business models and ecosystems

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Slide Lead to Win Designing Business Models (& Business Ecosystems) Michael Weiss Carleton University TIM Program [email protected] 1

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Page 1: Business models and ecosystems

1Slide Lead to Win

Designing Business Models(& Business Ecosystems)

Michael WeissCarleton University

TIM Program

[email protected]

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Page 2: Business models and ecosystems

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Objective

• Upon completion of this session, you will know about:– Building blocks of a business model– Modeling a business ecosystem

• And you will be able to:– Create a model of your business and your ecosystem

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Agenda

1. Modeling your business2. Common business models3. Modeling your ecosystem4. Key lessons

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1. Modeling your business

• What is a business model?

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Page 5: Business models and ecosystems

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1. Modeling your business

• What is a business model?

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Business model frameworks

• Business model frameworks– Provide a shared vocabulary and structure for describing and

comparing business models– Aim to be intuitive, yet comprehensive enough to capture the

nuances of business operations and strategy

• Examples of business model frameworks – Four-box framework (Johnson, 2010)– Six-function framework (Chesbrough & Rosenbloom, 2002)– Four-factor framework (Muegge, 2012)– Business model canvas (Osterwalder & Pigneur, 2010)

Read the article on Business Model Discovery in the TIM Review, http://www.timreview.ca/article/545

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Comparison (1)

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Four-box framework:

Seizing the White Space

Six-function framework:

Open Innovation1) Customer value proposition

2) Profit formula

3) Key resources

4) Key processes

1) Value proposition

2) Market segment

3) Value chain

4) Cost structure/profit potential

5) Value network

6) Competitive strategy

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Comparison (2)

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Nine building blocks:

Business Model Canvas

Four-factor framework:

Business Model Discovery1) Customer segments

2) Value propositions

3) Channels

4) Customer relationships

5) Revenue streams

6) Key resources

7) Key activities

8) Key partnerships

9) Cost structure

1) Importance (pain point)

2) Stakeholder value propositions

3) Profit formula

4) Capabilities (these include resources and processes)

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Business model canvas

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Key partners Key activities Value propositionValue proposition

Customer relationships

Customer segments

Key partners

Key resources

Value propositionValue proposition

Channels

Customer segments

Cost structureCost structureCost structure Revenue streamsRevenue streamsRevenue streams

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Guiding questions (1)

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Offer

• Value proposition

• What value do your deliver to the customer?

• What customer problem are you solving?

• Which jobs are you helping them get done?

• Which customer segments do you serve? What products and services do you offer to each?

Customers

• Customer segments

• Customer relationships

• Channels

• Who are you creating value for?

• How do you segment your market and which segment (“niche”) do you focus on initially?

• How do you acquire, keep, and grow your customer base (customer relationships)?

• How do you reach those customers?

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Guiding questions (2)

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Profit Formula

• Revenue streams

• Cost structure

• What value are customers willing to pay for?

• What revenue streams do you have, and how much does each stream contribute?

• What are your most important costs? Which activities/resources are most expensive?

• Is your business model cost- or value-driven?

Infrastructure

• Key resources

• Key activities

• Key partners

• What resources/activities are required in order to deliver the value to the customer?

• Examine your distribution channels, customer relationships, and revenue streams!

• Who are your key suppliers and partners (eg intermediaries, complementors)?

• Which resources/activities do you acquire?

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Business model canvas tools

• Most common way of using the canvas is the paper version: describe your business model in 15 min– A PDF version of the canvas can be downloaded here: http://

businessmodelgeneration.com/canvas

• There are various online tools that support editing and collaboration of business model canvases– A Google Docs version is here: http://agile.dzone.com/news/

how-create-business-model (go to File | Make a copy...)

• There are also mobile apps that help you capture and share your business model designs– http://businessmodelgeneration.com/toolbox– http://www.businesscanvas.co/app-tour (a LTW company!)

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2. Common business models

• Examples of using the canvas– One-time sales model– Subscription model– Multi-sided platform model– Freemium model

• Legend– Flow of value to customers– Flow of value to company

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V$

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One-time sales model

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Engineers

& sales

Design

and build

product

Value

propositionCustomer

segment

Productsales

IP

Internet

Salesforce

Product

development

Suppliers

Human

resources

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Subscription model

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Developers

Design

and build

serviceAccess

capability

Customer

segment

Basefee

Servicehosting

eg Cloud

provider

Recurringfee

Service

development

cost

Salaries eg Cloudfee

Access

to content/

service

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Multi-sided platform model

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Network

effect

Platform

Develop

& maintain

platform

Value

proposition#1

Value

proposition#2

Revenue

flow #1Revenue

flow #2Platform

development

& mgmt

Customer

segment#1

Customer

segment#2

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Freemium model

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Platform

Develop

& maintain

platform

Free basic

service

Premium

service

Large

base of

free users

Small base

of paying

users

Free basic

servicePaid

premiumservice

Fixedcosts

Cost offree

service

Cost of

premiumservice

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FixMyStreet.com canvas

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Open source

platform

Develop

& maintain

platformEmpowered

citizens

Reducedcosts

Residents

CityCouncils

Freeaccess

Servicefees

Platform

development

& mgmt

Web &

mobile app

Customize

platform

Customization Sales

ReferralsOpen source

community

(platform)

Residents

(reports)

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3. Modeling your ecosystem

• Strategy traditionally focused on execution• Execution focus is on developing value proposition,

operations, and monitoring competition• Creates a blind spot that hides dependencies• Wide-lens perspective: expand your focus to your

entire ecosystem (partners and environment)• Delivery of your value proposition depends on your

ability to align your strategy with your partners

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Ecosystem risks

• Co-innovation risk: who else needs to innovate in order to your innovation to succeed?– Success of an innovation depends on complementors

(technology, procedure, or organization)– Help your weakest complementor to succeed

• Adoption chain risk: who else needs to adopt your innovation before end-consumers can assess it?– Uncertainty of market success increases with number of

intermediaries that must adopt innovation– Identify bottleneck partner in adoption chain and either i)

subsidize them, ii) focus on a niche and provide exclusivity, or iii) circumvent them via an alternative path

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Value blueprint

• Value blueprint is about constructing a picture of your entire ecosystem at the start

• Judge risk of all required ecosystem elements as red (show stopper), yellow, or green

• Need to move a cohort of partners in the same direction: need to reassign value captured to the weakest link in your ecosystem

• Value blueprint is a map that makes your ecosystem and dependencies explicit

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What a value blueprint shows

• End customer (who ultimately adopts?)• Your own project (what do you need to deliver?)• Suppliers (what inputs do you need?)• Intermediaries (what stands between you and your

end customer? who touches your offer?)• Complementors (what else is required before each

intermediary adopts the offer & moves forward?)• Co-innovation and adoption chain risks

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Value blueprint (template)

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You Intermediary EndCustomer

Supplier 1

Complementor

Complementor 2

Supplier 2

Supplier 3

Supplier toComplementor 1

Supplier toComplementor 1

Supplier toComplementor 2

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Battle of e-readers: Sony vs Amazon

• Sony and Amazon built ecosystems using the same pieces (e-books, e-readers, publishers, store, ...)

• Sony’s competence was in hardware, left a blind spot wrt the dependencies on content providers

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OtherComponents

SonyReader Retailers End

Customer

Sony DRM

E-Ink Screen

Authors PublishersSony

Connect

Connectivityvis USB

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Amazon’s Kindle ecosystem

• Amazon was well-positioned in the e-book ecosystem, but its expertise was not in hardware

• Different from Sony, Amazon played the role of an integrator, delivering a whole customer solution

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AmazonDRM

AmazonKindle

Amazon.com

EndCustomer

Publishers

Connectivityvia wireless

Authors

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Leadership prism

• Tool to assess benefit to each actor in the value blueprint: surplus = relative benefit – cost

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Valueproposition

Partner A

Partner B

Partner C

Partner D

Partner E

Partner F

Relativebenefit

Cost Surplus

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4. Key lessons

• Business model canvas allows you to test your assumptions about your business

• Value blueprint and leadership prism allow you to model your role in a business ecosystem

• Business model canvas gives you your customer value, unique advantage, and financials

• Value blueprint and leadership prisms allow you to articulate the value for your partners

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Further readings

• Johnson, M. (2010), Seizing the White Space: Business Model Innovation for Growth and Renewal, Harvard Business Press

• Osterwalder, A. & Pigneur, Y. (2010), Business Model Generation, John Wiley & Sons

• Muegge, S. (2012), Business model discovery by technology entrepreneurs, April, TIM Review

• Adner, R. (2012), The Wide Lens, Portfolio/Penguin

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