I discuss some typical errors in early business model development which can cause startups to fail before they get started. The focus is on lean startup, customer development, and the business model canvas, but I also talk about the job that needs to be done, the whole product, and trial and error (be scrappy!). I describe the case of intouch group, the first startup I worked at, to illustrate the business model canvas. Intouch raised over 40 million in venture financing, was pre-IPO, attracted over 1 million users, but ended up failing. i analyze some of the reasons why to start a discussion on some typical error patterns.

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Renew Your Business Model with the
Business Model Canvas
Paul Fox
Renew Your Business Model with the
Business Model Canvas
(some typical errors in early business
model development)
Paul Fox
Associate Professor
Director, Máster en Digital Entrepreneurship
La Salle – Universitat Ramon Llull

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Renew Your Business Model with the
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Paul Fox
Who am I?
• Worked for Startups: Fan Asylum, intouch Group,
Vision Marketing
• Intrapreneur: MCI Systemhouse (bought Apple’s data
center when they were almost bankrupt)
• Consulting: Diamondcluster - creating web businesses
for big companies
• “Founder”: viajeria.com, allysguesthouse.com
• Professor/Mentor: over 50 projects/year
• Main Focus: Early business model development

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Paul Fox
There are bad ideas…

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Paul Fox
And there are really bad ideas
www.howtobeadad.com www.montparnas.com

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Paul Fox
But usually it’s not the idea – it’s a problem
with some part of the business model
Narrative test (the story doesn’t make sense)
(Magretta (2002): Why Business Models Matter)
• Stories are important, and the story needs to make
sense to everybody.
Success: Google has a great story for both users and
advertisers.
(Potential) Failure:
Groupon!
• Businesses lose money
• Attracts bargain shoppers
• Doesn’t build loyalty

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Paul Fox
The numbers test (the Profit and Loss doesn’t add up)
(Magretta (2002): Why Business Models Matter)
“Kozmo.com delivers videos, DVDs, CDs, books, and
convenience items
(snacks, magazines, toiletries, household
products, flowers, beers etc.) to consumers within an
hour, with no delivery charge and no order minimum.”
Failure:
"Convenience stores charge a premium for quick access
to last-minute purchases, so why charge a discount for
the ultimate convenience of home delivery?“
In 2000: $120 million loss on $30 million in revenues with
$35 million in delivery costs.

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Paul Fox
Usually, the problem isn’t the idea, it’s the
business model
www.zebramc.com

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Paul Fox
intouch iStation 1992
http://serverjs.org/mochazone/Anno1992%3AIntouchi-station/
• Founded in 1990
• Interactive music-sampling
kiosk to try music before you
buy.
• One of the largest databases of
music samples in the world.
• Sample up to 5 tracks from
over 40,000 albums.

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Paul Fox
Intouch interface
http://serverjs.org/mochazone/Anno1992%3AIntouchi-station/

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Paul Fox

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Paul Fox
Intouch facts
• 50 units produced in 1993 at $50,000 each. Reaches
511 by 1995.
• Over $20 million in venture financing raised
• Pre-IPO in 1993
• 1.2 million registered users
• 1995 removes kiosks from music stores

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Intouch: What happened?
Failed the numbers test and the narrative test
(often they’re related)
• Expensive hardware. Then the Internet exploded!
• Expensive “artisan” recording of samples not scalable.
• Story for music stores was difficult – resulted in some
additional sales, but of long tail cd’s. Made inventory
planning more difficult
• Story for music labels was all or nothing. And they said
no.
– Music labels were both partners (rights to music samples) and
customers (paying per sample).
– Data showed that people bought more, but not the major artists
the labels were promoting.
– Music labels were essentially asked to pay to disrupt
themselves.

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Renew Your Business Model with the
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Paul Fox
Filling out a business model canvas is easy.
Using it well, not so much!

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Paul Fox
Key Activities: what are the main things we’ll
do every day to deliver the value
proposition(s)?

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Paul Fox
Key Resources: differentiation, or if you sold
the business, what would they be buying?

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Paul Fox
Key Partners reduce risk and add value:
suppliers, distributors, advisors

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Paul Fox
Value Proposition

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Identify the job that needs to be done
http://www.youtube.com/watch?v=s9nbTB33hbg

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Paul Fox
Once you know the job that needs to be done,
find the real problems!
• “Healthy Table is an app that gives you fast, healthy
recipes for any three ingredients you have in the
refrigerator”
• So why is it so hard to get people to pay for this?
• The job that needs to be done isn’t about finding
recipes, it’s getting a healthy meal on the table.
• Who has this need? What do they do now?
• Problems?
– No time
– Can’t cook
– Need other ingredients
– Lazy
– …

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Paul Fox
The Whole Product
• “Easy Parking is an app that helps you
find, reserve, and pay for street parking”
• Error: an app by itself may not solve the problem
www.libelium.com
www.toledoblade.comwww.streetsblog.org

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Paul Fox
Solution: Positioning Statement from Geoffrey
Moore

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Explain the proposition in detail
• For music lovers who want to travel in style
• who love to communicate and mix work and
play, anywhere, anytime
• the iPhone is a smart phone AND an iPod, AND an
Internet device.
• that offers Apple’s legendary ease-of-
use, elegance, intuitive integration, and cool.
• Unlike RIM Blackberry and Palm Treo
• Apple iPhone offers great quality phone calls, faster
browsing, music and movies, and photos that come
to life, all on a big screen in the palm of your hand.

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Paul Fox
Customer Segments

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Customer Segments: A customer segment is
people who share the same pain and speak
the same language – Brant Cooper
Be Specific!

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Paul Fox
No, be more specific
www.gentlechortle.com

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Even more specific: Personas
http://followsprocess.wordpress.com/2010/11/14/facilitating-data-driven-personas/

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But segments should not based on
demographics, psychographics, or any other
kind of -graphics
The Lean Entrepreneur

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Paul Fox
Don’t start with 10 segments!
Rank your segments
Pick one or two main ones
The Lean Entrepreneur
• Depth of pain
• Budget
• Ease of reach
• Ease of MVP (minimum viable product)
• Values

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Paul Fox
You need to focus on both the user level and
the strategic level simultaneously
• Strategic Level (Business plans are very
strategy-focused).
– Competitive and Market analysis
– Market sizing
– Operations plan
– Financial analysis
– Important for raising financing
• Too strategy-focused: Webvan (invested $1
billion in infrastructure before getting
customers)

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Paul Fox
You need to focus on both the user level and
the strategic level simultaneously
• User Level (Lean Startup is very user-focused)
– Target really specific customer segments
– Design thinking: get deep understanding of context
of use
– Agile development: Test obsessively and iterate.
• Too user-focused: Instagram (sold to Facebook
for $1 billion but had no revenue model)
• Successful startups manage at the strategic
and user levels simultaneously.

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Paul Fox
Test the Model
“Get out of the
building.”

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Test the Model
“Everyone has a
plan until they get
punched in the
face”

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Paul Fox
Getting out of the building isn’t easy…
Trial, error and the God complex
http://www.ted.com/talks/tim_harford.html
• God complex: no matter
how complicated the
problem, you have an
overwhelming belief that you
are right in your solution.
• Trial and error works better
than the solutions of “little
Gods” (experts).
• It’s very difficult to make
“good mistakes”
• Fail forward!

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Paul Fox
Be Scrappy!
http://www.bbc.co.uk/news/10323197
"The key is being scrappy. It's
the guys that they see an idea
and they don't know how
they're going do it but they're
going to try everything and just
fight and claw and keep
adapting, keep trying things."

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Paul Fox
The “Now What” syndrome?
• What happens when you fail?
• Do you give up?
• Do you try one more thing?
• Do you try 10 more things?
• Do you ask for help when you run out of things?
• Often the difference between success and failure is
your level of SCRAPPINESS.

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Paul Fox
Be Scrappy! Keep trying stuff.
What do we call this?
Disappointment?
The comfort zone?
Vacation from Scrappiness?

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Paul Fox
Conclusions
• The business model canvas is easy to use, but difficult to use well.
• Make sure the story makes sense for everyone, and that the
numbers add up.
• Find the pain and solve real problems.
• Make sure you’ve identified the real job that needs to be done.
• Focus on the whole product – find partners if you need them.
• Segment – start with a small segment, then find others.
• Work at the strategic and user levels simultaneously.
• Get out of the building and test.
• Be scrappy and fail forward!

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Paul Fox
Thank you!
@profefox paulbfox