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Ambition: Building Business Models that Matter

Alexander Osterwalder — Mon, 01 Feb 2010 13:59:14 +0000

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

The Music Industry (part II) – two of the new models

Alexander Osterwalder — Mon, 18 Jan 2010 12:33:18 +0000

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:

View more documents from Alexander Osterwalder.

The Music Industry (part I) – what’s broken

Alexander Osterwalder — Fri, 08 Jan 2010 20:26:26 +0000

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).

View more documents from Alexander Osterwalder.

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 Management – a defining topic for the next decade

Alexander Osterwalder — Mon, 14 Dec 2009 11:21:22 +0000

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.

Customer Feedback not on elBulli’s Menu

Alexander Osterwalder — Wed, 25 Nov 2009 12:59:51 +0000

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.

7 Minutes on Business Models as a Tool for Success (Video)

Alexander Osterwalder — Tue, 06 Oct 2009 02:27:01 +0000

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

Business Model Generation Now Available

Alexander Osterwalder — Thu, 01 Oct 2009 11:04:41 +0000

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.

How Business Models Help Generate Business Plans

Alexander Osterwalder — Thu, 06 Aug 2009 09:19:00 +0000

In this blogpost I explore the close relationship between business model and business plan. A business plan’s main role is to plan, outline and communicate a business (or not-for-profit) project and its implementation internally or externally. The motivation for the business plan may be to “sell” a project to potential investors or internally to top management and also serves as a planning document.

In fact, when you have designed and thought through your business model you have the perfect basis for writing a good business plan. Structure your business plan into five main sections: The team, the business model, financial analysis, external environment, implementation roadmap, and risk analysis.

The Team

One of the elements that particularly venture capitalists look at first is the management team of a project. Is the team experienced, knowledgeable and connected enough to pull-off what they propose? Highlight why your team is the right one to successfully build the business model you propose in the document.

The Business Model

In this section you showcase the attractiveness of your business model. Use the Business Model Canvas to give an immediate overview of your model. Ideally you sketch it out with drawings. Then describe the value proposition, outline why you believe potential customers need it and explain how you are going to reach the market. Use stories. Then highlight the attractiveness of your target markets to get the reader of the business plan interested. Finally, outline what key resources and activities are required to build and operate the business model.

Financial Analysis

This is traditionally an important part of the business plan that will attract a lot of attention. It contains the financial information that you can calculate based on your organization’s Business Model Canvas and a set of hypothesis of how many customers you can reach in a specific time period. This includes elements such as break-even analysis, sales scenarios and operating costs. The Canvas also helps you calculate capital spending and more generally how much it will cost you to implement the business model. Based on all these calculations you outline your funding requirements.

External Environment

In this section of the business plan you outline how your business model is positioned regarding the external environment. Outline market forces, industry forces, key trends, and macroeconomic situation. Summarizing, you need to stress what the competitive advantages of your business model are in this landscape.

Implementation Roadmap

This section gives the reader an idea of what it takes to implement your business model and how you will do it. It includes a summery of all projects and the overall milestones. A project roadmap, including Gantt charts, then outlines the implementation agenda. The projects can be directly derived from your organization’s Canvas.

Risk Analysis

At the end of the document you describe limiting factors and obstacles, as well as critical success factors. These can be easily derived from a SWOT analysis of your Business Model Canvas.

This is a brief excerpt of the “outlook part” of my Business Model Generation book.

Scanning Your Business Model’s Environment

Alexander Osterwalder — Sun, 26 Jul 2009 21:02:00 +0000

Business models are designed and operated in a specific environment. Developing a good understanding of this environment helps you conceive better, more informed and likely more competitive business models.

Scan your environment by mapping out four main areas. These are a) market forces, b) industry forces, c) driving trends, and c) macro-economic forces. Each can be divided into sub-areas that allow you to draw a picture of your business model’s environment (see image below).

Continuously scanning your business model’s environment is important because the economic landscape is driven by growing complexity (e.g. networked business models), increasing uncertainty (e.g. technology innovations) and market disruptions (e.g. new disruptive value propositions). Understanding the changes happening in this environment help you more rapidly adapt your model to shifting external forces.

You should apprehend this environment as a sort of design space. It is a context in which you conceive or adapt your business model by taking into account a number of design drivers (e.g. new customer needs, new technologies, etc.) and design constraints (e.g. regulatory trends, dominant competitors, etc.). This environment should in no way limit your creativity or define your business model upfront. However, it should influence your design choices and help you make more informed decisions.

Friends of Business Model Innovation

Alexander Osterwalder — Fri, 03 Jul 2009 10:28:00 +0000

Business Model Innovation is a hot topic these days. I thought I’d post a note about some of my fellow bloggers who focus on the topic and who are friends or colleagues…

Anders Sundelin who launched the Business Model Database Blog
Patrick Stähler the sharp brain behind fluidminds
Peter Froberg who focuses on the freemium business model
Saul Kaplan of the amazing Business Innovation Factory

For all others who have a special focus on business model innovation, who read this blog and who blog about it themselves: don’t hesitate to post your URL as a comment…