One of the toughest problems for entrepreneurs is to keep score as they search for their business model.
One of the key concepts of Customer Development is writing down your initial hypotheses (guesses) of all the parts of your business model, then updating them with the facts you find outside the building.
Since I first wrote the book Four Steps to the Epiphany I’ve realized that an even better way to keep score is by diagramming each of your business model hypotheses on a whiteboard and updating them as your iterate and pivot. I’ve been experimenting with how to best teach this idea to students in classroom and with startups. My favorite book of how to diagram your business is Business Model Generation written by Alexander Osterwalder. It has the notion that any business model can be drawn with just 9 separate boxes. It’s a great idea.
The Real World
My teaching partner Ann Miura-Ko and I both love the concept of Business Model Generation. However we find using the book to teach and in early stage venture problematic. It makes assumptions about the depth of knowledge about business models that we find that students and startups lack. For example, we find that the distinction between who’s a user and who’s a customer may be obvious to sophisticated strategists in large companies but is often overlooked in a startup. The same issues arise between understanding the difference between a distribution channel and the specific demand creation activities needed to drive customers into that channel. Being able to get these concepts is the difference between startup success and failure. So while we love the book, Ann has been drawing her own business model diagrams you’ll see in the presentation below.
Given Ann and I are such big fans of the Business Model Generation book we were happy to have coffee with Alexander Osterwalder and share our thoughts about what we thought was missing. In hindsight I think we were asking for the business model generation book for dummies (kind of like someone asking me for six steps to Customer Development rather than four,) but Alexander was not only was generous with his time but posted a thoughtful response to our comments.
Business Plans Versus Business Models
Given what I think of Business Plan competitions, it was ironic that I spoke last week at the Clean Tech Open business plan competition conference. I did appreciate the venue and shared my thoughts of how a startup goes from an idea to a business plan to business model to customer development and finally to a venture pitch, all in the presentation below.
- Gather all your hypotheses in Customer Discovery
- Diagram all your hypotheses of your business model
- Update the diagram as you gather facts outside the building
- Minor iterations will make minor changes to the diagram
- Pivots will have you changing major pieces
Filed under: Customer Development