Thursday, February 28, 2013

More from David Rahn and the Enterpreneurship Practicum

Practicum e-Blast #2 – February 26th, 2013
By David Rahn

(This is the second in a series of posts from Professor David Rahn about our new "lean start-up" practicum -- where students go from concept to launch in one semester -- Ed.)

Students recently completed presenting their business ideas using the Business Model Canvas. The Business Model Canvas was developed by Alexander Osterwalder and about 237 others in a crowdsourcing effort. In this post I am going to discuss the canvas, why it is useful, and how it worked for students when they implemented it in this class. I will be “sanitizing” some of the comments students sent me so as not to reveal actual venture ideas.

Before I proceed with that, however, I want to mention how strikingly similar this classroom presentation and discussion was to what is known in the entrepreneurship and business community as a “Mastermind Group.” The reason I am mentioning this is because I would like to encourage all students in this course, as well as our entrepreneurship and business students at large to seriously consider making use of Mastermind groups. Treat the relationships that you develop here in college as important and maintain those contacts. 

They will be helpful later. A Mastermind group is a collection of people from different businesses, usually not competitors, who come together for the purpose of helping each other.  Henry Ford, Thomas Edison, and Harvey Firestone went on camping trips where they discussed the challenges each was facing in their respective endeavors. This is widely considered the start of the Mastermind movement. There are a number of YouTube videos that can be watched to see a bit of how these meetings went, although I suspect that none of the real impactful discussions may have been captured. Imagine being an owl near the campfire for some of those meetings!

OK, back to the discussion at hand. The Business Model Canvas is a chart used for providing a one page description of a business and its key elements including:

  • ·         Value Proposition
  • ·         Customer Segments
  • ·         Customer Relationships
  • ·         Channels
  • ·         Revenue Streams
  • ·         Key Resources
  • ·         Key Activities
  • ·         Key Partners
  • ·         Cost Structure

 The value of the business model canvas is that it allows you to talk about business models in a convenient, easy to grasp and easy to change manner. Because it is written on a canvas, you can quickly erase anything and write in something else.  You start with your business idea and map it onto the canvas. This mapping becomes the as-is model you have conceived up to this point. In most or all of the cells are hypotheses about how you will build a portion of the business. So, for example, the Value Proposition is what you currently think you offer of value to a customer, or what you imagine your customers value.  The Customer Segments shows how you view the market for your value proposition. Your job as entrepreneur, then, is to go around proving out the hypothesis in each of the elements of the business model canvas. As you prove them you affirm a portion of your strategy. As you disprove them you shift or pivot to something that can be proven out and accomplish the objective at hand.  The key is to focus on the key areas that carry the highest risk. By addressing these you increase your confidence in your business model. As you complete a cycle of this you end up with a business model that is implemented and poised for growth.

Image courtesy of Alex Osterwalder,
Students each used this canvas to present their business idea to the class. The ensuing discussions turned what I thought was going to be a two day allocation of time into a nearly two week phase of this project. Along the way I surveyed students to be sure they felt like this was a valuable use of their time. The vote was unanimous. There is considerable value in sharing your ideas with peers and getting feedback. I cannot overemphasize how this changed many students thinking about their projects. It was very impactful! I’ll note that one of the traps that young entrepreneurs fall into is safeguarding ideas to the detriment of getting the project moving ahead from constructive input. My thinking on this is borne out of watching sessions like this. Get the idea out into a group of people you can trust and they will turn your thinking for the better.  Here are some sanitized comments from the class:

“I discovered that the customer segment I thought I was going after could be addressed by gatekeepers instead, or in addition to the original customers.  These gatekeepers each interact with potentially a few to hundreds of my original target customers per year. Also, the gatekeepers are considered authority figures and have great influence on this other segment of originally targeted customers.  This really changed my thinking about how to approach my project.” Stefen Dobrec

“Because I was able to hand out a prototype of my product I learned a great deal.  I learned about how I should consider changing the specifications of the product so it would be more useful. I learned about whether I should be thinking about using much higher quality materials to build a high end product, or stick with my lower cost solution, or do both! I got so much feedback that it even got to the level of identifying differences in how the product might need to be designed differently for men and for women! I had not thought that I should be thinking at this level of detail but after taking it all in it really made sense to me.” Joe Ferrigno

“I have been making some sales, and feeling good about my product. I was thinking my next step might be adding another product to my existing single product, or expanding my production capacity using an overseas supplier. After giving my presentation I realized that I was not completely sure which part of my value proposition customers were basing their purchasing decision on. After reflecting on this I realized I need to go back in and understand my customers at a new, deeper level, and that will help me see more clearly what my next steps need to be. I am expecting this will help me understand how well the various parts of my value proposition are working, and so tell me in which resources I should be investing my time, energy and money to grow efficiently and in line with what customers value.” Jake Wade

There were several more comments like these, but I selected these as representative.

Key Concept: One valuable aspect of the Business Model Canvas is that you can write out important concepts very quickly, usually in minutes, and then quickly convey the ideas to others (peers, venture capitalists, etc.) and get feedback. No one in the class needed to read a full business plan to provide valuable feedback rapidly.  Please note that the Business Plan continues to be very important and is an extremely useful process to learn. Venture Capitalists require business plans! The Business Plan and Business Model 

Canvas are apples and oranges – both good for fueling the business.

The great value of this tool is that in minutes you can reconstruct the model, and change the entire business model. Many times, as we have seen in the student comments – significant changes become apparent and you are now off and running in a potentially more promising direction.

Key Resources:
1. Business Model Generation, the book authored by Alexander Osterwalder and others.  
2.  Alexander Osterwalder on YouTube – a short introduction.
3. Alexander Osterwalder on YouTube speaks to Google – a longer introduction.

In my next post I will discuss picking a domain name and web hosting service.  Given the myriad of options, how do you make the decision? Web hosting is a commodity, and there are literally thousands of choices. Using a few key questions you can arrive at a decision quickly and get on with the process!
Please note that if you are a student interested in learning more about the Business Model Canvas, or any of the concepts I post about, please feel free to contact me and we can arrange a meeting through the e-Incubator. The e-Incubator program is different than the Practicum class, and is available to all students, faculty and alumni.  If you are not eligible for the Practicum, yet are passionate about your idea, I will meet with you as part of the e-Incubator program.

As always, if you have comments about this post please feel free to submit them. If you have questions don’t hesitate to ask David Rahn!