Alexander Osterwalder is the Co-Founder of Strategyzer and author of, “Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers” and “Business Model You: A One-Page Method For Reinventing Your Career.” Osterwalder gives his recommendations on what people should do when writing business plans. He shares his thoughts on whether entrepreneurs should just skip writing business plans and just “do” instead.
He then discusses how much time one should spend on planning vs operating a business.
Dr. Alexander Osterwalder works as an independent author, speaker and advisor with a particular focus on business model innovation, strategic management and management innovation. He regularly performs keynote speeches and workshops on the topic of business model innovation in companies, in business schools and at conferences around the world.
Besides his independent activities he is partner at Arvetica, a consulting boutique focusing on the private banking and wealth management industry. His role includes business development and the management of a peer knowledge exchange platform for senior executives in private banking. The platform aims at helping senior executives and private banking professionals understand the changing industry landscape, notably from other leading personalities, such as CEOs of top Swiss and international banks.
Before that Dr. Osterwalder founded and ran BusinessModelDesign.com, a consulting boutique active in strategy consulting with a focus on business model innovation. He also helped develop and implement the strategy and business concept of a globally active not for profit network called The Constellation for over one year in Thailand. The Constellation brought knowledge management methods from the private sector (particularly BP) to the health sector to better respond to the challenges of HIV/AIDS and Malaria.
Dr. Osterwalder has a Ph.D. in Management Information Systems (MIS) from the University of Lausanne, Switzerland, where he worked as a teaching and research assistant and published extensively. He also developed and taught a seminar on Information and Communication Technologies for Development (ICT4D).
Previously, he was active as an entrepreneur in the banking sector and as an online business journalist for BILANZ. He is an inaugural member of the Open World Initiative (OWI) of the Evian Group at IMD, Switzerland.
Visit Strategyzer at www.Strategyzer.com.
Learn more about Osterwalder’s business tips at www.BusinessModelGeneration.com and www.businessmodelalchemist.com.
Find out more about Alex Osterwalder at www.alexosterwalder.com.
Narrator: Speakers, publishers, consultants, coaches, and info marketers unite. The speaking of wealth show is your road map to success and significance. Learn the latest tools, technologies and tactics to get more bookings, sell more products and attract more clients. If you’re looking to increase your direct response sales, create a big time personal brand, and become the go to guru, the speaking of wealth show is for you. Here is your host, Jason Hartman.
Start of Interview with Alex Osterwalder
Jason Hartman: It’s my pleasure to welcome Alex Osterwalder to the show. He is an expert in strategy, in business models and value proposition. Very important for any entrepreneur. We’re going to dive into that with him today, and Alex welcome. How are you?
Alex Osterwalder: Pleasure to be here. Great, how about yourself?
Jason Hartman: It’s good to have you, thank you. Where are you located today?
Alex Osterwalder: I’m based in Switzerland, in the French speaking part in a city called Lozan.
Jason Hartman: Thank you for joining us. You’re the cofounder of Strategizer and the author of Business Model Generation: A Handbook for Visionaries, Game Changers and Challengers. So let’s talk first about the business model and then how to fair it out, the value proposition within that model so we can explain it to our audience and our customers.
Alex Osterwalder: We created a tool called Business Model Canvas. It’s very simple, a very powerful and practical tool that allows you to visualize business models so you can have better strategic conversations about business models. So you might have to improve your business model, or if you’re starting from scratch with ideas you might want to build a business model. And we thought why not have tools like any other profession? And we created a tool to help people create business models.
Jason Hartman: What does the tool do? It’s a software tool I assume, right?
Alex Osterwalder: So the basic part here is that it’s a conceptual tool. The business model canvas, you can Google it, you can download it, you can use it. You could call it a template if you want. It allows you to sketch out business models and make your business model tangible so you can improve it and advance in your business. So that’s a paper based tool, but it’s one thing to work in a meeting room with posters and sticky notes, but if you’re in a large organization or in a distributive team in general, you want to have software that helps you to do this in a collaborative way with people from around the world. And not everything can be done on paper, so you can’t easily sketch out the numbers, you can’t easily keep track of the things that you’re testing in your business model. So that’s why we created a software.
Our strategy and our mission is pretty bold. We think we can build the SAP of strategy. SAP is a big German software company that changed the way we do operations. We hope to do the same thing for strategy and innovation. Make the way we work around topics of strategy, business models and innovation much more practical in such a way that you can start managing strategy and innovation with software tools.
Jason Hartman: It’s amazing. I remember reading 15 years ago about internet business models. There was a fascinating article – it might have been in Fast Company or even back then Business 2.0, I’m not sure. It was all about new, innovative internet business models. And of course there have been even more. The whole sharing economy is really based on new internet business models, and with things like Uber, Airbnb, etc. are there at least, nowadays can we quantify a certain number of business models or a certain number of categories just to get the 30 thousand foot high level view before we zoom in and try to pick one for a business or an idea.
Alex Osterwalder: So I’m not a fan of categorizing business models or saying this business model is better than that business model because I believe that every situation is unique. Every market, every opportunity it unique. Every technology is unique, and you need to find the right business model to make it work. That’s why we designed a tool. Rather than suggestions that you just follow and say hey look, I have this technology, apply this business model and you’ll succeed. No, business is a bit more complicated than that. We created a tool, you could even call it a hammer if you want, that allows you to work on your business model, to actually search and find the right business model that can work. You can’t do this easily if you don’t have a tool. You can do it in an ad hoc way, but if you have tools and processes you can do this systematically.
So I’m really against suggesting this business model works or that business model works. Because every business model works at a specific moment in time. Take the business models in the pharmaceutical industry. They made a lot of money over a long period of time. But today, the dominant design has expired this idea of creating blockbuster drugs and selling them for a long period of time, this doesn’t work anymore. On the one hand, patents expired and it’s not as easy to find out find drugs. On the other hand it’s becoming much more expensive to research in the pharmaceutical industry. So they have a challenge today to find the right business model. Is there an easy recipe to say now they should do this or that? Absolutely not. Otherwise people would have done it.
Rather than telling people this is the business model you need to follow, I suggest you use tools to figure out the right business model for your particular situation. That could be a startup, or it could be a fortune 500 company.
Jason Hartman: Okay, so give us an example. What does someone do when they enter the tool, when they start thinking about their business, and I think a startup or a solopreneur would be the best model to talk about on the show for our audience, or a small business. What do they do to kind of fare it out which business model is right for them?
Alex Osterwalder: So it’s very simple. You have a starting point. That could be a market opportunity, it could be a technology. Now you think, Oh now I need to design a product or a value proposition, but actually what you really want to do is just very quickly sketch out a business model canvas, so you have nine building blocks with nine questions that you need to ask yourself and answer. So, who are the customers you’re intending to target? What are you going to offer them? What are the channels you’re going to use to reach them? What are the relationships you’re going to establish? How are you going to earn money? (that’s kind of the value creation side), and you want to ask yourself, what are the key resources I need to create this idea and bring it to the market? What are the key activities I need to perform? Who could I work with? Which partners, and how much will this cost me?
So these are nine very straight forward questions. You answer them, sketch them out on a business model canvas, then you’ll have your first prototype. Call this a conceptual prototype, or you could call it a business plan on one page. But that’s not enough, because this is just what you think could work. Now what you really want to do is start testing every element of this business model canvas with a process called customer development or lean startup, if you want. And getting out of the building and asking yourself, okay could this customer be interested? Is this value proposition interesting for them? Would they be willing to pay this? You start with a conceptual prototype. You go out and start testing these ideas, and then you come back and you change this prototype based on what you learned in the market. So you’ll do this iteratively until you really figure out what works. This is very different from the traditional business plan.
Jason Hartman: Eric Ries really turned that on its head. The Lean Startup is a phenomenal methodology. And the iterative process of launching a business is the only way to go. I couldn’t agree more. Because then you’re really, you’re listening to customer feedback. There’s just so much more engagement when you create the MVP and then you constantly iterate, iterate, iterate. No question about it. The only conflict though that I have in my mind with that is when you look at a company like Apple, where they sort of seem like they’re the opposite of the lean startup methodology. Where of course they’re not a startup obviously, but they don’t hold focus groups, there’s kind of the old idea… and I first heard about it from Paul Zane Pilzer back in probably 1990, when he said “the old idea of business was find a need and fill it. The new idea of business is imagine the need, create the need, and then fill the need you created.” And now it’s sort of that lean startup idea. There are some conflicts in my mind about it, but it’s very interesting.
Alex Osterwalder: So a couple of things just to that… one is, you pick Apple. They’re probably more a customer oriented than any other company in the world. So I would say they do actually, maybe not to the letter of the lean startup principles, but they are really customer focused. They really focus on how to create value. So I wouldn’t say they’re very far from the lean startup processes. So that’s one myth that is relatively easy to bust.
And then the other thing is that it’s actually pretty easy to fulfill needs. The question is how can you do that profitably? So you can create great value propositions, great products and still go bankrupt. That’s another big myth that all you need to do is come up with a great product that customers want. In fact, you want to do this in a profitable way. That’s the big challenge. So just figuring out what the product is, is by far not enough. You want to figure out what the right business model is.
So it’s not as easy as that, oh I’m going to build something, I’m going to test it, I’m going to learn what works and what doesn’t, you want to figure out what the business model is and you want to test every aspect of the business model, not just the product. You need to figure out which channels you need to use, which channels customers actually want. You need to figure out if you have access to key resources. Maybe you need to work with partners who don’t want to work with you because you’re a competitive threat.
There’s much more to test than just the product, and there’s much more to do than fulfill a need. Actually today we have more choices than ever before.
Jason Hartman: The point I was making about Apple is that many criticized Steve Jobs of course for the one click mouse, having no mouse button. There were all sorts of things that Apple, and Apple listens to its customers very well through its stores and its genius bars and can give feedback and product suggestions right on their website, which are great, no question. And of course they build phenomenally good products, I’m a huge fan. And their joint venture program that we use as well. So they’re constantly listening to customer feedback in that way, but in some ways they’re very turned off from the customer. They just kind of make decisions like, this is the best way to do it and it’s going to be our way and it’s a closed system. And usually the market really adapts. I find that being a bit of a switch to it.
Alex Osterwalder: It means they understand customers extremely well.
Jason Hartman: Maybe better than the customers understand themselves possibly.
Alex Osterwalder: Nobody is forced to buy Apple products, right? They’re very good in creating stuff that people actually want. And I think what we really want to take away from companies like Apple and Amazon, even as a startup is that they proactively reinvent themselves. They don’t wait for a crisis like most companies. A company like Kodak, they went out of business because they weren’t proactive.
Jason Hartman: They wouldn’t cannibalize themselves.
Alex Osterwalder: Exactly, and I think nowadays large companies besides being execution machines, they have to develop startup capabilities. They have to become a bit more nimble, right? Besides being execution machines. Not one or the other, it’s both together.
Jason Hartman: Do you have some business models that are your favorites, if you will?
Alex Osterwalder: There are great business models that we can learn from. I don’t have favorite business models per say, but there are business models that we can really learn from. And the one I use in most of my teaching to start with is a company called Nespresso. They’re owned by the largest food company in the world called Nestle. They transformed the espresso part of the coffee business, the transactional business selling bags of coffee into one with recurring revenues where they locked in the customer. Because they sell coffee pots that until 2012 only worked with their machines. So what’s interesting there is that they transformed an industry and made a much more profitable business model in an industry that didn’t have such a business model before.
So that’s a great example that we can learn from, but then there are many other ones. I’m particularly in business models that try to make a profit and change the world at the same time. Which means that businesses that aim to have an impact, like poverty alleviation, without actually diminishing profits. So today you can find business models that harmonize profit and having an impact. Those are the ones I really like following because they don’t just make a profit, they actually change the world at the same time. So that’s pretty exciting.
Jason Hartman: Just such a testament to the power of entrepreneurship that can be done. It’s really phenomenal. I just love watching all these new, innovative business models as they occur. I always look back and think, why didn’t I think of that? It seems so apparent when you look in the rearview mirror, but someone had to break the ice and kind of jump out and try it first. And I really find that to be a very impressive thing about entrepreneurs. Once we have a business model, how do we create value propositions that really relate to perspective customers, that relate to the tribe, the audiences?
Alex Osterwalder: It goes hand in hand. You need both – there’s not one before the other, you need both. So the business model is what creates value for you as a company, and the value proposition is what creates value for your customers. And value propositions only exist long term if they’re imbedded in a great business model. But we created a tool because we realized people wanted to figure out how to sketch out value propositions, just like we gave them a tool to sketch out business models. So we came up with the value proposition canvas, and it’s a very simple tool that allows you to sketch out first the jobs, pains and gains the customers have, so what do they really want to do and what is holding them back from doing that? Which pains, and what are they trying to achieve?
So that’s sketching out the customer with a little map, very simple map. And then drawing out another map to explain how you’re creating value for your customer by killing pains and creating gains. So again, simple tool that allows you to map out how you’re creating value for your customer, just like we mapped business model canvas how we’re creating value for us as an organization with nine building blocks.
Jason Hartman: In diving into how we create value for the customer, what are some of the questions we need to ask ourselves in doing that?
Alex Osterwalder: Well there’s a great concept that you can start with, which is called Jobs to be Done by Clayton Christensen and a group around Tony Ulwick from Strategyn, they asked what jobs are customers trying to get done in their lives and in their work? That’s the number one. So not what they want, don’t ask them what they want or what they need, but ask them what are they trying to get done? What are the jobs they are trying to achieve? And then ask two questions. What are the pains and the gains that they have?
So number one, pains. What is holding customers back from getting those jobs done? Or what is not working well today with the existing solutions that is now allowing them to get the job done really well? for example, before Apple came up with the iPod, it was pretty complicated to download music, put it on your mp3 device, and you couldn’t put a lot of music there, so that was a big pain. So Apple started addressing that pain, right?
On the other hand you want to ask yourself, what are the pains? What are the objectives that customers have with these jobs to be done? So, today what do you expect from a smartphone? Well, number one the most basic job that you hope a phone will help you get done, basic outcome is that you can make a call. If you ask my kids, it’s playing with the phone rather than making a call. But today we expect a lot of other gains, outcomes with our phone. Number one it needs to look good, right? Very few of us would still carry a Blackberry around. Today the market wants great, well designed phones. You need to ask yourself what are the benefits, the outcomes that customers want?
So you start with these three main questions: what are the jobs that customers are trying to get done? What are the pains that are holding them back from doing this job well? And what are the gains, the outcomes and benefits that they expect from these jobs that they’re trying to get done? Once you understand that really well, it’s actually pretty easy to start designing value for them. It’s very easy to start creating products and services that address these jobs, pains and gains if you understand them extremely well. So that’s the starting point. A good understanding of the jobs, pains and gains that your customers have. And then you can kill those pains and create pains because you understand what really drives them.
And today I think, while we’re doing this research, again we don’t have the tools to do so, so we came up with a conceptual tool to help people structure their thinking and their prototyping when they create value propositions.
Jason Hartman: What are some examples of good value propositions that you like out there in the market place? And maybe any bad ones, because sometimes a bad example is better than a good one.
Alex Osterwalder: My favorite one is Nespresso, because it’s not new to make coffee in a espresso, right? We had espresso machines, we had our great sophisticated machines, but nobody had something that allowed you to make very good espresso with a creamer on top, in a very clean and easy way. Nespresso came up with a machine that allowed you to do so. So they addressed some of the main pains which was making a good espresso requires a lot of work and you have to clean up afterwards, so they made it much easier. And another pain is that you don’t have a consistent quality of your coffee, so you would kind of get this barista experience at home. And then they embedded this in a powerful business model. That’s one example that’s pretty powerful.
Another example is Google, the way they transformed advertising, because before Google advertising was pretty different. It was actually some other actors came up with the same idea that they executed very well. It was very hard to understand if your ads had a real impact. The Google came along with an advertising mechanism, that number one you only pay for success when people click on your ads, and number two you can really start measuring very clearly what the impact of your ads are. so they transformed advertising by helping advertisers with very specific jobs, pains and gains. So that’s another example and it’s not astonishing that they are in such a dominant position today, because their value proposition for advertisers is simply brilliant. And they embed that in a business model that offers search for free to users which is very hard to copy, and very hard to dethrone, if you will.
Jason Hartman: The old saying, “I know that half of my advertising dollar is wasted, I just don’t know which half”. And the internet really solved that problem way back even before Google to the days of Overture and to some extent ClickBank I guess really was another sort of pioneer in that field too.
Alex Osterwalder: Let me just build on that for a second, because others had similar ideas, similar value propositions which you pointed out, and that is correct, but Google came up with a more powerful business model. So again, value propositions alone are not sufficient. You want to have a great value proposition that really addresses jobs, pains and gains, but you want to embed it in a powerful business model. And that’s where Google excelled, because they had a value proposition that worked, like others, but they had a more powerful business model. So you need to navigate back and forth between great value propositions and great business models. And this is where entrepreneurs often get it wrong. They focus just on their products and services, forgetting that great business models make a big difference.
I mentioned Nespresso and one of the reasons I use that to teach is that Nespresso almost went bankrupt with their first business model. The same machine, the same technology, couldn’t commercialize it because their business model didn’t work. So the technology and the products that you have are just one part of the equation. You need to embed them in great value propositions that are embedded in great business models. So you need both, and often as entrepreneurs we focus just on one aspect rather than zooming into the detail big picture and then zooming out to the big picture again. So you need to be systematic in your approach.
Jason Hartman: Right. So Alex, are you saying then in the Google example, well from what I can see, the thing that made Google’s business model with AdWords work was that they were in the search business and Clickbank and Overture were not in the search business. They were just in the advertising, delivery and tracking business.
Alex Osterwalder: Definitely the search business, and offering search for free to millions and today billions of users. That’s what really made the difference. This combination of adding this type of advertising to that type of business model is what made it really work. And in their case it wasn’t systematic that they try to figure out what we do. They stumbled upon it. Today I think we have the right tools and processes to come up with these kinds of business models more systematically. That’s the difference.
A lot of successful business models today happen in an ad hoc way. But today we know how to do a better process because we have the right tools and we have the right processes. Lean startup and customer development as a process, business model canvas and the value proposition canvas are the tools. You want to use these together to more systematically develop your ideas. So it’s becoming a real profession if you want entrepreneurship. It’s not just an art. It really is, I think, a profession because we have the tools and processes today to succeed.
Jason Hartman: I love it, I love it. That’s a great way to put it. We really do. Generally speaking, as we’re wrapping up here, do you think entrepreneurs… I mean, the whole concept of a business plan has just changed so much over the years, where it used to be this 60-80 page mammoth document… do you think people should even be using business plans anymore, or should they be a three page business plans, or a one page? What are your thoughts on that?
Alex Osterwalder: So the business plan is a great document, or a great tool in a known environment where you need to execute. But entrepreneurship, as in building a business around an opportunity or technology is not something known that’s just about execution. It’s about the search for the right value propositions and business models. So once you figured out what could really work, by sketching out and testing your business models and value propositions, once you’ve figured it out and you have the evidence that yeah, this can work. That’s the moment to write a business plan. But that’s very far down the road where you’ve already tested a lot of your ideas.
So basically today you work with one page documents, business small canvas and value proposition canvas, which you could call the business plan of the 21st century, but you iterate them all the time. You throw them away, you redesign them until you figure out one that works. And once you know, when you have evidence that this will really work, that’s when you could start writing a more traditional business plan, which is about execution. But the hard part is the search for the right business model for the right value proposition, and their business plans don’t help. They help later on when it’s more about execution.
Jason Hartman: Fantastic distinction. That’s excellent. Well, Alex give out your website or websites so people can find out more about everything we’ve discussed.
Alex Osterwalder: If you want to learn more about all the things we do, go to strategizer.com or to BusinessModelGeneration.com, which is the first book we published. We’re working on a new book now called Value Proposition Design which we’re very excited about, which will come out this October.
Jason Hartman: Excellent, excellent. So that will be out in October. I look forward to seeing that one, and Alex thank you so much for joining us. Any final thoughts before we wrap up?
Alex Osterwalder: Final thought is try it out, and start experimenting with your business models and value propositions. I think today we have the tools and processes to succeed. It’s really all about the stamina of going on and practicing this stuff.
Jason Hartman: Entrepreneurship is a profession nowadays. Not an art, and not a matter of luck anymore. Great points, great points. Alex, thank you so much for joining us today.
Alex Osterwalder: It was a pleasure to be on the show, thank you.
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Transcribed by Ralph
The Speaking of Wealth Team