series of games designed to help you get more innovative, creative results in your work.

The authors of the project, Dave Gray, Sunni Brown, and James Macanufo are on the best path towards creating the next reference guide for the creative business professional and business innovator. The metaphor of games refers to the most natural of human mechanisms of exploring the world: games & play. And what could be more important than exploration when it comes to defining strategy and business models in a competitive environment characterized by volatility, unknowns and constant change:

Games come naturally to human beings. Playing a game is a way of exploring the world, a form of structured play, a natural learning activity that’s deeply tied to growth. Games can be fun and entertaining, but games can have practical benefits too.

When Dave asked me to formulate the usage of the Business Model Canvas as a Knowledge Game I was immediately hooked. Here is the blogpost I wrote for the Knowledge Games project (check out the original post):

Objective of Play: Visualize a business model idea or an organization’s current and/or future business model in order to create a shared understanding and highlight key drivers.

Number of Players: 1-6 (depending on the objective). Works well individually to quickly sketch out and think through a business model idea or an interesting business portrayed in the press. To map an organization’s existing and/or future business model you should work in groups. The more diverse the group of players (marketing, operations, finance, IT, etc.), the more accurate the picture of the business model will be.

Duration of Play: Anywhere between 15 minutes for individual play (napkin sketch of a business model idea), half a day (to map an organization’s existing business model), and two days (to develop a future business model or start-up business model, including business case).

Material required: Mapping business models works best when players work on a poster on the wall. To run a good session you will need the following:

• A very large print of a Business Canvas Poster. Ideally B0 format (1000mm × 1414mm or 39.4in × 55.7in)
• Tons of sticky notes (i.e. post-it® notes) of different colors
• Flip chart markers
• Camera to capture results
• The facilitator of the game might want to read an outline of the Business Model Canvas (free 72 page preview of Business Model Generation

How to Play: There are several games and variations you can play with the Business Model Canvas Poster. Here we describe the most basic game, which is the mapping of an organization’s existing business model (steps 1-3), it’s assessment (step 4), and the formulation of improved or potential new business models (step 5). The game can easily be adapted to the objectives of the players.

1. A good way to start mapping your business model is by letting players begin to describe the different customer segments your organization serves. Players should put up different color sticky notes on the Canvas Poster for each type of segment. A group of customers represents a distinct segment if they have distinct needs and you offer them distinct value propositions (e.g. a newspapers serves readers and advertisers), or if they require different channels, customer relationships, or revenue streams.
2. Subsequently, players should map out the value propositions your organization offers each customer segment. Players should use same color sticky notes for value propositions and customer segments that go together. If a value proposition targets two very different customer segments, the sticky note colors of both segments should be used.
3. Then players should map out all the remaining building blocks of your organization’s business model with sticky notes. They should always try to use the colors of the related customer segment.
4. When the players mapped out the whole business model they can start assessing its strength and weaknesses by putting up green (strength) and red (weakness) sticky notes alongside the strong and weak elements of the mapped business model. Alternatively, sticky notes marked with a “+” and “-” can be used rather than colors.
5. Based on the visualization of your organization’s business model, which players mapped out in steps 1-4, they can now either try to improve the existing business model or generate totally new alternative business models. Ideally players use one or several additional Business Model Canvas Posters to map out improved business models or new alternatives.

Strategy: This is a very powerful game to start discussing an organization’s or a department’s business model. Because the players visualize the business model together they develop a very strong shared understanding of what their business model really is about. One would think the business model is clear to most people in an organization. Yet, it is not uncommon that mapping out an organization’s business model leads to very intense and deep discussions among the players to arrive at a consensus on what an organization’s business model really is.

The mapping of an organization’s existing business model, including its strengths and weaknesses, is an essential starting point to improve the current business model and/or develop new future business models. At the very least the game leads to a refined and shared understanding of an organization’s business model. At its best it helps players develop strategic directions for the future by outlining new and/or improved business models for the organization.

Variations: The Business Model Canvas Tool can be the basis of several other games, such as games to:

• generate a business model for a start-up organization
• develop a business model for a new product and/or service
• map out the business models of competitors, particularly insurgents with new business models
• map out and understand innovative business models in other industries as a source of inspiration
• communicate business models across an organization or to investors (e.g. for start-ups)

I admit, I have been posting about the music industry too much recently. However, by studying it we can learn a lot about business model innovation in general (or a lack of it).

After my keynote at the Eurosonic Noorderslag music industry event I gave a short interview. Check it out and don’t miss out on the interview with Niklas Ivarsson of Spotify (promise: my next blogpost will certainly not be about the music industry – I will explain how to use the Business Model Canvas to play a game).





Spotify is one of the hot start-ups in the music industry. I portrayed the company’s business model in my keynote by sketching it out with the Canvas. Niklas Ivarsson, their global head of licensing, outlines the services of his company in the interview below. Interestingly, he also explains how many users prefer using Spotify rather than relying on piracy for music.

It was fun to give a keynote on business model innovation at Eurosonic Noorderslag, Europe’s most important live music industry conference. The music industry is more or less a playground (and battlefield) of new business models

In this second blogpost (read part I) on the music industry I present two of the examples of innovative business models in this area, which I presented during my keynote talk: Sellaband and Spotify. Both companies were actually present during my presentation.

While in the past the music industry was characterized by one dominant business model design (the one of the major recording companies), the future will be characterized by multiple competing business models.

There was also an interesting discussion in the panel after my talk, which hosted Nokia, Spotify and rights holding company Buma/Stemra. One of the elements pointed out was a the competition between business models based on ownership of music (e.g. download) versus access to music (e.g. streaming).

Check out my slides for an illustration of Sellaband’s and Spotify’s business model:

Next week I’m giving a keynote on business model innovation at Eurosonic Noorderslag, Europe’s most important live music industry conference and showcase festival for new talent.

While the music industry provides sufficient material for a whole book on business model innovation, I will simply package some thoughts in two blogposts. The first part is on “what’s broken”. The second part will be on the fact that

Today’s music industry is a business model playground – and to a certain extent battleground

It is quite a particular industry because of its high concentration of power. 85% of the recording industry, the most important subset of the music industry, is controlled by only four players, Sony Music Entertainment, Universal Music Group, Warner Music Group, and EMI (source 1, 2). That didn’t prevent them to screw up when it comes to business model innovation. In fact, it probably is one of the root problems.

Check out the slides below for a brief outline of the “old” recording industry business model and an assessment of where it is broken. After reacting only slowly to the external pressures on their “old” business model the major record companies are now slowly experimenting more seriously with new models (topic of part II of this blogpost).

Although the major record companies are engaging in new business models, I don’t think they are aware of the extent of flaws in their “old” model. Some points that their executives should keep in mind when they brainstorm on new models:

• Recording companies are fighting piracy, while that won’t win them “the battle”.
• Albums sales are out in the digital world – they are unbundled into single songs (e.g. iTunes).
• The price of albums and songs (not necessarily music in general – e.g. services) will inevitably move towards ZERO.
• Distribution has become a commodity because of the Internet, attention is the new scarcity.
• Talent and hits will be discovered by other mechanisms than those that the majors have in place – social networks are what drive music sales today.
• The old model carries an outmoded legacy cost structure (talent discovery/marketing), which is unsustainable.
• The balance of power between recording companies and artists is inevitably moving towards artists.
• The future of music is all about hits AND the Long Tail of music.

Business Model Innovation is on the agenda of many CEOs of incumbent organizations and in the DNA of countless insurgent start-ups. Yet, executives and entrepreneurs should already look beyond “mere” innovation towards managing business models.

Staying ahead of competition requires more than an impressive one-time business model innovation stunt. It requires the careful evaluation and improvement of one’s more established business model (cash cows), while proactively playing with a portfolio of new business models. This can be presented as a spectrum ranging from “improving business models” to “disrupting/inventing business models”.

Improve: Continuously assess and improve your more established business models, notably through incremental innovation.

Disrupt, Invent: Pro-actively develop and manage a portfolio of disruptive and entirely new business models that will allow you to maintain a competitive advantage in the future. In some cases these new business models may cannibalize your existing business model in others they may be complimentary. Some companies my prefer an acquisition rather than a development strategy of new business models. However, it still requires a deep understanding of the new and emerging models.

Companies that have failed to manage the entire spectrum of business model management include Xerox who has popularized the dominating photocopying business model in the 60s (see Henry Chesbrough’s work for details) or Dell, which has popularized direct sales of PCs through the web. Both have introduced new business models and come to dominate their field, but failed to reinvent themselves.

Companies that seem to be managing the entire spectrum of business model management include, for example, Amazon and Daimler. The former is constantly improving it’s online retailing business, while building new business models with large growth potential (e.g. Amazon Web Services that allow renting storage space and computing power). The latter is improving it’s core business (after some painful merger adventures), while exploring new complementary business models invented by it’s Business Innovation Department. In 2009 that department experimented with Car2Go, an interesting mobility concept that allows people to rent and drop-off cars on the fly anywhere in a city. With this concept Daimler intends to exploit the continuing trend of urbanization and problems of congestion and individual transport.

I just came across an interesting post on Harvard Working Knowledge. Julia Hanna writes about a Harvard Business School case study that shows how Chef Ferran Adrià creates innovative customer experiences in his world-famous restaurant elBulli.

elBulli’s numbers are impressive:

Each year, some 2 million hopeful diners vie to be one of the fifty customers he serves each evening for the six months that elBulli, his restaurant, is open.

However, what struck me most about the article was Ferran’s focus on creating a unique customer experience. This includes a two hour travel from Barcelon to the restaurant on narrow, twisting mountain roads. Another example is elBulli’s mysterious reservations system. It’s more like a lottery system. If you are lucky to “win” one of the 8′000 available bookings a year, you are given a date and time to show up. This is everything else than convenient for customers.

elBulli seems to violate any common sense marketing rule (e.g. good location, listening to the customer, etc.). More interestingly, what elBulli does is also the opposite of the new “design thinking mantra” of observing customers and then designing services according to the gained insights.

In fact, elBulli’s magic and success ultimately lies in Ferran Adrià’s passion and his desire to create a one-in-a-lifetime experience. Now that takes real leadership! And in my opinion leadership is one of the most under-discussed ingredients of innovation. Other great examples of innovation leadership include Steve Jobs at Apple or Elmar Mock at Swatch in the 80’s.

Last month I did a short 7 minute talk in the “Eye Opener” session at eDay in Rotterdam. Have a look at the video.

The waiting is over. Our new book “Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers” is now on the market. Yesterday we shipped over 1′000 pre-purchased books to more than 55 countries.

Enjoy the extensive online preview below and the FREE 72 page pdf preview of Business Model Generation. In order to keep the price affordable we are selling it over our book website for the first few months before distributing it through Amazon.com.

We are curious to hear about your feedback regarding content and form. You may also want to have a closer look at the story and business model of the book, which are very special – more on that at the end of the preview.

Our upcoming book Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers (10% pre-purchase discount) is literally on the way to the printing press – time to summarize the experience.

The past 14 months have been an exciting, but also very exhausting innovation journey. From all my experiences with innovation (I have helped build two and sell one organization) this has been by far the most challenging one. It is only thanks to a great team that this project has produced a powerful book (Yves Pigneur: Co-Author, Alan Smith: Design, Tim Clark: Editing, Patrick van der Pijl: Production). So how did the journey look like:

Starting Point

Goal:

• Produce a book on the topic of business model innovation that stands out in a market where countless strategy and management books are published every year

Assets:

• a “willing” and enthusiastic co-author with the best analytical and structuring skills I can imagine: My former PhD supervisor Prof Yves Pigneur
• a reasonably well frequented blog on business models with a global audience
• a business model innovation approach increasingly practiced around the world, notably in companies such as 3M, Ericsson, Deloitte, and Telenor (based on my PhD dissertation and blog)
• a variable income stream from keynote talks and workshops that almost covers the living costs for my little family (invitations for gigs solely through my blog) and allows for writing

Handicaps:

• “Competing” in a field of big name gurus from Harvard, Insead, Wharton & Co., while I am mainly known through my blog

Initial Ideas:

• Publish the book based on an innovative business model to underline the importance of the concept
• Finance the book through corporate sponsors who would have their logo on the cover
• Bypass publishers
• Sell mainly through Amazon.com

Of course things turned out differently than I initially imagined. It was actually much more exciting, though I hadn’t foreseen most of the obstacles. But let’s first look at the end result of the journey.

Outcome:

• a highly visual, full color, beautifully designed, and practical book with 280 pages on business model innovation
• strong differentiation from traditional strategy & management books
• 470 co-authors who have contributed to making this a better product and who have partially financed the endeavor through their access fees to the Business Model Hub where the co-creation has take place
• Pre-sales through our own website www.businessmodelgeneration.com that have contributed to financing the first print run
• Successfully bypassed publishers (I even got an invitation by the German publishing industry to show how we’ve done it)

What I realized during the project was that Business Model Generation is spearheading an entirely new generation of management books: designed, visual, co-created, approachable and applicable. We had to create entirely new systems and processes to actually produce such a book.

During the work with our creative director and designer, Alan Smith from The Movement, I realized how powerful design is to create a good management book. It’s not “just” about the content, but also about the form. Management concepts are inherently visual, because they deal with simplifying the complexity of today’s business environment in order to make it manageable. Not using visuals to convey these concepts seems silly.

Good design can make management books much clearer and more functional – and as a side effect also more beautiful. As a result of our project I have become intolerant for old-style text-heavy management and strategy books.

So what are the key lessons learned that I could share with writers of future management books?

Lessons learned:

Pros:

• Co-creating the book in a completely transparent way on an Internet platform has been a wonderful experience. We regularly shared content chunks in a very raw and unedited format with 470 co-authors. In addition we gave insights into our challenges and the design process. The feedback and comments led to a greater product – though responding to every one of the 1’300+ comments and integrating them into the book was extremely time consuming. The positive aspect was to see how enthusiastic the crowd was and how some people started to feel ownership of the product. Rightly so, since they contributed and will have their names printed in the book.
• Designing the book under the creative direction of Alan Smith has been an eye-opening experience. I couldn’t imagine writing a text-only business book anymore. Impossible. It just wouldn’t make sense. Design and visualization is – in my opinion – indispensable to convey business concepts. More importantly even, discussing the design of content with Alan helped crystallize key concepts of the book. Thus, design thinking has become core to producing content rather than just an afterthought to make the book look good.
• Differentiation has been “easier” than expected. What we have done in terms of co-creation and book design is truly unique and has attracted many, many curious people. I think it was the only possible path for us “underdogs” in this field of mostly North American gurus (sometimes with Indian roots . Sales will tell.

Cons:

• Playing underdog is tough. The players who we hoped could sponsor the book project didn’t see the potential and didn’t understand. Now that it’s done they are showing up. Too late – we covered the risk of the project ourselves and succeeded. The premium to join
  now is high!
• Resources were extremely limited. It is only thanks to the “sacrifices” of the entire core book team that we could bring this project to fruition. More money would have made the process much easier, yet it probably wouldn’t have led to a better end product.
• Lacking the infrastructure to do what we wanted to do was a challenge. There is no off-the-shelf platform on the Web where an author can co-create with readers and ask them for a participation fee. We tinkered with Ning and Paypal and my blog to put something workable together.
• Amazon.com is a must-have distribution channel. However, to sell on Amazon we must give them 55% of our sales price. This leaves us with 45% to cover production costs and shipping to their warehouses. We will probably have to charge a much higher price than we want to simply to cover our costs. However, solely selling at a reasonable price through our own website www.businessmodelgeneration.com based on a Dutch fulfillment center is not an option. Amazon has a de-facto monopoly…

Those were some initial thoughts… There is certainly more and I will write more when we have started to deliver books end of September.

Have a look at the “making of” pages coming directly from Business Model Generation to learn more about what we’ve done.

Making of…