Business Model Innovation

Activity: The World’s Tallest Marshmallow?

The Marshmallow Challenge Rules

Build the tallest freestanding structure

The entire marshmallow must be on top

Use as much or as little of the kit

Break up the spaghetti, string or tape

The challenge lasts 18 minutes

Nail It then Scale It Phases

One Approach

Management Science of Uncertainty

Uncertainty / Unknown

Certainty / Known

Traditional Management

Entrepreneurial Management

Key Element of Uncertainty

Uncertainty = Assumptions

A Tool to Identify Assumptions

Nail It then Scale ItThe Fundamentals

Fundamental #1: Get Into the Field

“Get the heck outside the building!” –Steve Blank

Fundamental #2: Fail Fast The goal is to fail fast and

inexpensively

Redefine failure The only failure is wasting your time and

money when you could avoid it▪ 1000 Markets Example

Fundamental #3: Intellectually Honest Learning

Common Learning Traps Confirmation bias Motivation bias Familiarity bias Superstitious learning

Goal: Listen to understand the world as it really is Attitude of wisdom Willingness to be wrong and to fail Example: Mike Cassidy, Xfire

Fundamental #4: Inexpensive, Rapid, Simple Experiments

Experiment with virtual prototypes

Identify your assumptions and turn them into facts

Power in low cost, simple, rapid Example: Jam experiment Example: Classtop and the $300

software package

Nail It then Scale It:Nail the Pain

Separate Problem Search from Solution

Which Problem Is

Worth Solving

(Nail the Pain)

Which Solution

Solves that Problem

(Nail the Solution)

Custer versus Napoleon

Phase 1: Nail the Market Pain

Objective: Discover the Monetizable Market Pain▪ Discover the “job” your customer is trying to get down without

being biased by the solution Develop the Big Idea Prototype

Steps:▪ Step 1: Don’t build anything▪ Step 2: Write down Monetizable Pain hypothesis▪ Step 3: Write down Big Idea Prototype▪ Step 5: Quick test with customers▪ Step 5: Quick exploration of markets

Test: Customers return your cold call

Monetizable Pain:Mosquito Bites vs Shark Bites The bigger the pain the easier to build

a business Motive Communications▪ Problem searchWhat about Instagram?

Monetizable Pain:How to Discover It? Customer observation and empathy

Put yourself in your customers shoes? What keeps them up at night, causes

them trouble, leads them to develop work-around?

Test your assumption with customers

Example: Motive Communications

How to Get Out There?

Practice It:Storyboard Step 1: Profile customer segment

I am ___________________________(who, with at least 3 characteristics)

I am trying to ___________________ (outcome/job trying to solve)

But it’s difficult because ___________(identify problems/barriers)

Practice It:Storyboard Step 2

Story board of the journey of how customer solves Step 3

Identify biggest pain … do root cause (five whys) Step 4

Identify most important root cause Step 5

What questions do you need to answer about the root cause

Who could you talk to in order to answer these questions?

Nail It then Scale ItNail the Solution

Phase 2: Nail the Market Solution

Objective: Discover the Minimum Feature Set that

drives purchase

Steps:▪ Test 1: Virtual Prototype Test▪ Test 2: Prototype Test▪ Test 3: Solution test

Test: Customers purchase

Problem

Most entrepreneurs build products …

Customers don’t want

Key Task

Achieve Product / Market Fit

Exact match between pain and solution

Key Tools

Prototypes

From virtual prototypes to actual prototypes

Key Tools

Minimum Feature Set

Virtual Prototypes

Can be Drawing Powerpoint Video

Test What will customers purchase▪ Even before you build it

Practice It:Virtual Prototype If you had to sell a customer today …

For the skeptics … AtTask

Phase 3: Nail the Go-to-Market Strategy

Objective: Discover customer buying process and

unique sales process for your customers

Steps:▪ Test 1: Buying process discovery▪ Test 2: Market infrastructure discovery▪ Test 3: Pilot customer validation

Customer Buying Process

Customer

Awareness

Customer

Evaluation

Customer

Purchasing

Customer Use

Market Communication Infrastructure

Company1

Partners2

Influencers3

Advertising / Marketing / Social Media

4

Target Customer5

Practice It:Map It Draw a map of customer buying

process

Prioritize 3 most important inflection points

Set two dates on your calendar to investigate

Phase 4: Nail the Business Model

Objective: Validate financial model & ignite business model

Steps▪ Leverage customer conversations to predict business

model▪ Validate the financial model▪ Iteratively launch product and go-to-market strategy▪ Business dashboard with continuous information flow▪ Adjust speed depending on market type

Examples: Webvan Webmetrics, Knowlix, Yahoo

A Tool to Identify Assumptions

Phase 5: Scale It Objective:

Scale discovered model until it breaks▪ Phase change recognition & management▪ Recognize changes▪ Shift process, structure and employees▪ Emphasize with visual management

▪ Consciously define culture▪ Succession and transition▪ Leaping between markets

Examples: Intuit, Fusionsoft, Craigslist, SodaStart, IMVU

Summary of Five StagesProduct development Before you build anything:

Identify hypotheses about customers Test those hypotheses as cheaply as possible Identify exactly customer pain and your

solution with customer Use a virtual prototype

Sales development Discover exactly how customers buy Develop a replicable sales model