Lift10 Notes on the Business Model Generation Workshop

Lift10 took place in Geneva from May 5-7. The group of students that won free passes offered by the City of Geneva to participate in Lift are blogging their notes and insights from Lift10...

Alexander Gnoyke talks about workshop of Business Model Generation (edited by Sachin Gaur)

Alexander Osterwalder PhD, is speaker and adviser on business model innovation. He published a great selling book called Business Model Generation.

His 2h workshop was attended by an audience of 43 people aged between 30 and 40 years and of whom more than 90% had at least one Apple device.

Alexander began his presentation with a retrospection that took the audience back to 1958. This was when Xerox developed the first plain paper photocopier, although the consultants of Arthur D. Little told him that his idea would never work out, because to the consultants the copier seemed to be too expensive. But the innovative business model, which was based on leasing copy machines at a very low monthly fee and making most of the money with each copy that was made, proved to be a success for Xerox.

In his second real-world example, Alexander mentioned Google as another instance for a concept where the actual product, the search engine, is offered for free and the earnings come from the auction of textual advertisement.


Alexander stated that besides offering disruptive technologies, these two innovative business models also had in common that both of them did not have any reference points when they were launched.

An example for a different approach given by Alexander was the tactics applied by Frank Gehry, who is the Architect of the famous Guggenheim museum in Bilbao. Before he actually starts to construct his buildings, he first synthesizes material and legal constraints and based on this he starts to prototype, sketch, and do explorations – testing his ideas with the given things.

BUSINESS MODEL CANVAS - 9 BUILDING BLOCKS MODEL

The examples were followed by an interactive part where attendees put together the business model of Apple. The outcome of this discussion was that each person had a different point of view on Apple’s business model because everyone had a different definition of a business model. Hence Alexander helped to structure the idea of a business model through his 9 building blocks model. It provides you with the big picture by identifying the most important elements of a business model:

Customer, who is always at the heart of each company;

Customer Segments that demand different Value Propositions;

Channels, through which the customer wants to be approached;

Costumer Relationship, how the company should maintain their relationship to (loyal) clients;

Revenue streams, which show customers’ willingness to pay;

Key Resources, which the value proposition requires, e.g. Patents to offer high innovative products;

Key Activities, which will transform the input and add the value e.g. design, engineering;

Key Partners, who supply valuable resources, hence reduce risk and optimize economies; and

Cost Structure showing most important cost inherent in the business model.

DIFFERENTIATION: RED OCEAN vs. BLUE OCEAN

Alexander described the so called Red ocean strategy as a strategy by which companies compete in existing markets. With this strategy their main aim is to beat the competition by exploring existing demand. With the so called Blue ocean strategy, the company dedicates itself to uncontested markets to create and capture new demand and makes competition irrelevant. Alexander applied his four-actions-model according to which a successful company may only reduce or even eliminate something of its value proposition if it raises the value or creates new value on the other hand.


In practice, Alexander illustrated his point with the very competitive console market, where companies such as Sega, Playstation and Nintendo follow the red ocean strategy. In this environment Nintendo failed dramatically with its Q – Console and since it lost plenty of money, the company was under high pressure to improve. Nintendo made a 360 degrees turn-around. It kept its graphic performance that was at this time already lower than the one of the competition, bought off-the shelf technology that decreased R&D cost and did not focus on hard-core gamers anymore, but casual gamers – a much larger customer base serving the “child in all of us”. Nowadays Nintendo is the leading company in motion control devices and makes money with selling its hardware, which is quite in a contrast to the other game console companies that only earn through selling their games and actually subsidize their hardware business to quickly gain in market share.

CONCLUSION

Alexander made the point that there is always technology innovation, but a disruptive innovation of the big picture will make the huge difference. He is of the opinion that one needs to think through many business models until one identifies the one that solves a real problem. He stated that this needs to be done by lots of business model prototyping: napkin sketch, canvas – 9 building blocks business model, business case development, and the ‘final’ field testing.

CONTEST

The Peepoo Bag is a single use toilet bag that provides self-sanitizing for poor people. It is also fully biodegradable and turns into fertilizer within only two days. At the moment the company is looking for a business model.


Throughout the workshop 4 teams had the opportunity to pitch their suggestions and finally 8 people won a copy of Alexander’s Business Model Generation book. Many thanks in advance for signing and sending me my copy ;)

ADDITIONAL

Fire sale of his first book edition now on Amazon with a 70% discount just until Saturday 8th May 2010.

Although the 2nd edition of Alexander’s Business Model Generation book will be published in July in US and 2 months later in EU, the content itself has not changed (but the publishing license agreement only, which actually is irrelevant to the readers).

The 3rd edition Business Model Beyond Profit is focused on social and sustainable businesses and shall include much more contribution of different (existing) partners.


After the workshop some participants had the chance to see a kind of alpha-version of his “BMGen” app on Alexander’s iPad. It comprises its business model canvas and shall be able to become easily integrated into Excel to establish a fast business case simulation!