The Business Model Canvas, an Interview with Alex Osterwalder

Summary

Highlights

• The Business Model Canvas helps visualize business models, making it accessible for varied organizations 🎨.
• Osterwalder's background in political science and information systems crafted a unique approach to business model innovation 🧠.
• A focus on practicality and clarity distinguishes the Business Model Canvas, making it a universal tool 🌍.
• Entrepreneurs must use the Canvas iteratively, testing ideas with real customers to fine-tune value propositions 🔍.
• Successful intrapreneurship requires balancing execution with innovation within dual operating systems in companies ⚖️.

Key Takeaways

• The Business Model Canvas is a tool for visualizing and designing business models, applicable from startups to major corporations 🏢.
• Political science prepared Osterwalder to critically analyze organizational structures, a key aspect of his work 📚.
• Practicality and simplicity make the Business Model Canvas widely adopted beyond tech firms, into sectors like pharmaceuticals 🚀.
• Common mistakes include sticking to initial ideas and underestimating customer input; be adaptive and test-driven 🔄.
• A dual operating system is crucial for companies to balance foundational execution with innovative agility 🎭.

Overview

Chapters

• 00:00 - 02:00: Introduction and Background of Alex Osterwalder The chapter focuses on the early life and educational background of Alex Osterwalder. It discusses how his academic journey, encompassing political science and management information systems, laid the foundation for his current career. The narrative sets the stage for understanding Osterwalder's professional path and insights.
• 02:00 - 06:30: Creation and Use of the Business Model Canvas The chapter discusses the relevance of understanding the evolution of institutions, which one learns in political science, and applies it to business models. It highlights questioning and understanding organizational structures, acknowledging that these institutions have become what they are for specific reasons. This understanding is pertinent when designing and analyzing business models, as it provides insight into the 'why' behind an organization's current state.
• 06:30 - 12:00: Popularity and Benefits of the Business Model Canvas The chapter discusses the relevance and advantages of the Business Model Canvas. The author reflects on how studying political science facilitated the development of critical thinking skills, allowing him to question fundamental assumptions about organizations, structures, and institutions. This analytical capability is not commonly imparted in typical business education, marking a significant starting point in his understanding. The transcript then transitions into the author's pursuit of Information Systems, highlighting his interest in the field.
• 12:00 - 18:00: Advice on Using the Business Model Canvas The chapter titled 'Advice on Using the Business Model Canvas' is focused on the author's passion for understanding how companies and their computer systems operate. It discusses how this passion led to opportunities for exploring how organizations can improve decision-making and design through improved information systems. The author shares an experience of meeting a significant professor who greatly influenced their studies in information systems.
• 18:00 - 25:00: Integration with the Lean Startup Model and Value Proposition Canvas The chapter discusses the author's initial encounter with their PhD advisor, which was a fortuitous opportunity driven by shared interests and a promising topic of business models. This partnership, which has endured for 15 years, stemmed from serendipitous events and mutual respect, ultimately influencing the author's career path profoundly. The discussion highlights the integration of personal passion and the academic pursuit of the Lean Startup Model and Value Proposition Canvas within the context of business models.
• 25:00 - 34:00: Strategizer and Entrepreneurship Challenges The chapter introduces the concept of luck and hard work in achieving career success, highlighting the importance of following one's passion.
• 34:00 - 43:00: Dual Operating System in Large Companies The chapter discusses the use of a dual operating system in large companies, emphasizing a practical, visual, and hands-on approach. It introduces tools that help sketch out business models applicable to any organization, from startups to major corporations like GE and large banks. The tools originated from a PhD dissertation aimed at developing a concept suitable for diverse business models.
• 43:00 - 51:00: Final Advice for Tech Startups The chapter discusses the origins and impact of a shared language for discussing design challenges and building business models in tech startups. Initially starting from academic research, the approach evolved to become practical and applicable for practitioners in the field. The focus was on ensuring that the concepts developed were not just academic but had real-world usability and appeal. The chapter concludes with a reflection on the popularity of these practices in the tech startup community.
• 51:00 - 54:00: Conclusion and Encouragement for Students This chapter emphasizes the widespread impact of a tool or concept initially popular among technology entrepreneurs, which has now been adopted by large pharmaceutical companies as well. It explains how this tool is not limited to the tech industry but is also valuable in reinventing business models, especially as they become outdated.

The Business Model Canvas, an Interview with Alex Osterwalder Transcription

• 00:00 - 00:30 Alex Osterwalder thank you very much for taking the time today to talk to me and the students at the University of Waterloo I wanted to start by talking about your background you studied political science and then management information systems how did this prepare you for the career that you have now I thought that was a secret
• 00:30 - 01:00 so I think it actually prepared me pretty well in the sense that in political science you know I took the stream which with a lot more sociological direction you actually learn how to question things and how you learn how to understand how institutions become what they are today and now why is that important when it comes to business models and to companies well we kind of take organizations as something that exists and that they became what they are for a reason their institutions
• 01:00 - 01:30 and this whole political science you know study actually helped me to ask the right questions and to question some of the fundamental assumptions behind organizations organizational structures institutions the way people work so that was that was a really good good start it's something you don't necessarily learn in most business education some yes but mostly not then I went on to do Information Systems because I was always
• 01:30 - 02:00 passionate about companies and how they work and computer systems at the same time so this was an opportunity for me to kind of dive into that passion and better understand how organizations work and how information systems can help us make better decisions and design better organizations and then you know you have to be lucky every now I met affinor who was I think the best professor we had in our information system studies he was
• 02:00 - 02:30 looking for a PhD student and so I jumped on that opportunity because I liked the professor and now we've been working together for 15 years and we get along really well we're by quinn since we're neighbors now but what what really interested me was the topic he was you know I'm addressing in that PhD which was business models so that's how the whole thing started you know a couple of coincidences a lot of pieces that came together and I think that has defined my entire career you know just following my passion and being
• 02:30 - 03:00 a bit lucky and doing a lot of work to make the luck happen a career where you can follow your passions a great thing and so my next question then is about your creation the business model canvas can you just introduce the people who are watching this to what it is and how it should be used it's basically a strategic management tool to visualize your existing business model or a business model you want to build it's
• 03:00 - 03:30 very simple there practicals very visual it's very hands-on and it allows you to to sketch out any business model of any organization that can go from a startup idea all the way to business models you will find in in ge or you know the biggest banks of the world or whatever so that's what the tool is about and one of the tools we made we have a series now of tools and the way it started out was in a PhD dissertation where we were trying to find a concept that will allow
• 03:30 - 04:00 us to have a shared language to better discuss design challenge and ultimately build business models so it all started with academic research but I think if senior and myself we always kind of looked at practitioners and try to make it extremely practical for people who do real work so it wouldn't stay an academic concept that has no users so that's how it all started out why do you think it's become so popular it's used a
• 04:00 - 04:30 lot by technology intrapreneurs and and others and so why is it been a hit yeah so we asked ourselves the same question and it's way beyond technology firms now I just coming out of a workshop with one of the biggest pharmaceutical companies of the world they use the same tool because it's not just about technologies about reinventing your business models in particular when they expire so we
• 04:30 - 05:00 asked ourselves why is this a hit what did we do differently because we were not the first to come up with a concept them to describe business models actually we synthesized all the approaches that existed before we made our own so we built it on the existing knowledge like any you know found academic would do we reference that but I think we focused on a couple of things that others didn't focus on that much and we published this in a research report last year and we asked people you
• 05:00 - 05:30 know who are using the business model canvas a couple of series of questions and basically it turns out that we created a tool that is very easy to start using they can use it as a shared language it's not rocket science we we avoid any kind of buzzword and they can use it immediately and it creates it creates a common ground for people coming from different backgrounds it could be people from marketing IT
• 05:30 - 06:00 operations finance all coming together and speaking the same language to design a business model or to challenge an existing business model so very practical I'm very intuitive very visual the visual aspect is often one that's underestimated we made it visual not just as a gimmick but actually because people work a lot better when there's a visual tool on the wall and they start mapping that out so those those were some of the characteristics of our tool
• 06:00 - 06:30 that helped people adopt it then the other you know series of things were why people adopted was in the results they would say things like you know after a meeting working with the business small canvas we would have more tangible outputs outputs that we can turn into real things you know then something tangible on the table that we can use better you know kind of better has strategic objectives so all of those things I think result from the fact that
• 06:30 - 07:00 we paid a lot of attention to what matters to business people we try to figure out what are they trying to get done what are their biggest pains and what are their gains and by understanding that we were able to design a better concept a conceptual tool so so it is surprising you know that we sold them over a million copies of our book business model generation and value proposition design we have five million downloads of the business model canvas
• 07:00 - 07:30 from our website which really shows that people are using it and it's creating value and and we were we were curious as well why is that happening and I think making it visual and practical is the number one thing which a lot of business tools don't do they're complicated they have too many concepts they're not conceptually sound we really try to do our best to make it extremely practical for real business professionals and it's
• 07:30 - 08:00 you know certainly worked and so what advice would you give to people who are using it other common issues you see that people have as they use it and how would you advise people to deal with those so it's it if you take the business model canvas it's a very broad tool you can use it for many things but you could use it to challenge your existing business model to do a risk assessment and you can also use it and that was kind of our initial idea to shape new ideas so if we take that one
• 08:00 - 08:30 you know you use the business model canvas to work on your idea that you want to turn into a startup or a new growth engine in a large company there are a couple of mistakes that people make first one is that they fall in love with their first ideas you need to work a lot more like a designer when designers are trained to throw away ideas to create many alternatives before they kind of refine one idea so rather than falling in love quickly with an idea and then refining it into a
• 08:30 - 09:00 business plan or a working prototype play around a bit first work more like a product designer industrial designer and look at what could be different alternatives design three or four very different business models radically different one one where you give it away for free one where you sell you know at a price point of a million dollars and by pushing yourself in different direction you'll learn a lot that's the first one the second big mistake is that people think that they're smarter than the
• 09:00 - 09:30 collective intelligence of their potential customers meaning that they think you know if I think hard enough about my idea and I find the perfect idea and I refine it then I'm gonna succeed well the reality is no idea survives first contact with customers - well one of my friends the inventor of the Lean Startup movement Steve lang and we could also quote good quote that Mike Tyson at this points and you know he says everybody has a plan until they
• 09:30 - 10:00 get punched in the face so what I mean with that is shape your idea test it immediately with potential customers and you were inevitably you'll get punched in the face because however much you thought about customers you will never know them well enough if you're doing something truly innovative you're gonna learn by confronting your idea with customers potential customers so you need to do that quickly so rather than refining your idea confront that idea with real potential
• 10:00 - 10:30 customers with partners with channel partners production partners and you will learn a lot and you'll probably have to throw away your idea and move and change it pivot it to use the Silicon Valley term until you got enough feedback from the market that you might really succeed so basically it's very simple when you start out you need to accept that uncertainty is that its highest that you're completely ignorant of what's gonna work you just don't know
• 10:30 - 11:00 even if you think you have the perfect idea who are you - no you need to be humble and say you have no effing clue and then you immediately very cheaply and quickly test your idea at the beginning cheaply so you can learn from cheap experiments the more you learn the more you can invest in more expensive experiments you can maybe build your first technical prototypes once you've learned from customers but don't do that first you need to first learned cheaply and then you know once you really
• 11:00 - 11:30 figured it out that's when you invest in scaling your idea that's when you start raising money first look for Angel and and then for your series a funding but only do that when you have proof that your idea is gonna work ideas are overrated ideas are easy what's really hard is shaping your idea into value propositions that customers care about and business models that are scalable that's what's difficult so that's what you need to validate and
• 11:30 - 12:00 you'll see that URL your idea will radically change over time with that testing you can keep the same vision but the steps to turn that vision into reality that's what you need to test and experiment so you're describing there the integration to some degree of the business model canvas with the Lean Startup approach and a spoke to Steve Blank in a similar interview recently do you want to maybe say a bit more about
• 12:00 - 12:30 how these two go together the Lean Startup model and the business model canvas I think they clearly go hand in hand and if you look at Steve blanks latest book and the startup owners manual and our latest book value proposition design you'll see that we're completely and aligned and that we integrate each other's tools so I think Steve Blank as well as as us we believe in using the best tools and processes out there rather than reinventing the
• 12:30 - 13:00 wheel wheel and putting your own name on it so we clearly integrate the the Lean Startup approach into our thinking and the new book really has an entire chapter chapter on testing value propositions which builds on the Lean Startup approach what we do is add some tools to that mix so we created a new tool called the test card and we created an experiment library where you can get inspiration of how to test in that in
• 13:00 - 13:30 that new book so it goes hand in hand and it's a it's actually funny house the blank and myself how we met I spent a month in Berkeley with my family and and I reached out to Steve lank the same time he had read my PhD and his teaching assistant had read our first book this model generation and they actually figured out it was the same person who wrote that and then we met at his at his ranch and and we started having a great
• 13:30 - 14:00 conversation and ever since we're really intellectual sparring partners and we try to push push the whole thinking forward the thinking and the adoption and so it goes hand in hand you can't do the one without the other I think you know if you don't use Lean Startup with the business small canvass for new ideas you're gonna fail if you just use Lean Startup with the best without the business small canvas or value proposition canvas you're gonna fail to shape your ideas the right way so they really go hand in hand and I
• 14:00 - 14:30 think you know what we're seeing now is a best-of-breed tools and processes that state-of-the-art entrepreneurs and intrapreneurs large companies are using today so while this is pretty much the gold standard in in startups it's also now the gold standard in companies like 3m Colgate MasterCard Intel ge they use these tools and more and more at a very strategic level it's really fun to watch the adoption because it's it's helping
• 14:30 - 15:00 people do better work absolutely and you've talked a few times in the interview about the value proposition canvas so if we could talk about that for a little bit could you talk just first of all describe what that is so with the business model canvas we figured out a way to better describe how you create value for your business for your company it's the big picture now you can zoom into that and ask yourself
• 15:00 - 15:30 well how am i creating value for my customers but that's a more detailed question so you need a different tool to do that so we zoom into the value for position in the customer segment and have a specific tool to answer that question how are we creating value for our customers and explicitly describe that and for that we created the value proposition canvas which basically describes the benefits that your products and services create for customers and what it allows you to do
• 15:30 - 16:00 is to ask yourself number one what matters to my customers what are the jobs pains and gains that really matter to them and then answer the second question okay well how are my products and services addressing these jobs pains and gains how are they relieving some of my customers pains how are they creating gains so basically you you start mapping out explicitly how your products and services are creating value because very few entrepreneurs or even you know executives can clearly can
• 16:00 - 16:30 clearly describe how their products and services create value for customers I'll give you an example for that um while ago I was at an incubator and in Portugal and they had this big fair where all the 70 companies were explaining what they're doing so I went from one entrepreneur to the other and I asked how are you creating value for customers well guess what none of them could really answer the question the way they should have have answered it so they were extremely well equipped to
• 16:30 - 17:00 describe what their products do and what their services do what their company does but none of them could explicitly describe how are they creating value for customers what they should have answered is my customers have these jobs pains and gains and this is how our products and services relieve some of those pains and create some gains for them just to make it explicit it's not that they're completely ignorant they just don't map it back to what matters to customers
• 17:00 - 17:30 they get caught up in technology and features and in what they do rather than asking why does it matter and that's a language that we need to foster and that's why we created a tool for that so your company strategize ur works with a lot of companies do you want to just describe the the functions that it has or the services it offers yeah so you know after writing a successful book together with each vineyard business
• 17:30 - 18:00 small generation I basically had to ask myself what am I gonna do next what am i excited about and you know the traditional way when you have a book that succeeds to build a consulting company and for a training company and I've done that it was not particularly interested in doing it again so I said hey let's build a software company a company that accompanies this process of business model innovation and the way we like to frame it is now what we're trying to do it that strategize er
• 18:00 - 18:30 is we're building the SA P of strategy safety is the biggest German the software company one of the biggest software companies in the world that helps companies organize their processes but on an operational level our ambition with strategize er is to create the software that manages strategy and innovation and I think this is increasingly becoming a synonym strategy and innovation is increasingly the same thing because the business models of
• 18:30 - 19:00 most companies in most industries are expiring you know pharmaceuticals content companies banks the financial companies their their business malls are from the last century or very least from the last decade they're being disrupted or they're becoming irrelevant for other reasons so they have to innovate there's no more right moment to innovate it's now and always and today you know you need the tools and processes to do that and to manage
• 19:00 - 19:30 that but you also need a software support so that's where you know I think we can build the sa P of strategy so we started out you know we're a small team with a main product team based in Toronto and where we have a software that allows you to design and test business smalls and value propositions and from there we're working towards a software that will we'll manage the entire innovation and and strategy process you know one step at a time the
• 19:30 - 20:00 Swiss way because our headquarters is in Switzerland wonderful and what do you think is the most common mistake that makes so I think a couple I think the first one that I mentioned previously is startups you know believe in the myth of the idea often they think if they just get the right idea and they need to get that perfectly right then they're gonna succeed the reality is that the idea
• 20:00 - 20:30 will change dramatically over time with the feedback you get from customers and partners what really is the challenge is to turn your idea and vision into working value propositions in business models so not falling in love too quickly with your initial ideas that's the biggest challenge the other challenges that startups even ourselves we don't test our ideas thoroughly enough ever so rather than thinking about ideas
• 20:30 - 21:00 immediately go out and test them one aspect of that is you know in the Lean Startup principles you know Eric Ries says you need to build measure learn the problem is that companies take builds too literally they always think they need to build a technical prototype well you know what you might first want to validate do those jobs pains and gains of your customers that you imagine they have really exists so you want to test that first before you build a physical
• 21:00 - 21:30 prototype and you can do that you know by Google AdWords campaigns to verify if those pains exist there are very many ways of doing that before you build so in particular technology startups they build too quickly so they take the build measure learn literally and they build technical prototypes too quickly and sometimes that creates a huge code base that you can't easily throw away so we need to thoroughly test and at the very beginning we need to test our customers
• 21:30 - 22:00 before we test our value proposition or you know physical product or service you've met a lot of intrapreneurs what type of person is more likely to be successful at it so people who are very comfortable with uncertainty and big waiting you need to have that to succeed you can't be an entrepreneur if you need complete datasets if you need complete
• 22:00 - 22:30 information because you will never get that you're you know what you learn from customers you'll always have contradicting data you will never know with clear with clarity I need to go to the left or to the right it will always being ambiguous so you need to be comfortable with making decisions rapidly making decisions in that space it's something I had to learn myself you know in a start-up fast decision-making matters because every minute every hour
• 22:30 - 23:00 every day every week you spend not making that decision you're burning money you're burning capital so you need to move fast Lee very quickly fast on reversible decisions of course if you're gonna buy a machine tool you know for your idea that costs a million dollars there you need to test thoroughly before you make a decision but you know choosing one's customer segment over another experiment with both both customer segments and then make a
• 23:00 - 23:30 decision very quickly you can always turn around so I think this ability to to have a vision knowing that you're not going to be right and that you're gonna have to make decisions with with without a complete data set that is what you need as an entrepreneur and you do need I think leadership capabilities to gather a team around you to inspire them to get them through tough times when the entire market is telling you what you're doing sucks nobody wants that you need
• 23:30 - 24:00 to get them through it and then generate the proof that you know you're actually on the right path and that sometimes you need to stick to your vision but you need to gather the evidence that proves you right so you do need leadership capabilities and then you need execution skills you need to gather the right people around you who can really turn your idea into a working business so unfortunately entrepreneurs need a whole range of skill sets and they're very different from what a senior
• 24:00 - 24:30 executive needs to succeed in in an existing business so somebody who wants to make career in a bank in a financial institution in a pharma company you know in a product company needs different skills then the entrepreneur entrepreneur who needs to succeed in a very different context so it's the it's what some people call the Michael Jordan phenomena meaning that great basketball player is very unlikely
• 24:30 - 25:00 to become a great baseball player we all know greatest basketball player in time Michael Jordan super athlete you know he was better than all of us probably at baseball but he couldn't become a top star I think there's something similar when it comes to execution and search of right business malls intrapreneurship entrepreneurship you'll very rarely find people who can do both you know it's once in a hundred or a thousand years that you'll find a Steve Jobs who who
• 25:00 - 25:30 can be a great visionary entrepreneur and later in his career a great executioner um you need you need both skills of course hard to find in the same person okay on a similar note just to take it to the other side which is you know in a large company you've worked with them and you think of said that intrepid intrapreneurship is important well how do they do it successfully how do you do this within
• 25:30 - 26:00 this huge office slow-moving and bureaucratic organization you're you're very diplomatic when you say often so I think the big challenge for most large companies today probably 95 to 99 percent is to create what some people like Carter called a dual operating system you need to create an execution
• 26:00 - 26:30 culture which we have in many companies which is about executing a known business model that has been successful in the past scaling that milking it you know getting the best out of it and improving that cutting costs over time to make it more efficient that needs to exist we shouldn't get rid of that but we need to create a second culture and they both need to live in harmony in parallel in harmony which is the innovation culture which has different a
• 26:30 - 27:00 different culture has different processes has different requirements according to you know its skill sets has different incentive systems and very very different organizational structure from the execution engine and you need both it's not either/or it's both you know you put the innovators in the execution engine probably they're gonna mess it up you put the execution people into an innovation in a culture they're gonna mess it up you need to have a
• 27:00 - 27:30 partnership between those who are building the future and those who are managing the present that's why I think that this idea of a dual operating system is is the right term terminology academics sometimes call it the ambidextrous organization I think building that is the challenge for most corporations in the coming years I'm actively participating in some of those construction sites it's very hard to do
• 27:30 - 28:00 because so much has to change it's not just a new tool that's gonna fix it it's not just a new incentive system it's not just a new culture it's all of that together that's what makes this challenge so daunting and that's why we will continue to see Nokia's and Kodak's in the future and we will only slowly see more apples and Amazons in the future because it's very hard to build that kind of organizational culture
• 28:00 - 28:30 slowly happening because the big companies are challenged their business models are expiring I like to say business models expire like a yogurt in the fridge it's happening now and if these companies can't fix it they're gonna become disposable companies you'll see some of the biggest corporations in the world disappear because they can't renew themselves Sony is a company that's facing that very clearly they are
• 28:30 - 29:00 not saved yet you have ups and downs but if they can't create this dual operating system in five 10 years they're gone okay other companies in the u.s. in particular I think financial institutions facing the same thing pharma companies facing the same challenge many of those will disappear because they can't reinvent their organizational structures to be ready for the 21st century a final question and I like to ask this
• 29:00 - 29:30 of most people interview but what would be the most important advice that you would give tech startups today if there was one thing you would say to them you've given a lot of advice in the interview but is there one thing you would want them to think don't believe the press meaning you know it's already hard to build a 10 or 50 million dollar business don't think you're a failure or a fraud if you can't build the next
• 29:30 - 30:00 Airbnb or or uber you know it's very rare that companies will build a billion-dollar business and then you have those of course that have a billion dollar valuation but you know that's another story and it's it's really hard entrepreneurship is hard it's a lot of fun but it's hard and if you can build five ten million dollar business you know what you already achieved something if you build a 50 million dollar business or a hundred million dollar business Wow you've got way further then you know
• 30:00 - 30:30 probably ninety percent of most people don't don't think it's easy don't do it because it's fashionable because the press is talking about it and and don't believe it's easy you don't fail a lot you'll fail many times you might actually fail your company's right you might you know disappear even burn through some of the cash you raise you can still succeed the third or fourth time in fact in Silicon Valley there's a
• 30:30 - 31:00 saying that you've never failed you have no experience so it's actually less risky to invest in an entrepreneur who failed once or twice because they've experienced Taylor and they're not never gonna do those same mistakes again right you have to do mistakes the first time to learn from them nobody's gonna when you're doing new stuff when you're doing entrepreneurship when you're doing innovation you're gonna fail if you're not failing you're probably not trying to do something interesting enough so
• 31:00 - 31:30 take failure as part of the job and be proud of everything you achieve every single dollar if you can get people to pay you you don't have to create hundred million dollar business to call yourself a successful entrepreneur which the press sometimes wants to make us believe thanks Alex for talking to me today and to the students we'll watch this many of them are aspiring to be intrapreneurs and I think what you've said to them is help them to make less
• 31:30 - 32:00 mistakes not necessarily not fail but but perhaps be more successful in the end so thank you for what you had to say today is it as a pleasure and do the students get out there try it out fail and learn and the only thing you can fail at is not learning and that that mistake you don't want to do make a mistake make many mistakes but make them once