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Lecture 2 Business Model Canvas Examples

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1 Lecture 2 Business Model Canvas Examples
Jim Aloise Will go through 2 examples of BMC As was explained in the last presentation – when your hypotheses do not meet reality, you fire the business model, not the executive. The term that was introduced was the “pivot” which is a substantive change to one of more components of the business model. In the first example, I will show you the evolution of the BMC over several weeks by one of the teams that went through the iCorps training last summer at NYU. It turns out that we have 2 folks from that team here with us for the Team’s best Practice session during lunch, which is next. We will have a few questions to get the conversation started, but I urge you to ask your own, especially with regards to how the team moved through the program and made changes in their thinking. In the second example, I will show you how a team went through a pretty dramatic change in their BMC resulting in a very different Business Model at the end of their journey.

2 We will pay attention mainly to the right hand side of the canvas and how it evolved for the team – just at a high level. Let me point out a couple other items – You need to have value propositions mapping to customer segments. Note the color coordination of the VP to the Customer Segment. A VP can map to more than one segment so you could have multiple colors on a VP or CS, but if the color coding starts to look identical then you really should take a closer look at how your defining them. What else to look for – if you do not have a VP for a CS, then you are probably not likely to successfully sell to that customer.

3 Team 187 NYC April 2013 week 2 So after a week of talking to customers, including presumably Parents of Public High School Chemistry Students, they decided that they were not a CS worth pursuing. You might argue that that is a quick decision to have been made in only the second, but perhaps the team felt that they had identified a pattern.

4 Team 187 NYC April 2013 week 3 3 Value propositions and one Customer segment dropped. Look at Formative assessment tool…that was the first listed VP in week one – now it is gone. In fact these 3 VP were 3 of the first 4 listed in week 1! Note also that the team is starting to show some evolution on the Customer Relationships and Channels – how am I going to Get, Keep, and Grow customers.

5 Team 187 NYC April 2013 week 4 Decided to drop App Stores. Is a new marketing channel really a value proposition? Maybe – but it only matters if someone cares. Is buying something online that you could not buy on line before important to someone, maybe. A way for people to justify

6 Team 187 NYC April 2013 week 5 Apparently not.

7 Team 187 NYC April 2013 week 6 The team evolved quite a bit in just 6 weeks.

8 Initial Business Concept
Global lighting industry - $100B LED lighting - $6B, CAGR>40% Enhanced cooling allows Higher lumen output Higher light quality Better reliability LED Replacement Lamps ~500 million sockets * $15/lamp = ~$750M This team started off thinking that they would enter the LED lighting market. Nice TAM, Nice SAM, and Nice Target Market – very appealing. This is a little over 2 years ago. The industry has evolved quite a bit just since then. Anyone own LED lamps? Well maybe these guys sold you some….or maybe not. Let’s see how they decided to pivot. RIT NSF ICORPS Dec

9 Team Members Kandlikar and RIT Team – NSF I-Corps
Principal Investigator Dr. Satish Kandlikar Gleason Professor Mech. Engg., RIT Mentor Dr. Suresh Sunderrajan President, NNCrystal Corp. Entrepreneurial co-Lead Ankit Kalani MS Engineering (Candidate) RIT Entrepreneurial co-Lead Kirthana Kripash MBA (Candidate), RIT Skip – real people, real iCorps attendees. Kandlikar and RIT Team – NSF I-Corps

10 Business Canvas 1 Kandlikar and RIT Team – NSF I-Corps

11 Here is what we did. Customers Channels Key Partners
“We are willing to wait 5 to 7 years for the price to fall before we adopt this technology on a wide scale. ” “If you bring us a modular thermal system that provides better cooling at lower cost, we would definitely want to explore this technology. 5-7 years – wow that’s a long time. Is that Kandlikar and RIT Team – NSF I-Corps

12 MARKET FLOW – Iteration 1
Arka Lights LED array, Lamp components Luminaire Manufacturers LED luminaires and Fixtures Distributor Contractor Project/Owner Other Components Arka provides replacement lamps This market is very lucrative. The size of the market is large, few barriers, large incentives, a market that is set to grow, multiple brands, the presence of smaller brands and manufacturers duking it out with larger names, no industry standards as yet…. Why didn’t this work, you ask? Because the market is large, there are multiple brands, small and large manufacturers are duking it out, there are no industry standards, there is resistance to change and other factors.

13 What we learnt “New Product”
Customers Distribution and Supply Cost: The customer is unwilling to buy the product at current prices Loyalty: The final consumer is highly dependent on Gatekeepers (suppliers) for guidance in product choice We lack expertise in Lamp/Luminaire production OEMs were interested in incorporating our enhanced thermal module in their product Because we were adjacent to and serving the consumer market (Commercial consumers of LED PAR38 lamps), a large part of our customer interaction was with facilities managers and other consumer gatekeepers like architects and distributors. Most of our customers were very aware of advances in the LED lamp space. They kept up to date with brands, prices and incentives for these products. Many indicated awareness that LED lamps need better thermal management and expressed interest in adopting this technology across multiple properties. Most of our interviewed customers had experimented with LED lamps and were very pleased with the performance of these lamps. Advantages included reduced energy consumption and cost, reduced maintenance and inventory cost and the longevity of the lamp. However, they communicated that they were unable to use these lamps on a wide-scale because of the price of these lamps. At current prices, $40 -50, these lamps could not be adopted across commercial properties. Commercial Customers indicated that the desired price range lay in the $15 – 20 bracket. They were willing to wait for up to 5 years for the price to fall prior to wide scale usage of these lamps. Other disadvantages included the directional nature of the beam (requiring more lamps for illuminations), the weight of the lamp and the chance of theft. Commercial customers were aware of NYSERDA and NYPA incentives and do utilize those grants to purchase LED lamps. Many utilize these incentives to buy lamps that were used in properties that were aiming to achieve and maintain LEED certifications. Customers were also highly influenced by gatekeepers. The range was diverse and ranged from contractors, architects and distributors to trade publications in their professional field. The influence of each of these gatekeepers was dependent on the type of commercial customer and the nature of the occupation of each interviewee. Many indicated that they were not very likely to consider changing brands of lamps. We had to pivot! Kandlikar and RIT Team – NSF I-Corps

14 Business Canvas 2 SCRIPT
Arka Thermal Solutions would work in the LED light space. But instead of producing LED lamps, ATS would produce the thermal component – our core technology. Arka would design and produce thermal management components that would then be fitted into LED lamps. We had moved one step upstream; joining, what was earlier, our supplier side to become a component manufacturer for LED lamps. This would allow us to: Focus on our core competency Not have to enter a market that was complex and supplier driven Reduce initial capital investment Have shorter lead times Explore greater scope in product lines Reduce the number of customers, but increase our rapport with them. OEMs said “we are very interested….”

15 MARKET FLOW – Iteration 2
Arka Lights OEMs LED luminaires and Fixtures Distributor Contractor Project/Owner Institutions, Home Owners, Distributors Other Components Arka provides Thermal Modules

16 Heat Exchanger Manufacturer
Here is what we did. Customers Environment Key Partners We would like to enter into a partnership to develop heat pipe based products. Heat Exchanger Manufacturer

17 What we learnt. “New Business Model”
Our competencies lay primarily in the heat pipe industry The most encouragement came from a heat exchanger manufacturer who is looking to expand his product line. Our Business Model iterated; we will now focus on heat pipe based solutions in diverse applications. This market was ideal for a startup with Arka’s genetics. But the business plan had to iterate again. Why? Arka faced certain inherent barriers. The first questions was the flow of design and product. Would we manufacture the product? Manufacture and brand it as Arka? Or outsource manufacturing and brand it Arka? Not brand at all, but court a LED manufacturer, pitch a solution and then work with partner suppliers? Which was the most viable for Arka, why would a partner supplier choose to work with us? And why would a customer choose to work with a partner supplier at all? And so, how could we protect our design? How would we enforce design non-disclosure and protect our core assets? These questions were hard to answer. Each model that it’s advantages and disadvantages. Arka is a very young startup and loss of a vital asset like it’s heat pipe IP would be a devastating setback. We had to come up with a business model that, at this point, would best reflect and capitalize on the core competencies of the founding members. Kandlikar and RIT Team – NSF I-Corps

18 Prototype Results Commercial PAR 38 Arka Prototype 52 °C (max)
Arka prototype runs 15 C cooler, allowing more LED placement per lamp Prototype delivers 100 % more lumens for the same form factor ~30% lower cost/unit for similar lumen output The weight of Par38 is 65 percent lower, and the manufacturing cost is $4.50 (current module costs about $2.20) RIT NSF ICORPS Dec

19 Business Canvas 3

20 MARKET FLOW – Iteration 3
Arka Lights Division? Partnership? Market Design Sources and Technical Experts Heat Exchanger Manufacturer

21 Status Update and Next Steps
Negotiations with Heat Exchanger Manufacturer (HEM) ongoing. Arka provides::IP, heat transfer expertise, design HEM provides: Manufacturing, distribution and sales channels Arka will be proactive in exploring other market opportunities. Additional revenue/cost models will be explored using the methodology of this class Kandlikar and RIT Team – NSF I-Corps

22 Here is what we learnt. The Process: The Market:
Iterations occur organically when you respond to market and consumer needs. Explore unconventional opportunities, be OPEN, and be aware that potential partners may be sitting next to you in a plane. I probably met my future prototyping partner on my way to Stanford. The Market: Understand your customers, channels and partners It’s about money – customer’s, partner’s and yours – respect that without forgetting your core values. Kandlikar and RIT Team – NSF I-Corps

23 Arka Solutions Total Customers Contacted: 86
Arka will make modular, low cost, enhanced heat pipe-based cooling solutions, first for LED lighting, and subsequently for electronics cooling and HVAC applications Tell them where we are now. Total Customers Contacted: 86 RIT NSF ICORPS Dec

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