Lesson: Business Model Canvas with Alexander Osterwalder

Step #7 Tools: Use many tools together like a surgeon performing an operation

We came up with one tool that we call a plugin to the business model canvas which is the value preposition canvas. Because people are very product focused, we realized that we also need a tool for that.

Zooming into the business model canvas, taking the value proposition for our specific customer segment, being able to map that out, the same way you map out a business model. That's what we did with the value proposition canvas.

There's a guy called Dave Gray, he came up with a culture map, because when you implement the business model you probably also need to think about culture. What if we had a tool to do that? That's a great tool. It's still in the prototyping stage.

Or when we talk about implementation in general, I like using one approach which is not really the tool yet but it's a framework called "The Star Model" by Galbraith.

Depending on the topics you look at, you want to choose different tools and for the business small environment competition, technology change, we also came up with a tool which is on page 200 of the book, too far back so people don't get there so they don't necessarily use it.

You want to use all these tools together like a surgeon uses his tools to do heart surgery rather than saying, one is the right tool and it's like a religion. No, you need many tools and you need them to work together if you want to do a great job as a business person, senior your executive, senior leader or start-up entrepreneur, we need to learn how to use these tools much, much more.

We really believe in visual thinking and when I say "we", originally it was Yves Pigneur and myself, but now it's our entire team. Why? You make things more concrete. You would never have people in IT sketching out a database infrastructure just with words, right?

When it comes to business, we often sit around the table and just talk, yet we're talking about complex things like, new technologies and competitive environments, the business models we want to design, how we implement that, you need visual tools to do that. Visual tools make things tangible and if they're good visual tools they're very practical and you can have better conversations.

People often ask, "Where does competition go? You don't have a block on competition, you need a tenth block." No, we don't. Competition is a different topic, it's . . . the business model is . . . think of it like an architect.

The business model is the house you're building and around that, you have the legal environment, you have the landscape, you have a city, those are the things around it. You will have a separate conversation on the rooms, the doors, and the environment in which you're designing that house.

Same for business models, you're designing a business model in a business model environment with competition, technology change and so on. A different tools for a different topic, and you'll use them together, so two different conversations.

Let me take Nespresso, which is an example I like using a lot. They have a very close partnership with machine manufacturers and Nespresso makes espresso machines with pods. You take a pod, you put the pod in the machine, out comes a great coffee.

But they have partners to produce machines, that was a strategic decision. That's piece of a business model, yet for the pods, they produced them themselves. Now, if you take the channels, they have their own channels, but they're also strategically work with retailers which is another part of their business model network.

They work with retailers to push out the machines and get them into the households so you're locked in and you need to use the Nespresso pods.

Their business module takes pieces from around their company and designs them into a strategic model. If you want to ask yourself, as a company which partners could I work with to leverage my business module?

An older example is Zynga, not very popular any more but when they started out, they used Facebook at the beginning as unofficial partner, later as a partner because that allowed them to scale very quickly.

Rather than building the traffic, they piggybacked on a partner which was Facebook, which turned their business model into something very scalable. Great example, now, not of a start up, but very networked based business model is credit cards.

They have a lot of very different components there. They have the issuers, the banks, they couldn't exist, credit card companies like American Express, MasterCard, they couldn't exist without the issuers.

In addition, they are a so-called double-sided market, where they have the Merchants which is another network of businesses they need to get into the business model. So there's a very complex business model around credit cards.

If you don't use visual tools to sketch that out, hard to explain. Yet, when you use tools like the Business Module Canvas you can explain very quickly and they become very tangible and clear. That's where the value of the Business Model Canvas lies.

The business model canvas is a very broad tool, you can use it for very many different things. Designing a business model, that's a topic for startups. It's a topic for entrepreneurs, as well, right?

What you'll also find a lot in large companies is that they use the canvas for mergers and acquisitions. Very different way of using the canvas. It's pretty interesting with this tool that you can apply it for very many different things. That's the reason why it's one that you can teach to anybody, because there will always be one way or another to apply it. Entrepreneurs who design new business models need to know certain techniques that accompany the business model canvas, like customer development or lean start up.

The same thing goes for corporate entrepreneurs, for intrapreneurs, same kind of context with some more difficult constraints because they are doing this in a large organization, but it's the same topic, so they need to understand how to use this in the same way.

If you're doing strategic planning in a large company, different topic, you will use the tool in a very different way, then an entrepreneur on an intrapreneur, so it's the same tool but you'll use it in very different ways.