Point: Create new business models using a visual, collaborative tool like Alex Osterwalder’s Business Model Canvas.
Story:  Business models are complex, which makes them hard to talk about. A business has many interrelated moving pieces.  It’s easy for you and your team to miss something when creating one. And with so much complexity and so many possibilities, it’s easy misunderstand each other when we try to invent new business models.
Luckily, there’s a solution. Alex Osterwalder’s Business Model Canvas is a visual tool that helps structure our thinking about business models.

At Osterwalder’s Business Model workshop at BIF8 last week, I saw the power of his Business Model Canvas firsthand.  Osterwalder outlined the Canvas method and gave the group the assignment to generate a business model for a specific startup.  Small groups clustered around their canvas and the room buzzed with discussion and the squeak of markers as participants took turns sketching out ideas.  As we worked, I was struck by three key features of Osterwalder’s approach.

The first key feature was that Osterwalder encouraged sketching, not just making lists of words. “Any problem can be made clearer with a picture,” he said. The visual artifact lets people react to something concrete.  To encourage people who think they can’t draw, Osterwalder pointed out that people can interpret a stick figure more easily than an abstract concept. “Drawing something, however badly, makes an abstract concept concrete, giving people an opportunity to react to it,” Osterwalder said. Visual thinking helps with understanding, dialogue, exploration and communication.

The second key feature was that Alex had us make our sketches and notes on Post-It® notes.  We then stuck these to the Canvas.  The key part was that then we could move the notes around as we figured out where on the canvas they belonged. “Post-It® notes are like containers of ideas,” Osterwalder said, that can be easily picked up and moved around.  Thus, we could reconfigure our ideas as we refined them.

The third key feature was that the Canvas with its Post-It® notes ensures you don’t miss an important area. Because business models are so complex, with many interlocking pieces, it’s hard to hold all the pieces in memory and see their interactions and dependencies. The Canvas helps everyone see all the pieces and confirm that they work together and make sense. People can use different colors of Post-It notes for different business models, which lets them compare alternate models on the same Canvas. This side-by-side comparison can help to then pick the most promising model to test.

Action:

• If you’re working in a group, print the Canvas in large format (we used 3′ x 4′ at the workshop).
• Most people start on the righthand side of the Canvas, which is the customer side of your business model. It has the “Customer Segments,” “Channels,” and “Customer Relationships” areas. The lefthand side defines the infrastructure of the business with “Key Activities,” “Key Resources,” and “Partner Networks.” A central “Value Proposition” sits between the infrastructure areas that deliver on the proposition and the customer areas that receive the value. Finally, the “Cost Structure” and “Revenue Streams” areas on the bottom sit respectively under the infrastructure and customer sides of the canvas to define the financial side of the model.
• Play with different kinds of models. For example, Nestlé (in its Nespresso business) tested a model in which Nestlé sold its espresso machine through retail but sold the individual “pods” of coffee directly to consumers. Going direct was new to Nestlé but proved to be very lucrative because Nestle didn’t have to share revenue with the retailer.
• Keep interdependencies in mind. Every revenue stream, for example, must have a customer segment with an accompanying value proposition that makes it clear why they would pay.  And every activity, resource, or partner might incur costs.

Sources:
Alex Osterwalder’s bestselling Business Model Generation book is a must!

Alex Osterwalder’s Business Model workshop at BIF8.  See his calendar of upcoming speeches and workshops.
Alex Osterwalder’s slides on SlideShare, such as

Point: Use visual representations to spur innovative thinking.

Story: Scientific visualization is typically used to communicate data and scientific results, but it can also spark ideas.

Felice Frankel is a scientific photographer who works with scientists across many disciplines — chemistry, biology, oceanography, and so forth. As she sees it, the various disciplines share similar ways to represent data. But, “Unfortunately, you rarely see scientists from different disciplines talking with each other,” she says.

Images can jumpstart communication by creating a common language among different disciplines. What’s more, images can spark new ideas, even if those images are of data which you yourself have been working with for years. Seeing your data presented in a new way can yield new insights. The new depiction gives you a new perspective.

For example, in one project, Frankel was exploring how to show glowing nano-crystals suspended in liquid. She zeroed in on an abstraction that cropped the top and bottom off each glass cuvette of the nano-crystals. The resulting image removed all visual references to the nano-crystals’ containers. After seeing Frankel’s photograph, Moungi Bawendi, an MIT scientist who’d been working with nano-crystals for years, thought of a potentially new application for them because the new image reminded him of a colored bar code. Bar codes are used as a form of labeling. Seeing the nano-crystals arranged like a bar code gave Bawendi the idea to use them as an alternative to fluorescent organic dyes that scientists currently use for labeling, imaging, and monitoring biological systems, particularly in their response to cancer.

In addition, the visual language of pictures and graphics breaks down the barriers of jargon, discipline-related terminology, and language, making it possible for non-experts or non-native speakers to provide input and collaborate. The visual language “allows us to talk to each other about an image, point out parts that are interesting or beautiful, and ask questions without hesitation,” Frankel says.

Similarly, for David Macaulay, drawing is his way to figure things out, to question, clarify and think about things.  Macaulay, bestselling author and illustrator of The Way Things Work and 24 other highly-illustrated books, says: “When you draw something, you really have to look at it. And when you really look at it, you can’t avoid thinking about it.”

Macaulay’s books are primarily images, interspersed with words. “How great is it to have those two languages to work with and pick and choose from?” Macaulay says.

I’m looking forward to meeting Macaulay and Frankel at the Business Innovation Factory’s annual summit on Sept. 19-20, 2012. The summit is almost sold out (it sells out every year), but a few seats remain available as of this posting.

Action

• Look at images from different disciplines to see new ways to present your data or visualize the problems and solutions that you work on.
• Create images with different arrangements, even abstractions, of your data or system to reveal new patterns in your data or ideas.
• Ask people what they see in your images, whether it’s patterns, beauty, or metaphors that can spark new ideas about your area of work.

Sources:

Felice Frankel’s new website: http://visual-strategies.org

Felice Frankel and Angela H. DePace, Visual Strategies, Yale University Press, 2012

Deborah Halber, “Smarter Quantum Dots,” MIT Spectrum, Fall 2011.

Tim McIntire, Felice Frankel: Scientific Discovery Through Visualization

Frankel, Felice. “The Power of the ‘Pretty Picture,’” Nature Materials.

http://www.felicefrankel.com/

Point: Fast-cycle experiments let companies create the best product/service offering with the least risk.

Story: At the World Innovation Forum, Scott Cook, co-founder of Intuit, described his company’s culture of high-velocity experimentation. Intuit uses an experiment-driven decision-making process throughout the organization. Rather than expect executives and managers to know all the answers, Intuit uses large numbers of low-cost experiments to test new product, service, and marketing ideas.

To illustrate how high-velocity experimentation works in organizations, Cook described how the concept works in Intuit’s 20-person online TurboTax unit.  In the past, this unit ran about 7 experiments during the annual three-month tax filing season.  Now they run 140 experiments.  Not only do they run more experiments, but they run each experiment on a fast cycle so that they can accumulate results and grow more knowledge during each season. Intuit created a weekly cycle for developing, testing, and analyzing experiments that lets each experiment create new information that feeds into the next set of experiments the next week.

Fast experimentation also improves employees’ sense of engagement and ownership.  In the past when the 20-person team did only seven experiments per year, the average team member might only have one of “their” experiments run once every three years.  But with new high-velocity approach, each employee creates and tests a new idea once every two weeks.

Paradoxially, running more experiments and getting more failures lowers the fear and cost of failure.  When a company runs only a few experiments — and every change or new product really is an experiment — then each experiment matters a lot more to the company and to the employees working on that experiment.  If an employee works for more than a year on a single big experiment, then the failure of that experiment surely has an impact on the employee’s career, even if the company professes to permit failure.  But if an employee works on many quick experiments that steadily improve organizational performance, then the success or failure of individual experiments matters little.

In Intuit’s case, 89% of experiments fail, and yet the online TurboTax unit increased conversions by 50% and successfully created a widely-lauded smartphone app that lets people do their entire tax preparation — from taking photos of tax documents, to automatically putting numbers in the right boxes, to electronically filing their forms — all on a smartphone.  The hundreds of tiny experiments let the TurboTax unit tweak and test many variations to come up with the best offering.

Action

• Trust experiments rather than experts to find the truth in a dynamic and volatile business environment.
• Teach individuals how to perform cheap experiments by finding and testing the key assumptions behind every new idea rather than building one big new product.
• Use large numbers of low-cost experiments to both grow knowledge and improve employee engagement.
• Create an accelerated cycle of experiments to reduce time-to-knowledge and time-to-market.
• Coach executives to become experiment-seekers — to use experimentation as a key decision-making tool.