Startup MBA 2.1 - Business models - prototyping and moat design

business model prototyping

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Part I Prototyping,

communication and exploration

Alex Osterwalder’s Business Model Canvas

Value propositions aren’t just lists of features. !

It’s how you create joy or relieve pain.

You sell your value proposition...

Very specific customer segments are easier to think about. !

It’s better to have multiple specific segments than a single generic one.

To a customers segment

Who you reach through some channel

Channel has 2 parts: how they hear about it and how they actually buy it

How do you stop them from forgetting about you next time? !

How do you increase lock-in and retention?

You have an ongoing relationship to create retention and lock-in

The right side of the canvas is customer-facing. !

It’s about reaching & keeping the customer and generating revenue.

That’s how you make money.

Innovation on the left half of the canvas is about managing costs

The left side is how you create the value proposition. That costs you money.

What is the activity so strategically core to your business that you would never outsource it?

To create the value proposition, you do certain Key Activities

Key Resources are things competitors would have to replicate in order to compete. !

It could be your tech, your patents, or even your user-base.

Using your Key Resources

Your company has certain core competencies used to create & deliver the value proposition. !

Everything else can potentially come from a partner.

Anything you don’t do or have yourself, you get from a partner.

There are lots of ways to use the

canvas

Los Angeles Times Magazine, 1992

Question

What is ebay’s business model for collectors?

Sell anything

Sell anything

Indie merchants

Sell anything

Collectors

Indie merchants

Sell anything

CollectorsBuy hard-to-find

products

Indie merchants

Sell anything

CollectorsBuy hard-to-find

products

Indie merchants

% commission

Sell anything

CollectorsBuy hard-to-find

products

Indie merchants

% commission

Ads

Sell anything

CollectorsBuy hard-to-find

products

Indie merchants

% commission

Ads

SEO

Sell anything

CollectorsBuy hard-to-find

products

Indie merchants

% commission

Ads

SEO

Sell anything

CollectorsBuy hard-to-find

products

Indie merchants

% commission

Ads

SEO

The most buyers

Sell anything

CollectorsBuy hard-to-find

products

Indie merchants

% commission

Ads

SEO

The most buyers

Sell anything

CollectorsBuy hard-to-find

products

Indie merchants

% commission

Ads

SEO

The most buyers

The most sellers

Sell anything

CollectorsBuy hard-to-find

products

Indie merchants

% commission

Ads

SEO

The most buyers

The most sellers

Sell anything

CollectorsBuy hard-to-find

products

Indie merchants

% commission

Ads

SEO

The most buyers

The most sellers

The most products

Sell anything

CollectorsBuy hard-to-find

products

Indie merchants

% commission

Ads

SEO

The most buyers

The most sellers

The most products

Acquire users

Sell anything

CollectorsBuy hard-to-find

products

Indie merchants

% commission

Ads

SEO

The most buyers

The most sellers

The most products

Acquire usersAcquire

users

Sell anything

CollectorsBuy hard-to-find

products

Indie merchants

% commission

Ads

SEO

The most buyers

The most sellers

The most products

Acquire usersAcquire

users

Ads

Sell anything

CollectorsBuy hard-to-find

products

Indie merchants

% commission

Ads

SEO

The most buyers

The most sellers

The most products

Acquire usersAcquire

users

Ads

Ratings

What makes ebay’s model so strong?

The Key Resources are difficult to reproduce since they depend on being the biggest

Question

Why has ebay been so resistant to competitors? What makes its model so strong?

Sell anything

CollectorsBuy hard-to-find

products

Indie merchants

% commission

Ads

SEO

The most buyers

The most sellers

The most products

Acquire usersAcquire

users

Ads

Ratings

Ebay’s network effect

Ebay’s Key Resources are all a result of being the biggest, so they always have an edge over any new competitor

Does this capture every detail of ebay’s business?

What about Paypal? Power sellers? Buy-it-now?

Business models are sketches

Sketches aren’t meant to be perfect. They’re a disposable tool for understanding and communication.

Question

Why do Chrome and Android matter so much to Google?

Searchers

Find anything

Searchers

Find anything

Searchers

?

Find anything

Searchers

.000X / search

So who is paying?

Find anything

Searchers

.000X / search

Find anything

Searchers

.000X / search

Advertisers

Find anything

Searchers

.000X / search $ / click

Advertisers

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Measurable

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Measurable

Any budget

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Measurable

Any budget

Big audience

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Big audience

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Big audience

Those are the basics. But how do they get

and keep users?

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Big audience

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Word of

mouth?Big audience

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Word of

mouth?

Brand?

Big audience

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Word of

mouth?

Brand?

Twitter?

Big audience

Seems weak. When the answer seems suspicious,

keep looking.

When you searched for something today,

why did you use Google?

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Word of

mouth?

Brand?

Twitter?

Big audience

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Word of

mouth?

Brand?

Twitter?

Big audience

Great product?

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Word of

mouth?

Brand?

Twitter?

Big audience

Great product?

No other

options?

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Word of

mouth?

Brand?

Twitter?

Big audience

Great product?

No other

options?

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Word of

mouth?

Brand?

Twitter?

Big audience

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Word of

mouth?

Brand?

Twitter?

Big audience

It’s the default

The default? Where?

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Word of

mouth?

Brand?

Twitter?

Big audience

It’s the default

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Word of

mouth?

Brand?

Twitter?

Big audience

It’s the default

Mozilla’s Firefox

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Word of

mouth?

Brand?

Twitter?

Big audience

It’s the default

Mozilla’s Firefox

Apple’s Safari

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Word of

mouth?

Brand?

Twitter?

Big audience

It’s the default

Mozilla’s Firefox

Apple’s Safari

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Big audience

It’s the default

Mozilla’s Firefox

Apple’s Safari

Browser partnerships

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Big audience

It’s the default

Mozilla’s Firefox

Apple’s Safari

Browser partnerships

$X00 M / year

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Big audience

It’s the default

Mozilla’s Firefox

Apple’s Safari

Browser partnerships

$X00 M / year

Question

Why do Chrome and Android matter so much to Google?

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Big audience

It’s the default

Mozilla’s Firefox

Apple’s Safari

Browser partnerships

$X00 M / year

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Big audience

It’s the default

Mozilla’s Firefox

Apple’s Safari

Browser partnerships

$X00 M / year

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Big audience

It’s the default

Mozilla’s Firefox

Apple’s Safari

Browser partnerships

$X00 M / year

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Big audience

It’s the default

$X00 M / year

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Big audience

It’s the default

$X00 M / year

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Big audience

It’s the default

$X00 M / year

Build a browser

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Big audience

It’s the default

$X00 M / year

Build a browser

35% browser

share

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Big audience

It’s the default

$X00 M / year

Build a browser

35% browser

share

Our own browser

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Big audience

It’s the default

$X00 M / year

Build a browser

35% browser

share

Our own browser

Phone default search

Find anything

Searchers

Advertisers

.000X / search $ / click

Cost-effective

advertising

Big audience

It’s the default

$X00 M / year

Build a browser

35% browser

share

Our own browser

Phone default search

iOS

etc...

The business model holds the answer

If Google didn’t win with Chrome and Android, they would be forced to spend a fortune on partnerships (and might even lose their whole business)

In review:

You sell your value proposition...

To a customers segment

Who you reach through some channel

You have an ongoing relationship to create retention and lock-in

That’s how you make money.

The left side is how you create the value proposition. That costs you money.

To create the value proposition, you do certain Key Activities

Using your Key Resources

Anything you don’t do or have yourself, you get from a partner.

Final business model tips

• Separate colors for each customer segment

Final business model tips

• Separate colors for each customer segment

• Use as few sticky notes as possible

Final business model tips

• Separate colors for each customer segment

• Use as few sticky notes as possible • Focus on quick communication,

not perfect representation

Final business model tips

• Separate colors for each customer segment

• Use as few sticky notes as possible

• Focus on quick communication, not perfect representation

• Explore lots of possibilities

Questions?

Zappos

Question

How did Zappos survive against Amazon and others?

Huge shoe selection U.S. shoe

buyers

Display ads

$ / pair

Returns

Fast & cheap

Logistics & fulfillment

Marketing

MarketingWare-houses

Support staff

Inventory

Re-target

WH staff

Huge shoe selection U.S. shoe

buyers

Display ads

$ / pair

Returns

Fast & cheap

Logistics & fulfillment

Marketing

MarketingWare-houses

Support staff

Inventory

Re-target

WH staff

Huge shoe selection U.S. shoe

buyers

Display ads

$ / pair

Returns

Fast & cheap

Logistics & fulfillment

Marketing

MarketingWare-houses

Support staff

Inventory

Re-target

WH staff

Huge shoe selection U.S. shoe

buyers

Display ads

$ / pair

Returns

Fast & cheap

Logistics & fulfillment

Marketing

MarketingWare-houses

Support staff

Inventory

Re-target

WH staff

Huge shoe selection U.S. shoe

buyers

Display ads

$ / pair

Returns

Fast & cheap

Shoe-focused

logistics & fulfillment

Marketing

MarketingWare-houses

Support staff

Inventory

Re-target

WH staff

Huge shoe selection U.S. shoe

buyers

Display ads

$ / pair

Returns

Fast & cheap

Shoe-focused

logistics & fulfillment

Marketing

MarketingWare-houses

Support staff

Inventory

Re-target

WH staff

Huge shoe selection U.S. shoe

buyers

Display ads

$ / pair

Returns

Fast & cheap

Shoe-focused

logistics & fulfillment

Marketing

Marketing

WH staffSupport

staffInventory

Re-target

Ware-houses

Huge shoe selection U.S. shoe

buyers

Display ads

$ / pair

Returns

Fast & cheap

Shoe-focused

logistics & fulfillment

Marketing

Marketing

Support staff

Inventory

Re-target

Ware-houses

Huge shoe selection U.S. shoe

buyers

Display ads

“Try it on at home” returns

$ / pair

Returns

Fast & cheap

Shoe-focused

logistics & fulfillment

Marketing

Marketing

Support staff

Inventory

Re-target

Ware-houses

Huge shoe selection U.S. shoe

buyers

Display ads

“Try it on at home” returns

$ / pair

Returns

Fast & cheap

Shoe-focused

logistics & fulfillment

Marketing

Marketing

Support staff

Inventory

Re-target

Ware-houses

Huge shoe selection U.S. shoe

buyers

Display ads

Ridiculouscustomer

service

“Try it on at home” returns

$ / pair

Returns

Fast & cheap

Shoe-focused

logistics & fulfillment

Marketing

Marketing

Support staff

Inventory

Re-target

Ware-houses

Huge shoe selection U.S. shoe

buyers

Display ads

Ridiculouscustomer

service

“Try it on at home” returns

$ / pair

Returns

Fast & cheap

Shoe-focused

logistics & fulfillment

Marketing

Marketing

Support staff

Inventory

Re-target

Ware-houses

Huge shoe selection U.S. shoe

buyers

Display ads

Ridiculouscustomer

service

“Try it on at home” returns

$ / pair

Returns

Fast & cheap

Shoe-focused

logistics & fulfillment

Marketing

Marketing

Support staff

Inventory

Re-target

Ware-houses

Love