CSE-E4751 Introduction to IT Business and Venturing

Transcription

1 CSE-E4751 Introduction to IT Business and Venturing 2nd Session Sep the 22nd, 2015 OP Mutanen, Hani Tarabichi Aalto Ventures Program and EIT ICT Labs course

2 Today s Session, Sep 22 nd 1. Theory: Firm level value creation and Business Model Canvas 2. Practice: Four Startup Business case presentations and the related discussion (3 * 15 min + 15 min) 3. Instruction: Course assignments

3 1. THEORY - VALUE CREATION & BUSINESS MODEL CANVAS TOOL

4 The Spirit!!! Create Value Build New Business Improve and transforms organizations Innovative way of thinking Visionary Game changer Challenge driven

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6 Something interesting is Happening!!!

7 Startups.vs. Companies Startups are NOT simply smaller versions of large companies. Companies execute business models where: Customers their problems and necessary product features are all knowns.

8 Startups.vs. Companies In sharp contrast, startups operate in search mode, seeking a repeatable and profitable business model. The search for a business model requires dramatically different rules, roadmaps, skill sets, and tools in order to minimize risk and optimize chances for success.

9 Startup is: A startup is a temporary organization in search of a: Scalable Repeatable profitable business model. At the outset, the startup business model is a canvas covered with ideas and guesses, but it has no customers and minimal customer knowledge.

10 What separates startups from established companies? Startups are younger and smaller in size Startups are fast in decisions and operations Startups utilize informal methods being agile Startups are good at innovating Startups have low cost structure ( bootstrapping ) Startups have usually higher risk, and higher return on investment potential Startups benefit from industry disruptions Startups can potentially grow very rapidly with limited resources ( scalable )

11 Definition for a scalable startup A startup is an temporary organization used to search for a repeatable and scalable business model. (Steve Blank, 2011)

12 Lessons learned (steveblank.com) While large companies execute known business models based on already known facts, for startups the most design parameters are unknown in their search for a scalable business model The goal of your early business model can be revenue, profits, or users, or click-throughs whatever startup owners and investors have agreed upon Money is not always the best indicator for success in startup context Customer Development and Lean Startup models are the methods for startups to quickly iterate and test the early hypotheses about the business model See more e.g. Most startups change their business model multiple times and it is just a normal type of action for them

13 Test concept before you build it! Product Introduction Model Concept creation Product Dev. Alpha/Beta Test Launch/1st Ship Customer Development Customer Discovery Customer Validation Customer Creation Company Building Pivot Source: Steve Blank, Ann Miura-Ko, Jon Feiber

14 Theory for course exercises Business Model Canvas is presented in the book: Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. Alexander Osterwalder and Yves Pigneur, 2010 You can download the 1 st part of the book including canvas description ( for free at address: ) Value Proposition Canvas is presented in the book: Value Proposition Design. Alex Osterwalder, Yves Pigneur, Greg Bernada and Alan Smith 2014 You can download the 1 st part of the book including canvas description ( for free at address:

15 Course Literature: 1st Book Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers by Alexander Osterwalder Free chapter:

16 Course Literature: 2nd Book The Value Proposition Design Companion Alex Osterwalder, Yves Pigneur, Greg Bernarda and Alan Smith (2014). Download the first 100 pages for free:

17 Rationale behind the Business Model Canvas (BMC) There is a need for a shared concept that everybody understands enabling description and commensurate discussion about business model(s) Model must be simple, relevant & intuitively understandable, but not over-simplifying the complexities of how an enterprise function. Differentiating business model from other concepts, such as a revenue model, strategy etc. BMC tool describes any business model with 9 building blocks indicating the logic how company intends to make money Covers four main areas of business: Customers, offering, infrastructure, and financial viability To describe, analyze, design and validate any business model A blueprint for a strategy to be implemented through organizational structures, processes, and systems Source: Alexander Osterwalder and Yves Pigneur, 2010

18 Definition for a Business Model A Business Model describes the rationale how an organization creates, delivers and captures value. Source: Alexander Osterwalder and Yves Pigneur, 2010

19 The 9 Building Blocks Source: Alexander Osterwalder and Yves Pigneur, 2010

20 The 9 Building Blocks (Cont d) Source: Alexander Osterwalder and Yves Pigneur, 2010

21 The whole Business Model Blocks divided in two parts Source: Alexander Osterwalder and Yves Pigneur, 2010

22 Business Model The 1st part The value part Source: Alexander Osterwalder and Yves Pigneur, 2010

23 Business Model The 2 nd part The efficiency part Source: Alexander Osterwalder and Yves Pigneur, 2010

24 1. Customer Segments ( The heart of any Business Model, source for revenues) A decision for whom value - based on needs or problems - is intended to be created? What are the different groups - distinct segments - with common needs, challenges, behaviors and other attributes? Who are the most important customers? Different types: Mass market (e.g. consumer electronics) Niche market (e.g. suppliers-manufacturers) Cater to specialized customer segments Segmented market (e.g. banks, clients) Diversified market (e.g. Amazon) Serving two unrelated customer segments Multisided market (e.g. Visa, Google) Serving two or more interdependent segments Customers grouped as separate segments IF they: Present different needs justifying distinct offer; are reached through different distribution channels; require different types of relationships; have drastically different profitability; Are willing to pay for different aspects of the offering; Source: Alexander Osterwalder and Yves Pigneur, 2010

25 2. Value Propositions ( A bundle of benefits offered customers ) What is the value to be delivered? Which customers problems to be solved? What are customer needs to be satisfied? Bundle of products and services targeted to requirements of certain Customer Segment Disruptive vs. Incremental offers Factors contributing to value experienced by client: Newness (e.g. cell phones, ipad) Performance (e.g. PCs, graphic cards, cars) Customization (e.g. personal training program, colored mobile covers) Convenience/usability (e.g. IPod & music biz) Design, brand and status (e.g. fashion business and consumer electronics; Rolex Savings in time (e.g. navigator) Carrying the whole responsibility (e.g. Rolls-Royce, manuf. & service) Cost savings (e.g. cloud computing services, SaaS e.g. Salesforce.com) Price cut (e.g. no frills airlines, totally free offerings) Reduced risks (e.g. service level guarantee, longer warranty) Increased accessibility (e.g. new business models & technologies) Source: Alexander Osterwalder and Yves Pigneur, 2010

26 3. Channels ( Company s interface to customers ) How to reach targeted Customer Segments to deliver a Value Proposition? Which Communication, Sales and Distribution channels are the most cost-efficient ones? How to find a right balance between different types of channels in order to create a good customer experience? Channel functions: Raising awareness among customers about company s offering Enabling customers to evaluate of company s value proposition (offering) Enabling and helping customers to purchase products and services Enabling the delivery of the value proposition to customers Pre/post-purchase customer support Source: Alexander Osterwalder and Yves Pigneur, 2010

27 4. Customer Relationships (ways to deal with customers, to acquire & retent clients and boost sales) What type of relationship(s) do our customer segment(s) require? How cost-efficient they are? How relations are aligned and integrated with rest of the business model? Different types of Customer Relationships: (Dedicated or not) personal assistance (real customer representative, e.g. financial services) Self-service ( help yourself model, includes everything needed for customers to help each other) Automated services (customer self-service model combined with automated processes; simulate personal relationships) User (online) communities enabling users to help each other and company to better understand its customers Value co-creation inviting customers to create value to other customers (and thus also to the vendor); blurs the traditional customer-vendor relationship, e.g. Amazon.com / Taobao Source: Alexander Osterwalder and Yves Pigneur, 2010

28 5. Revenue Streams ( Arteries of a business model ) For what value are customers ready to pay? What are preferred ways for customers to pay, how they pay currently? What is the overall revenue structure and how much each stream contributes to it? Ways to generate Revenue Streams: Asset sale (selling ownership rights) Usage fee (generated by the use of a service) Subscription fee (selling continuous access to a service) Lending, Renting and Leasing (temporal exclusive right to use a particular asset for a fixed period of time) Licensing (granting customers right to use protected IPR in exchange for licensing fee, e.g. right to use patented technology against the license fee; media industry, patent) Brokerage fee (derives from intermediation services performed on behalf of the other parties, e.g. credit card companies earning revenues from each sales transaction) Advertising fees (from advertising an offering or a brand) Different pricing mechanisms: Fixed Pricing List price Product feature dependent Customer segment dependent Volume dependent Dynamic Pricing Auctions (price based on competitive bidding; ebay/alibaba) Negotiation (price based on power/skills); Based on supply and demand ( real-timemarket price) Time and capacity dependent pricing (hotels, Stockholm-Helsinki ferries) Source: Alexander Osterwalder and Yves Pigneur, 2010

29 Business Model The 2 nd part The efficiency part Source: Alexander Osterwalder and Yves Pigneur, 2010

30 6. Key Resources ( most important assets required to make a business model to work ) What Key Resources are needed to provide the Value Propositions? How about Distribution Channels, Customer Relationships and Revenue Streams? Different categories: Physical assets e.g. buildings, manufacturing facilities, machines, POS and other systems, distribution networks, etc. Intellectual resources e.g. brands, patents, copyrights, knowledge skills, customer DBs, trademark, etc. (Nike, Sony, Microsoft, Qualcom) Human resources are needed by all firms, but extremely important in knowledge intensive and creative industries (e.g. pharma, biotech, nanotech, software/ict, ) Financial assets and guarantees such as cash, credit, stock option pool and company valuation Source: Alexander Osterwalder and Yves Pigneur, 2010

31 7. Key Activities ( Most important actions a company must do to make its business model to work ) What Key Activities are needed to fulfill the value proposition(s)? How about Distribution channels, Customer Relationships and Revenue Streams? Different categories: Production (needed to design, make and deliver a product meeting the required volumes or quality) Problem solving (coming up with new solutions to individual customer problems, e.g. service orgs) Platform/Network (for BMs designed with a platform as a key resource, e.g. ebay s web maintenance or guaranteeing Microsoft Windows compatibility with 3 rd parties complementary software, etc.) Source: Alexander Osterwalder and Yves Pigneur, 2010

32 8. Key Partnerships ( Network making the business model work ) Who are the Key Partners for our business? Which Key Resources we need to acquire via partners? Which Key Activities do partners perform? Drivers to create partnerships: Optimization and economy of scale to optimize the allocation of resources and activities avoiding the direct ownership of them (e.g. outsourcing and sharing infrastructure). Reducing risk and uncertainty e.g. competitors forming a strategic alliance in one market segment and competing in other segment (e.g. Blue-ray format) Acquisition of resources and activities to extend own resources by relying on other firms in order to acquire knowledge, licenses or access to customers (e.g. Nokia-Microsoft) Different types of partnerships: Strategic alliances between noncompetitors Strategic partnerships between competitors Coopetition model Joint ventures to build and develop new businesses Buyer-supplier relationships to assure reliable supplies Source: Alexander Osterwalder and Yves Pigneur, 2010

33 9. Cost Structure ( What does it cost to operate the business model ) What are the most important costs? Which Key Resources and Key Activities are most expensive? What is the overall cost structure? Different types of cost structures: Fixed costs remain the same despite of the volume of produced goods and services (e.g. salaries, rents, industrial investments) Variable costs vary with the volume of the offerings produced, e.g. services provided for masses of people Economies of scale are cost advantages achieved by businesses as their volume of output rises and average cost per unit falls. Economies of scope cost advantage a business gets due to the larger scope of operations, e.g. using the same distribution channels for multiple products. The classification of cost structures: A. Cost Driven business models aims at creating the lowest possible cost structure (with e.g. automation and outsourcing) B. Value-driven business models concentrate on value creation resulting in higher costs, e.g. fashion and jewellery business, luxury-level service offerings. Source: Alexander Osterwalder and Yves Pigneur, 2010

34 Source: Alexander Osterwalder and Yves Pigneur, 2010

35 How to use it? A short introduction Source: Alexander Osterwalder and Yves Pigneur, 2010

36 An example: Apple ipod/itunes Source: Alexander Osterwalder and Yves Pigneur, 2010

37 [ Insert text here ] [ Insert text here ] [ Insert text here ] [ Insert text here ] [ Insert text here ] [ Insert text here ] [ Insert text here ] [ Insert text here ] [ Insert text here ] [ Insert text here ] [ Insert text here ] [ Insert text here ] [ Insert text here ] [ Insert text here ] [ Insert text here ] [ Insert text here ] [ Insert text here ] [ Insert text here ] Source: Alexander Osterwalder and Yves Pigneur, 2010

38 Example: Nespresso Business Model ness-models-that-work-and-valuepropositions-that-sell/1/1/3 Source: Alexander Osterwalder and Yves Pigneur, 2010

39 THREE BUSINESS CASES + Q&A

40 Exercise: Getting familiar with the Business Model Canvas tool (30 min) Listen carefully the business case presentation Ask the case presenter further questions about the underlying business of the startup Discuss the different elements of the model with other group members With the help of the Business Model Canvas sheet, sketch out the business model of the case company Start filling in the slots indicating different business model elements: Value Proposal, Key Customer Segments, Key Partners, Key Activities and Resources, etc.

41 2nd Startup Biz Case: Meiku & Me

42 3rd Startup Biz Case: Meiku & Me

43 4th Startup Biz Case: Grib

44 5th Startup Biz Case: Elffe

45 See you on the next lecture 29 th of Sep at 10:15! THANK YOU!