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Innovation & Business Models

Minder Chen, Ph.D.Professor of Management Information Systems

Martin V. Smith School of Business and EconomicsCSU Channel Islands

E-Mail: [email protected] site: http://faculty.csuci.edu/minder.chen/

mailto:[email protected]

http://faculty.csuci.edu/minder.chen/

Business Model - 2 © Minder Chen, 1996-2014

A Starting Point of Innovation

A customer friction is a (re)discovered of relevant and often unmet needs in a recognizable situation from a target group.

– Adapted form http://www.innovationexcellence.com/blog/2011/07/08/solve-customer-frictions/


Persona• A persona is an archetype of

an organization’s typical customer, and is defined primarily by a customer’s goals when interacting with the products. They are not real people, but are used to represent real users during the design process.

• Products generally have a “cast” of personas, ranging from 3 to 8, one of which is considered the primary persona. These are best presented as narratives. Providing a persona with real characteristics:

• Name• Age• Photo• Candid quotes• Personal information• Work environment• Computer proficiency• Motivation for using the product• Information-seeking habits• Personal and professional goals

• Evokes a strong sense of empathy in the project team

• Eliminates the need to design for an abstract, elastic “user group” whose goals and needs are not fully understood

• Facilitates user-centered design – the focus is now on the goals of your typical customer rather than the project team

Source: The ABCs of Personas: Design for People, Design for Success

and (link)


Think

Do

Empathy

Opportunities

Insight

New business ideas

Prototype

Feel

Look, listen and try it out

with our persona

(source: link)

Design Thinking with Personas

Personas are more then just demographic information, a persona needs to capture the person’s behaviour, belief and philosophy, and more importantly their motivation or intentions.


Three Attributes of User Experiences


The Three Lenses of Human-Centered Design

People

Technology

Read “Design Thinking” at HBR at Download PDF


Elevator Pitch Our business [list name] will deliver [list key deliverables] to [list key beneficiaries] to enable them to [list key benefits]. The business is headed by [list founder and key executives, investors, and advisors] that have [list key background and qualifications]. The business [will launch/was launched] on [date] and we [will begin/began] delivering [first product or service] on [date]. We expect to prove our business model and achieve profitable growth on [date] and anticipate that the terminal value of the business will be [list anticipated value], which represents a [list return] to investors. The total cost to achieve this goal will be [total cost], which includes the following key cost categories [list]. We have currently received [list dollars of funding secured to date] from the following sources [list]. We anticipate receiving the remainder of the funding by [date] from [list sources]. The key risks for the project are [list risks]. These risks will be managed by [list key approached to managing each risk].

• Source: Applegate and Saltrick, “Developing an Elevator Pitch for a New Venture.”


Elevator Pitch • Elevator Pitch – What is it?

– In the time it takes to ride an elevator from the 1st to the 10th floor – explain the gist of your business idea to a stranger!

– An elevator pitch conveys the businesses’ key features and rationale in a clear, concise way so that it can be communicated easily to others

• Who is the primary audience?– Potential investors, customers, suppliers, partners, employees– Anyone who has or could have a stake in your business

• Why does it matter?– Communicate – What, why, how, where and when– Teaser to generate interest – the upfront hook!– Share a coherent vision of the firm’s goals and high level strategy

for achieving these goals– And, last but not least - Raise $$$!– Plus, it might be your only shot!

http://nuvc.innuvation.org/Elevator_Pitch_Workshop_v2.ppt


Key Issues

• Overview of the problem your business will solve and opportunity it will address– Why does this problem matter?

– How severe is it?

– How big is the opportunity?

– How fast is it growing?

– Why has it not been solved yet?

– Why can you solve it when others could not?

• What value is being created?

• Who are the primary beneficiaries? – Think about who is capturing the value

– Consider that some groups may capture more than others – these represent the ideal first customers


Products/Services and Competitors

• What are the products and services that you will deliver to solve the problem

• How do these products and services meet the unsolved market problem?– Do they immediately solve the entire problem?

– Or what is the product and service “path” for getting there?

• Who are the competitors and why are your products and services superior?– Focus on direct competitors

– Consider segmenting direct competitors by type

– Why, where and how does each competitor or type fall short?


Revenues and Resources

• How do you plan to generate revenues– Short term– Longer term if there is a twist or kicker

• Hit the high points of your business model– Profitability – Leverage – As revenues and size increases, do gross

and/or operating margins improve?– Scale efficiencies - how do the mechanics and economics

of your business model scale

• What are the resources required?– Money – Capital intensity?– Time – core development, unique product versions for

different customer types, distribution channel build, etc– Team background and expertise – what are the critical

competencies of the team?


Teaser and Vision

• Teaser to pique interest– Punchy, crisp and clearly articulated

– Incentivizes stakeholders to care by logically presented the case for how the business benefits them

– Delivered with confidence but not cockiness

– Should leave them wanting to hear more about the details at a later date

• Communicate a common vision and goals– Everyone on the same page, working toward the

same goal

– Minimize non-productive activities, speeds up time to market


Raising Money

• Raise $$$– Distilling the essence of your business idea into a

few critical points reflects well on you

– Strong elevator pitch results in more favorable assessment of your talents by potential backers» VCs would rather back a Grade A management team with a

Grade B product than vice versa

– Decisions to proceed forward with due diligence are often made on the basis of the elevator pitch and the accompanying follow up conversation by seasoned VCs


Cash Flow

How

What

Who

Source: Alexander Osterwalder & Yves Pigneur, Business Model Generation (Preview version), 2009.

Watch this video


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Describe a Business Model: 9 Building Blocks

OfferOffer

Cost Structure

Cost Structure

CustomerRelationships

CustomerRelationships

CustomerSegmentsCustomerSegments

Competencies, Activities, Resources

Competencies, Activities, Resources

Partner NetworkPartner Network

RevenueStreamsRevenueStreams

Distribution Channels

Distribution Channels

Key Issues To Solve

Key Issues To Solve

Source: Describe and Improve your Business Model

WhoWhatHow

How Much?


Reverse Engineering Facebook’s Business Model with Ballpark Figures

http://www.businessmodelalchemist.com/


Source: “Why the Lean Startup Changes Everything“ HBR 2013



The Use of the Business Model Canvas

• Describe

• Discuss

• Design

• Challenge

• Improve

• Innovate

• Invent

• Pivot

• Choose

Your Business Model


TAM

http://aiti.mit.edu/media/programs/india-bms-summer-2013/materials/step_4_calculate_the_tam_---trepreneurship_101.pdf


TAM, SAM, and TM

• Total Addressable/Available Market

http://en.wikipedia.org/wiki/Total_addressable_market


Customer Value Canvas

• http://www.businessmodelgeneration.com/downloads/value_proposition_canvas.pdf

• http://www.franciscopalao.com/english/value-proposition-canvas-get-to-know-your-customers-and-improve-your-value-proposition/


Business Model with Lean Launch Pad

Test Hypotheses:•Problem•Customer•User•Payer

Test Hypotheses:• Demand Creation

Test Hypotheses:• Channel

Test Hypotheses:• Product• Market Type• Competitive

Test Hypotheses:• Pricing Model / Pricing

Test Hypotheses:• Size of Opportunity/Market• Validate Business Model

Test Hypotheses:•Channel•(Customer)•(Problem)

Customer Development Team

Agile Development

Source: link