Originally I was planning to write a post on “Why The Crazy Facebook ($50B) and Twitter ($3B) Valuations Might Just Make Sense” by highlighting the key characteristics of their business model (e.g. scalability). However, I thought it would be way more fun to reverse engineer Facebook’s business model with ballpark figures in collaboration with you, my smart and loyal blog readers.
I sketched out the kernel of their business model and researched/guesstimated some numbers, since it’s always easier to start from something rather than from a blank sheet (or Canvas).
The above Business Model Canvas was sketched out with the Alpha version (V.0.7.0) of our upcoming iPad App. The numbers were researched on the Net and are still far from complete. Hence, your help and insights would be much appreciated.
Some numbers, like the fact that there is a ratio of about 250′000 users per Facebook employee, are pretty easy to find and calculate. Others, e.g. like the ad spending of Fortune 500 companies on Facebook (if anything like that exists) is much more difficult to research. Also, I rely on your knowledge for numbers such as the estimated IT cost of the Facebook platform.
Add your thoughts in the comment section! Below are the numbers I gathered today in my little temporary office in a fairy tale chalet in the Swiss Alps.
NUMBER GUESSTIMATES
Users/Customers
Number of monthly active FB users: 500M (source: FB factsheet)
Number of daily active FB users: 250M (source: FB factsheet)
Average time users spend on FB per month: 1′400 minutes -> 46 min/day (guesstimate source: FB factsheet)
How high could Facebook’s costs for its IT infrastructure (capital expenditure and operating costs be? This could probably be estimated by comparing to Amazon.com, Google, eBay, or Yahoo!
How could its advertising revenues (e.g. banners and text advertising breakdown) really be?
What budgets are Fortune 500 companies putting into Facebook advertising?
How many SMEs and micro-enterprises are using Facebook for advertising?
How much could Facebook already be earning from Facebook Credits, even if this virtual currency is still in Beta?
Don’t hesitate to point out any other big things that are missing! This is just a first sketch of a reverse engineered business model!
If architects conceived and constructed buildings the way we do start-ups there wouldn’t be much standing. I’m deeply convinced we can change that and substantially increase the odds.
Admittedly, launching a start-up means dealing with more unknowns than in architecture. The former deals with unpredictable markets and potential customers, while the latter deals with solid materials and the laws of physics.
However, while an architect uses concrete tools and systematic methods to come-up with and construct his buildings, most start-up entrepreneurs shape and build their ideas pretty much barehanded in terms of tools and methodologies. I’m convinced that this is a more important reason for the high failure rate of start-ups than the unpredictability of markets.
To boost start-up success we need to look at entrepreneurship as a science or at the very least accept it as a profession with its own fundamental rules and methodologies (and the same goes for intra-preneurship).
The slidedeck below gives you the 101 of such a systematic start-up process by combining the business model concept to shape and structure your business ideas with the customer development approach to test, prove and build them. Check-it out (and don’t forget to vote for the presentation in the slideshare contest!)
I’m pretty excited about all this because I believe it’s the beginning of a whole new movement that could become an avalanche.
Silicon Valley start-up guru Steve Blank is teaching this at Stanford next year together with two world-class VC’s, Ann Miura-Ko of Floodgate, and Jon Feiber of MDV.
And we are working on the first basic iteration of an iPad app to support all this business model thinking (yes, yes, we are slightly behind schedule – but we’re not that far from finalizing .
Are YOU going to be part of this exciting movement?
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:
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 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!
I’m writing this blogpost following another inspiring discussion with Steve Blank. One of the topics we chatted about was how his Customer Development process and the Business Model Canvas fit together. I wrote these ideas down while visiting Steve’s K&S ranch – inspired by its beauty, surroundings and amazing view on the Californian coast. I’ll illustrate the ideas with an example from the field of social entrepreneurship.
In a nutshell, this post shall help entrepreneurs and intrapreneurs develop better business models by designing and exploring multiple alternatives, closely listening to customers and continuously adapting their early models until they find the right business model to scale. I believe a start-up or new venture’s quest for the right business model should consist of three rough phases:
Designing a starting model
Iteratively adapting your starting model in response to market feedback
Scaling it when you nailed it
All three phases can be supported by the tools and concepts outlined in Steve’s book on Customer Development and our book on Designing Business Models. We provide you the tools to map, design and discuss a business model. Steve provides you the mindset and tools to continuously “test” your model and your assumptions with customers until you find the right business model to scale.
The Case Study
Let me outline the three phases above with a case I often use in my business model innovation workshops. It is an example of a Swedish organization that developed a single-use toilet bag, the Peepoo bag for the so-called Bottom-of-the-Pyramid market of over 2 billion people who lack access to proper sanitation.
Peepoople, the company behind the Peepoo bag, is a particularly interesting case because it combines a journey for the right business model with a quest for meaningful impact. No easy task. At this very moment Peepoople is on its search for the right business model: one that is financially viable, and scalable in terms of growth and impact.
Now let us look at the three phases outlined above through the lens of the Peepoople case.
Designing a starting model
Many entrepreneurs and intrapreneurs underestimate that a great new technology, product or service can be insufficient to build a successful and sustainable business. Because of their trust in a technology’s, product’s or service’s superiority they fail to spend enough time exploring alternative business models. They often go with the first model they come up with. Yet, entrepreneurial history is littered with great technologies, products and services that bombed.
Entrepreneurs and intrapreneurs could greatly improve their success chances by spending more time with searching and finding an empowering business model. Every technology, product or service can be brought to market by several alternative business models. The challenge is to find the best and most scalable one.
Peepoople, for example, has a proven product/technology that works and was tested – the Peepoo bag. However, the company acknowledges that this is only a starting point. The management team knows that it has to think through several possible business models in order to find one that is sustainable AND has a substantial impact.
So let us use the product (Peepoo bag), its characteristics, and the context as the starting point to develop alternative business models:
A single use toilet bag: it is designed to be conveniently used with any type of recipient and it effectively prevents odors;
Self sanitizing; it inactivates organisms that produce diseases and are found in faeces;
Biodegradable: it is made of a high performance degradable bioplastic
Turns into fertilizer: the treated faeces constitute a high value fertilizer with a considerable market value
Low production cost (numbers confidential);
Aimed at substantially reducing the sanitation problem in the world;
In many developing markets people already pay for (limited) access to sanitation (e.g. public latrines in slums)
Based on the above we can map out several different alternative business models for Peepoople’s product. Here the emphasis is on “mapping”, which means putting a Business Model Canvas poster on the wall to quickly develop conceptual prototypes. Let me just mention a few possible ones:
Not-for-Profit Model: Traditionally, an organization like Peepoople would seek donors to fund the distribution of Peepoo bags to beneficiaries. Like myself, the management team of Peepoople doesn’t see this as a sustainable business model nor as one that will achieve the most impact.
Cross-Subsidy Model: Peepoople could sell the bags to a premium segment (e.g. to hikers in the Swiss Alps, or as military supplies) in order to fund the free distribution of the bags to beneficiaries. Financially this model already looks more robust than the first.
Sales/Retail Model: Why not try to sell through traditional retail among the mini-shampoo bottles sold to the BoP market. Sanitation is a basic need and there is already a market for public latrines.
Micro-Finance/Micro-Entrepreneurship Model: Another powerful way to bring the bag to the market could be an alliance with a micro-finance institution which would finance micro-entrepreneurs to buy bags. The entrepreneurs would then resell the bags.
Licensing/Franchising Model: Peepoople could go down a completely different path and simply license its technology to different institutions. Alternatively, it could build a franchise model to quickly scale its growth.
Resource Model (Fertilizer): Fertilizer is a very valuable good in BoP markets. Why not give the bags away and even pay people to bring them back full. Revenues would then be come from selling the fertilizer to farmers.
These are just some of the potential business models for the Peepoo bag. Others could include white labeling the technology, building brand alliances (e.g. distribution with mobile phone prepaid cards), advertising on the bags, and many, many more. What is important is to spend some time with quickly mapping out alternative business models before defining the criteria to select the one to go with. Selection criteria can be growth potential, risk, impact, etc.
An essential part of this first design phase is to carefully observe and understand (potential) customers. The business model alternatives you come up with should be informed by deep customer knowledge. Steve Blank nicely describes this as Customer Discovery, the first of four steps in his Customer Development Process
you need to leave guesswork behind and get “outside the building” in order to learn what the high-value customer problems are, what it is about your product that solves these problems, and who specifically are your customer and user.
Iteratively adapting your starting model to customer/market feedback
When companies have spent substantial time, effort, and money searching for a business model (e.g. for a new product or service) they are often under the illusion that they nailed it. Yet, a “starting business model” is just that: a starting point – based on a number of assumptions and hypothesis. Even with the most elaborate design phase, the smartest people, and the largest budget, it is pretty rare that entrepreneurs or intrapreneurs immediately get the business model completely right.
The Customer Development process assumes that many of the initial assumptions about your business model are probably wrong, which you will find out in the second step of the process, Customer Validation. It is only when you start testing a business model or aspects of it with customers that you will find if your hypothesis were right or wrong. Hence, the Customer Development Process builds in an iteration loop to fix the shortcomings of your business model. Eric Ries, who built on Steve’s work, coined this business model iteration loop the Pivot.
The Business Model Canvas powerfully supports this iteration and pivoting process through visualization and structuring. Steve nicely described this as keeping score of your pivots.
Peepoople is just now entering the iterative phase where they are testing business models in Kibera, a slum in Nairobi, Kenya. The challenge will be to continuously search for the most powerful business model and only settle when they found a scalable one.
Scaling it when you nailed it
It is probably only after several iterations and pivots of your business model that you will really “nail it” and find the right one. That is when it is time to scale. In the terminology of Customer Development this is called Customer Creation, when you start “creating end-user demand and drive that demand into the company’s sales channel”. Only at the very end should you focus on Company Building “where the company transitions from its informal, learning and discovery oriented Customer Development team into formal departments with VPs of Sales, Marketing and Business Development”.
Unfortunately, I’ve seen too many companies get caught up in this last (operational) step when they haven’t even “nailed” the business model.
As to Peepoople, I’m pretty curious to see how the company will manage business model iterations and pivots. It does have a great technology to start with, but only a scalable business model will allow it to have an impact. However, I have great confidence in Karin Ruiz, its CEO. She combines private sector experience, a passion for impact, and the knowledge that only the right business model will allow Peepoople to make a difference in the world.
Last week I met with Steve Blank and Ann Miura-Ko at the University Coffee in Palo Alto to chat about Business Model Generation and our upcoming Business Model app for the iPad. It was a real treat. One of the questions Steve and Ann brought up was how to differentiate between users and customers in the Business Model Canvas.
Until this chat the question hasn’t really preoccupied me, because it has been less of an issue for most of the companies I work with (mainly large multinationals). However, I do see the relevance of the question (particularly in a start-up context in the software and Web space, but also in other spaces). And how couldn’t I have an open ear for a point made by one of my entrepreneurial role models and a rising VC star…
Steve and Ann suggest separating customers and users into two separate building blocks when describing a business model. I prefer keeping one single building block that captures users and customers. At the end of the day I think we all have to use the representation that we are most comfortable with. However, I do fully agree with Ann and Steve that it is interesting to look into the user vs. customer question (and a matter of survival if you are a start-up with users, but no customers…).
After the chat I couldn’t let go of the question, so I sketched out some business model examples on my iPad on a flight from beautiful Vancouver back to San Francisco, our family’s temporary HQ. This helped me get a clearer picture of the question. The models I sketched out were Skype, Google, Youtube, Flickr, and Sony Playstation. Each business model has a different user vs. customer configuration.
I basically see all groups for which a company creates value through a product or a service as users. Customers are simply users who pay for the value that is created for them in the form of a revenue stream for the company. In some cases users and customers are pretty similar, except that one group generates revenues by paying for additional features of functionalities (e.g. Skype, Flickr). In other cases users and customers are distinct groups, where one subsidizes the other (e.g. Google, Youtube, Sony Playstation, government services). Let’s have a look at some different business models and their dynamics.
Skype
Skype is company that allows making calls over the Internet based on its proprietary software. It has over 500 million users. Of that only a tiny fraction are paying customers. However, in this case it is difficult to distinguish between users and customers, because they might be the very same people. For example, I use free software-based Skype-to-Skype calling all the time, but occasionally also buy so-called SkypeOut credits to make calls from my computer to international landline and mobile phone numbers. I am a (free) user and (paying) customer at the same time.
Regarding the “free user vs. paying customer question” Skype provides some even more interesting material. Skype’s free users are crucial to its success. One might think that the reason is to assure a decent revenue even with a small conversion rate from free to paying users. In fact, that is not the only reason.
Skype needs a large user base to assure good calling quality. Every call is routed through the Internet, from one user to another, based on so-called peer-to-peer technology. The more users Skype has, the better the calling quality. In fact, in that regard users are a key resource of its business model. And since Skype manages no network (because of the Internet-based peer-to-peer technology) it costs the company practically nothing to add on free users.
Flickr
Flickr is a website that allows hosting images and videos. Like Skype it has a large number of free users and only a fraction of paying user/customers who pay for advanced features like increased storage space or unlimited uploads. Like Skype this is a so-called freemium business model with a set of free services and paid premium services.
However, different from Skype, people using Flickr usually fall either into the category of free users or paying customers. Another difference with Skype is that Flickr’s free users generate costs that the company has to recuperate with its paying user/customers. The free users do, however, add value by contributing to the content on the website. Flickr now has over 4 billion images on its site.
Google
Google’s core business – search – is another story. In this case (free) users and (paying) users/customers are two totally distinct groups. The free users are the people using the search engine. The paying users/customers are the people buying keywords for search advertising. Both groups of users are offered two totally different services and value propositions. The first service (search) is free and subsidized by the latter (adverting). And the more (free) users Google can attract, the more interesting it is for advertisers.
Youtube
Youtube, the leading video-sharing website which was aquired by Google in 2006, provides another interesting element to the user vs customer discussion. Free users can be split into two subgroups: a smaller group of users who upload content (often their own user-generated content), and a larger group of users who simply view/consume content. The former provide an important resource to the business model – content – to attract the latter.
Sony Playstation
A fifth interesting case regarding the user vs. customer question is the business model of Sony’s game console, the Playstation. The users of the Playstation buy their console and in that sense they are customers. However, traditionally Playstation consoles are subsidized in order to make their price more affordable and attract as many users as possible to their game console platform.
Sony does this – and accepts losses on selling consoles – because their most lucrative user/customer segment lies elsewhere. It’s the game developers, who make the games for the Sony Playstation and who pay Sony a license fee for every single game sold. Hence, the more users/gamers Sony has, the more attractive it is to developers, the more games are made and sold, and the more license fees Sony pockets. In this sense, the user-base is a key resource to Sony and is its value proposition to game developers.
Other Models
There are other interesting models that I haven’t visualized. In government services there is also difference between users and customers. We could see beneficiaries of services as users (e.g. regarding grants and contributions) and governments or tax payers as customers (since they foot the bill).
A final model I have briefly looked into from the user vs. customer angle is the insurance model. One could argue that in an insurance scheme a large number of customers are paying for a policy in order to be insured against a hypothetical incident. Yet, only a small group of these customers turn into users because they incur the incident and want to benefit from the insurance policy… In this sense a large number of paying customers (who are not “users”) are required to “subsidies” a small group of customers who become users based on an incident.
During the last few weeks we worked on an iPad app that allows you to sketch out business models and simulate it’s viability with ballpark figures. Though the app is still very basic I have no doubt it’s going to become a game changer. Now you have the opportunity to be among the first to test and influence the app by joining our Alpha version testing team.
Last week we created a new company – The Business Model Foundry – to design, develop, and market a whole new range of software-supported tools that shall help you think through, prototype, test, implement, and manage new business models. The first tool we are working on is an app for the iPad, which will allow you to quickly sketch and simulate business models (as I outlined in my last blogpost). Since this is a totally new tool on a totally new device we decided to test it at a very early development stage already.
This sits well with two concepts I recently became a fan of: The Minimal Viable Product by Eric Ries and Customer Development by Steve Blank (who runs one of my favorite blogs). Both stress the importance of testing (software) products and business models with customers at an early stage and developing them in an iterative fashion.
However, we thought it would be a bit boring to just give potential customers access to the early-stage software. Hence, we opted for a more innovative approach: For 150.- USD you can join the exclusive circle of the Alpha Testing Team, which will be involved in the development of the BMGEN iPad App. What will you get?
Exclusive access to Alpha test versions of the BMGEN iPad App (starting end of this week/early next week – June 11/14
Free lifetime upgrade to all subsequent versions
Mention of your participation in the software project
Ability to give feedback and influence the development of features and functions
If this sounds exciting, please consider joining. Our ambition is not only to create a simple iPad App, but to revolutionize the way innovative business models are conceived and managed. In fact, we are aiming to change the way entrepreneurs and managers work on new business model projects. If you have an iPad, get access to the Alpha test version.
CAVEAT:
Please take note of the following important points before buying access:
You need an iPad to be able to install the Alpha test versions
The early Alpha versions will be extremely raw with limited functionality
We will slowly, but steadily build this app into a game changer
The first Alpha test App will be available at the end of this week/early next week (June 11/14, 2010)
First basic App in the iTunes Store to appear somewhere in July/early August October for about 29.99 USD (without lifetime upgrade of course)
And now come and join us in the club of game changers. This promises to be an exciting journey and even more influential than the Business Model Generation Book (which will be is available in retail outlets across the world US in July!!)… Get access to the very first iPad Business Model App Alpha version now.
THE TESTERS TEAM NOW REACH OVER 70 PEOPLE – UNFORTUNATELY, WE CAN’T ACCEPT ANYMORE NEW PURCHASES. THE APP SHOULD BE IN THE APP STORE BY OCTOBER
Some of you know that we are working on an iPad app to help entrepreneurs and intra-preneurs develop innovative business models. We decided to do this as transparently as we have for the book. Please join us on our journey and give us your feedback!
In the slides below we outlined the specs for a minimal viable (app) product (MVP). It is the “heart” of the app we are developing and it will obviously evolve into something more sophisticated over time. But we want to test the MVP with (potential) buyers first…
We have a couple of questions to you:
What kind of future functionality would you like to see in the app?
What kind of usage scenarios could you imagine for the app and yourself?
What do you think of our price of $29.99 – including free updates for some of the early features beyond the MVP?
As you know we really love and value your feedback! Tell us what you think!
I’m posting a brief schedule of my upcoming workshops and talks during the first semester, because I got a lot of questions about them lately. I try not to post too much self-advertising on my blog, but I need to from time to time so I can support the free content on this site
My public events are relatively infrequent, since most of my talks and workshops take place inside companies.
Keynote Talk, Düsseldorf, Germany (19. March) Creative Summit Nordrhein Westfalen (NRW): Neues Wachstum Durch Neue Business Modelle / in German
(website)
Workshop (full day), Amsterdam, The Netherlands (23. March): Business Model Innovation – Masterclass
(registration)
Workshop (half-day), Toronto, Canada (14. April): Exploring Business Model Generation with Alex Osterwalder: A Master Class in Business Model Design
(early-bird registration fee)
Talk, Toronto, Canada (15. April), Business Model Generation – how to co-create a bestseller guerrilla fashion
Workshop (half-day), Gothenburg, Sweden (22. April): Nya grepp om kreativa affärsmodeller / in English
(registration)
Software Presentation, Geneva, Switzerland (28. April) iPhone Dev Days: Business Model Software for the iPad
(website)
Special Workshop (full day), London, UK (29. April): London School of Economics: Business Model Design
(website)(registration)
Workshop (2h) Geneva, Switzerland (5. May) LIFT’10: Business Model Innovation for Start-ups, Corporations and Social Entrepreneurs
(website)
Workshop (full day), Lausanne, Switzerland (18. May) at the Swiss Gratuduate School of Public Administration (IDHEAP): Reconcevoir vos modèles d’action publique – découverte et application d’une méthode novatrice et pratique / in French
(registration)
Workshop (full day), Lausanne, Switzerland (19. May) at the Swiss Gratuduate School of Public Administration (IDHEAP): Reconcevoir le management des organisations sportives / in French
Keynote, London, UK (14. June) Shine 2010 – Unconference for Social Entrepreneurs
(website)
Hope to see you at one of the events!
By the way, on March 17. I’m giving an online interview for the “coaches rising” website (register for free)
Energy will be, no doubt, one of the dominating issues of the decade and beyond. That’s why I was really excited to discover how Jigar Shah, a 34 year old entrepreneur, disrupted the field of solar energy – he achieved that not through technology innovation, as one might expect, but based on an innovative business model.
Last week, my sister Nathalie, a senior environmental lawyer at the International Institute for Sustainable Development (IISD), pointed me to an article in the OnEarth magazine about an organization that has changed the face of the solar energy sector. She had just come from a dinner meeting with Jigar Shah, the founder of SunEdison, which has developed into the largest provider of solar power in the United States.
I sketched out SunEdison’s business model, which will definitely figure in our new project BusinessModelsBeyondProfit.com. Check out the slides:
The closing paragraph in the OnEarth article was particularly interesting. He stresses that the driver is NOT technology – it’s the business model. Jigar Shah says:
“The big area for me has always been to come up with business solutions to address global warming,” Shah says. “The thing that people have had a hard time understanding about solar is that it’s part of the energy business. While new energy technologies come up all the time, technology is not the driver of the energy industry. The driver is the business model: how you get it financed and how you apply traditional risk-management methods to solar and wind and biomass. That to me is the key to solving global warming.”
If you are interested in the state of the solar energy industry (in the US) you should watch Jigar Shah in the keynote below. It’s the first part of a total of 6 videos, which you can find on youtube:
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