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How to build a startup
1. Strategy and Business Models – DIT PM Module 1
RAOMAL PERERA
raomal@pereranet.com | @raomal @LeanDisruptor | www.facebook.com/LeanDisruptor
HOW TO BUILD A STARTUP
Using Business Model Innovation
2. RAOMAL PERERA
Serial Entrepreneur
ISOCOR (NASDAQ: icor) & Network365/Valista (Intel)
Adjunct Professor of Entrepreneurial Studies
INSEAD & UCD
Business Model Innovation, Lean Startup, Leadership &
Fund Raising
Consultant
Clients include: MSD (Merck), HP (Hewlett Packard), IFB
(Irish Film Board), HSE (Health Service Executive), Arvato
(Bertelsman), Resmed, Openet, Glandore, SEI (Social
Entrepreneurs Ireland), DJEI (Dept of Jobs, Entreprise and
Innovation), CWIA (Cartier Women’s Initiative Awards) …
Accolades
Finalist Ernst & Young Entrepreneur of the Year
Tech Pioneer World Economic Forum
ISA Award for Outstanding Software Achievement
Blog: www.LeanDisruptor.com 2
7. Learning Outcomes
7
• Identify the Problem/Need first before
defining the Solution.
• To introduce you to the key tools and
techniques to help you build a
successful startup or at least reduce
the risk of failure
• Learn to invent design and build
powerful new business models using a
set of business model innovation tools.
• Understand the environment in which
you operate
8. 8
What is the 1 single
most important thing
you want to take
away by the end of
this module?
9. Your SOLUTION is NOT my PROBLEM
9
Take 2 minutes to write down the
PROBLEM/NEED you are addressing
13. Find the Gap
How to find
opportunities that others
don’t see.
- Amy Wilkinson
13
14. How breakthrough ideas emerge from
small discoveries
Creative thinkers practice a set of simple but
ingenious experimental methods
• failing quickly to learn fast
• tapping into the genius of play
• engaging in highly immersed
observation
Free their minds, opening them up to making
unexpected connections and perceiving
invaluable insights.
14
16. Design thinking is a different way of knowing
It helps us explore questions that are crucial to
the future of our business.
Without design thinking, our past becomes our
future
Design Thinking
16
18. Design thinking on innovation stimulation
Three core elements—observation, experimentation and
prototyping:
• You have to start with observation because it's the only
way to illuminate the subtle nuances about how people
actually get things done, or don't get things done, and
it's these deep insights that lead to powerful new ideas.
• Intellectual experimentation is equally critical because
there's no way to generate real breakthroughs unless
people are willing to explore a lot of options in a
divergent way.
• Finally, rapid and inexpensive prototyping is the most
efficient way to move an idea from concept to reality.
- Tim Brown, CEO of IDEO18
21. 21
Finding the Problem is the Hard Part
– Kevin Systrom & Mike Krieger (Instagram
Co_Founders)
Instagram Co-Founder Kevin Systrom believes building
solutions for most problems is the easy part; the hard part is
finding the right problem to solve. Here he opens up about
how he and fellow Co-Founder Mike Krieger identified the
problems they wanted to solve around sharing photos through
mobile devices. He also reminds entrepreneurs to embrace
simple solutions, as they can often delight users and
customers.
26. Key Question: Do I have a problem worth solving?
Who has the problem?
What is the top problem?
How is it solved today?
Where do they have the problem or in what context do
they have a problem? (milkshake example)
When do they have the problem?
Why is it a problem? (root cause analysis. Why is the
single best word for creating value in a start-up and an
established business) - It is not possible to know what the
top problem is without knowing where, when and why
they have a problem. Also the questions may not be
answered in sequence e.g. will we find the problem and
the person with the problem at the same time?
Identify the Problem
26
27. Take a stab at defining the solution
Build a demo (MVP)
Test it with assumed customers
Will the solution work? (can the proposed
solution create customer value that exceeds the
cost to produce and deliver the solution to the
customer)
Who it the early adopter?
Does the pricing model work?
Define the Solution
27
28. Build an MVP
Soft launch to early adopters
Do they realise the unique value proposition
How will you find enough early adopters to support
learning?
Are you getting paid?
Analysis: There needs to be a bit of intuitive thinking
around the MVP. We need to ask and then guess how we
can create the most unique customer value in the shortest
amount of time with the least resources. With a bit of
thinking and an equal amount of action we have a chance
of appropriating real value in the short term
VALIDATE THE QUALITATIVELY
Validate Qualitatively
28
29. Launch your refined product to a larger audience
Have you built something people want?
How will you reach customers at scale
Do you have a viable business?
Analysis: A refined product needs to test both
qualitatively and quantitatively in order to find out
why the refined product creates customers’ value
and how large is the market potential?
Can this business produce (organically or through
investment) enough cash in the short term in order
that customers value - cost to produce = profit
Validate Quantitavely
29
36. Our subjective judgements are
biased: we are far too willing to
believe research findings based
on inadequate evidence and
prone to collect too few
observations in our own
research
36
39. 39
Knowledge is having the right answer.
Intelligence is asking the right questions
The Art of Customer Interviewing
40. What is a Startup?
A TEMPORARY organisation
DESIGNED to SEARCH …….
For REPEATABLE and SCALABLE
Business Models
Startups are NOT just SMALLER versions of a LARGE
Company
40
41. Strategy for Startups
• Planning before the Plan
• Use the Osterwalder Canvas to do two things:
– Organise our thinking
– Get out of the Building to turn the hypothesis into
facts
• SEARCH for the Business Model First and then
Write it Up (Business Plan)
41
42. Customer vs. Product Development
• More startups fail from a lack of
customers than from a failure of Product
Development.
• We have all the processes to manage the
Engineering Risk
• No processes to manage the Customer
Risk.
42
44. What is a business model?
A business model describes the rationale
of how an organisation Creates, Delivers
and Captures value
44
45. Why we need a shared language for
business models?
45
https://strategyzer.com/academy/cours
e/business-models-that-work-and-
value-propositions-that-sell/1/1
Note: You may need to license the online learning tool on Strategyzer to
view this clip from Osterwalder
46. Use of BMC in Established Companies
IMPROVE ----------------------------------INVENT
Know Problem/Know Solution -Unknown Problem/Unknown
Solution
------EXECUTE -------------------------SEARCH------------
46
59. Group Exercise: 20 Mins
Develop a BMC for a cinema using an
A1 canvas poster.
59
60. Hypotheses or Guesses
• The canvas is a set of Hypotheses. i.e. Guesses.
• It helps us to organize our thinking! It is not
about functional organisation but about the
business.
• The real question is How do we change those
guesses into FACTS?
60
61. Customer Development Process
Post it to the Wall
- Create the canvas
- Make it Visible
- Use Yellow Post-It notes
with your guesses
Get Out of the Building and Test your hypotheses. There are NO
FACTS here. Talk to Customers, Partners, Vendors. Design
experiments, run tests, get data
61
62. What I learned…
getting an interview right is not an easy task
while I wanted to solve one problem I discovered another more
relevant one
if you have a good relationship with people and you offer a proven
service they will give you a chance
I discovered that my initial business idea was not the best idea
through customer interviews I redefined my idea
patience is important…I am still trying to get in touch with some of my
potential key partners
people in our industry like to play safe where they can
63. Result
Pay every 6 months rather than every month
Use tangible gifts as “hooks”
Choose some major race meetings to start with
Tips and information on races and racetracks worldwide
Limit the number of TC membership to ensure the service quality
and to create a sense of exclusiveness
Consultancy, not translation or travel agency
3 job offers, 3 want to join the business, 1 willing to invest
64. Exercise: 20 Mins
Develop a BMC for your idea using an A1
canvas poster. Work in groups of 2 and
pick one of the projects.
64
66. “Studies comparing successful and
unsuccessful innovation have found that the
primary discriminator was the degree to
which the user needs were fully
understood.”
– David Garvin, Harvard Business School
66
69. Customer Archetypes
Meet Paul, Sheetal and Barbara
Paul-RegularExerciser
• 20 – 45
• Aim to maintain and
track active lifestyle
• Looking for
inspiration on diet &
exercise regimes
• Gets a buzz from
exercising
Sheetal-SpiritualHealth
•
• 30 – 55
• Already follows a
healthy lifestyle
• Interested in
alternative
medicines/
treatments
• Believes eating well
is as important as
exercise
Barbara-On-OffDieter
•
• 30 +
• Yo-yo dieter, has
tried many of the fad
diets but never stuck
to one
• Needs tips and
motivation to keep
up a healthy lifestyle
• Irregular or
infrequent exerciser
69
73. Q: Consider Selling Business Intelligence
Software into a large business. Which types
of customers are the following?
1. CFO
2. CIO
3. Report Users
4. Line of Business
Management
5. Business Intelligence Group
inside IT
a. Economic byer
b. Influencer
c. Recommender
d. Decision maker
e. Saboteur
73
74. Q: Consider Selling Business Intelligence
Software into a large business. Which types
of customers are the following?
1. CFO
2. CIO
3. Report Users
4. Line of Business
Management
5. Business Intelligence
Group inside IT
a. Economic byer
b. Influencer
c. Recommender
d. Decision maker
e. Saboteur
74
75. MULTI-SIDED MODEL
Buyer/Payer (e.g. Google)
Two sided markets – Buyers/Payees
1.Workers/Recruiters - LinkedIn
2.Banks/Merchants - Visa
3.Sellers/Buyers - eBay
4.Readers/Advertisers - New York Times
Each has its own value proposition
Each has its own revenue streams
One segment cannot exist without the other
75
76. Corporate? Consumer?
Business to Business (B to B)
–Use or buy inside a company
Business to Consumer (B to C)
–Use or buy for themselves
Business to Business to Consumer (B to B
to C)
–Sell a business to get to a consumer
–Other Multi-sided Markets with multiple
customers
76
78. “No one cares how much you know, until
they know how much you care”
– Theodore Roosevelt
EMPATHY MAPS
78
79. Value proposition
• Which of our
customer’s
problems are we
helping to solve?
• Which Customer
needs are we
satisfying?
• What are the key
features of our
product that match
customers
problem/need?
What jobs do
they want done
, what's a good
outcomes for
them
What are
competitive
options and
how do I
differentiate
over others
79
81. Through what
mechanism
will your service
(product) be
delivered to your
client?
How will we GET,
KEEP and GROW
Customers? How will I
get the Value
to my
Customers?
How best to
communicat
e to each
customer
segment
Channels & Customer Relationships
81
82. Two Critical Channel Questions
How do you want to sell your product?1
is subtle, but more important than the first:
How does your customer want to buy your
product?
2
82
91. How Many Will You Sell?
• How many can your channel sell?
• How much will the channel cost?
• How many customer activations?
• Revenue? Churn/Attrition rate?
customers/?
• How much will it cost to acquire a
customer?
• How many units will they buy from
each of these efforts?
91
92. Where Is The Money Coming From?
Revenue Model Choices
Bits
Physical
Product
Web Physical
Channel
Direct Sales
Products
Subscription
Upsell/Next Sell
Ancillary Sales:
• Referral revenue
• Affiliate revenue
• E-mail list rentals
• Back-end offers
Direct Sales
Products
Service
Upsell/Next Sell
Referrals
Leasing
Direct Sales
Products
Subscription
Add-on services
Upsell/Next Sell
Referrals
92
93. “Direct” Revenue Models
Sales: Product, app, or service sales
Subscriptions: SAAS, games, monthly
subscription
Freemium: use the product for free:
upsell/conversion
Pay-per-use: revenue on a “per use” basis
Virtual goods: selling virtual goods
Advertising sales: unique and/or large
audience
93
94. “Ancillary” Revenue Models
Referral revenue: pay for referring traffic/customers
to other web or mobile sites or products.
Affiliate revenue: finder’s fees/commissions from
other sites for directing customers to make
purchases at the affiliated site
E-mail list rentals: rent your customer email lists to
advertiser partners
Back-end offers: add-on sales items from other
companies as part of their registration or purchase
confirmation processes, or “sell” their existing traffic
to a company that strives to monetize it and share
the resulting revenue
94
95. the tactics you use to set the
price in each customer
segment
Pricing Model
95
96. How Do We Price The Product?
Pricing Model Choices
96
97. How Do We Price The Product?
Product-based pricing
Competitive pricing
Volume pricing
Value pricing
Portfolio pricing
The “razor/razor blade” model
Subscription
Time/Hourly Billing
Leasing
Pricing Models - Physical
97
98. How Do We Price The Product?
Product-based pricing
Subscriptions
Freemium
Pay-per-use
Virtual goods
Advertising sales
Pricing Models – Web/Mobile/Cloud
98
99. Other Words We Use In The Place Of Price
Fee
Commission
Subscription
Toll
Interest
Rent
Tax
Shipping
99
110. “People buy products and services to get jobs
done. As people complete these jobs, they
have certain measurable outcomes that they
are attempting to achieve. It links a company's
value creation activities to customer-defined
metrics.” - Ulwick
OUTCOME-DRIVEN
INNOVATION
110
111. Exercise: 20 Mins
Develop a VP canvas for Airbnb. Assume
you are the Owner of the Apartment
Work in groups of 2.
111
121. MVP
A Minimum Viable Product (MVP) is
“that product which has just those
features and no more that allows you
to ship a product that early adopters
see and, at least some of whom
resonate with, pay you money for, and
start to give you feedback on”
121
122. MVP #1 Explainer video
Explainer video is a short video that explains
what your product does and why people should
buy it.
A simple, 90 seconds animation is sufficient.
e.g. Dropbox
How to make an explainer video
122
123. MVP #2 A Landing Place
A landing page is a web page where
visitors “land” after clicking a link from
an ad, e-mail or another type of a
campaign.
123
124. MVP #2 A Landing Page
• Craft your Landing Page
• Set up a Google AdWord campaign and drive traffic
to your new landing page. Even here you can let the
AdWord engine rotate different messages and test
what works best on your prospects
• Set up Google Analytics. The most important thing to
measure is conversions – percent of visitors that sign
up (or perform another desired action)
• Set up a chat to make it easy for the visitors to raise
questions
• Set up a service like Qualaroo to survey your visitors
124
125. MVP #3 Wizard of Oz
A “Wizard of Oz” MVP is when you put up a
front that looks like a real working product, but
you manually carry out product functions. It’s
also known as “Flinstoning”.
Zappos shoes is the biggest online shoe
retailer, with annual sales exceeding $1 billion.
In his Lean Startup book, Eric Ries describes
how the founder started with a Wizard of Oz
product.
125
126. MVP #4 The Concierge MVP
Instead of providing a product, you start
with a manual service. But not just any
service! The service should consist of
exactly the same steps people would go
through with your product.
126
127. MVP #5 Piecemeal MVP
This strategy is a blend between the “Wizard
of Oz” and “Concierge” approaches. Again,
you emulate the steps people would go
through using your product – as you envision
it.
127
128. MVP #6 Crowd Funding
Sell it before you build it.
The basic idea is simple: launch a crowd
funding campaign on platforms such as
Kickstarter or IndieGoGo. Not only will you
validate if customers want to buy your product,
but you will also raise money.
128
129. Case Study: Owlet
Owlet Infant Health Tracker Takes The Wearable
Revolution Into The Crib
129
Note: You may need to license the online learning tool on
Strategyzer to view this clip from Osterwalder
134. Technology Trends
Identifies technology trends that could threaten
your business model or enable it to evolve or
improve
•What are the major technology trends both inside
and outside your market?
•Which technologies represent important
opportunities or disruptive threats?
•Which emerging technologies are peripheral
customer adopting?
134
135. Regulatory Trends
Describes regulations and regulatory trends that
influence your business model
•Which regulatory trends influence your market?
•What rules may affect your business model?
•Which regulations and taxes affect customer
demand?
135
136. Socioeconomic Trends
Outlines major socioeconomic trends relevant to
your business model
•What are the key demographic trends?
•How would you characterize income and wealth
distribution in your market?
•How high are disposable incomes?
•Describe spending patterns in your market (e.g.
housing, healthcare, entertainment, etc.)?
•What portion of the population lives in urban
areas as opposed to rural settings? 136
137. Societal and Cultural Trends
Identifies major societal trends that may influence
your business model
•Describe key societal trends. Which shifts in
cultural or societal values affect your business
model?
•Which trends might influence buyer behavior?
137
139. Market Issues
Identifies key issues driving and transforming your
market from Customer and Offer perspectives
•What are the crucial issues affecting the
customer landscape?
•Which shifts are underway?
•Where is the market heading?
139
140. Market Segments
Identifies the major market segments, describes
their attractiveness and seeks to spot new
segments
•What are the most important Customer
Segments?
•Where is the biggest growth potential?
•Which segments are declining?
•Which peripheral segments deserve attention?
140
141. Needs & Demands
Outlines market needs and analyzes how well
they are served
•What do Customers Need?
•Where are the biggest unsatisfied Customer
Needs?
•What do Customers’ really want to get done?
•Where is demand increasing?
Declining?
141
142. Switching Costs
Describes elements related to customers
switching business to competitors
•What binds customers to a company and its
offer?
•What switching costs prevent customers from
defecting to competitors?
•Is it easy for customers to find and purchase
similar offers?
•How important is brand?
142
143. Revenue Attractiveness
Identifies elements related to revenue
attractiveness and pricing power
•What are customers really willing to pay for?
•Where can the largest margins be achieved?
•Can customers easily find and purchase cheaper
products and services?
143
144. MACRO ECONOMIC FORCES
Global Market Conditions
Capital Markets
Commodities and Other Resources
Economic Infrastructure
144
145. Global Market Conditions
Outlines current overall conditions from a
macroeconomic perspective
•Is the economy in a boom or bust phase?
•Describe general market sentiment.
•What is the GDP growth rate?
•How high is the unemployment rate?
145
146. Capital Markets
Describes current capital market conditions as
they relate to your capital needs
•What is the state of the capital markets?
•How easy is it to obtain funding in your particular
market?
•Is seed capital, venture capital, public funding,
market capital or credit readily available?
•How costly is it to procure funds?
146
147. Commodities and Other Resources
Highlights current prices and price trends for
resources required for your business model
•Describe the current status of markets for
commodities and other resources essential to
your business (e.g. oil prices and labor costs).
•How easy is it to obtain the resources needed to
execute your business model? (e.g. attract prime
talent)?
•How costly are they?
•Where are prices headed? 147
148. Economic Infrastructure
Describes the economic infrastructure of the
market in which your business operates
•How good is the (public) infrastructure in your
market?
•How would you characterize transportation,
trade, school quality and access to suppliers and
customers?
•How high are individual and corporate taxes?
•How good are public services for organizations?
•How would you rate the quality of life?
148
150. Competitors (Incumbents)
Identifies incumbent competitors and their relative strengths
•Who are your competitors?
•Who are the dominant players in our particular sector?
•What are their competitive advantages and disadvantages?
•Describe their main offers.
•Which Customer Segments are they focusing on?
•What is their Cost Structure?
•How much influence do they exert on our Customer
Segments, Revenue Streams, and Margins?
150
151. New Entrants (Insurgents)
Identifies new insurgent players and determines whether they
compete with a business model different from yours
•Who are the new entrants in your market?
•How are they different?
•What competitive advantages or disadvantages do they
have?
•Which barriers must they overcome?
•What are their Value Propositions?
•Which Customer Segments are they focused on?
•What is their cost structure?
•To what extent do they influence your Customer Segments,
Revenue Streams and Margins?
151
152. Substitute Products and Services
Describes potential substitutes for your offers-
including those from other markets and industries
•Which products or services could replace ours?
•How much do they cost compared to ours?
•How easy it is for customers to switch to these
substitutes?
•What business model traditions do these substitute
products stem from (e.g. high-speed trains versus
airplanes, mobile phones versus cameras, Skype
versus long-distance telephone companies)?
152
153. Stakeholders
Specifies which actors influence your organization
and business model
•Which stakeholders might influence your
business model?
•How influential are shareholders? Workers? The
government? Lobbyists?
153
154. Suppliers and other Value Chain Actors
Describes Potential substitutes for your offers-
including those from other markets and industries
•Who are the key players in your industry value
chain?
•To what extent does your business model
depend on other players?
•Are peripheral players emerging?
•Which are most profitable?
154
156. “Pattern in architecture is the idea of
capturing architectural design ideas
as archetypical and reusable
descriptions”
– Christopher Alexander, Architect
Patterns
156
157. 157
St. Gallen Business Model
Navigator (Patterns)
Helps you innovate your
business model(s)
Business Modelling Tools – Zoom Around!
158. Prepare to cannibalize your Business Model
158
“if you don’t cannibalize
yourself, someone else
will. Don’t protect your
products …. Protect the
customer experience and
your customer
relationships” – Steve Jobs
159. 159
3 Challenges in Business Model Innovation
1. Overcoming the dominant Industry
logic
2. Thinking in Business Models and not in
Technology and/or Products
3. Lack of Systematic Tools
160.
161.
162. Review: Customer Development Process
Post it to the Wall
- Create the canvas
- Make it Visible
- Use Yellow Post-It notes
with your guesses
Get Out of the Building and Test your hypotheses. There are NO
FACTS here. Talk to Customers, Partners, Vendors. Design
experiments, run tests, get data
162
163. Strategy and Business Models – DIT PM Module 1
raomal@pereranet.com | @raomal @LeanDisruptor | www.linkedin.com/in/raomal
RAOMAL PERERA
THANK YOU!
166. Additional Resources Books
166
Books:
Key Strategy Tools – 80+ tools for every
manager to build a winning strategy
The Business Model Navigator – The 55
Models that will revolutionize your business
– Gassmann, Frankenberger & Csik
What Customers Want – Using Outcome-
Driven Innovation to Create Breakthrough
Products and Services – Ulwick
167. Additional Resources
167
BMC Online Tools:
Strategyzer
https://canvanizer.com/ (free tool)
Stattys Notes; http://www.stattys.com/
- A new generation of adhesive notes with a unique "Write
and Slide" function.
