Business Model Generation – The Emperor’s New Clothes? (Part 2)
To read part 1 of this article >> Part 1
Alexander Osterwalder and Yves Pigneur published the book Business Model Generation in 2010. The book is primarily based on Osterwalder’s research (Ph.D. dissertation).
In the span of just a few years, the Business Model Canvas and the formats used by Alexander Osterwalder and Yves Pigneur have spread like wildfire all over the world.
Alexander Osterwalder and Yves Pigneur didn’t invent the concept of “the business model.” However, they do provide a precise and consistent definition and make the concept comprehensible, operational and accepted.
Do we claim that Osterwalder’s and Pigneur’s Business Model Generation is the Emperor’s New Clothes?
No, we will not claim that Business Model Generation is an illusion. Business Model Generation certainly is a genuine and solid approach to map, simulate and develop new business ideas or improve existing businesses. However, we will claim that is not what most people expect or hope it is.
Reality Distortion Field
We have assisted in several Business Model Generation projects and our clients have all been surprised (some even overwhelmed) by the number of iterations required to start and sustain a Business Model Generation process.
The quick fix and the low hanging fruit
Most companies still subscribe to this approach: “Let’s do something and see what happens”.
The implications of this approach are described in depth by Eric Reis in his book “The Lean Startup.”
You will always see what happens. However, it may not be what you expected or hoped to see and you may not have learned anything from the experiment. You are most likely left in a situation where you don’t know what to fix to improve the outcome.
People still keep talking about “the low hanging fruit.” It’s a metaphor that has lost its relationship with reality. Most people are looking for ways to achieve fast and enormous results by doing very little. Conceptually it’s a sensible and meaningful approach; in reality, it’s completely useless, because there are no “low hanging fruit.” And if there were, someone else took them yesterday.
People looking for the low hanging fruit go to bed hungry. The competition for the low hanging fruit is gigantic.
Business Model Generation is not a shortcut
Expecting that the Business Model Generation is a short cut to fixing problems fast and generating profit instantly is a common misconception. And this comes as a big surprise to many.
The book is (especially the first 50 pages) almost self-explanatory, which leads people to conclude that Business Model Generation is a walk in the park. A little introduction and couple of ½-day workshops and we are home free. You call in a management consultant to help you and within a week or two your business model is rock solid.
Business Model Generation is a tool for prototyping. It is a way to try out many different ideas before committing too many resources to a test that will fail. Failure is an integrated element of prototyping. Most early models will also fail. That’s exactly why we prototype. Failing is learning. Our first business models are based on assumptions and guesses. As they fail we will learn something that we incorporate in our next iteration.
The water may look flat, but….
The number of iterations and the time required to develop a business model that works is unpredictable. In this respect Business Model Generation is no different from other innovation approaches. The four biggest advantages of Business Model Generation are:
- It deals with the entire business model and not only the product/service
- It keeps down the cost of experimentation
- It organizes the leaning curve
- It gives us a common language
A business model is a blue print we use for testing our hypotheses against reality. The philosophy behind Business Model Generation says that there is no need to test a business model that doesn’t even work on paper. Let’s keep prototyping until it works on paper, then let’s go and test versus reality. Small scale first, then larger scale later.
Not a one night stand
The best illustration of how to use Business Model Generation can be found in Steve Blank´s book “The Startup Owner’s Manual.”
Don’t think this book is not for you.
A startup company or startup is a company or temporary organization designed to search for a repeatable and scalable business model
Many companies are dragging along for years with business models that they can neither repeat nor scale. Survival is a tough daily fight to make ends meet and the business cannot generate enough profit to invest in growth.
Steve Blank provides the prescription for getting out of this quagmire. Business Model Generation is an integrated tool in his approach together with his renowned Customer Development approach.
Steve Blank adopts the Business Model Canvas as the graphic representation and simulation model for your current state and your next “assumption”.
As you move forward and test new approaches you constantly update your business model.
Business Model Generation is not a one-time effort. It is an on-going exercise and process. You are mapping the waters as you sail them. You keep testing and adjusting your business model until it works or until you abandon it, pivot and try a different route.
Management Consultants and Business Model Generation
Steve Blank argues that you cannot delegate your Business Model Generation to a management consultant. You cannot even assign doing market research to consultants. You have to dig in yourself. You need to hear the truth from the horses mouth directly – no filter in between!
Although we are management consultants ourselves we agree with Steve Blank.
As management consultants we can help facilitate the process and we can play the devil´s advocate to your assumptions and interpretation of your experiments, but we cannot make your models for you.
Graphic Facilitation and Involvement
Osterwalder & Co. did not invent the technique of graphic facilitation and organizational involvement.
David Sibbet published his book “Visual Meetings” in August 2010 and released a movement that has tremendous potential. David Sibbet shows how the use of simple graphic illustrations (instead of words) help people comprehend more complex relationships and cooperate more productively in finding solutions.
“My confidence in this way of working is rooted in three phenomena that I have experienced since the first time that I picked up magic markers and began facilitating groups visually.
- Participation: Engagement explodes in meetings when people are listened to and acknowledged by having what they say recorded in an interactive, graphic way
- Big Picture Thinking: Groups get much smarter when they can think in big picture formats that allow for comparison, pattern finding and idea mapping
- Group Memory: Creating memorable media greatly increases group memory and follow-through – a key to group productivity.”
Osterwalder & Co. have adopted the graphic facilitation approach and used it extremely well to convey the message of Business Model Generation.
The layout of the Business Model Generation book and the use of graphic facilitation have made its messages much easier to comprehend compared to conventional management literature.
Bringing all the people involved in a certain business problem/challenge together to review the issues and develop potential solutions is by no means a new concept.
Coming from Scandinavia with the shortest power distances in the world we have to involve people in the problem definition as well as in the solution identification. Otherwise nothing will be accomplished.
There are other cultures where a hierarchical top down approach still reign and where problem definition as well as the solution identification is undertaken at the executive level, then passed on to the operative level for execution.
If you want a recent update on the power of involvement you should read Karen Phelan’s new book: “I’m Sorry I Broke Your Company – When Management Consultants are the Problem, Not the Solution.”
“I’m Sorry” is also not the traditional academic thesis based on years of “research” which characterize most management literature. The book is based on Karen’s personal experience, her common sense and some secondary source research. The book has several illustrative examples from Karen’s own praxis and also refers to other cases that have reached the public domain.
It is a refreshing and convincing explanation of the power of involvement.
We believe that the combination of the 9 building blocks of the Business Model Canvas from Osterwalder & Company, the application of visual facilitation as promoted by David Sibbet and the power of involvement as expressed by Karen Phelan hold tremendous potential for the development and execution of meaningful and profitable business models.
The combination of the three approaches (and executed the Steve Blank way) may be the best approach available to companies in today’s rapidly changing environment where technology offers so many opportunities for new value creation.
Combining the three approaches has no relationship with quick fixes and “low hanging fruit.” Rather it is a structured framework to maintain a persistent and steady course and gradually approach a business that is valuable for many customers, profitable for the owners and tough to break for competitors.
Other posts in this series
Business Model Generation – The Emperor’s New Clothes? (Part 1)
Business Model Generation – The Emperor’s New Clothes? (Part 3)
 Eric Ries, The Lean Startup, September 2011
 Today’s orchards have straight trees ensuring equal amounts of sunlight and making all the fruit easily accessible for picking.
 Steve Blank, ”The Startup Owner’s Manual”, by Steve Blank and Bob Dorf, March 2012
 David Sibbet, ”Visual Meetings” page 14