First lecture in a workshop on business model generation and technology startups. Focuses on the overall philosophy and the structure and nature of business models.

1. Business Model Workshop
The Tao of Startups
Keith McGreggor
Director of VentureLab @ ...

2. two parts

3. Part One
What We Used to Believe
What We Now Know

4. Part Two
Business Model
Generation

5. but first...

6. a startup story...

7. ANSEL

8. 1996

12. 50 Kbs

13. slow

14. ANSEL technology
superior image compression

17. 40+ pitches to VCs
20+ revisions to business plan

18. $0

20. Team
Market Opportunity
Business Model
Technology

21. Team
Market Opportunity
Business Model
Technology

22. ANSEL
CEO Keith McGreggor

24. Success consists of going
from failure to failure
without loss of enthusiasm.
- Winston Churchill

25. idea

26. idea
UltraWidgets

27. about startups ...

28. NASDAQ 5000
4000
3000
2000
1000
1996 1998 2000 2002 2004 2006 2008 2010 2012

29. $1,000,000,000,000

30. we know something now that
we didn’t know before
...

31. we know something now that
we didn’t know before
we know how to build
startups

32. we know something now that
we didn’t know before
engineer
we know how to build
startups

34. What’s A Company?

35. A business organization which sells
a product or service in exchange for
revenue and profit

36. A bit of history...

37. Dutch West India Company 1620

38. 1856 - First Org Chart

39. 1908

40. Tools for the 20th Century
“Century of the Corporation”

41. ... but what about startups?

42. Startups are a Smaller Version
of a Large Company

43. Startups are a Smaller Version
of a Large Company

45. Startups are something else.

46. What’s A Startup?

47. A temporary organization
designed to search
for a repeatable and scalable business
model

48. A temporary organization
designed to search
for a repeatable and scalable
business model
Startup ≠ Company

49. business plan
vs.
business model

50. business plan
a place to collect all of your
(current) hypotheses and
your rationale for them

51. business plan cover page
table of contents
executive summary
business description
business environment analysis
a place to collect all of your industry background
(current) hypotheses and competitor analysis
your rationale for them market analysis
marketing plan
operations plan
management summary
financial plan
attachments and milestones

52. business model
a place to describe how all of
the pieces of your plan fit together

53. business model
the rationale of how an organization
creates, delivers, and captures value

54. what we used to believe
what we know now

55. What We Used to Believe
Start with an Operating Plan
and Financial Model

56. All I Need to Do is Execute the Plan

57. All I Need to Do is Make the Forecast

58. Step 1. Write Business Plan
Step 2. Make 5-year Forecast
Step 3. ???
Step 4. PROFIT!

59. All I Need to Do ...

60. as a general rule...
Business Plan
=
FICTION

61. No Business Plan survives first
contact with customers

63. Crystal ball...
2007 2012

65. Planning > Plan

66. What We Used to Believe
We Built Startups by
Managing Processes
Product Management
+
Waterfall Engineering

67. Product Introduction Model
Concept/ Product Dev. Alpha/Beta Launch/
Seed Round Test 1st Ship

68. Tradition – Hire Marketing
Concept/ Product Dev. Alpha/Beta Launch/
Seed Round Test 1st Ship
- Create Marcom - Hire PR Agency - Create Demand
Marketing Materials - Early Buzz - Launch Event
- Create Positioning - “Branding”

69. Tradition – Hire Sales
Concept/ Product Dev. Alpha/Beta Launch/
Seed Round Test 1st Ship
- Create Marcom - Hire PR Agency - Create Demand
Marketing Materials - Early Buzz - Launch Event
- Create Positioning - “Branding”
• Hire Sales VP • Build Sales
Sales • Hire 1st Sales Staff Organization

70. Tradition – Hire Bus Development
Concept Product Dev. Alpha/Beta Launch/
Test 1st Ship
- Create Marcom - Hire PR Agency - Create Demand
Marketing Materials - Early Buzz - Launch Event
- Create Positioning - “Branding”
• Hire Sales VP • Build Sales Channel /
Sales • Pick distribution Distribution
Channel
Business • Hire First • Do deals for FCS
Development Bus Dev

71. Tradition – Hire Engineering
Concept Product Dev. Alpha/Beta Launch/
Test 1st Ship
- Create Marcom - Hire PR Agency - Create Demand
Marketing Materials - Early Buzz - Launch Event
- Create Positioning - “Branding”
• Hire Sales VP • Build Sales Channel /
Sales • Pick distribution Distribution
Channel
Business • Hire First • Do deals for FCS
Development Bus Dev
Engineering • Write MRD • Waterfall • Q/A • Tech Pubs

72. Waterfall / Product Management
Execution on Two “Knowns”
Requirements
Product Features: known
Design
Implementa1on
Verifica1on
Customer Problem: known Maintenance
Source: Eric Ries
http://startuplessonslearned.blogspot.com

73. Waterfall / Product Management
Execution on Two “Knowns”
Requirements
Product Features: known
Design
Implementa1on
Verifica1on
Customer Problem: known Maintenance
Source: Eric Ries
http://startuplessonslearned.blogspot.com

74. What We Used to Believe
Hire and Build a
Functional Organization

77. Founders run a
Customer Development Team
No sales, marketing and business
development

78. Startups are not a smaller version
of a large company

79. startup early growth

80. startup early growth
You are NOT
here here

81. It all begins with a search.
The search
for a business model

82. You, as founder of a startup:
Vision Hypotheses
who are the customers?
a product with how do we price it?
a set of features how do we create demand?
what is the sales channel?
where do we build it?
how do we finance it?

83. Your job, as founder of a startup:
Vision Hypotheses
who are the customers?
a product with create business models
iteratively how do we price it?
a set of features refinehow do we create demand?
and test / your hypotheses
what is the sales channel?
where do we build it?
how do we finance it?

84. search for execution of
business model business model
startup early growth
Business model found Cash-flow breakeven
Product / Market fit Profitable
Repeatable sales model Rapid scaling
Managers hired Senior mgt. hired

85. Business Model Generation
infrastructure offer customers
activities relationships
partners value
segments
prop.
resources channels
financial
cost structure revenue streams

86. business model
infrastructure offer customers
resources segments
activities value
relationships
partnerships proposition
channels
financial
cost structure revenue streams

87. business model
infrastructure offer customers
activities relationships
partners value
segments
prop.
resources channels
financial
cost structure revenue streams

88. business model
infrastructure you creating
who are offer customers
value for?
activities relationships
value
partners who is important? segments
prop.
resources
grouped into one or channels
more segments
financial
make conscious decision
cost structure / ignore, revenue streams
who to serve
then understand need

89. business model
infrastructure offer customers
what value do
describe the
products and you deliver?
relationships
servicesactivities
that
partners value for a
create value which problem
segments
are you helping
specific customer prop.
channels
solve?
resources
perhaps more than
one proposition which needs
financial are you
cost structure satisfying?
revenue streams

90. business model
communicate with and
infrastructure offer customers
reach a segment to
deliver value
activities relationships
marketing, distribution,
value
partners
and sales segments
prop.
resources channels
how do customers want
to be reached? financial
which channels work best?
cost structure
how integrated are they? revenue streams

91. business model
clarify type of relationship
infrastructure offer customers
to establish with each
segment
activities relationships
acquisition, retention, and
value
partners
upselling segments
prop.
resources channels
what relationship do the
customers expect?
financial
which are established?
how much do they cost?
cost structure revenue streams
how integrated are they?

92. business model
infrastructure offer customers
cash generated from each what value are they
customer segment willing to pay for?
activities relationships
what/how do they pay?
value what would they prefer?
transactional or recurring
partners segments
prop. how much contribution?
resources channels
financial
cost structure revenue streams

93. business model
infrastructure offer the most customers assets
important
physical, financial,
activities relationships
intellectual, or human
partners value owned or segments
leased
prop.
resources channels
what resources do the
value propositions,
financial distribution channels,
customer relationships, or
cost structure revenue streams
revenue streams require?

94. business model
infrastructure offer what you do
customers
production, problem
activities relationships
solving, platforms,
partners value networking
segments
prop.
resources channels
what activities do the
value propositions,
financial distribution channels,
customer relationships, or
cost structure revenue streams
revenue streams require?

95. business model
infrastructure offer customers
network of suppliers and partners
activities strategic relationships
alliances, coopetition,
partners value ventures, buyer-seller
joint
segments
prop.
resources who are your key suppliers?
channels
what resources do you receive?
which activities do they perform?
financial
cost structure optimization, risk streams
revenue reduction,
acquisition

96. business model
infrastructure
all costs incurred to offer customers
operate the model cost-driven / value-driven
activities relationships
calculate after defining fixed / variable costs
partners activities, andvalue
resources, segments
scale / scope economies
partnerships prop.
resources channels
financial
cost structure revenue streams

97. business model
infrastructure offer customers
activities relationships
partners value
segments
prop.
resources channels
financial
cost structure revenue streams

98. practical examples

99. example
infrastructure offer customers
partners activities value prop. segments
lovemark
hardware relationships
record design switching
companies marketing costs
seamless mass
music market
experience
OEMs resources retail stores
people brand channels site
hardware web
content own stores
agreements software
cost structure financial revenue streams
online store
people sales some
music
hardware revenue
manufacturing marketing revenue

100. example
infrastructure offer customers
partners activities value prop. segments
platform
management relationships
services targeted ads advertisers
expanding search web surfers
reach
? monetizing content
content owners
resources
search channels
internet
platform
cost structure financial revenue streams
keyword auctions
platform costs
FREE

101. example
infrastructure offer customers
partners activities value prop. segments
development relationships large base
free of
maintenance basic free
service users
resources small base
premium of
service paying
channels
internet
platform users
cost structure financial revenue streams
free basic services
fixed cost of service cost of service
costs for premium for free
users costs users
paid premium services

102. exercise: creating a business model

103. the Canvas
infrastructure offer customers
activities relationships
partners value
segments
prop.
resources channels
financial
cost structure revenue streams

104. for further reference ...

105. Alexander Osterwalder & Yves Pigneur