The National Science Foundation Innovation Corps – Class 2: The Business Model Canvas

The Lean LaunchPad class for the National Science Foundation Innovation Corps is a new model of teaching startup entrepreneurship. This post is part two. Part one is here. Syllabus here.

The 21 NSF teams had been out of the classroom for just 15 hours as they filed back in with their business model canvas presentations.  Their assignment appeared (to them) to be deceptively simple:

  • Write down their initial hypotheses for the 9 components of their company’s business model (who are the customers? what’s the product? what distribution channel? etc.)
  • Come up with ways to test each of the 9 business model canvas hypotheses
    • Decide what constitutes a pass/fail signal for the test. At what point would you say that your hypotheses wasn’t even close to correct?
  • Consider if their business worth pursuing? (Give us an estimate of market size)
  • Start their team’s blog/wiki/journal to record their progress during for the class 

Teaching logistics
Each week every team presented a 5-minute summary of what they had done and what they learned that week. As each team presented, the teaching team would ask questions and give suggestions (at times direct, blunt and pointed) for things the students missed or might want to consider next week.

While the last sentence is short, it’s one of the key elements that made the class effective. Between the three of us on the teaching team there was 75 years of entrepreneurial experience. (The 2 VC’s between them probably have seen 1000’s of presentations.) While there’s no guarantee our comments were correct or we had any unique insight, we did have enough data for pattern recognition.

The instructors sat in the back of the room and used a shared Google spreadsheet for grading. We graded the teams on a scale of 1-10 and each of us left detailed comments the other teaching team members could share and comment on. Week after week it gave us a pretty detailed record of the progress and trajectory of each team.

(As great as the presentations may be, sitting through 21 of them in a row were exhausting. After this first cohort, the NSF will be putting 25 teams at a time in a class. We intend to break the group into three parallel presentation sections.)

All teams kept a blog – almost like a diary – to record everything they did outside the building. This let the teaching team keep tabs on their progress and offer advice in-between class sessions.

Getting the teams to blog required constant “encouragement,” but it was invaluable. First, as we had a window into each teams engagement with customers, it eliminated most of the surprises when they came into class to present. Second, the blog helped us see if they were gaining insight from their customer discovery. Insight is what enables entrepreneurs to iterate and pivot their business model. The goal wasn’t just to talk to lots of people – the goal was to learn from them. Finally, their blogs gave us and them a permanent record of who they talked to. Over time this contextual contact list will be turned into a shared contact database for all future NSF teams.

The 21 Teams Present
The first team up was Arka Lighting. We liked these guys, but for a while no one on the teaching team could figure out what their core technology was. We knew they wanted to make LED lights that had better performance because they would dissipate less heat.  Finally when we understood that their core technology was heat pipes, it wasn’t clear why that made them a better LED supplier.  Were they selling to end users? OEMs? Manufacturers? We suggested that perhaps they had jumped to too many assumptions.

If you can’t see the slide deck above, click here

Next up was SenSeveresolid-state hydrogen and hydrocarbon sensors for use in severe environments.  They were going to start with the $81M Chlorine market where they already had a partner. It seemed like a tiny business. Did they just want to become a licenser of technology? Were their other severe environments that their sensors fit into? Did customers just want the sensors or a more complete sensing solution?

If you can’t see the slide deck above, click here

Graphene Frontiers was next. Graphene is incredibly cool. It’s touted as the new “wonder material” and its inventors won the 2010 Nobel Prize in Physics. The team wanted to make wafer-scale Graphene films. And do it at ambient pressure. But their proposed products seemed like research lab selling other research labs low volume products. It seemed liked technology in search of a business. Reading the Graphene Frontiers blog for the first week, we realized that in a burst of enthusiasm they set up a Google AdWords campaign to drive traffic to their site!

If you can’t see the slide deck above, click here

Ground Flour Pharma was going to take Fluorine-18 and make a new generation of fluorodeoxyglucose (FDG) radiotracers for Positron emission tomography scanners. But it wasn’t clear who benefits enough to make this a business. If they need FDA trials is it worth the money needed for approval? Is this just a technology license or is it a company?

If you can’t see the slide deck above, click here

C6 Systems had a great set of photos with things on fire in the woods. It seemed like they were going to burn downed trees to do what? Make charcoal? It looked like fun but is this a hobby or a scalable business? Is their any patentable Intellectual Property? What was their Value Chain? Their blog showed a good head-start on talking to customers.

If you can’t see the slide deck above, click here

Photocatalyst made nanogrids that became miniaturized self-supported mats, similar to fishing nets, that float on water and rapidly decompose crude oil using sunlight. The result is that pollutants are turned into water, carbon dioxide and other biodegradable organics for environmental remediation. Their slides sounded like a technical presentation of nanocatalyst features but their blog showed that they had been actively talking to customers in the last two days.

If you can’t see the slide deck above, click here

After the teams presented it was the turn of the teaching team.  We presented our second lecture, this time on “Value Proposition.”

If you can’t see the slide deck above, click here

For tomorrow, the teams had 15-hours to get out of the building and talk to 10-15 customers and test their Value Proposition.

While most of the teams got on the phone or into their cars, a couple of others complained, “You didn’t tell us we were supposed to use our spare time to talk to customers. We thought this was just spare time.”

At first, I thought they were joking. Spare time? I don’t think you understand the key principle in a startup – there is no such thing as spare time. The clock is running and you’re burning cash.

Go!
Listen to the post here: Download the Podcast here

15 Responses

  1. Steve, thank you. Great work. I got a good laugh about the discussion of ‘spare time”. You deserve a medal of honor! :)

  2. Hi Steve,

    Can you tell me why you are choosing to use the Business Model Canvas instead of Ash Maurya’s Lean Canvas? We will be using the lean startup process with our accelerator teams at Momentum. We are thinking of starting with the Lean Canvas and converting to the Business Model Canvas once the teams get some initial learning. Can you give me your thoughts?

    Looking forward to “meeting” you at the Michigan Lean Startup Conference in May!

    Thanks,

    Amanda Chocko

    • Amanda,
      The good news is that there are literally hundreds of ways to define a business model.
      The bad news is that there are literally hundreds of ways to define a business model.

      I found Alexander Osterwalders business model canvas when I first read his PhD thesis.

      His book Business Model Generation was an extension of that work.

      A couple of hundred thousand copies of the book later I find it’s the “standard” used by corporations and educators.

      Ann Miura-ko and I first encountered the Osterwalder’s canvas when we started teaching the Lean LaunchPad class. We were already far along in developing our own canvas. While we had a bunch of gripes about not quite liking Osterwalders definition of Value Proposition and Customer Relationships, we thought it was “good enough” to work around (for example, we define Customer Relationships as Demand Creation.) And that those downsides were far outweighed by teaching what was fast becoming a standard.

      There’s nothing magic about what you teach in class. But their are benefits in connecting it to what goes on outside of it.

      steve

      • Amanda,

        Among the countless models everybody should use the model that suits them best. That’s exactly the reason why we put the Business Model Canvas under a Creative Commons license. That being said, hundred thousands of organizations are using the Canvas in its unmodified version because it just works (after all it is based on four years of PhD research – later more on that).

        As to the Lean Canvas: I find it counterproductive and would even say it’s dangerously limiting for any organization studying its business model (and for start-ups in particular). Let me give you at least two reasons:

        1) Product Centricity

        The Lean Canvas is very product centric. I find this problematic in a time where competitive advantage increasingly comes from a combination of great products AND a great business model. What gives Apple a competitive advantage for its iPhone? The product? No, it’s the device in combination with the business model built around users, developers, and available apps.

        Also, a product focus might prevent you from opting for a highly successful business model pattern for your start-up, like multi-sided markets (e.g. Google).

        In some cases a product focus is simply dangerous. When Nespresso, the Swiss coffee company, started out they almost went bankrupt. They redesigned their business model and became a 3+ billion USD turnover company. The spicy detail: Both business models had exactly the same product at their center. The business model was the difference between life and death.

        2) Loss of important building blocks

        Part of my PhD research was to answer the following question: What are the most important building blocks of ANY organization’s business model. In other words: What are the most important decisions a company has to make when it designs its business model (deliberately excluding implementation issues like the right team, the org structure, etc.). The answer of my research, which was validated with entrepreneurs and executives alike, were the 9 building blocks.

        The Lean Canvas eliminates 3 building blocks (key resources, key partners, and customer relationships) and replaces them with 3 others (problem, solution, unfair advantage). Let me show you why this is a silly mistake:

        a) The 3 “new” elements are already present in the Canvas: A “problem” is something a customer has and is thus something you’d describe as part of a Customer Segment (though I prefer focusing on describing the jobs a customer aims to get done, not the problems). A “solution” is part of the Value Proposition and not an individual building block. Finally, an “unfair advantage” is a characteristic/attribute of a Value Proposition and as such not a business model building block. Conceptually, it screws things up to mix building blocks and attributes.

        b) The 3 “deleted” items are important building blocks. I’ll illustrate this with 3 examples. Partnerships: In the early days Zynga couldn’t have built its powerful and terribly scalable business model without building on the back Facebook – that was a smart choice. Key Resources: Red Hat couldn’t have built its amazing business model without freely available Linux as a resources. Customer Relationships: Skype had to learn the hard way that they hadn’t sufficiently automated their customer relationships when they were signing up ten thousands of people per day. By the way, an important key resource of Skype is its user based, since it constitutes its network.

        c) Loss of a holistic view leading to all costs, revenues and ultimately (potential) profits. The bottom line of the Business Model Canvas is an outcome of the 7 building blocks above. The building blocks on the right hand side of the BM Canvas are value drivers and lead to revenues. The building blocks on the left hand side of the BM Canvas are cost drivers and lead to costs. Hence, as soon as you delete some of the blocks you eliminate cost or value drivers and thus screw-up the entire equation…

        Ultimately, I really don’t care if people use the Lean Canvas or the Business Model Canvas. It’s an individual choice. However, the consequences of this choice should be clear.

        Finally, I do think Steve’s argument of the Business Model Canvases large scale adoption is important. One of the reasons we originally came up with the Canvas was our motivation to create a shared language to better discuss business models. The Business Model Canvas has become a standard and is now a widely adopted and shared language.

        Warm regards,
        Alex

        • Alex,

          I love your book and the work you’ve done with the business model canvas. But I take exception to your statement that the changes that Ash has made in the Lean Canvas are “a silly mistake”. For new startups, I prefer the Lean Canvas. I think Ash is right to focus on the problems, and give them their own separate box. Too many startups begin with technology, without focusing on the problem that they’re solving for someone. I also prefer describing it in terms of the problem rather than using your language (focusing on the job that the customer needs to get done). Problem suggests an emotional component, and people buy from emotion, not simply to get a job done. If this wasn’t true, no one would buy a Porsche to transport themselves across town.

          I also find it useful to separate out the solution versus the unique value proposition. Skype is a peer-to-peer voice over IP solution with certain technical characteristics. That’s a very different thing than its value proposition, which is something like “free calls over the Internet”.

          As far as leaving out partnerships and resources, I think this is OK for a startup. If you accept Eric Ries’s definition of a startup as “a human institution designed to create a new product or service under conditions of extreme uncertainty”, the most important activities of a startup are to focus on those areas of uncertainty and risk. For most of them, that doesn’t include partnerships and resources. Zynga always knew that they were building on top of Facebook as a platform. How important was it to them to have a deep relationship with Facebook’s staff? I don’t know, but since all the APIs they used were public, it might not have been tremendously important. In which case Facebook as a platform is more of a resource, an important one, but not an area of uncertainty. Resources are important for a startup to conserve, but listing them out in the business model isn’t as critical as figuring out their unfair advantage.

          Lastly, I feel like you’re trying to have it both ways. On the one hand, you publish the business model as creative commons, and I applaud you for that. On the other hand, when someone like Ash comes up with an alternative, you deride it as “silly” and you emphasize the importance of large scale adoption in the unchanged format. Come on. Ash has made a valuable contribution, and for some businesses, mainly startups, I think it’s useful.

        • Jim, it was silly to use the term “silly” – ;-)

          If the Lean Canvas works for you that’s perfect. I’m just afraid that start-ups using it will limit their thinking by focusing on products. The learning curve to understand business models is indeed steeper, but worth the intellectual investment.

          The problem-solution fit is just one part of a powerful business model. Personally, I believe we live in a post-product world. Great products are increasingly becoming a commodity…

        • Alex –

          If anything, the Lean Canvas is “problem-centric” versus “product-centric”. I equate product to the solution box and made it purposely small for precisely this reason: “The business model (not the product) is the product of a startup” (http://www.ashmaurya.com/2011/06/your-product-is-not-the-product/).

          I also don’t believe any information from the business model is lost with this format – things like partners, activities, and resources can be either derived or explicitly listed through the other boxes.
          Something I’ll capture in a separate post.

          Cheers,

          Ash

    • Amanda –

      I get this question a lot too and it’s been a blog post idea that i’ll probably get to after the holidays.

      The gist of it though is I was in search of something actionable within 30 mins. The changes I made also align closely with the immediate experiments and insights one should seek immediately after ideation – specifically customer discovery.

      While I agree things like key partners are important (that was the hardest to remove), in the end it didn’t make the day one priority list for me. Until you have something that people want (early traction), pursuing partners can be a form of waste.

      More later…

      Ash

  3. Hi Steve,
    I’m curious on your thoughts on how this will ultimately evolve.

    I met with the tech transfer department at one of the national labs, and felt that a hungry start-up seasoned sales/bd rep could increase their licensing by at least 10fold. They had great technology, but they did not proactively seek for customers or channels, instead they post their innovations to a website where they can be “found”. There seemed to be both a cultural and incentive hurdle to aggressively pursuing opportunities – what’s your experience been with this crowd and how do you see them overcoming that?

    Thanks!
    Paul

  4. Hey Steve,

    I’m a student entrepreneur who will be running a student-centric incubator this summer, creating teams based on your last post (hacker, hustler, designer). We’ll also be utilizing a lot of what you teach in these classes. Please keep these detailed posts coming, as they really help.

    In the meantime, if you can think of any mentors who’d be interested I’d be happy to talk with them.

    Thanks!

    Justin

  5. Dear Steve,

    Very impressive and meaningful work. Inspired by your success, we will try to instantiate a “launchpad” with 6 research teams. Your Lean Launchpad resources are invaluable.

    What do you think we could do with research projects to make sure they yield more actual marketable innovations? In Europe, we have many funded research projects that are collaboration between companies and universities. I often hear complains about the gap between research and reality of companies – and wonder if that is the best way to valorize research.

    Thanks for such detailed posts.

    Vladimir

  6. Hi Steve,
    I am your student by classroom, blog posts, and your books; all of which I take to my heart and try to apply to our service business model.
    Now I’d like your advice on our ‘push’ approach, via a web portal where we gather info on all solar power sites we can find over the web, and top 20% of solar contractors we can find, associated with one or more solar power installations. There is element of crowd-sourcing here. Then we render a web page with our analytics applied, and buttons that can invoke our other analytical functions (mostly free, some requiring fee payment).

    • Steve,

      Thanks for asking, but giving specific startup advice over the web would be like doing brain surgery the same way.

      My suggestion would be to engage the 5,000 other entrepreneurs here and ask for their collective feedback and wisdom.

      best,

      steve

  7. Are these blogs public? Are they private that only the teams/professors/mentors can see? I’m curious how that part of the program is all set up.

  8. [...] committee (a place where his engineering degree and PhD comes in handy.) He had read my blog posts about the NSF Innovation Corps and was interested in how the first class went. He wanted to fly out [...]

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