better by measure: two tales of disruption (class 3, sva products of design 2014)

BETTER BY MEASURE | WEEK 3: SEPTEMBER 18, 2014

BETTER BY MEASURE

TWO TALES OF DISRUPTION

Class 3 | September 18, 2014



OUTLINE

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SCIENCE LAB: TWO TALES OF DISRUPTION

BUSINESS SCHOOL: LEAN CUSTOMER DISCOVERY PART ONE

CONCEPT REVIEW



SCIENCE LAB




4

V.

WHAT FEELINGS DOES THE TERM “DISRUPTION”

CONNOTE FOR YOU?

https://www.youtube.com/watch?v=ktgEzXZDtmc

https://www.youtube.com/watch?v=ozwtG8Q0idc



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DISRUPTIVE… ANYTHING ELSE“Finance. Food. Fuel. Water shortage. Resource scarcity. Climate chaos. Mass poverty. Mass migration. Fundamentalism. Terrorism. Financial oligarchies. We have entered an Age of Disruption.”

– Otto Scharmer. “Leading from the Emerging Future.”

V.

DISRUPTIVE INNOVATION“True disruption means threatening your existing product line and your past investments. Breakthrough products disrupt current lines of businesses.”

– Peter Diamandis. X-Prize Foundation, Singularity

DEFINITION (NOUN): Disturbance or problems that interrupt an event, activity, or process.


FIRST WE’LL FOCUS ON THE LATTER TYPE OF DISRUPTION. THE EARTH ON FIRE KIND.

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WHAT DISRUPTIVE IMPACTS DO WE HOPE TO SOLVE FOR?

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Clim

ate

Ch

ang

e

ENVIRONMENTAL IMPACTS

SOCIAL IMPACTS

HEALTHIMPACTS

Ch

ild S

lave

ry

Infe

ctio

ns

Dis

ease

These negative impacts are the results of interconnected systems –

economic, social, ecological.


HOW DO WE SOLVE FOR THESE PROBLEMS?

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“WE CAN’T SOLVE PROBLEMS WITH THE SAME KIND OF THINKING THAT

CREATED THEM.” – Albert Einstein

In order to solve for these challenges we need to start by understanding the

systems and dynamics that created them so we can begin to imagine ways

to intervene and create positive change while avoiding unintended

consequences.

Let’s start by mapping systems.


SYSTEMS THINKING IS A VERSITILE AND USEFUL FRAMEWORK WHICH WE ACTUALLY USE ALL THE TIME

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REBECCA’S SYSTEMS WORK• Mapping Walmart’s supply chain, water and energy use• Using LCA to understand the impacts of apparel for NRDC and the CFDA

JEN’S SYSTEMS WORK• Unraveling healthcare networks• Understanding the behaviors of hard to reach patients


GETTING TO THE CORE OF A SYSTEM

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What is the purpose of the system?

What is your goal for understanding the system?

What are the boundaries, scale and context for the system?

BETTER BY MEASURE | WEEK 3: SEPTEMBER 18, 2014 11 CLASS 2 | PARSONS | SUSTAINABLE SYSTEMS | REBECCA SILVER

CHALLENGE: New York City Mayor’s office is working to rebuild Rockaway

Beach after super storm Sandy wreaked havoc on the area in 2012. They’ve

hired you to help them understand the system dynamics for the coastal region.

THINKING IN SYSTEMS: ROCKAWAY BEACH


What’s the purpose of the system?

What’s your goal for understanding the system?

What are the boundaries, scale and context for the system?



A SYSTEMS IS MORE THAN THE SUM OF ITS PARTS, BUT LET’S START WITH

THE PARTS

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What are the variables in the system?

STOCKS: Material or information that has built up in a system over time. These

are the things that accumulate – the stuff you can count or measure.

What are the connections between variables in the system?

FLOWS: Stocks change over a period of time as a result of material or

information flows that enters or leaves the stocks.


UNDERSTANDING SYSTEM DYNAMICS

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BALANCING FEEDBACK LOOPSA stabilizing, goal-seeking, regulating feedback

loop that keeps stocks at a specific level.

FEEDBACK LOOPS: Material or information that has built up in a system over

time. These are the things that accumulate – the stuff you can count or measure.

REINFORCING FEEDBACK LOOPSAn amplifying or enhancing feedback loop, which

trends toward instability (entropy). These are

“vicious cycles” and “virtuous cycles.”


WHAT HAPPENS WHEN THERE’S A DELAY IN THE SYSTEM?

DELAYS: A delay in a balancing feedback loop

makes a system likely to oscillate. Changing the

length of a delay may make a large change in the

behavior of a system.

Stocking the right number of Apple Watches

Balancing of predator & prey numbers in ecosystems


HOW ARE UNINTENDED CONSEQUENCES CREATED?

FIXES THAT FAIL (UNINTENDED CONSEQUENCES): A solution is rapidly

implemented to address the symptoms of an urgent problem. This quick fix sets

into motion unintended consequences that are not evident at first but end-up

adding to the symptoms.

Pest control > Invasive species introduction

Bank bailouts > Golden parachutes

New drug release > unplanned side effects


What are the stocks? What are the flows?

What patterns or “archetypes” emerge over time (feedback loops)?


BETTER BY MEASURE | WEEK 3: SEPTEMBER 18, 2014 18

SYSTEMPublic

Education System

Unequal Quality & Access

Open Internet

Tech. Divide

The US Economy

2008 Financial

Crisis

ContinuousConsumption

Exhaustion of Resources

Private Healthcare

Obesity

SYSTEM DYNAMICS: The behavior over time of a system or any of its components.

SYSTEM DYNAMICS RESULT IN NEGATIVE IMPACTS

RESULTINGBEHAVIOR


IMPACTS ARE INHERENTLY INTERCONNECTED BECAUSE SYSTEMS ARE INTERCONNECTED

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HEALTHIMPACT

SOCIALIMPACT

ENVIRONMENTALIMPACT

WHO KNEW?


HOW IS IMPACT CONNECTED TO BUSINESS MODELS?

Impacts occurs as a result of the operations required to create value for

customers and shareholders. In business lingo we call these externalities.

EXTERNALITY: “A side effect or consequence of industrial or commercial activity

that affects other parties without this being reflected in the cost of the goods or

services involved, such as the pollination of surrounding crops kept for honey.”

- SOURCE: Google

• Externalities are embedded in both what you do and how you do it

• Externalities can be created as the direct result of a company’s actions or

indirectly, as a result of a series of causal actions

• Externalities occur both inside a company and outside a company’s walls

• External impact can be singular events or repeated patterns and both types

of impacts can be the result of systemic risk and error

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EXTERNALITIES CAN BE POSITIVE AND NEGATIVE

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NEGATIVE EXTERNALITY

Cost to Society > Private Cost

The cost to a third party (the

environment, society or private

individuals) is greater than the cost the

consumer, or company producing a

good or service is paying for it.

POSITIVE EXTERNALITY

Benefit to Society + Private Benefit

Occurs when third parties (the

environment, society, or private

individuals) receive benefits as a result

of the consumption or production of a

good or service.

“Positive externalities flow to the top, negative externalities to the poor.” - Otto scharmer, Leading from the emerging future


OUR ECONOMY THRIVES OFF OF EXTERNALITIES


WHAT PARTS OF A BUSINESSS DO EXTERNALITES STEM FROM? ANYWHERE

As function of product or service delivered to customers Positive impact: Renewable energy providers

Negative impact: Weapons manufacturing

As (un)intended behavior change resulting from customer use/consumption of servicePositive impact: Weight loss from joining online calorie counting service

Negative impact: Online dating platforms spurring STD outbreaks

Embedded in operations (supply chain & facilities)Positive impact: Generous maternity and paternity time benefits

Negative impact: Hazardous chemical emissions from production facility

Investment (via direct investment or purchase of goods/services)Positive impact: Investing in renewable energy credits

Negative impact: Purchase of conflict minerals for electronics equipment manufacturing

Corporate giving & policyPositive impact: Donations to local community organizations benefitting disadvantaged youth

Negative impact: Funding of lobbying against environmental regulation

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SOURCE: On left, icons from Business Model Canvas by Alex Osterwalder and XPlane

http://businessmodelhub.com/photo/business-model-canvas-icons?context=popular








IMPACTS ARE INHERENTLY INTER-CONNECTED, AS ARE THE ELEMENTS OF A BUSINESS

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HEALTHIMPACT

SOCIALIMPACT

ENVIRONMENTALIMPACT

Investment

Supply Chain/

FacilitiesCorporate

Giving

Product/Service

Function

Customer Behavior


LEAN STARTUP

BUSINESS SCHOOL



NOW BACK TO THE GOOD KIND OF DISRUPTION

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THE FOUNDERS DEFINE THE PRODUCT VISION AND

THEN USE CUSTOMER DISCOVERY TO FIND

CUSTOMERS AND A MARKET FOR THAT VISION.

-Steve Blank, The Startup Owner’s Manual

STARTUPS AS THE ORGANISM OF CHANGE


LEAN LAUNCHPAD SIMULATES ENTREPRENEURSHIP

BY REQUIRING FOUNDERS TO GET OUT OF THE

BUILDING…AND INTO THEIR CUSTOMER’S WORLD.

Customer Discovery

Customer Creation

Customer Validation

CompanyBuilding

Pivot

LEAN LAUNCHPAD:

FLIPPED CLASSROOM


LEAN LAUNCHPAD: BUSINESS MODEL CANVAS


KEY PARTNERS KEY ACTIVITIES VALUE PROPOSITIONS CUSTOMER RELATIONSHIPS

KEY RESOURCES

COST STRUCTURE REVENUE STREAMS

CHANNELS

CUSTOMER SEGMENTS

Who are our key partners?

Who are our key suppliers?

Which key resources are we acquiring from our partners?

Which key activities do our partners perform?

What value do we deliver to the customer?

Which one of our customers’ problems are we helping to solve?

What bundles of products and services are we offering to each segment?

Which customer needs are we satisfying?

What is the minimum viable product?

For whom are we creating value?

Who are our most important customers?

What are the customer archetypes?

What key activities do our value propositions require?

Our distribution channels?

Customer relationships?

Revenue Streams?

What key resources do our value propositions require?

Our distribution channels?

Customer relationships?

Revenue Streams?

How do we get, keep, and grow customers?

Which customer relationships have we established?

How are they integrated with the rest of our business model?

How costly are they?

Through which channels do our customer segments want to be reached?

How do other companies reach them now?

Which ones work best?

Which ones are most cost-effective

How are we integrating them with customer routines?

What are the most important costs inherent to our business model?

Which key resources are most expensive?

Which key activities are most expensive?

For what value are our customers really willing to pay?

For what do they currently play?

What is the revenue model?

What are the pricing tactics?

SOURCE: www.businessmodelgeneration.com//canvas | Canvas concepts developed by Alexander Osterwalder and Yves Pigneur.

LEAN LAUNCHPAD: BUSINESS MODEL CANVAS

http://www.businessmodelgeneration.com//canvas


THE SHIFT: FROM PUSH AND MARKET TO CUSTOMER DEVELOPMENT

- The Four Steps to the Customer Epiphany by Steve Blank

Customer Discovery

Customer Creation

Customer Validation

CompanyBuilding

Pivot

THE CUSTOMER DEVELOPMENT MODEL

STOP STOP STOP

Concept/SeedProduct

DevelopmentAlpha/Beta

TestLaunch/ 1st

Ship

• Create marcom materials

• Create positioning

• Hire PR agency• Early buzz

• Create demand• Launch event• “Branding”

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THE PUSH AND MARKET MODEL


The Customer Development

process changes the way startups

are built

Startups are not smaller versions of

large companies

A startup as a “temporary

organization designed to search for

a repeatable and scalable business

model”Co-founded 8 startups.

1996: E.piphany | 1998: $3.4 MM sales |

1999: IPO raised $72 MM

Author of Four Steps to the Epiphany, Startup Owner’s Manual

FIRST CAME STEVE

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CONTINUOUS CUSTOMER

INTERACTION

A STARTUP IS AN

EXPERIMENT

A HYPOTHESIS TO BE

TESTED

ASSUME CUSTOMER AND

FEATURES ARE

UNKNOWNS

LOW BURN BY DESIGN

ARE WE ON THE PATH TO A

SUSTAINABLE BUSINESS

Founded IMVU

Parallels between Lean and Agile, caught fire in the

startup community for software businesses, particularly

mobile and SaaS models.

THEN CAME ERIC

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http://www.youtube.com/watch?v=tNw4Ht75DvA

http://www.youtube.com/watch?v=tNw4Ht75DvA


LEAN

MANUFACTURING

TOTAL QUALITY

MANAGEMENT

KANBAN

CONTINUOUS

IMPROVEMENT

AGILE

WHAT CAME BEFORE STEVE AND ERIC

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http://agilemanifesto.org/


DESIGN RESEARCH(Ethnography)

DESIGN THINKING(IDEO, Dschool)

AGILE AND LEAN INFLUENCES

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The Kanban Method respects the human condition. People resist change for emotional

reasons. When change affects their self-image, self-esteem, or position with a social

group, people will resist and the resistance will be emotional.

The Kanban Method adopts the Zen Buddhism concept that "water goes around the rock."

Hence, it focuses on changes that can be made without invoking emotional

resistance, while visualization and limiting work-in-progress raise awareness of deeper

issues allowing for an emotional engagement that helps to overcome resistance.

KANBAN

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BETTER BY MEASURE BUILDS OFF OF LEAN

LAUNCHPAD BY CONNECTING THE CUSTOMER’S WORLD

TO HEALTH, CIVIC SOCIETY AND THE ENVIRONMENT.

LEAN LAUNCHPAD GETS BETTER BY MEASURE

+


THE SHIFT: BETTER BY MEASURE’S CUSTOMER DEVELOPMENT APPROACH

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FO

CU

SB

ET

TE

R B

Y

ME

AS

UR

E

Eco/Social Hypothesis Testing:By delivering your value proposition, what ecological/social values are created/eroded and how does this effect the customer?

Designing for Sustainable Growth:How might different growth scenarios affect ecological/social value creation/erosion?

Measuring Eco/Social Outcomes:How can we measure and sustain or improve environmental/social outcomes of corporate activities?

Co-Creating Eco/Social Solutions:Can you co-create value which addresses both customer needs and ecological/social values?

- The Four Steps to the Customer Epiphany by Steve Blank

Customer Discovery

Customer Creation

Customer Validation

CompanyBuilding

Pivot

BETTER BY MEASURE CUSTOMER DEVELOPMENT MODEL

STOP STOP STOP


KEY PARTNERS KEY ACTIVITIES VALUE PROPOSITIONS CUSTOMER RELATIONSHIPS

KEY RESOURCES

COST STRUCTURE REVENUE STREAMS

CHANNELS

CUSTOMER SEGMENTS

• Who are our key partners?• Who are our key suppliers?• Which key resources are we

acquiring from our partners?• Which key activities do our

partners perform?• What key environmental and and

societal stakeholders might our activities effect?

• What value do we deliver to the customer?

• Which one of our customers’ problems are we helping to solve?

• What bundles of products and services are we offering to each segment?

• Which customer needs are we satisfying?

• What is the minimum viable product?

• What ecological and social value could be embedded in the core value proposition to customers?

• For whom are we creating value?• Who are our most important

customers?• What are the customer

archetypes?• What are the ecological/social

values and behaviors of our customers?

• What key activities do our value propositions require?

• Our distribution channels?• Customer relationships?• Revenue Streams?• What environmental and social

externalities might the key activities drive?

• What key resources do our value propositions require?

• Our distribution channels?• Customer relationships?• Revenue Streams?• What environmental and social

externalities might resource use create?

• How do we get, keep, and grow customers?

• Which customer relationships have we established?

• How are they integrated with the rest of our business model?

• How costly are they?• Will customer

acquisition/retention drive ecological and social impact?

• Can positive ecological and social value be used to acquire customers?

• Through which channels do our customer segments want to be reached?

• How do other companies reach them now?

• Which ones work best?• Which ones are most cost-effective• How are we integrating them with

customer routines?• What environmental and social

externalities might these channels require?

• What are the most important costs inherent to our business model?

• Which key resources are most expensive?• Which key activities are most expensive?• What key costs to the environment and civic

society are driven by our business model?

• Which of these externalities is likely to become future economic costs to our business, and by what mechanism (policy, public demand etc.)?

• For what value are our customers really willing to pay?

• For what do they currently pay?• What is the revenue model?• What are the pricing tactics?

• What customer behaviors will revenue generation drive which may affect the environment and civic society, and how?

SOURCE: www.businessmodelgeneration.com//canvas | Canvas concepts developed by Alexander Osterwalder and Yves Pigneur.

LEAN LAUNCHPAD: BETTER BY MEASURE’S ADAPTED BUSINESS MODEL CANVAS

http://www.businessmodelgeneration.com//canvas


Customer discovery translates a founding team’s vision for the company into a hypothesis about each component of the business model and creates a set of experiments to test each hypothesis.

Customer discovery is not about collecting features lists from prospective customers or running lots of focus groups.

STEP 1: CUSTOMER DISCOVERY

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• Total addressable: how big is the universe?• Served available market: how many can I reach with my sales channel? • Target market: who will be the most likely buyers?

Total addressable market

Served available market

Target market

ESTIMATE YOUR TOTAL ADDRESSABLE MARKET

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ESTIMATE THE SIZE OF YOUR TOTAL ADDRESSABLE MARKET, SERVED

ADDRESSABLE MARKET, AND TARGET MARKET.

1. Build a systems map for the company you’re focusing on.

2. How does your concept fit into the system?

3. From your concept/systems map identify 2 critical business hypotheses to test, and 2

associated environmental/social hypotheses to test.

4. What do you expect to be true? How do you validate what you think is true?

5. Talk to at minimum 10 humans in person that fit your market to do this (Photograph

every human you meet, we want to see them!)

6. Go to the climate march to find a captive audience.

READ: Steve Easterbrook, The Power to Change Systems: http://planet3.org/2011/10/18/the-power-to-change-systems

OPTIONAL: Steve Blank, How to Build a Startup - https://www.udacity.com/course/ep245

HOMEWORK

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http://planet3.org/2011/10/18/the-power-to-change-systems

http://planet3.org/2011/10/18/the-power-to-change-systems

https://www.udacity.com/course/ep245

https://www.udacity.com/course/ep245


THE PEOPLE’S CLIMATE MARCH

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REGISTER: http://peoplesclimate.org/march/


CONCEPT CRITIQUE

TO THE BOARD WE GO


better by measure: two tales of disruption (class 3, sva products of design 2014)

Business

measure week

systems thinking

mapping systems

system dynamics

disruptive impacts

tales of disruptionbetter

kind of thinking thatcreated

impacts of apparel