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
Company
1
Partners
2
Influencers
3
Advertising / Marketing / Social Media
4
Target Customer
5
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 Stages
Product 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
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