Business Model ElementsBoulder/Denver Lean Startup Meetup

17 March 2011Eric Wu@ewu

•What is a business model?•Why should I care?

•What are the elements? Example frameworks•How does it fit into Lean Startup?

How will the business

create value through its operations?

Profit Revenue Marketshare

One simple question

What is a business model?

•All elements required to answer question…•And how they influence each other…•And where innovative execution makes the whole thing unique

Why should I care?Build, articulate, and revise business model because:• Forces concept to gel•A first, risk-free test•Builds expertise in face of

unknown•Practice telling your story

Clear understanding of your business model is critical to implementing the Lean Startup methodology

What are the elements?

• Mix and importance different for each business

• A framework gives common areas to explore• Two good examples• The Four P’s (marketing mix)• Maurya’s Hybrid Business Model Canvas

The Four P’s

Product

Placement

Price

Promotion

The Four P’sProductWhat will you sell to customer?

• Problem/solution• Target market / segmentation• Key features• Cost• Competitive advantage

PlacementHow will you get product to customer?

• Distribution methods• Sales methods

PromotionHow will customer learn about product (and how do you learn about customer)?

• Target market / segmentation• Communication tactics• Customer development• Customer support

PriceWhat will your customer pay?

• Cost +• Market based• Value based• Freemium• Discount strategy

The Four P’s

Pros• Generally good at

covering all the bases• Applies to any type of

business• Concept accounts for

interdependency

Cons• Can be too high-level,

easy to miss elements• Applies to any type of

business• Where’s the customer-

focus?• Assumes you remember

the special sauce

Hybrid Business Model Canvas

Hybrid Business Model Canvas

Pros• Tailored to consumer

web service business• Good coverage of

business model themes• Remembers the special

sauce for you

Cons• Tailored to consumer

web service business• Overlooks Sales

(understandable)• Doesn’t emphasize

interdependence

How does this fit into Lean Startup?• Lean Startup Review– Build scalable, repeatable

business as quickly and efficiently as possible

– Use validated data to prove/disprove assumptions

– Pivot based on learning• Every element of business

model is fair game for iterative testing

How does this fit into Lean Startup?

• Key business model areas for iterative testing:– Target market– Distribution method– Pricing / revenue model– Marketing / demand creation– Competitive advantages / positioning

Hypothesize Test Pivot

Resources

• Four P’s– 50 year old framework, lots of resources out there– A good example:

http://www.mindtools.com/pages/article/newSTR_94.htm

• Hybrid Business Model Canvas– Ash Maurya’s original post:

http://www.ashmaurya.com/2010/08/businessmodelcanvas/– Hybrid Business Model Canvas in an editable PowerPoint:

http://internetandstuff.com/post/982743243/business-model-canvas-on-powerpoint-download-link

• Entrepreneur’s Guide to Customer Development– http://www.amazon.com/dp/0982743602/