Lesson: Business Model Canvas with Alexander Osterwalder

Step #8 Strategy & Innovation: How can you satisfy customer needs with a profitable and scalable business model?

There are a lot of things that are broken about strategy and innovation, and I would start with the fact that we don't use tools as much as we should, business tools like the business model canvas. We should use those tools more, and it's happening. People are adopting. That's number one.

Number two is that we don't yet have this attitude of prototyping inside of us, inside of our DNA, if you want. Rather than trying to figure out alternative business models for the same product or technology, we'll pick one business model and then refine it. What you're better off doing is thinking about a couple of alternatives and sketching out different prototypes for different possible business models.

Here's an exercise I like doing, which you did today, which was taking a starting point, a bicycle and $1000, and coming up very quickly, in six minutes, with three different business models. It makes you realize that the same starting point can have different possible business models. That can be the difference between failure and a multibillion-dollar business.

I'll give you an example. Nespresso, they built a business model around their machine—coffee machine with Nespresso pods. The first business model they built with exactly the same technology almost went bankrupt. They threw away the business model. They came up with a new one and it became a $5 billion business. Technology and product—the same. Business model—different, so the difference between failure and success was not a better product. It was a better value proposition, but in particular, it was a better business model. You want to be able to understand this, and you can only do this if you prototype many different possibilities, what could be for one product or technology.

The original vision was pretty much how it is today. For the whole business design process of coming up with new business models, some things became much clearer. Discovering Steve Blank's work made the testing part much more explicit. While we were already thinking about it with design thinking and prototyping, which is very similar, it became very clear and explicit with customer development. A lot of things became clear. The vision was very similar.

What we didn't foresee is how many different ways you can apply the canvas. Mergers and acquisitions, I never thought that people would start using the business model canvas in mergers and acquisition. We focused on designing business models that people would start using the business model canvas in their strategic planning. It was kind of there as an idea. We hoped that would happen, but that people are really doing it on a larger scale now, that was definitely not clear. We hoped that a lot of these things would happen. That they really happened is a great circumstance of life and happy timing and a lot of luck.

I'll give you another example. You might have heard of Bharti Airtel. Bharti Airtel is one of the biggest mobile phone companies, an Indian company. Every telco operator at the time was seeing the network as the core asset, as the key resource. They said, "Well there's a problem with that. If we see that as a key resource, what it means is we need to have it, huge capital expenditures, very expensive, which means we need to have relatively high prices." They said, "But that will prevent us from addressing a billion-people market."

They were the first to say, "We're going to outsource the entire network to a consortium around IBM and Ericsson." They did that. They outsourced what everybody else said was the core resource. It allowed them to turn their fixed costs and the capital expenditures into a variable cost, and all of a sudden, they could lower their prices and they had the lowest prices in the entire industry, and they could address a billion-people market. They challenged the assumption that nobody else challenged, which was that the network was the core asset.

I would challenge everybody to really go deep in business model thinking and figuring out what's the right business model and not look at their competition. Ask yourself how can you satisfy customer needs with a profitable and scalable business model. Not looking at your competition, but figuring out what's the right thing to do. That's the way I look at it.