I’ve talked a bit about value proposition design recently, and the need to get out of the building and find out what your customers really want. But what if this isn’t enough? And why is it that so many stories of inventors getting out of the building have customers do the exact opposite of what was expected?
In this December interview with business review weekly, James Dyson (of cyclonic vacuum cleaner fame) said that:
To design well, one must have experienced the pain and frustration of an existing product not working well
To me, this means more than simply observing your customers in the field. This is about actually trying the product for yourself and living the customer journey. When you can bond with your customers over shared pain, and find a better way forward … that is where true insight comes from. Tim Brown of IDEO encourages us not to ask ‘what’, but to ask ‘why’. Understanding why your customers are behaving in the way they are, and being able to get inside of their heads through having shared their pain and frustration is essential if you want your customer discovery observations to provide real insight.
Lateral thinking can be thought of as logical thinking but form a different starting point. If you are able to shift your starting point enough before your logical mind gets to work, you can find yourself with surprising results. Hopefully, novel ideas with some value that you just wouldn’t have thought of using regular logical thinking.
The use of random words is one of many techniques designed to disrupt your regular, left brain thinking and enable you to start thinking creatively. In this post, I’ll continue my theme of putting the innovation back into business model innovation by applying the random word technique to business model innovation.
If I were given one hour to save the planet, I would spend 59 minutes defining the problem and one minute resolving it (Albert Einstein)
Making sure you are solving the right problem is THE most important part of business model innovation. In terms of developing your value proposition, this means spending time discovering which jobs matter most to your customers, before you go looking for solutions that will offer effective pain relief and gain generation. This post is part 3 of my series on using creative thinking techniques to put the innovation back into business model innovation. In today’s post, I’ll be looking at how the Five Whys technique can be used to get to the heart of the problem your business model is trying to solve.
This week I am looking at different ways we can put the innovation back into business model innovation. Taking the approach that creativity in thinking can be done deliberately, I’m applying various deliberate creative thinking techniques to what is now becoming the familiar area of business model generation, lean startups and customer development. Last week I looked at using the TERMS Star for putting your value innovation into hyper drive, today I’ll take a look at using SCAMPER to power up your disruption when pivoting from one business model to another.
What happened to Game Neverending?
Game Neverending (GNE) was a web based massively multiplayer online game launched in late 2002 and shutdown in 2004. Designed to be user extensible, the game encouraged real time browser chat with players leaving messages and game objects for each other at various locations. With poorly defined gameplay (there wasn’t even really a concept of winning), players quickly developed strong social connections with lots of humour and quite a few pictures being exchanged along with the intended gaming objects. By 2004, the site had relaunched as Flickr.
Business model innovation and the search for a scalable business model has been a hot topic over the last couple of years with the explosion of lean startups, customer discovery, and business model generation. But where is the actual innovation in all of this? I am seeing a lot of trial and error but not so much thoughtful creativity as entrepreneurs continuously pivot and validate until they strike business model gold. It might be agile but is it innovative?
Over the next week I’ll be looking at how structured creativity can help put the innovation back into business model innovation. If you want to know how Six Thinking Hats, the five whys, SCAMPER, random word generation or the hall of fame can help to uncover more innovative business models, then this series is for you. Let’s start by looking at how the TERMS Star can help develop more creative value propositions.
Thanks to Anthill for this wonderful footage of Bruce Lee playing ping pong with nun chucks! Yes you heard that right, nun chucks no less. Shot in the 1960s and reused in a desperate attempt by Nokia to boost sales for their N96 phone, this short film shows what can be achieved with a life time of dedication and focus.
So what I wanted to talk about today was how to focus your own efforts effectively when selecting which features to introduce in your Minimum Viable Product. Here are some of my own thoughts, having read and digested this wonderful article on the ABCs of an MVP by KissMetrics:
There seem to be a ton of products starting to emerge for developing business model canvases, and running lean customer discovery experiments. This one in particular caught my eye:
How Trevor Saved $10,000 and 6 Months With the Validation Board
This great story takes us through Trevor’s efforts at launching a business focused on getting people to ride around on Vespas. Here are the headlines:
- Trevor tried to launch a vespa resale business on campus. He managed to score 1 customer in 6 months. He kept trying but it just didn’t work
- A while later, Trevor tried out the validation board to test out some key assumptions. After just 2 days he had a validated value proposition and 50 paying customers in just 2 hours of posting his launch page…
And here are the assumptions he busted using the board as a tracking mechanism:
- Assumption 1: people care about the environment and want a vespa because it uses less oil [wrong...all I want to do is wear a skinny tie and ride a vespa]
- Assumption 2: commuters will want one…if only they knew someone else who had one [wrong...we just don;t know if we are skinny tie people]
- Assumption 3: commuters will rent one for a bit and try out the hipster thing [YES...50 paying customers in 2 hours! dowser, this is what I call validation]
For me, this nice story brings out a couple of really important features of this approach. Firstly, the focus is on the value proposition…not the entire business model, just the core proposition of what the heck customers want. Second, Trevor uses a Minimum Viable Product to test out his assumptions, in this case a single web page with a submit button taking users to a “coming soon” page. And most importantly, during the test phase, Trevor gets out of the building to talk to his customers. He observes the environment and comes up with some real insight as to what customers want. He isn’t sitting behind a desk making guesses about what else might work, he is going to subway stations and talking to people.
It’s difficult leaving the comfort of your own space and getting in front of people. And it’s difficult to challenge yourself and move from one idea to the next in the face of evidence and customer feedback…especially when that feedback is vague. But when you have a value proposition that works, boy does it work. Great work Trevor. A really nice example of fieldwork and persistence.
The business model canvas provides a great tool for working through your business model, but it says little about timing and prioritisation. When should you develop your resources model for instance, before or after your customer segments? Ash Maurya and others start out by looking at the value proposition and taking it from there.
In this great post by Alex Osterwalder, we are introduced to some tools for developing your value proposition in more detail. It is quite a detailed post, and certainly worth reading through when you have the time., but I thought I would summarise the key points here.
I once worked for a firm who found themselves going through a rough patch. With staff leaving left, right and centre the department was quickly dwindling to the point of no return. With no clear direction, a decimated sales pipeline, and a team of under motivated staff we were finally paid a visit by our otherwise inattentive divisional head. I still remember his opening comments for the one and only one hour workshop that was allocated to saving our skins:
So. Our business plan doesn’t seem to be working. Has anyone got any ideas what our new business plan should be. And can you make it fit on a single page of A4 so I can present it to the group strategy meeting at the end of the month. They like a lot of charts, so go easy on the word count.
And that was pretty much it. A somewhat stunned silence was met with a few half-hearted ideas and very little constructive discussion. The team was all gone within two months.
When a new startup crashes and burns, the reason is often down to what is known as “premature scaling”. This basically means they started growing some parts of the business too early, and were consumed by cash flow crises. Read all about it in this report from the Startup Genome Project.
Published in 2011, the report looked at data from 3200 startups to figure out nearly 9 out of every 10 new businesses will fail. Here are some of the key reasons:
- Spending big on customer acquisition before you have sorted out your product / market fit (and having to do it all again for a different customer segment later on)
- Building your product before you have validated the problem (and having to change it later)
- Hiring stacks of people before you have the cash flow to demonstrate your model works (and finding out too late that your sales forecasts are wrong)
- Not raising enough capital to do execute your business model, or raising too much and spending like an idiot
- Locking down your business model too early and finding it is too late to change once you have built a product and hired a marketing force
- Chasing revenue at the expense of profit (a small slice of something is better than a big slice of nothing
In each case, one of the 5 dimensions of a startup is out of balance: Customer (acquisition and marketing), Product (development and distribution), Team, Finance, and Business Model. The last one is typically about how you generate revenue and the stages you go through as you convert early adopters into a mass market of paying customers.
The report goes on to discuss some fascinating analysis of the data on what happened for their pool of 3200 companies, including observations about team size and revenue in companies that scaled prematurely Vs companies that scaled right. But how do you know when you should scale?
Knowing when to scale
The basic difference between a startup (which has not scaled) and a business (which has scaled) is that one of them has a business model that works whilst the other is trying to figure that bit out. Using the customer development cycle this means that a startup should be focused entirely on testing assumptions and discovering a business model that they can scale whilst a business should be executing a proven business model and refining it over time. SO when do you know when to stop looking and start executing? Here are some ideas:
- Number of paying customers: according to Ash Maurya, you should start selling right away, so all prototypes should involve paying customers. This way you can see which products and market fits work Vs which don’t.
- % rate of paying customer growth: along with the number of paying customers, this will tell you which products have growth potential and which don’t.
- Monthly cash flow: timing is everything when it comes to scale. Balancing your finances with growth opportunities is no mean feat. Monitoring your cash flow should help.
- Production costs: per unit costs should be a pretty good indicator of whether or not your product is viable, including knowledge of whether you have the right partners, suppliers and production methods
You’ll notice that the focus here is on customer discover first, and production second. This follows the two stages of a startup broadly mentioned by Steve Blank:
- Early stage: Find a product and market fit that genuinely meets customer needs
- Late Stage: Find a scalable business model with production, resources, distribution and cash flow all nicely sorted out
The key point is that during discovery, don’t just stop at the first idea you have…try out different products, customers, production methods and distribution approaches to find out which is best. Then monitor your results so you know when to scale.
Note: this is my first pass at a big area, I’ll come back to it again later. Feedback welcome.