Knowledge Sharing:
1. Established companies can learn a lot from business model validation in startups. An established company is all about execution, flawless execution. A startup is all about the search, the search for the best possible business model options. If established companies would incorporate the same efforts in searching for the right business model as startups do and combine this with the resources at hand, they will increase their chances of success.
2. It turns out that’s a mistake. A big mistake. A startup is not about executing a series of knowns. Most startups are facing a series of unknowns – unknown customer segments, unknown customer needs, unknown product feature set, etc.
3. A business plan is the execution document that existing companies write when planning product-line extensions where customer, market and product features are known. The plan is an operating document describes the execution strategy for addressing these “knowns.”
4. Instead of writing a full-fledged business plan, they had focused on building and testing a business model with a customer development process to test each of their business model hypothesis.
5. A business model describes how your company creates, delivers and captures value. A business model is designed to change rapidly to reflect what you find outside the building in talking to customers. It’s dynamic and it reflects the iterative reality that startups face. Business models allow agile and opportunistic founders to keep score of the pivots in their search for a repeatable business model.
6. They didn’t spend a lot of time justifying their assumptions because they knew facts would change their assumptions. Instead of writing a formal business plan, they took their business model and got out of the building to gather feedback on their critical hypotheses (revenue model, pricing, sales, marketing, customer acquisition cost, etc.) They mocked up their application and tested landing pages, keywords, customer acquisition cost and other critical assumptions. After three months they felt they had enough preliminary customer and user data to go back and write a PowerPoint presentation that summarized their findings.
7. After I explained this Todd asked, “Do you mean I should never have written a business plan?” “On the contrary,” I said. “Business plans are quite useful. The writing exercise forces you to think through all parts of your business. Putting together the financial model forces you to think about how to build a profitable business. But you just discovered that as smart as you and your team are, there were no facts inside your building. Unless you have tested the assumptions in your business model first, outside the building, your business plan is just creative writing.”
8. For years we’ve treated startups like they are just smaller versions of a large company. However, we now know that a startup is a temporary organization designed to search for a repeatable and scalable business model. Within this definition, a startup can be a new venture or it can be a new division or business unit in an existing company.
9. If your business model is unknown — just a set of untested hypotheses — you are a startup searching for a repeatable business model. Once your business model (market, customers, features, channels, pricing, Get/Keep/Grow strategy, etc.) is known, you will be executing it. Search versus execution is what differentiates a new venture from an existing business unit.
10. The primary objective of a startup is to validate its business model hypotheses (and iterate and pivot until it does.) Then it moves into execution mode. It’s at this point the business needs an operating plan, financial forecasts and other well-understood management tools.
11. The processes used to organize and implement the search for the business model are Customer Development and Agile Development. A search for a business model can be in any new business – in a brand new startup or in a new division of an existing company.
12. In search, you want a process designed to be dynamic, so you work with a rough business model description knowing it will change. The model changes because startups use customer development to run experiments to test the hypotheses that make up the model. And most of the time these experiments fail. Search embraces failure as a natural part of the startup process. Unlike existing companies that fire executives when they fail to match a plan, we keep the founders and change the model.
14. Once a company has found a business model (it knows its market, customers, product/service, channel, pricing, etc.), the organization moves from search to execution.
15. Searching for a business model requires a different organization than the one used to execute a plan. Searching requires the company to be organized around a customer development team led by the founders. In contrast, execution, (which follows search) requires the company to be organized by function (product management, sales, marketing, business development, etc.)
16. The idea of not having a functional organization until the organization has found a proven business model is one of the hardest things for new startups to grasp. There are no sales, marketing or business development departments when you are searching for a business model. If you’ve organized your startup with those departments, you are not really doing customer development.
17. –Startups search for business models, large companies execute business models
–A startup is a temporary organization formed to search for a repeatable and scalable business model.
–Customer and Agile Development are the processes to search and build the model.
–Business plans are the tool existing companies use for execution. They are the wrong tool to search for a business model.
18.
Facebook Business Model:
http://bmimatters.com/2012/04/10/understanding-facebook-business-model/
15 Business Models:
http://www.boardofinnovation.com/2013/09/17/15-business-models-to-copy-pdf-download-with-all-cases/
Business Model Canvas:
http://www.businessmodelgeneration.com/downloads/business_model_canvas_poster.pdf
Business Model for AdultFriendFinder:
http://andrewchen.co/freemium-business-model-case-study-adultfriendfinder-arpu-churn-and-conversion-rates/
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