Lesson: Business Model Canvas with Alexander Osterwalder

Step #5 Tech & Biz: Better business models will always outcompete better products and technologies

The value of the Business Model Canvas is it leads to better strategic conversations. You make things very tangible, you'll have a good discussion on your business model if you use a shared visual language, it's much better. I'm not just saying this, some of our research shows this, it leads to better strategic conversations.

It's the first thing but then one of the things we learn from people who use the canvas they say, "It's more concrete and it's easier to implement if we use the canvas to shape the topic that we're talking about."

Then the other thing that's really important is it goes beyond products. I think 20th Century competition was competing on products, technology and product innovation was core. Today, it's still important but it's not enough. Better business models will always compete better products and better technologies and that doesn't mean it's one or the other it's and you need great technologies, great business models and the right business models to bring to the market.

Let me give you another example, when Xerox invented the photocopying machine they had this great technology, it could make 2,000 copies a day, at a time where you can make 30 copies and I learned the story from Henry Chesbrough.

So this machine had great capabilities but it was seven to eight times more expensive. So Xerox couldn't sell this technology and that business model didn't work. They hired consultants to go out and talk to customers and customers said, "We don't want this."

The problem was the framing of the question. The question was not "Do you want to buy this?" So Xerox came up with a different business model, leasing the machines which got them into the market and then saying, "Hey, you are getting 2,000 copies for free per month but if you copy more, you've got to pay a couple of cents per copy."

Well, what happened is that people photocopied 2,000 times a day, from day two onwards, Xerox earned money on the photocopies and that allowed them to grow over decades.

So the business model was different, the technology was the same, the difference between success and failure. Where do we invest most of our energy today? It's in product and technology innovation.

That's okay, as long as we spend a similar amount of time, energy, and money on figuring out the right business model. It's "and", it's not "or". Everybody says, "Growth for a great new company. Yeah, it's great they have a wonderful product."

I wonder where they are in five years because they are so focused on product that they are condemned to reinvent their product all the time, in addition to product that's very easy to copy.

What's their business model? How are they going to build a superior business model that's going to keep them ahead? I think it's going to be very tough, I hope they can do it but if they focus just on products, I think they might not be around in five years anymore. Or they will just sell themselves to another company.

Here is the last example. If you take the Nintendo Wii, the Nintendo Wii disrupted the game console market a couple of years ago. By, now, listen to this carefully, addressing a larger market with inferior technology, inferior technology because they use the inferior technology they could lower their costs.

They started earning money on the consoles that they were selling and the games that they were licensing. They built an ultra-profitable business model on an inferior technology. How many of us think of inferior technology as an opportunity?

So they used the tactile aspect, right, using motion control, which was an existing technology and a cheap technology, to build a better business model, the better value preposition, larger market, and more profitability.

Most entrepreneurs today, they think technology, I need a better technology, I need a better product, maybe not, maybe not. That's thought provoking, right?