I already made a case in 2016 for letting go of the now generic business model canvas. Story short: it’s a fantastic training tool. As such, it’s very open and can be used by a lot of trainers, consulting enthusiasts, or business schools. The price to pay is that it’s a blunt tool with no credo, no vision, and worse: no teeth!
Innovation is a contact game that is played at high velocity. We require sharper tools.
Let’s see how it works shall we?
Not that business model canvas
The tools we have been using and polishing for years had different names, but always the same logic. I called them the Focused Innovation Framework, but this doesn’t matter much. What matters is that it lays out the most simple and precise logics you have to connect together fast if you want to innovate anything. And this is how we deal with describing a business model for an innovation project:
In the business model canvas, the Problem box describes the unresolved issues that your customers are facing in the market and that you intend to solve — even if only partially.
This is the core of your vision and what you are determined to change. The amount of change you will deliver will define the level of innovation you’ll deliver. Solving small problems a step at a time delivers incremental innovation. Solving problems that were deemed impossible to crack until now, delivers radical or disruptive innovation. To break down the understanding of the problem, it’s usually easier to explain the key pain points that constitute it.
Customers are simply defined by answering the question “Who has the problem?”. A customer segment being a group of customers having the same type and amount of pain points, at the same time.
We also define the key stakeholders involved in the problem. The Competitors are the most obvious ones: they are already solving part of the problem you focus on, or they intend to. They compete with you at removing the pain of your target customers, but they might not use the same product, distribution strategy, monetization scheme, or technology.
AirBnB is competing with Accor, without hotels and Fortnite is competing with Youtube and Netflix to entertain you.
The other stakeholders are less discussed but are tremendously important. They are the Enablers and they are different groups of interests that talk about the on-going problem, they can lobby for or against it, they might be customers associations, public services or industrial conglomerates. Because they make the problem more visible to everyone, they indirectly help you create your business.
When capital cities such as Paris or London study pollution and make the case for less cars in their street, they unwillingly open the market to Uber, Lyft, Waymo or now Lime. The market is more prone to understand the problem these companies solve. It has been ‘enabled’.
If the way you think your business model starts with the PROBLEM, congratulations! You are a customer-driven company (startup, project, team…). If not it’s OK, but you’ll have to circle back to it as fast as possible. If there is no problem to solve, there is no market to innovate.
The Added Value explains how much of the problem you actually solve and what are the resulting unique benefits for the customers. These benefits can be tangible (« We generate an average monthly income of X for our customers ») or intangible (« We help you find love within a week »).
The added value is not just your « value offer ». It describes which parts of the value proposition you have that goes beyond what your competitors are doing. In that sense, bringing « good quality », « simple use » or « competitive price » doesn’t explain your added value. Everyone says they bring these benefits, it’s not opposable to the market.
The Revenues of your business should be directly linked to the value your deliver to the market. Following Schumpeter’s logic: you create a value that is shared between you and the customer. What you keep is your revenue. When working on business models, it’s very often referred as ‘monetization’, but it’s deeper than that. If you will have to generate financial revenues (money), you might also generate social revenues, ecological positive externalities, etc. This should also be taken into account here.
A not-for-profit organisation for instance would list social impact in its revenues (with their own adequate KPI). A fast growing company such as Uber could decide to record the number of drivers on the platform as a form of revenue (it’s essentially a pre-money revenue), or Google’s Waymo the number of miles that its self-driving prototypes are recording each month.
Once you know what is your added value and link your a revenues to it, the way you will communicate this to the market and « engage » your potential customers in your business, defines your engagement strategy. An oversimplification of this is describing your marketing strategy, but this goes beyond it and try to explain what are the key touch points between you and your market.
Lastly, the partners are the third parties that work with you and supply a key activity that you don’t have internally. It might be a unique distributor in a specific region, a research lab owning a patent you use, etc.
We explore the Product box last. I must confess I tend to excessively remind our customers that the product is not important. It’s half a joke, half an oversimplification. But as an innovator, you have to consider the product solely as key functionality of the business model.
It’s never the end game, even if you have the best technology in the world ready to launch. Startups’ and corporates’ R&D programs’ graveyards are full of amazing solutions without a problem to solve!
It’s also important to note that we couldn’t care less about the product / service distinction, and we just say ‘product’. This is usually a full discussion that we should have if you’re an innovator thinking that you should design, market or distribute products and services in critically different ways. It is not the case, and this only really matters for accounting and taxes. But this discussion would lead us in a too deep rabbit hole for this article. Just say ‘Solution’ if you’re uncomfortable calling everything a product and be done with it.
That being said, your product will have key features that highlight the critical parts of the job you’re doing for the customers in order to solve their problem.
Being able to find several offers wherever you want to travel on the planet with AirBnB is for instance a key feature. It has to be designed and engineered as early as possible at AirBnB’s launch to be sure to deliver the promised added value.
As important as the product, your Key Activities to build it, get it to the market and sustain its added value over time are tremendously important to list. They are your « superpower » if you will, and as such very often a large portion of the barrier to entry you are raising for would-be competitors.
Associated to the product, we will also explain as briefly as possible your Distribution strategy (even in SaaS, always worry that distribution could end up as the trickiest part of your business) and your cost structure (mainly are you in Capex or Opex mode, and where are the bulk of the investments needed).
Being practical with your culture
Using this business model framework doesn’t require that you start with the problem, move on to added value and then decide what is the product to eventually build. As I said earlier on, this would be the case if you were market- or customer-driven. You can also be future-driven and envision what is the added value you want to create in the market and connect it later to a problem and design your product.
In this innovation game, I have to acknowledge that by a large measure companies tend to start with the product. Specially if they are tech or engineering companies: an Airbus, a Nissan or a Vinci will not culturally start to innovate by thinking customer’s problems. But as such, being process-driven, doesn’t mean you should end up being oblivious to the mechanics of innovation. Starting with the product because that’s what you do, demands that you learn how to translate features to roadmap and added value, and assess the reality of the market need. You just need to do it as fast possible and with as much flexibility on your product design as possible, because yes, you are running this race backward.
No surprise here: agile and lean are key cultural issues for process-driven companies.