Note: This article was originally posted here, on InnovationExcellence. I thought I would repost it here.
Nine out of ten business start-ups, and one in six business transformations will confirm it. If you want to be part of the one in ten who succeeds, you’ll need to search for the answers first. By innovating our business model before we start executing, we can improve our chances of success and reduce the high risk and high cost of failure in an uncertain environment.
Separating Search and Execution
A start-up is a temporary organisation designed to search for a repeatable and scalable business model (Steve Blank)
This useful definition tells us two things. First, the primary function of a start-up is to discover what customers want and not to start producing what it thinks they want. Second, it tells us that once the business model has been validated, the business is formed and can get on with executing its strategy. These two activities are very different, as shown below:
A Discovery Based Approach
Business planning involves a high degree of risk and uncertainty. By introducing a period of discovery and correction before the plan is executed, this risk and uncertainty can be reduced. This discovery based approach is illustrated below:
Once the initial concept has been formed, it is vital for a period of discovery to validate the concept, and adjust the plan until it is believed to be robust enough to execute. Execution can then focus on delivery, with a period of establishment built in to ensure that business benefits are sustainable.
Discovery (and Business Model Innovation)
The purpose of discovery is to find a repeatable and scalable business model ready for execution. This can be done with the Business Model Canvas, a highly effective tool for visualising the business model and uncovering the assumptions to be validated:
Using the Business Model Canvas, the business model is defined across 9 key areas. With a central focus on the value proposition facilitated groups are able to quickly capture (i) how the business will actually create the product, (ii) how customers will access the product, and (iii) how the business will monetise the transaction.
Understanding the business model in this way enables discovery teams to iteratively develop a very clear view of what the business model is, and whether or not it will scale. Key assumptions can be tested through activities such as product prototyping, customer observation and analysis of sales results.
Business plans are full of risk and uncertainty. If you want assurance that they will work, you’ll need to validate your assumptions first. This is done by building in a period of discovery before you start executing.
To Be Continued…
In the third and final part to this series, I’ll look at the mindset that is needed for the discovery phase to work.