Lesson: Business Model Canvas with Alexander Osterwalder

Step #1 Case: A business model allows you to understand the business as a whole, not just silos

I think we should burn business plans, and here's the reason why, the business plan per se is not the problem. The problem is creating a big fat document with a lot of information that you made up, and then going out and testing if that is true is actually a waste of time.

What you really want to do is start shaping your ideas with rough prototypes, business model canvasses, and then go out and test them very quickly, right? So like Steve Blank likes to say, no business plan survives the first contact with customers.

You need to talk to customer very quickly, test your idea, and then later on when you nailed it, the business plan makes sense because then you have the information that you can put in the business plan because you got the facts, right, you've proven.

Then a business plan can work because you're going to describe how you're going to implement it. The business plan is an implementation tool. What we didn't have until now, but now we figured it out is, before the business plan, we need tools to search for the right business model.

The business plan is the wrong tool for this search, because searching for business plan is a very dynamic and iterative process where you throw away ideas all the time, where you fail all the time. But you learn very quickly and you're going to iterate very quickly.

If it takes you a week to write a business plan, you're not going to throw it away, because you're going to say it's impossible, we spent so much time and energy on this we can't throw it away. So we need during this dynamic process, we need dynamic tools. Then once we've figured it out, when we're really scaling in implementing, then we need business plans, then they make sense.

"Business Model Generation" is a book that should allow you to think about business models more systematically. At the heart of the book is a tool called the Business Model Canvas. In the book we show how to use this business model canvas to discuss business models, design business models, prototype business models. We thought, "He can't write about business model innovation without an innovative business model, that would be boring, right? It would undermine the point."

We came up with a better business model, a different business model. We pre-sold the book before even writing a line. We got people to pay us to participate in writing the book. Some of my friends said, "Well, that sounds like fraud." It's not because we figured out what they really want and got them to participate in this community.

That helped us design a book that would cost normally $250,000 to make in this kind of community. Here's the way I would look at it, you should understand the best business models and the most disrupted business models out there.

We call this business model pattern and business model mechanics and use them as a library to ask yourself, could I do what they did in my business? Could I copy the Nespresso business model? Could I copy the fact that Facebook got a billion people to work for them for free. Ever thought about it that way? We call it a business mechanic, getting others to do the work, Facebook does it really well, a billion employees that work for them for free,

You need to look at it as like a library of finite answers that are out there, proven business models in their context, and ask yourself, "Could I copy that in my context?" But don't take it as a won-won because they did it's going to work for me, no, you don't know, but you can now take this as a library of practice and try to do that in your area. You will design better business models.

While I think there's an infinite amount of answers, you want to take the library of existing business small mechanics, business model patterns and use those to inspire your thinking. Entrepreneurship is an art, right? There is no algorithm and there's never going to be, algorithms. There are too many variables.

You can use these things that are out there to inspire you, but it will always remain an art. Combining customer insights, and good business model design into a great business model that you're going to build. It will always remain an art.

I was always interested in understanding how businesses work and there was this opportunity to do a PhD dissertation with Yves Pigneur on business models and I thought, "Hey, what better than that?" It's not just about marketing, it's not just about operations, business models allow you to understand a business as a whole not just the silos, so that was the interest.

That's a big topic today. When we started out, it was not as important. Today every company from start-up to large organizations, Fortune 500 companies and social ventures need to think about their business model more systematically.