Alex Osterwalder is the co-creator of the Business Model Canvas and lead author of the popular start-up book, Business Model Generation.
Alex (@AlexOsterwalder) was in New Orleans to speak at GROWCO. I got a chance to sit down with him for a few minutes to talk about entrepreneurship, creative uses of the Canvas, and his plans for the future.
What one piece of advice would you give to someone starting a new business?
Alex Osterwalder shares his ideas on business model creation and more. Photo by Betsy Weber.
A: I’d give two pieces of advice.
First, don’t fall in love with your first idea. I’d prototype several business models. Let’s say you have a product idea, you should think through several business models. Take five, ten, fifteen minutes to sketch one out with a couple of numbers. Then try something radically different for the exact same product. And then another one for the same product. One where you give your product away for free, one where you sell it for a million dollars, right? One where you have no fixed costs. Play with those business models conceptually.
That’s what I call business model design. When you get good at this, you’ll understand which business models have better dynamics, which ones can grow more, which ones have switching costs.
Second piece of advice, and this was an eye opener for me, is testing business models. I learned how to test business models from Steve Blank, he just came out with a new book, The Startup Manual. It’s really all about testing business models. He uses the business model canvas to shape the business, he says it’s really just the 21st century version of a business plan. What you really want to do, because you don’t know if it’s going to work, even if it looks great, you want to get out of the building and start testing. So then you test it, you fail probably, you redesign it, you go through a couple of iterations.
Those two pieces together will lead you to create better business models, and thats, I think, revolutionizing entrepreneurship. And there are more pieces. Lean Startup is a movement, around Eric Ries, and that’s another piece that’s more centered around the product.
You put those things together and you will eliminate instant mortality. It doesn’t guarantee you’re going to create a Facebook, but it will guarantee that you don’t fail immediately. And I think these metrics are being evolved more and more, and they’re changing the way we’re doing entrepreneurship around the world.
What’s the most interesting/different way you’ve seen someone use your business model canvas?
A: I’ve seen investment analysts use it to compare different business models in the same industry. There are entrepreneurs using it. There are large companies using it, like General Electric.
What I’m really excited about are social entrepreneurs who are using it to create business models that are both profitable and trying to change the world, and where one is not at the expense of the other. Not trying to do corporate responsibility that will have a negative impact on your bottom line, but something that really harmonizes growth, profit, and impact. I think that’s really exciting when I see social entrepreneurs trying to build substantial, big businesses that make enormous profits but that want to work on poverty, sustainability, global health. Those are really interesting ways of using the business model.
We just watched a presentation by Neil Blumenthal on his company, Warby Parker. I noticed by your reaction on twitter that you were impressed with the company. Will you buy Warby Parker glasses now?
A: No, probably not, but I’m definitely going to look at his business model a bit closer. I think what was interesting in the presentation is that they’re disrupting the eyewear space, and there’s innovation not just in the business model: there’s innovation in the management, the stakeholder model, in the way they present their annual results.
There’s a whole new breed of entrepreneurs who are not accepting business as it’s been done before; they are trying a lot of new things. I think that’s what was exciting from Neil Blumenthal. He showed that they’re experimenting with a lot of things and they’re creating a company where you’d be excited to work there.
Are there any particular thoughts you’d like to leave with our local entrepreneurs here on the Silicon Bayou?
A: I think what’s pretty exciting today is that you can build a business wherever you are. You can easily build a global business because of the web.
Look at my book, we’re coming out of Switzerland. It’s the last place you would expect business model thinking to come from. This book has a couple hundred thousand copies sold in 23 languages, and was created by a global team. Ideas today can come from anywhere, and they can change the world. And a company is the same thing. Skype is not a U.S. company.
I think the cool thing is today, and this goes for entrepreneurs here or anywhere, today is the time where you can be a global player from day one. And you can change the world. It’s a pretty fun time to be in.
A new book you collaborated on, Business Model You, is coming out next week. Are you planning on doing other iterations of the canvas idea?
A: What’s really exciting about what Tim did is that he’s applying this idea to individuals. A person can change their career just like a company can change their business model. I think a lot of people have already used it that way, which is another interesting way of using [the canvas] that I think is really cool.
It’s really a new breed of books- these visual, practical books. I would never write a book anymore without having a designer on board. Most business books are broken. Great concepts, but a disastrous format. Nobody reads them because the format is wrong. It’s not that the ideas behind them are not great, but the format is broken. The publishing industry is not changing the way these books are published. That’s why we self-publish. There’s no way we could have done our book with a traditional publisher.
If you look at some of the most successful management concepts, they’re visual. Blue ocean strategy, strategy maps, and then there’s books like Gamestorming by Dave Gray, and Visual Meetings by David Sibbet. It’s a similar thing.
One of the things that I’ve tried to do is make a canvas for value propositions. So we came up with the customer value canvas, which is like a plugin to the business model canvas. It doesn’t replace it, it focuses more on products and segments to sketch it out. I don’t think we have enough visual tools to do that.
I think this whole visual thinking is going to take off, and what I think will bring us further is when the software tools are there. When the software tools support us we’ll be able to send it around, manipulate it, store it, so that’s what we’re focusing on with our software. We’re actually giving the canvas away for free under a creative commons license. We’re building the software company that will support this whole process. There’s some things you can do easily with paper and post-it notes, and there’s some things you can’t.
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Major thanks to Alex for taking time out of his busy schedule in town to chat with us. You can follow him on twitter, @AlexOsterwalder, and use the hashtag #bmgen to talk about his business model theories and the canvas. As a side note, If you’re interesting in learning how to use the canvas I’ll be presenting the main concepts this Saturday at BizCampNOLA.