Posts Tagged ‘purpose of your business’

Business Model Innovation and Story Telling: How to get the story right!

Friday, March 21st, 2014

Framing the business model so it can be quickly but well understood by others is core. So, how do we do it? By Paul Hobcraft

You have come to end of a fairly long week. You have finally finished your Business Model Canvas. Finally you have a working hypothesis of something that is going to challenge some of the existing business models around. You should feel pleased; it took a lot of hard work to get to that point.

Laid out on one piece of paper is something that could have real business value yet although you can see where the dots connect, you begin to wonder if others will see the same compelling value, to invest in it, to back it, to simply support it and encourage you to continue.
Tell Your Story

Completing a business model and identifying its critical parts is only that first step, the hard part is getting it off the ‘drafting board’ and making it something tangible and potentially commercially viable for those around you to engage with.

What is the next step in executing this potential game changing business model

Each new business model needs a compelling story – a narrative..

We really need to learn how to craft a story, to tell the narrative around why your business model idea stands out and is worth other people’s time and consideration. This business model narrative along with your business model you are potentially better placed to test it, to talk about it, to validate it, to make it ‘sing for others’. You are out to get engagement and contributions everywhere, from everyone, as you tell the story, describe your potential new business model you gain from their reaction and improve your understanding of the real need for your idea. (more…)

Four core questions you need to answer for any great business

Monday, November 28th, 2011

Thanks to the business model canvas people are enthusiastic to build new business models and find business model innovations, but often they get lost in technocratic details. They just see building blocks but they forget the overal logic every great business needs.

Actually, you as an entrepreneur have to answer just one core question: Why should your firm exist on this planet? You need a Daseinseinsberechtigung (right to exist) for your firm. This is a very philosophical question. To be more operational, you can break down the Daseins question into four core questions. But still the answers will not come with a pure analytical process but with creativity and lot’s of empathy for your customers and their jobs they want to have solved. 

The technocratic approach is useless for finding love (source: http://xkcd.com/55/)

The four core questions on your business model canvas

  1. Why should customers be excited to do business with you? That is the value proposition. You could almost go as far as asking: Why should customers love to do business with you?
  2. How do you create the excitement of your customers in a productive way? That is the value architecture or operating model. Here you describe how you fulfill your value proposition.
  3. How do you earn money? That is your revenue model or the profit formula and here you should be able to explain why you as the owner should be excited about the business.
  4. What are your values you live up to in your team and with your customers and partners? That is the human side of the business and of utmost important, since it is the most difficult part to copy. I call it the culture and values of a business.

For these questions, you need compelling answers and the nine or elven building blocks are very helpful in answering the questions but do not get lost in details but look at the broader picture and see the interdependencies.  If you can answer the questions you have a great strategy that is customer-oriented, profitable and sustainable.

The bad part for any mediocre business is that you cannot answer the questions. Please all mediocre business, why don’t you try harder and work on “why should your customers be exicted about you?” instead of optimizing a dull business.

The Beauty of freaks: A special business model of chefs and mountain guides

Monday, March 14th, 2011

I just had the pleasure to spend sometime with two passionate freaks and both have built a business around their uniqueness and idiosyncrasies. The idea behind this post is to inspire you to find YOUR business model for YOU. Do not copy somebody else but find something that fits YOU and YOUR unique skills.

I spent the last week ski mountaineering in Italy in Valle Maira (south east of the piedmont region, east of Cuneo). It was a very enjoyable vacation with lot’s of fun, work and pleasure but also with learnings I want to share with you.

I learned from two people, Lucas Iten, our mountain guide and chef Enrico Crippa from the two Michelin star restaurant Piazza Duomo in Alba. Both are passionates. Both are freaks.

Mountain guide Lucas Iten

The first freak I encountered was our Swiss mountain guide Lucas Iten also called Mountain Geier. Actually, Lucas is not really customer-oriented; he is just the best in finding the best run under the present circumstances. And the best run is not really defined by the customer but the possibilities of the day. And if that means to climbed 1700m than you better ascend.

You have to fit to Lucas. When you do, you have one of the best times possible in the mountains. He loves the runs; he is like a child with all his enthusiasm and joy. He is childlike but very professional in regard to planing and the risk of avalanches. He loves the days out in the mountains and loves to share his enthusiasm. We found runs local alpinist were surprised that you could make them.

Early in life, Lucas knew that the mountains will be his life. In a young age, he climbed the Eiger Northface and did everything to avoid things he was not the best at like school. (more…)

Business Models, Long Range Planning, Baden-Fuller and latency

Friday, July 23rd, 2010

Long Range Planning, a prestigious academic journal on strategy, discovered the topic of Business Models and Strategy. It dedicated a whole Special Issue to Business Models. I have mixed feelings regarding the Special Issue. On the one hand it is great that academia takes up such an important topic; on the other hand, it is shows again that academia is a self-referential system which has a strong bias to not-invented-here syndrome since most authors do not reference earlier works that were published outside their closed community of Strategy professors. Sad. Many of the ideas I have read at other places before.

Already in May, I have heard that Long Range Planning had published a Special Issue on Business Models. Today, I got hands on it thanks to Andres Sundelin from The Business Model DataBase.

You can access the article via http://www.sciencedirect.com/science/journal/00246301 as a guest. Very interesting topics like “Business Models as Models” by C. Baden-Fuller and M. Morgan or “Business Models, Business Strategy and Innovation” by D.J. Teece are included, so the Special Issue is definitely worthwhile reading.  That is the happy part of the Special Issue.

C. Baden-Fuller, M. Morgan, Henry Chesbrough and business model

What makes me sad about the issue is the closed and self-referential world of the academia in Strategy Research. The topic was broadly covered in early 2000 at least in two Ph.D. theses, I know. However, so far I have found only two citation to Alex Osterwalder’s work in the article “Business Model Innovation: Opportunities and Barriers” by Henry Chesbrough and in the article by Wirtz & al.. Thanks Henry, that you take your open innovation approach also your research. Thanks Bernd.

I hoped to find some background on Business Models in Baden-Fullers and Morgan’s article. Negative. They seemed to have not heard from Osterwalder before, they do not cite him. They are not mentioning ideas of Gary Hamel on business concept innovation from 2000, a concept very close to business model innovation. They cite only their own kind. They still live in their closed community where it is extremely important from whom the idea is coming, even when the original idea is 10 years old and not even cited. That is what I call a long latency!

Origin of business model thinking

The origin in business model thinking dates back to the information management researchers that were building information systems. To do so, they needed models of the reality. They talked about data models, process models, enterprise models and later about business models. When the first Internet entrepreneurs were talking about their strategy, they talked naturally about their business model since that was a language familiar to them. From there, the term transcended to Strategy. E.g., I wrote my Ph.D. thesis exactly at this crossing of information systems and strategy. My supervisors were Prof. Beat Schmid, background in computer science and Prof. Georg von Krogh, a strong researcher in Strategy. Quite a balancing act.

Business model is just a model of a business

When I was writing from 1997 to 2000 my Ph.D. thesis, Prof. von Grogh told me that I needed a unit of analysis for my research. I know the traditional culprits like industry or firm but they did not fit into what we saw in the New Economy. Industry boarders become meaningless; competition came from competitors you had not even heard before.

Therefore, my answer to Georg was very simple: I used the business model as my unit of analysis. He said fine. Just define it. Well, easy said difficult done. I was positive at the beginning that there must be something since we all got Masters of Business Administration so Business should be defined. Nope. Not really.

And again, it was Peter Drucker who had worked on this. He asked the simple questions “What business are you in?” and “What is the purpose of a business”.  And this is exactly what a business model should answer when used for.

[If you want to know something about the origins of business model thinking and my contribution to the topic read chapter two of my Ph.D. from summer 2001 at Google Books. I translated part of that chapter for a workshop Prof. Yves Pigneur and Alexander Osterwalder (a German speaker) organized in summer 2002, when they started their research on business models. (added Jan. 5th, 2017)]

Chesbrough and Rosenbloom (2002) explain the antecedents to the business model concept in their article “The Role of the Business Model in Capturing Value from Innovation: Evidence from Xerox Corporation’s Technology Spinoff Companies”. It is interesting that it was not the academic world that saw the necessity to have the business in focus for strategy but the real world. The business is where the competition is. Welcome to the real world.

Design thinking, Ideo and disruptive business model innovation

Wednesday, November 25th, 2009

To be honest, I get a bit bored about the mantra that design thinking will solve the problems of large corporation. Well, when I go through the case studies at Ideo I am extremely impressed by their client list but not about the output. I have seen several design thinking sessions and I am not impressed at all with the output. The results are very often: More-of-the-Same but with fancier design.

Wer hat es erfunden? Novo Nordisk insulin pen

Where is the invention from design thinking that changed the industry? Where is the iTunes or the Kindle of Ideo? The problem with design thinking starts very early in the process with the problem definition phase. And that is where large corporations fail. They define the scope too narrow and than you get nice new things that sustain your current business but not new business models that rock your industry and yourself.

Ideo is a very good (self-) marketing & design firm but not an industry rocking firm. Large firms just love Ideo because Ideo just offers such a well designed process to solve the big problem of “being not innovative”. You hire Ideo for comforting yourself for not using your own common sense and your own customer insights. You just outsource your understanding of the customer to Ideo.

And how innovative are Ideo’s ideas?

Let’s take the example of the insulin pen Ideo describes on its homepage as a case [update 22nd Oct 2010, case is not available on IDEOs homepage any longer due to redesign of page]. (more…)

Does a customer care about your corporate strategy?

Friday, August 7th, 2009

The question what  a good strategy is is difficult to answer. With hindsight it is easy: A good strategy is one that works. But in foresight? Many formulated, intended strategies are plain boring, generic and not customer centric, but focused on investors. Many business model innovators on the other hand have clear strategies that are focused on customers and on the value proposition.

Boring strategies

“We earn a premium on our cost of capital”

“We form the best team in industry”

“We help our customer to be more successful”

“We ensure sustainable development”

Have you found out which company has these pillars for its strategy?

Probably not. The strategy is so generic and interchangeable that it fits for almost any large company.

Are you attracted as a customer to this company?

Probably not, since so many companies claim to help customers to be more successful.

Does this spur emotions in you?

Definitely not! It is just plain boring!

How about this company: It claims that it is driven by “passion of success” that rests on “four cornerstones”: “superior brands”, “superior supply chain”, “superior talent in lean organizations”.

Do you know which company it is?

No, since it is so generic. It could stand for many companies in many industries. It is boring. It does not give the company any real purpose to exit.

Value centric strategies

So how about this:

“to organize the world’s information and make it universally accessible and useful.” (more…)

Change, unlearning and the business model

Monday, June 29th, 2009

Thinking in business models helps you in change projects, particularly in the unlearning of unwanted tacit assumptions and knowledge of the past. Forgetting what made you successful in the past is the key challenge in any change project, learning new things actually the easy part.

I am currently involved in a large change project. The company involved was living in a cozy environment. Demand was stable, predictable; project cycles were measured in years to decades and due to high entry barriers the firm was sure to “win” all business from its customers. Quality was so defined that the products lasted for eternity, most of the time longer than they had to last. Due to the heavy duty nature of its customers’ business everything was engineered to customers standards and very little of the components were bought off the shelf. Cost was not a major issue as long it was in budget.

And now the world has changed. Their customers had to change due to pressure from their clients. So the world of my firm will never be the same but since the change is coming slowly, there is time to adapt. The question is now: How can the firm change? How can it forget the habits that made it successful in the past but impede the future?

I teamed up with a coach that has a background in social psychology and constructivism. We had long discussion together but also with the customer’s management that was new on board. The question was where to start the change process.

Should we just have McKinsey, BCG or any other top consultancy fly in to have them develop a new market oriented strategy and then implement it? Our question was: Can you just implement a strategy into the heads of people that were not involved in the process? I think you can in certain cultures but not in nordic cultures. The danger is that you lose the strength any company has and particularly lose the commitment of the employees that make up the difference between a mediocre and a good to great company. You just lose the soul of the business and get mercenaries as employees. So that was not an option.

The other approach often used in change management is soft, typical HR driven. Management does some seminars on change, culture and innovation; and, what a miricale, people then will understand the need for change and then they will change. Unfortunately this is an illusion but big business for trainers and coaches. The problem here is that it sounds so right but people will consume not engage.

The problem and also the chance for our client was that they still have cash and time to change. Some units are in trouble others still earn money with the traditional way of doing business. So there is little sense of urgency (bad) but also time for a deeper change (good).

Understand your business model as a start, Understand what business are you in

Our approach was simple. We wanted to put a mirror in front of management. We wanted management to see the current situation through different glasses. (more…)

Karstadt: Death of a legend (business model)

Friday, June 12th, 2009

The German retail and travel conglomerate Arcandor AG formerly known as KarstadtQuelle AG filed on June 9th 2009 for insolvency. It claims that the financial crisis is the reason. It had asked the German government in May for state aid but the government refused. But is the financial crisis the real reason for the dire situation? I do not think so. The business models of its retail activities (Karstadt and Quelle) are just dead. The management did not innovate on its business model and that is the reason for failure.

Most writers and bloggers take the music industry as a prime example for an industry that failed to innovate its core business model. But there are many other industries where failure to innovate its core business lead to their decline. A sad prime example of missed innovation is Karstadt, a large department store chain in Germany and Quelle, a German mail order powerhouse.

The Karstadt case is typical for a corporation that business model is dated. Instead of rejuvenating its business model or finding new business ideas the old business model is defended and by consolidating the industry even reinforced.

The next lesson is that all activities at corporate level like selling non-core assets do not solve your problems of an ailing business model. The solution must be found on the business level not on a corporate level. If you cannot fix it, than sell or close it early. Success in business is not defined on corporate level but by its business model!

In May 2009, the CEO of Arcandor, Mr. Eich asked for “a state guarantee to temporarily bridge the gap of the currently non-functioning financial markets.” [update: link no longer available] Arcandor did not want to have any handouts nor a state participation in the company. It promised that it will repay the loan “to the last penny.” It claimed that the credit crunch is the main reason for its financial stress.

But is this really true?

The only constant in retailing is business model innovation

Retail markets in general are dynamic markets where new business models destroy old ones and create new fortunes. Zara, Aldi, H&M, IKEA or Carefour all reinvented their retail category and made their owners rich. But since the whole market did not grow as fast as the newcomers, the incumbents suffered losses in market shares and sales. (more…)

It is the customer!

Monday, May 25th, 2009

The typical answer from managers to the question “What is the purpose of your business?” is: “to make money”. Well, that is to some point right but the money comes from customers and therefore the purpose of a business is to find profitable customers. And financing your sales to your customers is only sustainable when you see the cash in your pockets in the end. That basic purpose got lost over the last years of shareholder value thinking.

I gave last week a workshop on business model innovation for a large Swiss technology firm. The firm is well entrenched with its customers, you can almost call the firm a purveyor to the court for some customers. But times are changing and therefore did the new management arrange a workshop on customer centric business model innovations.

The first question I asked was the classical Peter Drucker question: What is the purpose of your business? And I got the typical answer from the senior managers: “To make money or to make a profit.”

That is of course right but: Where is the money coming from? How can you earn money for your shareholders without somebody who pays you? Where is your salary coming from? Is it really the company or where is the cash coming from?

It’s the customer, stupid!

It is amazing how few say it is to create and keep profitable customers.

It is simple, it is a hard fact:

“It is the customer where all the money comes from.”

It is the customer who helps you to pay your salary. It is the customer who finally pays the dividends to your shareholders. Without a customer you can not have the top line (revenue) in your profit & loss statement to pay for all other items that come under the revenue line. (more…)

What is the purpose of your business?

Thursday, February 26th, 2009

Beginning of the week, I had a long discussion with Dr. oec. Susan Müller and  Prof. Dr. Thierry Volery, two researchers at the University of St. Gallen. They want to figure out how high the excess return is earned by business model innovators. They want to know which kind of business innovation like value innovation or architectural innovation leads to what kind of über return or excess return.

Very interesting question in particular since most researchers including myself are still using case studies to make our point.

What made the discussion even more interesting was that we discussed what a business model is. There are several technical definitions like mine but for us more interesting was why the term became so prominent in the last years. With the term business model the word business returned to prominence in the conversation on strategy. (more…)