What if a simple Post-It could revolutionize your business model?
A book whose back-cover summary begins with « The disruptive economic models are emblematic of our generation… » and which devotes its center spread to the power of « What if? » (photo above) would find it difficult to escape the sharp eye of this blog. Contrary to what some might think, however, it’s not a new TBWA\ book about Disruption. Instead, it’s a collective piece of work inspired by Alexander Osterwalder’s Ph.D. dissertation on innovative business models, written by 470 co-authors under the editorial direction of Yves Pigneur, a professor at HEC Lausanne. I highly recommend this stimulating, imaginative, and very inspiring read, especially if you have any dreams of starting your own business or if you wish to transform the one you’re already in.
It was in 2004 when Osterwalder finished editing his doctoral dissertation on innovative economic models, under the supervision of Pigneur. In 2006, the approach put forth in the dissertation was described in Osterwalder’s blog and began to be applied by companies everywhere in the world, notably by 3M, Sony-Ericsson, Deloitte, and Telenor. It was then that Patrick Van deer Pijl suggested writing the work into a book that was itself created innovatively. Osterwalder, Pigneur, and Van deer Pijl launched « The HUB, » an online platform where they published their writing, allowing everyone to participate in return for a registration fee that helped finance the book’s production. Alan Smith, art director at « The Movement, » heard of the project and brought to the table his agency’s graphic design skills in partnership with JAM, an agency specializing in tools and methods of visual thinking. The result: a book that is original in content as it is in form. It used at least 28,456 Post-It Notes in its development, as 3M’s celebrated product was indispensable to practicing the method successfully.
The Business Model Generation method lies within a simple framework comprising 9 elements used by all businesses:
- Customers—the different groups of individuals or organizations targeted by a business
- Value Proposition—products and services that create value, including design, brand, price
- Communication and Distribution Channels
- Customer Relations—acquisition and retention
- Key Resources—physical, financial, intellectual, human
- Key Activities of the business
- Key Partners—including key suppliers
- Costs—the operational costs of running the business
In analyzing an enterprise, we can identify the fundamental matrix that can be adapted to each particular business; take for instance the Apple iPod/iTunes business model seen below:
Deconstructing the Apple iPod/iTunes store business model with the help of Post-Its
KEY PARTNERS: Record companies, original equipment manufacturers; KEY ACTIVITIES: product design and marketing; KEY RESOURCES: human resources, the Apple brand, content and contracts, the iPod device, iTunes; VALUE PROPOSITION: a fluid musical experience; CUSTOMER RELATIONS: brand loyalty, price changes; CHANNELS: distributors, Apple stores, apple.com, the iTunes store; CUSTOMERS: the mass market; COSTS: human resources, production, marketing and sales; REVENUES: the iTunes store, mostly sales, some royalties
To go even further in an analysis, we can distinguish (for example, by using three colors) three types of organizations that could be separate entities but could also coexist within the same business:
- Those based on client relations
- Those based on product innovation
- Those based on infrastructure
In the photo below, we have an analysis of the business model of a private bank—the activities corresponding to relationships are in green, the product innovation activities are in red, and the infrastructure-related activities are in blue. This analysis makes it easy to spot conflicts (in this example, between neutrality about product recommendations and the bank’s own interests in selling its products) and opens the door to separating certain functions (for example, sales and recommendations).
The Business Model Generation method also allows us to study a new structure, such as the « freemium » or « open source » business model employed by Skype, which offers free voice and video calls online, but charges fees for calls made to telephones. This also applies to businesses like Gillette, which has a nominal charge for razors but makes more money off the sale of razor blades, or Nespresso, which sells espresso machines but makes its greatest profits from coffee capsules.
Numerous other examples, such as Google’s business model or that of Lego or the Wii, are also in the book. A particularly interesting chapter is dedicated to design—understanding the target audience, idea generation, thinking visually, prototyping, storytelling and scripts. It is in the search to innovate (« What if? ») in each of the nine elements of the matrix that one could create new business model prototypes, whose strengths and weaknesses we can identify. For example, here are eight prototypes of models for the book publishing business, from the old-school tradition of handmade books to the new methods of crowd sourcing and co-creation. (Click on the images to enlarge)
Eight sample business models for book production
The previous example shows at which point businesses make missteps in thinking that their business models are set and intangible. Opportunities and options abound. It’s enough to modify only one box—even just one Post-It—to create a new scenario that entirely modifies the business structure. The evaluation of strengths and weaknesses in each scenario within the context of the company’s competitive landscape will help determine the most innovative strategy and reset the course of the company’s future. This matrix applies not only to private enterprises; the same technique could also be used for non-profit or charitable organizations, the public sector, or that of fair trade or solidarity economy. Simply put, every human enterprise has an economic model.
To perfectly demonstrate their theory, the authors published at the end of the book the matrix of the book itself: an original revenue source—financed by pre-sales and registration fees paid by the co-creators, with supplementary revenues generated from customized versions of the book for backer companies and their clients—and a standout value proposition: an exceedingly visual concept using crowd-sourced content, with an unusual horizontal layout integrating Post-Its. It’s a book that inspires you to make your own book. And finally convinces you that the secret to innovation is in challenging the existing conventions, whether in communication, product, service, or business. This is the art of Disruption applied, based on the magic words « What If? »—simply a question of asking a question!
The business model of producing this book
If you’re ready to invest 50 minutes of your time to reflect upon your own business model, here’s a video of the author describing his method at the Google offices in Mountain View last year.