v.camp‘: business model development & innovation

‘v.camp‘: Business Model Development & Innovation

(P)Re-Think Your Business Model Exercises

Exercises

© 2013 SAP AG. All rights reserved. 3

Exercises Baseline and 4 Iterations

2: Analyze &

Improve

5: Evaluate &

Decide

3: Challenge &

Change

4: Test &

Verify

1: Describe

Baseline

My Company My Customers My Partners My Competition

Describe Baseline

process team

mindset

Business Model

Development & Innovation


Describe how the company is embedded into its

business network

Focus on important actors

Distinguish customers, partners and competitors,

one entity can have more than one role!

What you call a partner, might be a customer, so

ask yourself:

Do I need a value proposition? Is my

business model obsolete, if this entity can

not be convinced?

Or: Is this entity just enhancing my

capabilities / resources? Could it be

substituted?

Describe all relations in detail. If helpful,

categorize relations, e.g. goods & services,

money, contracts, data, rights, experience, market

access, joint activities etc.

Exercise 1: Describe Business Model (Baseline) Step 1 (Network View)


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Exercise 1: Describe Business Model (Baseline) Step 2 (Enterprise View)

Transfer customers and partners

Start with the value proposition(s). Each customer

deserves an individual value proposition! Key

question: How do we reflect the needs of our

customers in the value proposition? Add

information about the channel and the customer

relation.

Think about key activities & resources next. Key

questions: what do we have to do to deliver the

required value for our customers? What are our

unique capabilities that we leverage to create

value for our customers?

Finally think about financials. Key question: how

do we capture the value?

What is the (quantifiable) value for the

customers? With which mechanism do we

get our share?

What are the major cost factors? What is the

role of the partners (make or buy)?




Key Activities

Key

Resources

Customer

Relationship

Channels

Value

Proposition

Cost

Structure

Revenue

Streams

Exercise 1: Describe Business Model (Baseline) How to Get Started

Exercise:

Step 1: Network view

Step 2: Enterprise view


? ?

? ?

?


Analyze & Improve

process team

mindset

Business Model



Define & Prioritize Analysis Needs

Use the Business Model Baseline

to Check all aspects. Typical

Outcomes:

(Re-)segment Target Customers

Understand Customer Needs

Analyze Market & Environment

Partnering Options

Investigate Competitive Business

Models

(Re-)consider Channels

Analyze Monetization Options

…..

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Exercise 2: Analyze & Improve Business Model Customer Needs: What is the ‘Job To Be Done’?

Definition:

A ‘job to be done’ is a fundamental task (or problem) the customer is trying to get done

(or solve) in a particular circumstance

Examples:

Hilti: People don’t want to buy a drill … they don’t want holes in the wall … they want to

hang up a picture or assemble / repair something

Tata Motors: People don’t need a car … they want to get safely from A to B

Sources: www.innosight.com (M. Johnson)


http://www.innosight.com/


To figure out a solution, you might ask: what?

To figure out the job to be done, you have to

ask: why?

Customer: I need a bridge over the river.

You: Why?

Customer: I need to get to the other side.

You: Why?

Customer: I need to deliver someone a message…

You: Why?

…

Find out the ultimate goal of your customers

and help them get their job done.

Exercise 2: Analyze & Improve Business Model Customer Needs: How to Identify the ‘Job To Be Done’?



Gain Creators

Pain Relievers Pains

Gains

Customer

Job(s)

: ) : (

Value

Proposition

Exercise 2: Analyze & Improve Business Model Value Proposition Canvas



Exercise 2: Analyze & Improve Business Model Exercise: Improve Business Model By Analyzing Customers Needs

Exercise:

Step 1: Focus on one customer group. List their ‘Job to be done’ and derive the 2 most important jobs and

mark them on the value proposition canvas.

Step 2: Identify their gains (and pains) while doing the 2 most important jobs to get a better understanding

for a winning value proposition.

Step 3: Improve the value proposition (and, if required, additional elements of the business model) and add

them to the business model (marked with ‘1’ for 1st iteration).

1

3 2

3

Challenge & Change

process team

mindset

Business Model



Exercise 3: Challenge & Change Business Model Analyze Triggers for Change

e.g. under-utilized resources, unique skills,

under-utilized market access

e.g. inappropriate competencies, excessive

costs

e.g. new technologies, new customer

segments, new demands

e.g. price erosion, new competitors,

competitors tackling new markets

Internal Opportunity

Internal Threat External Threat

External Opportunity


Exercise 3: Challenge & Change Business Model Part 1: Derive Your ‘Business Model Challenge’

Exercise:

Step 1: Figure out why you need or might want to look for a modified or extended business model.

Step 2: Pick one or two triggers for your (!) ‘Business Model Design Challenge’ and write it down.

Ext. Opportunity

Ext. Threat

Int. Opportunity

Int. Threat

Trigger Analysis (Reason for Change)

BM Design Challenge: How might we ... ?


Exercise 3: Challenge & Change Business Model Ideation Methodology

Company Perspective Global perspective

Ima

gin

ati

ve

S

ys

tem

ati

c

Morphological

Analysis

Blue

Ocean

Logo

Battle

Lead

Industries

Dis

rup

tive

In

cre

me

nta

l

Learn &

Adapt

Kill The

Company

Learn from Others Challenge Yourself


Reconsider 2 elements of the «aytm.com»

business model separately, e.g.

• Customer groups

• Value propositions

• Channels

• Revenue models

and try to alter their attributes systematically

in order to find new value generating

modifications.

Decide in the team first, which elements to

pick depending on your design challenge.

Then, let each team member develop a few

ideas before presenting and clustering the

ideas in the team.

Exercise 3: Challenge & Change Business Model Morphological Analysis


The Logo Battle method uses innovative, well-known company

examples to trigger associations with a certain business model

and hence, inspire new ideas. Display the logos and use them to

come up with innovative ideas. Ask yourself: How would

McDonalds / Aldi / IKEA etc. run your business?

Finance

Aerospace

Services

Electronics Ecommerce

Food

Consumer

Goods

Exercise 3: Challenge & Change Business Model Logo Battle: How would McDonalds / Aldi / IKEA etc. run your business?


Exercise 3: Challenge & Change Business Model Part 2: Ideation, Clustering, Prioritization and Extended Business Model

Exercise:

Step 1: At the beginning recall your ‘Business model Design Challenge’ to ensure a targeted ideation. Use

2 methods (‘e.g. Morphological Analysis’ & Logo Battle). Cluster your ideas as you go.

Step2: Prioritize the 2-3 best ideas for an extended business model (e.g. 2 votes per team member).

Step 3: Use your favorite ideas to create an extended business model (network and enterprise view)

around it. Add them to the business model (marked with ‘2’ for 2nd iteration).

Cluster 1

Cluster 2

Cluster n

Cluster 3

Test & Verify

process team

mindset

Business Model



Exercise 4: Test & Verify Business Model Build – Measure – Learn Cycle

To test hypotheses, you build an artifact that works as

the foundation, you define what you want to measure

and what the consequences for different results would

be, you test (mostly with potential customers) and you

learn by analyzing the results and gaining insights.

The artifact that you use for the test is called ‘Minimal

Viable Product’ (MVP).

The basis for the measurement are ‘Actionable Metrics’.

Hypothesis to be

tested

Build

Measure

Learn MVP


Exercise 4: Test & Verify Business Model Minimal Viable Product (MVP)

The Minimal Viable Product (MVP) is a product (or just an artifact) with the fewest number

of features needed to achieve a specific objective, and users are willing to ‘pay’ in some

form of a scarce resource (e.g. time, awareness or money).

In the beginning the MVP is mostly not a minimized version of the final product (or

service). It is rather the smallest thing possible to measure and learn. You want to

minimize the effort and time needed since there might be a lot of iterations needed.

Examples for suitable ‘early’ MVPs are: Videos, story-boards, blogs & simple websites

with ‚more info‘, ‚forward to a friend‘ or even ‚buy‘ buttons, Google Adwords campaigns or

even just interviews.

Towards the end of the testing, the MVP becomes more and more the real product, but

with limited features to control the effort.


Exercise 4: Test & Verify Business Model Actionable Metrics

For each test you should define ‘actionable metrics’. These are some key metrics that

allow you to test the respective hypothesis and to take action based on the results.

What you should avoid are ‘vanity metrics’, that make you feel good, however, provide no

insight for an educated decision afterwards.

Example for actionable metrics: you set up a simple websites with ‚more info‘ and ‚forward

to a friend‘ buttons. You monitor the number of people using these buttons to figure out, if

the problem you want to address is relevant to a sufficient number of potential customers.

Example for vanity metrics: you talk to a few potential customers that you already know

very well, you explain the product idea and they tell you that this is interesting. You might

like these comments, but what do you do with them?


Exercise 4: Test & Verify Business Model Test One Hypothesis

Exercise:

Step1: Derive a few important assumptions (= hypotheses) the

extended business model is build upon. Select one that

implies a significant risk.

Step 2:Describe one test that could be used to test this

hypotheses. What could you learn and which risk could you

mitigate with this test?

Step 3: Describe the Minimal Viable Product (MVP) that could

be used for this test.

Step 4: Define actionable metrics for the test . Describe what

you expect to confirm your hypothesis and what you would do

if the hypothesis is not confirmed.

Hypothesis to be

tested

Build

Measure

Learn MVP

Actionable

Metrics

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Evaluate & Decide

process team

mindset

Business Model



Exercise 5: Evaluate & Decide About Business Model Develop Evaluation Framework

Evaluation

Dimensions

Impact

Revenue potential

Ease of

Implementation

Customer acceptance

…

….

…

Costs

Privacy

Risks

Social

Economic

Political

Technological

….

Two dimensions are key: impact and

ease of implementation

Approach allows to combine all criteria

in one framework

Develop criteria using a PEST

approach

Define project specific criteria incl.

financial aspects and risks

Assign weights according to importance

Adjust in an iterative manner based on

experts feedback


Exercise 5: Evaluate & Decide About Business Model Bottom Up Approach Based on Business Model: Revenues

The business model defines the business logic, that is the

foundation for the business case. However, in addition

you need quantities to calculate.

To calculate the revenues, analyze the situation for each

customer group separately. First of all, estimate how

many customers will buy per year within the next X years.

Next, estimate the average deal size: the revenue models

(e.g. upfront license or subscription), provide the strategy.

In addition, you need the price points. Prices are tactics.

To get a first estimation, investigate prices for alternatives

of your solution in the market.

Finally, multiply the number of customers (per year, for

the next X years) with the average deal size (per

customer group).

Differentiate between one-time and recurring revenues.


Exercise 5: Evaluate & Decide About Business Model Bottom Up Approach Based on Business Model: Costs

To calculate the costs, you have to take everything that

you need to create and distribute the solution into

account.

Start with the solution itself: what are the fixed (e.g.

development costs) and variable costs (e.g. sales) to

create and deliver it (within the next X years)?

In addition, consider the ramp-up or go-to-market costs.

What about the customer acquisition costs? Are there

costs to bring partners on board or do they reduce the

costs by taking over parts of the solution creation and

delivery?

Differentiate between fixed / one-time, fixed / recurring

(e.g. per year) and variable (per unit) costs. Use the

number of solutions sold or number of customers to

calculate all costs per year for the next X years.


Exercise 5: Evaluate & Decide About Business Model Bottom Up Approach Based on Business Model: Profit & Loss

For a simplified business case, it is sufficient to compare revenues and costs for the

next X years. X needs to be defined according to the type of solution and market.

This is not a cash flow calculation! For example, the solutions sold might be paid a year

later. However, it is usually sufficient because the main purpose of the business case at

this stage is to compare different business model options.

Year 1 2 3

Variable Costs 50000 100000 120000

Fixed Costs 200000 100000 80000

Total Costs 250000 200000 200000

Average deal size 200 200 200

Number of deals 800 1500 3000

Revenue 160000 300000 600000

Profit -90000 100000 400000


Exercise 5: Evaluate & Decide About Business Model Assumptions and Scenarios

Summarize your assumptions and consider alternative outcomes caused by variations

of the assumptions in the future. For a simple risk assessment compare three

scenarios: Best case scenario, realistic case scenario, worst case scenario.

Regard the business case you have created in the first place as a ‘realistic case‘

scenario and add the other scenarios by modifying your assumptions, e.g. regarding

price points, number of customers, important cost blocks etc. Look at the differences in

regards to profit and loss between the three scenarios and their impact on the level of

the financial risk of your business model.


Exercise 5: Evaluate & Decide Business Model Business Case

Exercise:

Step 1: Develop a basic business case for your extended business model. Calculate the revenue, costs

and profit for the next 3 years (for the extensions only!) via a bottom-up approach. Therefore, define

justifiable price-points according to the revenue models you have defined in the business model and

estimate the number of customers (per customer group) you can acquire for each year. Estimate your

costs per year according to the cost blocks you have derived in the business model (both one-time and

recurring costs). Calculate the profit (or loss) per year.

Optional Step 2: Regard the business case you have created as a ‘realistic case‘ scenario and add a

‚worst case‘ and ‚best case‘ scenario by modifying your assumptions regarding price points, number of

customers, costs etc. Look at the differences in regards to profit and loss between the 3 scenarios and

discuss the level of the financial risk of your business model.

Revenues

- Costs

Y1 Y2 Y3

= Profit

Price 1 (Model A)

# customers A

Recurring Cost X

Price 2 (Model B)

# customers B

Recurring Cost Y

One Time Costs

Thank You!

Contact information:

[email protected]

process team

mindset

Business Model


v.camp‘: business model development & innovation

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