Business Model Alchemist

Earlier this week Karin Wall, chief editor at InnovationManagement, interviewed me about my work. You can check out the blogpost or read the interview below.

Karin: 1. What is innovation management to you?

It’s about harnessing the knowledge, experience, and passion of a company’s employees in order to continuously create value and increase returns. That means building the right managerial and organizational structures, providing the right incentives, and fostering the right innovation culture that promotes the development and implementation of new ideas. That might sound like a grandiose task, but it can start with something as simple as building meeting rooms with whiteboards and moveable furniture. However, the most important is consistency. You need to show that you’re serious about innovation.

Karin: 2. What’s the most satisfying part in your job?

When people who never before have read a business book put our innovation tools to work and get better results. Our team spends an endless amount of time to make the concepts we come up with as simple, as accessible, and as applicable as possible. It’s particularly since my co-author, Yves Pigneur, and I have started working with designer Alan Smith that we achieved a breakthrough. We now strive to change the way business books and business tools look: simple, accessible, and useable. Tackling big questions like that is the most satisfying in my work.

Karin: 3. And the most frustrating parts?

When great ideas and passionate innovators get ‘killed’ by internal company politics or 19th century management structures. In many large organizations politics has become more important than value creation. That’s why there’s an urgent need for management innovation: to enable passionate innovators to strive within large organizations and not just as start-up entrepreneurs. Many of the most brilliant innovators will leave their organizations to build their own company because they can’s strive within. The ‘war for talent’ is still a big topic, but I’m not so sure companies really understand what it takes to attract and satisfy innovators. A fat paycheck alone won’t suffice.

Karin: 4. What’s your next big challenge?

I’m working on a couple. The first one is about building software-supported tools that boost business model innovation. The challenge is to make them so simple, intuitive and accessible that we can reach new audiences: for example first-time entrepreneurs with a new idea, but no formal business education – all the way to senior executives. Hence, we started working on an app for the iPad with which you can sketch out business model prototypes.

The second challenge I’m working on is to design conceptual tools that helps so-called social entrepreneurs build businesses that make a profit and change the world. Increasingly, business model innovation allows tackling the big issues in the world (e.g. poverty alleviation, sustainability, social issues) with innovative and profitable models.

The third challenge is simply about continuing to grow the tools for (business model) innovation. We are trying to achieve this in an open source manner. We designed some tools to start with, such as the Business Model Canvas, and hope others will contribute to this kernel. For example, we are currently working with Sillicon Valley guru Steve Blank, to integrate his method, Customer Development, with ours. We need an innovation toolbox that goes beyond the individual authors who come up with the methods.

Few of the entrepreneurs I meet spend sufficient time exploring alternative business models for their products, services, or technologies. Too often I see them fall in love with their initial idea and then they immediately dig deep into spreadsheets and business plan writing. That has a great risk!

Failing to explore alternative business models before you choose a direction bears the great risk of getting ‘ankered’ with an inappropriate, mediocre or even bad business model. It becomes very hard to explore alternative business models when you’ve refined your first idea too quickly.

Of course there’s a reason that so many entrepreneurs and intrapreneurs stick to their initial business model idea. Few actually realize that the same product, technology, or service could have very many different business models. Now how could they do a better job to increase their success chances of creating a successful new business (model)?

This is where we business people should look to the design professions for help. After all it’s their business to create new things. This is what the Weatherhead School of Management of Case Western learned when they worked with star architect Frank Gehry and his team. Among other things they realized how important prototyping could become to design new strategies. Watch the video to see what they discovered:

I particularly loved the following quote at the end of the video by Jim Glymph of Gehry Partners:

“If you freeze an idea too quickly, you fall in love with it. If you refine it too quickly, you become attached to it and it becomes very hard to keep exploring, to keep looking for better. The crudeness of the early models in particular is very deliberate.”

Every serious entrepreneur and intrapreneur should apply the same type of attitude if he or she wants to find the best business model for his or her technology, product, or service. Here a couple of tips what you should pay attention to when making business model prototypes:

• Use the Business Model Canvas Poster to sketch out as many different business models as possible.
• Don’t discuss and decide which business model to sketch out on the Canvas. Do them all! Only then can you have a valuable discussion on what could work or not.
• Don’t spend 60 minutes sketching out an early and unproven model in detail. That hour is better spent by sketching out four to five ideas in a very rough manner.
• Sketch out each idea on a separate Canvas. For example, use two different Canvases for two very different customer segments.
• Sketch out diametrically opposed models. For example, ask yourself “what if I offered my product for free…” vs. “what if I offered my product only to the very high-end market…”

In Business Model Generation – A Handbook for Visionaries, Game Changers, and Challengers we tried to make a clear case for business model prototyping. I think the following spread from the book visualizes our thinking pretty clearly:

In the book we also outline different types of business model prototypses, ranging from the Napkin Sketch to the Business Model Pilot.

I hope this convinces at least some entre- and intra-preneurs to spend some more time on their business model rather than on their business plan… Don’t fall in love with your idea too quickly!