Why great products are not enough? - Alexander Osterwalder

anyone what that it's outside through at the Roxbury now of course personally I recommend you to stay because the next workshop and this time it is a workshop that means you guys have to work is going to be nothing less than amazing and I need all of you especially those are staying in notebooks and mobile phones to get focused and energetic again because you need it it's going to be just crazy so are you on the right mood now I'll be right word you will need it because your next workshop I can only connect with personal story three years ago Avicii I randomly met gave me a book that book I have to say change my life it really did even though I had a business background this book called the business model generation gave me some new tools and insights to simplify simplify clarify and understand all about their walls of business models and therefore and I'm a big fan of this book and I don't the only one that's been sold million times around over the world and I would say it's the number one book about business models and I'm really extremely excited and happy to introduce the author of this book the Jedi Master of business models please work on stage we're big applause Alexander Osterwalder thank you very much excellent okay hello everybody this is this is really cool here I think I'm born in the wrong century so who of you has ever written a business plan put your hands up okay who have you spent more than let's say a month to write a business plan come on be honest okay you wasted your time right you know that can you waste your time now who of you and your business plan has done something like this if you look up they're drawn this kind of curve right who's done that and who's invented the numbers we all know you know this is intellectual masturbation right okay I needed something to wake you up so I thought that'd be provocative term so today we know that business plans don't work okay so that's not how we do entrepreneurship I'll talk a little bit about how we do entrepreneurship today and many of you are already practicing this so the first thing we need that we're going to look at is a better language to discuss business issues and one of the things that we introduced in business model generation is the business model canvas so I'll see if I'm going to talk about this but who of you has never heard of the business model canvas it's fine if you who of you has used it already okay so I'll actually quickly introduce it because we'll use that as a starting point for a new canvas that we created just a couple of months ago a couple of weeks ago the second thing that's important when we do entrepreneurship is we don't just stick to one idea but actually we should do prototypes prototypes exploring very different alternatives different possibilities maybe a business model that has high switching costs a business model with recurring revenues not just transactional revenues a business model with no fixed cost just variable cost so prototyping is the second issue as you can see that and the third one we're going to look at the third one is what we now know in entrepreneurship is really important and more important than any business plan it's not sticking to the first business model but pivoting iterating through different business models right so you get out of the building to quote Steve Blank inventor of the customer development methodology you want to test you want to test you want to test ok these three things is what you need to do to do real entrepreneurship and this is increasingly being taught around the world in start-up schools and incubators in in accelerators this is how we do it today right so what we're going to do to this business plan since I just crossed it out we're actually going to burn our business plan ok don't ever do a business plan again ok this is burning burn your business plan ok if you wrote one go home and burn it go to your office and burn it feels good I promise you so let's look at the first thing and since all of you know what the business model many of you know what the business model canvas is I won't show you an introductory video I'll just show you the canvas ok and what's important here when we came up with this tool to describe business models we were trying to figure out what are the most important decisions you make for your business logic for the blueprint of your strategy what are those most important questions then we came up with nine from the customers through the value propositions of channels all the way to the partnerships and costs and revenues right so you want to look at all of these now what's really important is that you don't just talk so one phenomena when you watch people when they say ok we need to find a business model for our product or we need to find a new business mall in this particular industry what are people going to do they're going to do this I'm sure you've been these kind of meetings you have five smart people around the room let's take four smart people around the room in around a table in a room and somebody starts talking blah right blah blah blah if you don't use the language like the business model canvas you want to understand each other right next person's turn okay blah oops this is what you call blah blah blah ever been in a meeting like that right okay let's burn this one as well a lot of fire today a lot of fire today so what you really want to do is you want to take tools and the business model canvas is one you can choose whatever you want we figured out that this is one that really works you want to sketch out the different pieces of your business model which customers are you targeting sticky note what are you offering them sticky note how are you reaching them sticky note how are you earning money from them sticky note and here's here's the big idea it's not about the individual pieces it's not about the revenue streams alone it's not about the channels alone it's about how the thing fits together to create a story the story of how you are going to succeed with your business maybe disrupt the market so again and again I see people they would put up a sticky note in revenue streams and they would have no customer paying for that and it wouldn't come for a from a value proposition that they're paying for that seems crazy now trivial somebody would put a sticky note there yet I see again and again again startups senior executives that would fill up that box revenue streams with a lot of sticky notes and say we're earning money from this from this from this without describing what's the value proposition that the customers I paid are paying for now when you think about everything together that's when you will never have a sticky note that is disconnected from the rest so let me give you an example it's my favorite one so I'm a big espresso fan so I'll show you a little example see if this actually works whoops every second we're going to talk about coffee for a second and I'm going to use your numbers from Switzerland very quickly because this is a business model with a story it's not just a collection of individual pieces and I'll talk about coffee for a second and some of you might have seen this on YouTube because it's my favorite example I'll use data from Switzerland how much do you think do we pay less or more for coffee consumed at home in Switzerland what did you what do you think 20% less 20% more what would your guess be more okay how much more 30% 70% okay this is a commodities business right you go to the supermarket you have a lot of different choices of coffee well it turns out somebody said five hundred percent it's actually more than that it's 600 to 800 percent across Europe and increasingly in the UK and in the US and Canada in other places around the world like Japan people are paying six to eight times more for coffee a commodities product so when you see these kind of numbers your first reaction should be damn how did they do that could I learn from them and copy that now what is it behind the success it's not George Clooney though sometimes I don't know when my wife buys Nespresso might because a George Clooney it's Nespresso okay Nespresso has changed the business model of coffee of espresso the reason I choose this is because we can learn from it and you can learn from all those disruptive business models out there because they have interesting mechanisms that you can copy whatever you do whatever kind of product or or service you do so at the core of it is a machine okay who's you is never seen or never had an espresso coffee never okay you haven't lived okay you haven't lived okay a little bit of nationalism here I'm Swiss so you know I have to trump our products so the question you should have is what's the story behind this what's the business model and I'll run you through it then I'll show you a different approach and then I'll get you to do an exercise okay so let's quickly look at an espresso the first part here is how they sell the machines they sell the machines through retail stores v you can get it in any store and get in media markt with it wherever through retail mainly to households okay they earn a transactional revenue from that transactional it's the big important point because transactional revenues are shitty revenues you have to push to sell again and again ok now they figured out that the pods could be more interesting and they could earn recurring revenues okay and they only sell the pods through their own channels which means on the key resources side they had to create their own channels why do you think would they make this difference between the machines and the pods what's the strategy there why do they sell the machines through retail anybody know why do they sell cost more Spanx could be celebrating the brand right celebrating George Clooney there's another reason revenues easier to get somebody said it's easier to get retail retail is the broadest channel possible so they will push the machines through retail so you have a machine in your house and what happens once you have the machine in your house you're screwed because you can only put one type of pod into that machine and it happens to be an espresso pod which you can only get from them so they don't need retail anymore they can sell directly what does that mean when they sell directly means they don't just earn six to eight times more they earn all of it because there's no intermediary and they don't away and emergence so as an entrepreneur you should say wow that is crazy that's a profit spitting machine okay and it's recurring revenues revenues that come in again and again so now the question is what do they need to do that what do they need I call this the backstage what do they need in the backstage what do they need in the key resources they need patents to protect the system they need a brand if you're not in you in this market and you don't have a brand you're dead they need coffee obviously seems trivial but they need good coffee because it's a high-end brand and they need production facilities to churn out 12 billion pods every year okay then key activities business the consumer distribution marketing right hiring George Clooney and the production of the pods and then very quickly you get the costs so what's interesting here is you have all the pieces that make up for their success okay this is a story that fits together recurring revenues switching costs all very interesting characteristics that you can design into your business model okay because it's the business model here that makes the difference that turns them to an into an insanely profitable company if they just sold the machines the pods through retail it wouldn't make as much profit and more importantly running through the results fastest-growing business still in the Nestle Group biggest food company in the world 30 percent growth rates per annum over a decade about four billion US dollars in revenues but here's the big learning point for all of us when Nespresso started out they had exactly the same product okay same product machine and pods their first business model almost bought them brought them to bankruptcy they almost they almost went bankrupt because the business model didn't work the business model didn't work looked like this they were doing a joint venture this is a start up inside Nestle they did a joint venture with machine manufacturers and they were trying to sell the pods through the machine manufacturers sales force through their sales force to offices two things were wrong which they could have learned if they had tested their business model the people in the offices were not interested and more importantly the sales force had no incentive to sell these machines so the business model did not work okay that was the difference between success and failure so I know by experience that many of you are insanely focused on your product or your value proposition great but you know what that's just one piece of the equation if you just focus on a great product or value proposition you might miss out on success or failure or insane profits and mediocre profits between growth and no growth okay so what you really want to do is both you want to understand both it's not either/or it's and I think insanely great products only gives you the right to compete doesn't give you the right to succeed insanely great products is what we all expect today that's just the ticket to compete okay it's not the ticket for success so let me just show you well let me just show you one video and then I'll show you another approach and we'll get to work okay little video to finish off the business model canvas and then I'll show you a new approach that you probably haven't seen until now okay so the business model as a theater let's see if this sound works okay okay up a bit more thing back to school by now you probably know the business model canvas pretty well with nine basic building blocks you can describe any business model in a more tangible holistic and visual way to better understand the dynamics of the business model canvas we can use the metaphor of a theater imagine the right hand side of the canvas as the front stage of your business model just like the front stage of a theatre that is visible to the audience the front stage is where you interact with your customers clients and users liking a theater if we go behind the curtains we end up backstage the back stage of your business model is what makes the show the front possible but most customers won't see who's back here or what they're doing the front stage is what represents value to your customers clients and users and what they're willing to pay for the back stage makes it all possible and it drives cost at the end of the day the equation is pretty simple a sound business model requires your revenues at least as big and hopefully much bigger than your costs that outcome is called a profit great so put a handle on the business model theater will you be able to put on a show okay so it's pretty simple right business is as simple as this the financials at the bottom are an outcome of what you do at the top nine blocks that define your success now I figured out that people are still very much in love with products and value proposition so I thought you know what let's give users of startup senior executives an approach to better describe one of the blocks here the value proposition so let me switch back here to my little drawings let's pick this box and figure out if we could better define value propositions so not just products not just a bundle of products and services but could we figure out what do we map out when we describe a value proposition before we make one so I want to do a little exercise with you before I get you to work working groups of two I call these buzz groups turn to your neighbor on the left or right hand side and discuss for two minutes what a value proposition is and then write down your definition okay write down what a value proposition is what's the value proposition you had two minutes write down your definition cool as Captain Standish Lee my concerns of the afternoon great business he had less time humm did this Alicia Misha not them okay let's do this together let's do this together let's do this together so first I'm interested first I'm interested before I ask you what a value proposition is that get some definitions here who have you just talked and didn't write anything down you just talked and you didn't write anything that okay you are all in the world of blah blah blah it's fine not very ambitious but that's okay you're in the world of blah blah blah who have you put down a couple of bullet points what goes into a value proposition just a couple of points or wrote a definition okay fine not bad good start who have you made a diagram to bad because I have Swiss chocolate with me good behavior gets rewarded but since nobody has proven me they have a diagram I'll gonna have to eat these boxes myself okay and then now we have to go running to get rid of bidding it hit so too bad okay what you want to do is get out of this world of blah blah blah so when you talk about products or value propositions it's not enough to just talk what you really want is some kind of method that allows you to sketch it out because when you have a visual method like the canvas for all your business discussions I'll promise you you'll have strategic conversations so let's do this let's take the value proposition and we're going to take something else in fact we're also going to take the customer segment and we're going to describe those in a map in a canvas okay so we're going to take these two and we're going to make a map for a customer segment and the corresponding value proposition and if we make that map in fact what we're doing is we're sketching out the problem solution fit if you want okay so let's take customers first and I'll draw here anybody know what this is it's a customer segment very good somebody has good visual thinking skills okay you want to describe three things when you sketch out the profile of your customer three things is a very good start the first thing you want to sketch out is what jobs are customers trying to get done what are they trying to get done okay are they trying to find music install music you know steal music what is it that they're trying to get done then related to that you want to figure out related to those jobs what are the customers biggest pains okay turn your phones on by the way but tweet how good this session is if you have your phones please please okay your biggest pains what could it pain be installation finding music if you're looking for music describe all the biggest customer pain the things that turn off a customer the costs time budget anything that pisses off the customer then on the other hand you want to describe the biggest gains what does a customer expect or desire when it comes to these jobs so if you take a telephone okay what do we expect from a telephone number one we expect that we can make a call which Apple didn't get right for a while okay that you want to make a call with a phone the other thing is today phones look really good Samsung phones look absolutely gorgeous Apple phones look very good nobody today nope this is an Apple phone I just trying to downplay that I'm an Apple fan nobody today would put a blackberry in a cafe on a table it's a crime you don't do that it's a pain okay so you wouldn't do that today we expect that phones don't just work well we also expect that they look good okay so those are all the gains so once you've figured out the customer once you sketched out the customer you start designing a value proposition okay you design the corresponding value proposition that satisfies the customer so anybody know what this is it's a value proposition right very good at drawing I learned that from my 9 year old son okay and when you describe a value proposition you want to sketch out three things three things first one you just make a list of your products and services okay products and services if you are Apple and you're you know selling the iPod products is the iPod itself is music movies and the service would be iTunes and iTunes Store okay so you just make a list of that but here's where it gets interesting now you describe how do your products and services kill panes so this is what is it it's clearly visible come on it's a painkiller everybody got it right perfect okay so you're going to describe how do your products and services kill planes because you describe the pains over here hopefully your product or service addresses some of the pains that a customer has on the other hand you're going to describe how does your do your products and services create gains okay so you're going to describe the gain creators so if we could distribute now the the little canvases so we've got a couple of canvases value proposition canvases and sticky notes because I'm going to get you to work now for about four about six minutes okay so the point here is like with the business model canvas in a visual way you start sketching out first the customer profile and then the value proposition right so you get a better understanding if you're doing a good job with your value proposition then obviously the next thing is what do you do once in you know in a meeting or in a couple of meetings you have come up with a great value proposition you know for your customer profiles what's the next thing you're going to do you're going to start talking to people right you're going to do customer development and Lean Startup because you want to figure out is that really the profile of your customer are those real jobs are those real pains are those real gains if you don't go test all you're doing is intellectual masturbation the real thing is getting out of the building and testing if that is correct and you will iterate like you iterate with the business model canvas you will iterate through customer profiles and value propositions so now most of you have not one of these canvases one per person okay one per person don't hoard them get one per person because you can download them for free on the internet okay so what I want you to do now is I want you to sketch out let three minute exercise three minute exercise sketch out the customer profile of an entrepreneur sketch out the customer profile of an entrepreneur what are the most important jobs an entrepreneur is trying to get done what are the biggest pains for the entrepreneur related to those jobs and what are the biggest gains of the entrepreneur related to that job of being an entrepreneur okay sketch out the customer profile of an entrepreneur you're going to give you three minutes okay let's go with your seat neighbor do it in groups of two sketch out the profile of an entrepreneur okay let's go come on everybody's got to work you might even get some chocolate you don't know how an entrepreneur looks like Oh grant perfect okay excellent sorry when I don't see sticky notes I get all nervous okay everybody listen everybody listen so when you want to do this exercise in a real work world setting what you want to do is you'd never want to write nor on a canvas nor on a business model canvas nor on a value proposition canvas because it's like a holy cow you do not write on a canvas the reason is somebody invented sticky notes right what you want to do is you want to sketch these things out with sticky notes and I'll tell you why because when you have them in sticky notes you can move them around because one of the things you want to do once you sketch this out you want to ask yourself well what are the most important jobs and you're gonna put some order in that what are the most important gains and you're going to rank them what are the most important pains and you're going to rank them if you write you cannot change it this is a playground the business model canvas and the value proposition canvas is an entrepreneur's playground okay so you need to be able to play so next exercise you've done the customer profile of an entrepreneur what I want you to do now is to design a value proposition the value proposition you're going to design is the book of the 21st century for the entrepreneur so in the products and services you're going to tell me how that book looks like is it a book is it a call center is it a collection of videos what goes in the products or services for the book of the 21st century for the entrepreneur to teach the entrepreneur entrepreneurship and then you describe how is that product going to kill pains and create games okay I'll give you three minutes and the best the best group is going to win some Swiss chocolate okay so let's go three minutes great value proposition we skipped on the nest with that so you have to be judges now you're going to be the judges okay let's do this together it's a rapid prototyping very rapid prototyping so who has the best idea in the room because okay we got one person who's going to present there who else wants to present because we have Swiss chocolate to distribute okay here and we got two judges in the front okay so I'm going to give them the chocolate yes the judges are ash and Shana presented Elias Excel flowers please okay the judges you're on your side for this is whoa okay judges judges judges listen well and don't eat the chocolate okay you're gonna have to give it to people okay so first study over there okay ten second pitch ten seconds what's your value proposition okay okay thank you very much excellent so second pitch over here still writing okay great did you hear the first idea this is now the second one yep okay okay okay okay thank you very much excellent okay one more over here while filming okay last last pitch for Swiss chocolate you know how high the stakes are Swiss chocolate is the best you can get in the world if anybody else like the Belgians or the Austrians try to tell you it's just not true okay okay your pitch ten seconds okay yeah okay okay multi-disciplinary excellent great Thank You judges mom Arnold no I think that's fine oh one more yet to have a gender balance here okay one more woman and then you need to judge I'm running out of time hmm okay let's go you're young great perfect excellent why why hasn't anybody invented a crystal ball for entrepreneurs right okay perfect judges so that's why you're in Sean Alice one nikuman what's the best what's the best prototype here number two - which one - excellent number two is over there okay so get the chocolate yeah get-get don't be shy watch out be careful with those okay they throw you to sue right away yeah so now the important series let me get back to this idea of prototyping let me get back to this idea of prototyping so you did a rapid prototype of a value proposition and just like you could do a rapid prototype of a business model now the one thing I want you to keep in mind is one idea whoops here one idea can lead to very many different business models very many different value propositions and don't stick just to the idea sketch out a business model canvas when you get really good at this when you understand the business models of Nespresso the business model Skype the business model of Facebook the business model of semak's is a cement company the business model the Nintendo Wii when you understand those really well because this is your job as an entrepreneur to understand how these companies have done an outstanding job when you've done this well your prototypes will not just be hey a different product they will be substantially different business models some with recurring revenues some without fixed costs some may be in a company in a collaboration with your competition that's what prototyping is about understanding the different alternatives okay and it's not just about product now obviously all this prototyping is still I won't say it again is still intellectual masturbation if you don't do this okay and I think you heard a lot of this over the last two days a business model on paper a value proposition on paper is worth noting what you really want to do is you want to leave the business plan behind you that approach of the static document where you refine and where you think hey I'm going to refine this it's going to work more because I put more detail that's just nonsense what you really want to do is test so let me visualize this I burned the business plan before why because it's not about a static document what entrepreneurship is really about is managing uncertainty managing risk by iterating and pivoting through different business models and different value propositions when you do this and when you use a good understanding of business models to do this in combination with customer insights and customer learning that when you're going to have this curve that's going to work not here okay not here so what you really want to do is testing now let me lead I'll leave you with one last video I'll just eat up the rest of the time to show you what I mean with competing on business models okay one last video to show you what I mean with competing on business models a little bit of food for thought so you can advance in your entrepreneurial career some of today's most successful companies understand that the competitive games increasingly playing out between superior business models in addition to the traditional battle between new products technologies and services let's analyze the four levels of business model strategy the first level is what we call a level zero business model strategy companies that focus mainly on product technology and related services are at level zero the best of them build great value propositions with a strong product market fit the companies that compete mainly on better products and value propositions are often oblivious to the fact they could out-compete others by combining their products with a better business model let's call this group the oblivious companies that just start to understand the importance of competing on business models usually perform level one business model strategies they use the business model canvas to ask themselves which customers they're targeting how they're reaching them how they're acquiring them how they are earning money from what resources activities partners they need to do that and what's the cost structure organizations at this level understand that they need to look at the entire business model and its components but they use the business model canvas more like a checklist let's call these companies the beginners you understand that products and technology are not enough they've taken their first step towards competing on business models companies that know how to build outstanding business models perform level 2 business model strategies they know that it's not enough to just cover all the components of a business model companies competing at this level have business models with a story in which every single piece of the business model reinforces the others and contributes to the the great example of the Nintendo Wii beyond the introduction of an innovative product in the game console market they built a business model with lower costs more customers and superior profit margins they out competed their competitors on the business model an older example is Dell which disrupted an entire PC market with its business model another excellent example is Nespresso at the center of their business model is a machine that makes single portion de-stresser but what gets customers to pay six to eight times more for coffee outperforms their competitors and produces insane profits is the configuration of their business model these are true masters but it gets even better there are companies that compete on a level 3 business model strategy they don't just compete on a superior business model but they already think of new business models while they are successful these organizations build new business models proactively before a crisis or an industry or technology change forces them to sometimes they even self disrupt or cannibalize their existing business model while they're still successful these companies are very very hard to beat they are practically unstoppable examples are Apple and Amazon they continuously innovate their business model despite their success these are companies you could call the invincible you decide where you want to compete level 0 strategies focusing solely on great products and value propositions is like competing on train level three strategies are more like a Ducati Monster motorcycle guess which one outcompetes the other okay I'll let I'll leave you with the choice if you want to be with my five-year-old daughter with the training wheels or if you want to ride a Ducati Monster thank you very much for your attention go

Channel: Andrei Radulescu

Views: 31,284

Rating: 4.8333335 out of 5

Keywords: Great, Talk, Business Model Generation, Alexander, Osterwalder, Pioneers Festival

Id: GGAVBToXhS0

Length: 46min 52sec (2812 seconds)

Published: Tue Nov 06 2012