Lesson: Customer Understanding with Steve Blank

Step #5 Multi-sided Market: Multi-sided markets link two or more groups of customers

So Google Search was a very simple multi-sided market, just two sides. There were users and there were payers. But can a canvas actually work with something more complicated like in the life sciences. So here's an example of a business model canvas from a life sciences company that was going to provide E. coli cell lines for simplified downstream processing. And they said, "Oh, our customers segment is segmented and niche marketing." Now, in hind sight after the end of the class, they were the ones who actually went in and said, "Well, yeah, that was kind of a definition of what a customer segment was but they didn't really describe who, and their value proposition even they realized later was pretty unclear, and their channel when they said web sales and trade shows and direct sales in hind sight looked pretty unrealistic. And for partners, they just said, "Well, when we look at it now it really kind of looks like a random list of hopefuls.

So let's see how they got from something that started over here which you shouldn't laugh because your first canvas might look like this, and what happened after they got out of the building. So now you could see instead of segmented and niche market only, they started to understand, "Oh, maybe the market is somebody and something specific, biopharma, biotechnology, or food." They're still kind of vague but they're getting a little better. And then they're still a little vague on their feature set and gains and pains and value proposition. They're getting a little more refined about partners.

And then as they went down they kind of understood, "Oh, we understand what a value proposition is. It's not like what our technology is. It's what gain and pain we're providing. So simplify protein purification, increase yield, increase throughput, decrease cost. Now we're making a lot more sense." Now if you look at customer segments, "Oh, now they're actually getting down to very specific groups." Not yet the people on them but they're now actually going, "Oh, these are the people we should be talking to and our partners are now also getting specific and they're getting some very interesting traction on what potential revenue streams work." If we look at their next rev, the things in red or the changes, so now they're looking at industrial enzyme manufacturers and their key activities are R&D and production support as their next change. Then finally, they now kind of verified yet this looks like our customer segments. Here are our customer relationships. More than likely we'll make money from royalties and commercial licensing, etcetera.

So you could see, multiple customer segments, multiple value props, multiple revenue streams, this is a somewhat complex multi-sided marketing. Just, by the way as a note, some of the most complex are actually in the medical device business where you have users and payers and hospitals and insurance companies and regulators, etcetera, and each one needs a value proposition. You need to understand the revenue model and so some business model canvases can be quite complex.

Now it's interesting, by the way, about this live sciences company. Here's something that you would think, "Who could I call. I'm just a scientist." I mean, you might be an entrepreneur building an iOS app and at least you could ask your friends. Who do you ask about E. coli based purification platforms? Well, basically they decided to go through their Rolodex of all the trade shows and all the conferences and all the people they've met in their careers. And instead of physically driving out to them, they used Skype and they used phone calls, and they started a cold calling strategy which set a stage for a conversation and they had two or three of their team on the call. So they would send a message to contact, they'd set an appointment, they'd send out a short summary electronically, they'd have a conversation and follow-up. And they also use survey tools. They use LinkedIn and SurveyMonkey. But when we're counting how many contacts they made, we didn't actually count them in their progress.