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Business Model ElementsBoulder/Denver Lean Startup Meetup
17 March 2011Eric Wu@ewu
•What is a business model?•Why should I care?
•What are the elements? Example frameworks•How does it fit into Lean Startup?
How will the business
create value through its operations?
Profit Revenue Marketshare
One simple question
What is a business model?
•All elements required to answer question…•And how they influence each other…•And where innovative execution makes the whole thing unique
Why should I care?Build, articulate, and revise business model because:• Forces concept to gel•A first, risk-free test•Builds expertise in face of
unknown•Practice telling your story
Clear understanding of your business model is critical to implementing the Lean Startup methodology
What are the elements?
• Mix and importance different for each business
• A framework gives common areas to explore• Two good examples• The Four P’s (marketing mix)• Maurya’s Hybrid Business Model Canvas
The Four P’s
Product
Placement
Price
Promotion
The Four P’sProductWhat will you sell to customer?
• Problem/solution• Target market / segmentation• Key features• Cost• Competitive advantage
PlacementHow will you get product to customer?
• Distribution methods• Sales methods
PromotionHow will customer learn about product (and how do you learn about customer)?
• Target market / segmentation• Communication tactics• Customer development• Customer support
PriceWhat will your customer pay?
• Cost +• Market based• Value based• Freemium• Discount strategy
The Four P’s
Pros• Generally good at
covering all the bases• Applies to any type of
business• Concept accounts for
interdependency
Cons• Can be too high-level,
easy to miss elements• Applies to any type of
business• Where’s the customer-
focus?• Assumes you remember
the special sauce
Hybrid Business Model Canvas
Hybrid Business Model Canvas
Pros• Tailored to consumer
web service business• Good coverage of
business model themes• Remembers the special
sauce for you
Cons• Tailored to consumer
web service business• Overlooks Sales
(understandable)• Doesn’t emphasize
interdependence
How does this fit into Lean Startup?• Lean Startup Review– Build scalable, repeatable
business as quickly and efficiently as possible
– Use validated data to prove/disprove assumptions
– Pivot based on learning• Every element of business
model is fair game for iterative testing
How does this fit into Lean Startup?
• Key business model areas for iterative testing:– Target market– Distribution method– Pricing / revenue model– Marketing / demand creation– Competitive advantages / positioning
Hypothesize Test Pivot
Resources
• Four P’s– 50 year old framework, lots of resources out there– A good example:
http://www.mindtools.com/pages/article/newSTR_94.htm
• Hybrid Business Model Canvas– Ash Maurya’s original post:
http://www.ashmaurya.com/2010/08/businessmodelcanvas/– Hybrid Business Model Canvas in an editable PowerPoint:
http://internetandstuff.com/post/982743243/business-model-canvas-on-powerpoint-download-link
• Entrepreneur’s Guide to Customer Development– http://www.amazon.com/dp/0982743602/