The transcript of our live call with Alex Osterwalder, one of the developers of the Business Model Canvas, is below. Some highlights:
- “Business models and value propositions expire like a yogurt in the fridge.”
- “If we want large companies to create new growth engines like startups, we need to create a new position called the chief entrepreneur.”
- “Antibodies kick in when somebody’s trying out something new, because people are afraid. It shouldn’t be like that. Somebody’s building the future. Somebody’s managing the existing business.”
- “Evidence trumps opinion.”
Innovation Leader: How do you explain the Business Model Canvas to people if they’ve heard about it, but they don’t know exactly what it is.
Alex Osterwalder: It’s simple. The Business Model Canvas is a simple tool to visualize your business model — any business from a startup to a large company — and it creates a shared language so you can really work on your business model.
That means [you can] assess an existing business model, design a new one, test a new one. It’s a simple tool that allows you to better collaborate on the topic of business models.
Innovation Leader: It’s a pretty open tool, right? It’s not like, “Oh, you have to buy consulting from our firm to use it.”
Osterwalder: Absolutely not.
Innovation Leader: It’s out there on the Internet. People can download it.
Osterwalder: We don’t do consulting. We really wanted to create a tool that spreads. At the very beginning, we put it under a Creative Commons license so people would really share it, they would modify it.
We really want people to use the tool. We want them to do better work. We want teams of IT people, marketing people, operations people, to work together to create new growth engines, so we want the tool to spread. Obviously we’re not a charity, and we help companies and consultants make money from the tools, from the paper-based tools. We’re building software to help accompany this process in companies. Some will use our tools. Some will use competitive tools. That’s OK.
Innovation Leader: What are the examples you find yourself citing of, “Here are ways that companies really have leveraged Business Model Canvas?”
Osterwalder: There are very many different ways. Some will use it for innovation. What we’re seeing right now is that a lot of sales and marketing teams are actually using it to better understand their customers in different ways.
A couple of concrete examples…
MasterCard, they just wanted a better language to describe how they’re creating value for their customers, and [how] they’re creating value for their business. So they adopted the Business Model Canvas, and they scaled it across a thousand people. Fifty percent of the product team now really knows how to do this, and they use their online tools to do that.
A different example is SAP. With their pre-sales teams, they go to customers, and together with customers, they would sketch out the customer’s business model. Why would they do that?
Well, to help them innovate in the digital space, and then potentially sell SAP solutions and say, “Look, we have this and these solutions. This could help your business model.”
The first task that they need to do is to understand the customer’s business, so we’re seeing other companies, like a French company that I can’t mention, is now training 1,500 of their marketers to better describe their value propositions — how are they creating value for customers?
Funny enough, companies don’t really know how to describe explicitly how they create value for customers. They can talk about products, features, technologies.
Innovation Leader: How do you describe the relationship of Business Model Canvas to lean startup? Because I feel like lean startup is a phrase that big companies [have] really started using in the last year or two.
Osterwalder: It really goes hand in hand. In our last book, “Value Proposition Design,” we put it together. Our policy is, “Hey, we’re going to use best-of-breed tools and methodologies. We don’t need to reinvent the wheel everywhere,” so we use customer development from Steve Blank, and lean startup from Eric Ries, and put that in our book.
If you want, we provide some of the tools, conceptual tools, and the lean startup provides the process, and to a certain extent, the mindset.
It’s not about one tool. It’s not about one methodology. It’s like a heart surgeon. You use the best-of-breed tools to do complicated heart surgery. Nobody uses one thing.
People have the Swiss Army Knife approach. [They think] one tool should do everything. Innovation is hard. There are a lot of variables you need to get right, so you need to use many tools.
Innovation Leader: You’re Swiss. You should be promoting the Swiss Army Knife approach!
Osterwalder: Not for everything. Not for heart surgeries.
Innovation Leader: As I see it, there’s this interesting shift happening, or this shift that needs to happen. If you look at the last five years of innovation in big companies, a lot of it is like, “Oh, we’re going to set up an innovation committee, and we’re going to let new ideas from wherever come before that committee, and we’ll give it the thumbs up or the thumbs down.”
I think what lean startup and Business Model Canvas are promoting is [that] you should put the idea in front of the customers first, rather than the committee.
Osterwalder: Customers are definitely an important aspect. Steve Blank would say, “No business plan survives first contact with customers.” But I think the idea is you want to stress-test your ideas, and that can include market testing with customers…at the very early stage.
All companies would say, “We do that,” but they do it with pilots. Pilots are not early testing. You need to do it at the early stage.
Then there’s also the technology testing at the early stages, [often] known as design thinking. With very rough prototypes, you’ll test some of the technology constraints, so basically, if you want, lean startup is this whole idea of testing your ideas early, quickly, with customers, with technology prototypes all the time.
Basically, you try to decrease the risk and uncertainty by increasing investments from small to more and more. The more you learn, the more you decrease uncertainty.
Innovation Leader: Right, but what I was suggesting is that for a lot of companies, they’re trying, and maybe some are succeeding, at getting away from that committee mindset of “the committee knows best.” The [committee members] know about the customers, and they’re going to tell you all their biases about what the customer wants and doesn’t want.
Osterwalder: Couldn’t agree more. We have this mantra: “Evidence trumps opinion.” One concrete example, I can’t mention the name of the company, but we were doing a three-month process with them, and they were working on an idea, and they tested the idea, in the early stages, before actually investing a million dollars in technology prototyping.
They presented to the chief marketing officer and the chief technology officers the three teams that were testing their ideas, and it blew them away because they’d never seen a team present so much evidence so early [about whether] the idea works, doesn’t work, [whether] the pricing works, and so on.
Back to your point, [when the teams] came into the room, [the committee thought,] “Oh, so we’re going to do some kind of ‘Shark Tank’ thing?” I had to push back and say, “Your opinion doesn’t count.”
Innovation Leader: Right. “You’re not the shark. Sorry.”
Osterwalder: Right. They were presenting evidence, which is a lot more powerful than whatever the committee could tell you.
If you can show…whatever you can come up with, a landing page and 100,000 people signed up with their e-mail [addresses], or you say, “50,000 people pre-purchased,” or whatever you want to test, there are thousands of ways to test.
You show that as evidence, [and] it clearly trumps opinion. Nobody can tell you, “I like this or not” if you have market evidence. And that’s the difference between business plans that make shiny ideas look great and the whole lean startup and Business Model Canvas approach, where you actually test ideas and you provide evidence if something will work or not.
Innovation Leader: I think there are a lot of challenges [that emerge] between doing those very early tests, and getting to a scale where a company can look at something and say, “Oh, I see how this is going to be a couple-hundred-million-dollar [or a] billion-dollar business for us.”
That’s where you get back, I think, to a lot of the relationship-based stuff of really knowing people at the business units that are going to give you the resources. Talk a little bit about getting from that early test to actual scale [where] a company believes, “Hey, this can be a real business for us.”
Osterwalder: The first thing is, I think we need to take innovation a bit more seriously. Today, a lot of it is innovation theater, like we’re doing it as lip service, happening somewhere in a garage, “Yeah, we’re doing that,” but it’s not strategic. It’s not like we’re saying, “Hey, this is the future of the company.”
That’s what Kodak should’ve said. “We’re making some new bets that are going to assure the future of the company,” while they’re executing their existing business.
The point you made, where you want to understand some of the business lines and what they’re doing, and as a lean startup, or intrapreneur, corporate entrepreneur, understand how I’m going to create relationships with existing businesses. That’s crucial. That’s the only difference that the corporate startup has compared to a startup outside.
They don’t have the speed usually. They have a lot of things missing. But what they do have is, potentially, access to brand, access to customers, access to financial resources. But that requires a strong partnership [between] those who are doing entrepreneurship and those who are running businesses.
It means those who are executing the existing business model, they need to accept, “Hey, we need to build the future and we need to finance that, so we need to give some of our money to those who are building the future. Because without those, we’re going to end up like Nokia, we’re going to end up like Kodak.”
Those who are building the future shouldn’t consider themselves as pirates fighting against the old farts on the execution side. Because they’re being financed by these people, and if they don’t have access to brand resources and sales channels, they’re just a startup in chains. We need to create that ambidextrous organization. That’s tough.
Innovation Leader: I don’t like the term intrapreneur or entrepreneur. I feel like it clouds the definition of entrepreneurs, [who] are driven by a really specific set of motivations, financial motivations, and also just [wanting to] change the world, motivations that don’t exist in big companies. I don’t know if you agree or disagree.
Osterwalder: I disagree pretty strongly. There are entrepreneurs in large companies. They will try once or twice, and then they’ll leave if they can’t do it inside, but that mindset exists. Some people have it.
What we don’t have today are the organizational structures that enable those people to…create that growth potential inside of a company, to take ownership.
Innovation Leader: I would think the fear of failure, and running out of money, and losing your job, is such a giant motivator when you look at the 10-person startup. In most big companies, big companies don’t select for that kind of person [who is] really driven by stay up all night to work because you don’t want to lose your job.
Osterwalder: It depends. For the execution part of the company, what GE would call the execution engine, you want the person who’s perfect for execution, [and] that’s what you select for. But what’s happening today is that business models and value propositions expire like a yogurt in the fridge.
If you just have execution-focused people, you’re not going to be able to experiment, [and] reduce the risk of innovation. So you need to have those entrepreneurs inside your company, and you need to give them the incentive system, the organizational structure, the organizational culture, the right people, and the bridges to the execution engine.
You need to create this… ambidextrous organization or dual operating system. If we don’t have that, many of the companies that we know today will disappear. Companies like IBM, they don’t have that innovation culture beyond R&D. They’re very good at technology innovation, similar to Google. Google is perfect at products and technology, everybody admires them, but show me how many business models they’ve invented. One. That’s it.
Innovation Leader: I don’t know if you were in the presentation with John Geyer from MetLife. He had a really interesting point. He said, “You need to really figure out who your friends are in the organization and work with them.” In a way, he said, “Shut out the skeptics.” That is one of the big challenges in big companies.
There are so many skeptics or people telling you, “You shouldn’t do this.” In a startup, by contrast, everybody’s a believer. They’re hired because they believe we can change the world.
Osterwalder: Sure, and I agree with that, but I would say let’s push the boundaries and say, “Hey, if we want large companies to create new growth engines like startups, we need to create a new position called the chief entrepreneur.”
The chief entrepreneur is at the same level as the CEO, who’s the chief execution officer, and they both report to the executive chairman…
Innovation Leader: That’s kind of a radical idea.
Osterwalder: …of the board. This is for thinking purposes. But if we don’t have something that goes in that direction, companies will become irrelevant, because they can’t prepare themselves for the future.
Innovation Leader: Maybe in some companies there’s an R&D leader, in a pharmaceutical or an aerospace company, who has that level of, “Hey, I’m the chief scientific officer, and I really am up there in the top tier of the company.”
Osterwalder: But those people, today, are really in the execution arm of the company, so the challenge is to say, “We need that role, R&D, but we need people who take part of the R&D budget and focus only on value propositions and business models, new growth engines.” And they will use, maybe or maybe not, some of the technologies that come out of the [R&D] group’s work.
Innovation Leader: Just to play devil’s advocate though, a lot of companies will opt out of that. They’ll say, “Look, we can’t build this engine of organic growth, and what we need to do is M&A. Let’s start a corporate venture group. Let’s do M&A.”
Osterwalder: I agree with you that that’s an option, so a company you want to say, “We want all of those options, build or buy, or joint ventures.” But [we’re actually seeing people use the] Business Model Canvas…for M&A.
If you don’t have this lean startup testing where you’re learning about what works and what doesn’t, you’re going to potentially make bad acquisitions. So even when you acquire a company, you want to learn first what could work, and what might not work.
If you do things on a smaller scale, you test certain ideas and say, “That has potential,” but you need to go fast, [then you might] use the money you have from the execution engine. You go acquire, but you’ll make better acquisitions by actually doing some of this [work in advance.]
It doesn’t mean you need to scale all of those things, but you need to know enough, or have learned enough, through experimentation so you make better acquisitions. That make sense?
Innovation Leader: Yes. What for you is an important idea heading into 2016, something that, if you think about the speaking or the work that you’re going to do heading into next year, what are you trying to build awareness for?
Osterwalder: I think that dual operating system — John Kotter would call it dual operating system — or others call it an ambidextrous organization. Rita McGrath calls it the end of competitive advantage.
…More and more companies are actually aware that business models expire faster than ever, value propositions expire faster than ever, and that they need to create that entity that will create their growth.
It’s happening. It’s very slow. Nobody’s there yet, from what I see. Even those that are in the press all the time, like GE with FastWorks, nobody’s nailed it yet, but that’s going to happen in the next two or three years. I’m pretty certain that companies will build that kind of dual structure.
It’s hard to do, because there’s so many variables to get real innovation [to happen], growing new business models and value propositions. There’s so many variables that without a serious commitment, not just lip service, without a long-term commitment, nobody will be similar to Apple or Amazon. It won’t happen.It’s very unfortunate that we have to mention companies like Apple. But how many business models have they created over the last decade or two?
…Everything from the iPod to the iPhone, guess what? That’s a completely different business. It’s not just the technology. …That’s pretty impressive, but more companies will be able to do that. Otherwise, they’ll die.
Innovation Leader: Just as a last thing to touch on, you seem to see a lot of these teams that are responsible for innovation or new ventures, they’re under-resourced, and they’re being [told], “You guys need to create the future growth path for our company.”
Osterwalder: I fully agree with that, but again, back to Steve Blank, “Innovation today is often innovation theater.” That will change. Today, innovation in many companies [is] still a bit of career suicide, because what you said is completely right.
People fear experimentation and failure. [But that is] changing in every industry, from pharma to retail to food. Just from the little window I have on the world, I’m seeing companies slowly moving towards creating these entities that can do the lean startup process.
Innovation Leader: They are really going to deliver new businesses and new revenue. It sounds like what you’re saying, and I sort of agree with this, is that you are really becoming part of the HR department if your job is innovation training, or going around and running innovation workshops. I don’t see what the future of that is, beyond just, you’re an arm of HR, being the innovation cheerleader.
Osterwalder: I fully agree with that. We need to go beyond that, and that’s why, maybe, provocative idea, creating a chief entrepreneur, not just another chief, like we to create all of these CXOs, but somebody who is as powerful as the CEO.
Maybe a radical idea like that could help, and actually some companies are kind of doing something like that. …I do think, seriously, it’s happening.
Innovation Leader: I wonder if that person would need to come from outside of the company, if you really are going to call them an entrepreneur. What do you imagine? Do you imagine it’s someone who’s been really successful in a business unit, and you suddenly say, “Hey, you’re an entrepreneur.”
Osterwalder: I think somebody’s who’s had success has credibility in the company, so that can help. Here’s the problem. If you had success, it doesn’t mean you’re entrepreneurial, because it could be that you climbed up the ladder because you were brilliant at execution.
A couple of conditions have to come together. Which is, “This is a person who actually built a new brand,” or something, maybe not as sophisticated as a completely new business model.
But they already built something, and they have the credibility in the company. Today, a lot of the Chief Innovation Officers do not have as much credibility as somebody who has managed a multi-million dollar business line.
Could you take somebody from the outside? Sure. There’s no right and wrong. The challenge you’ll have when you take somebody from the outside is that the organizational antibodies will kick in, and they’ll try to kill it.
Innovation Leader: “They don’t understand our business. They’re not like us.”
Osterwalder: I don’t think it’s as easy as saying, “You should do this or do that.” I don’t believe in dogma. But I do think somebody who comes in and does that at a very strategic level needs to have a ton of experience, a ton of credibility, and needs to be a diplomat. Because if they’re a pirate, a dragon, it’s not going to be systematic.
Even Steve Jobs, as difficult as he was, he was pretty good at convincing people. He had a great executive team. You have to be extremely good at getting people around you and building alliances, in particular inside your own company.
Innovation Leader: I feel like the political dimension of innovation is really huge, because you don’t have the weight of hundreds of millions of dollars of revenue, and saying, “Hey, look, I have 5,000 people on my team and we’re responsible for…”
Osterwalder: Here’s the second job title you might want to think of. We have the chief entrepreneur, but you need to build bridges with the execution engine. So maybe you need to create the chief internal ambassador, who knows everything that’s going on on the innovation side, knows everything that’s going on on the execution side, and can build the bridges, and build the alliances, and really help — get people to communicate and work in partnerships.
Because antibodies kick in when somebody’s trying out something new, because people are afraid. It shouldn’t be like that. Somebody’s building the future. Somebody’s managing the existing business. Those go hand in hand.