Innovation & Business Models Minder Chen, Ph.D. Professor of Management Information Systems Martin V. Smith School of Business and Economics CSU Channel Islands Web site:

Business Model - 2 © Minder Chen, A Starting Point of Innovation A customer friction is a (re)discovered of relevant and often unmet needs in a recognizable situation from a target group. –Adapted form 1/07/08/solve-customer-frictions/ 1/07/08/solve-customer-frictions/

Business Model - 3 © Minder Chen, Persona A persona is an archetype of an organization’s typical customer, and is defined primarily by a customer’s goals when interacting with the products. They are not real people, but are used to represent real users during the design process. Products generally have a “cast” of personas, ranging from 3 to 8, one of which is considered the primary persona. These are best presented as narratives. Providing a persona with real characteristics: Name Age Photo Candid quotes Personal information Work environment Computer proficiency Motivation for using the product Information-seeking habits Personal and professional goals Evokes a strong sense of empathy in the project team Eliminates the need to design for an abstract, elastic “user group” whose goals and needs are not fully understood Facilitates user-centered design – the focus is now on the goals of your typical customer rather than the project team Source: The ABCs of Personas: Design for People, Design for SuccessThe ABCs of Personas: Design for People, Design for Success and (link)link

Business Model - 4 © Minder Chen, Think Do Empathy Opportunities Insight New business ideas Prototype Feel Look, listen and try it out with our persona (source: link)link Design Thinking with Personas Personas are more then just demographic information, a persona needs to capture the person’s behaviour, belief and philosophy, and more importantly their motivation or intentions.

Business Model - 5 © Minder Chen, Three Attributes of User Experiences

Business Model - 6 © Minder Chen, The Three Lenses of Human-Centered Design People Technology Read “Design Thinking” at HBR at Download PDFDownload PDF

Business Model - 7 © Minder Chen, Elevator Pitch Our business [list name] will deliver [list key deliverables] to [list key beneficiaries] to enable them to [list key benefits]. The business is headed by [list founder and key executives, investors, and advisors] that have [list key background and qualifications]. The business [will launch/was launched] on [date] and we [will begin/began] delivering [first product or service] on [date]. We expect to prove our business model and achieve profitable growth on [date] and anticipate that the terminal value of the business will be [list anticipated value], which represents a [list return] to investors. The total cost to achieve this goal will be [total cost], which includes the following key cost categories [list]. We have currently received [list dollars of funding secured to date] from the following sources [list]. We anticipate receiving the remainder of the funding by [date] from [list sources]. The key risks for the project are [list risks]. These risks will be managed by [list key approached to managing each risk]. Source: Applegate and Saltrick, “Developing an Elevator Pitch for a New Venture.”

Business Model - 8 © Minder Chen, Elevator Pitch Elevator Pitch – What is it? –In the time it takes to ride an elevator from the 1 st to the 10 th floor – explain the gist of your business idea to a stranger! –An elevator pitch conveys the businesses’ key features and rationale in a clear, concise way so that it can be communicated easily to others Who is the primary audience? –Potential investors, customers, suppliers, partners, employees –Anyone who has or could have a stake in your business Why does it matter? –Communicate – What, why, how, where and when –Teaser to generate interest – the upfront hook! –Share a coherent vision of the firm’s goals and high level strategy for achieving these goals –And, last but not least - Raise $$$! –Plus, it might be your only shot!

Business Model - 9 © Minder Chen, Key Issues Overview of the problem your business will solve and opportunity it will address –Why does this problem matter? –How severe is it? –How big is the opportunity? –How fast is it growing? –Why has it not been solved yet? –Why can you solve it when others could not? What value is being created? Who are the primary beneficiaries? –Think about who is capturing the value –Consider that some groups may capture more than others – these represent the ideal first customers

Business Model - 10 © Minder Chen, Products/Services and Competitors What are the products and services that you will deliver to solve the problem How do these products and services meet the unsolved market problem? –Do they immediately solve the entire problem? –Or what is the product and service “path” for getting there? Who are the competitors and why are your products and services superior? –Focus on direct competitors –Consider segmenting direct competitors by type –Why, where and how does each competitor or type fall short?

Business Model - 11 © Minder Chen, Revenues and Resources How do you plan to generate revenues –Short term –Longer term if there is a twist or kicker Hit the high points of your business model –Profitability –Leverage – As revenues and size increases, do gross and/or operating margins improve? –Scale efficiencies - how do the mechanics and economics of your business model scale What are the resources required? –Money – Capital intensity? –Time – core development, unique product versions for different customer types, distribution channel build, etc –Team background and expertise – what are the critical competencies of the team?

Business Model - 12 © Minder Chen, Teaser and Vision Teaser to pique interest –Punchy, crisp and clearly articulated –Incentivizes stakeholders to care by logically presented the case for how the business benefits them –Delivered with confidence but not cockiness –Should leave them wanting to hear more about the details at a later date Communicate a common vision and goals –Everyone on the same page, working toward the same goal –Minimize non-productive activities, speeds up time to market

Business Model - 13 © Minder Chen, Raising Money Raise $$$ –Distilling the essence of your business idea into a few critical points reflects well on you –Strong elevator pitch results in more favorable assessment of your talents by potential backers »VCs would rather back a Grade A management team with a Grade B product than vice versa –Decisions to proceed forward with due diligence are often made on the basis of the elevator pitch and the accompanying follow up conversation by seasoned VCs

Business Model - 14 © Minder Chen, Cash Flow How What Who Source: Alexander Osterwalder & Yves Pigneur, Business Model Generation (Preview version), 2009.Preview version Watch this videovideo

Business Model - 15 © Minder Chen, CLIENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS CLIENT SEGMENTS Describe a Business Model: 9 Building Blocks Offer Cost Structure Cost Structure Customer Relationships Customer Relationships Customer Segments Customer Segments Competencies, Activities, Resources Partner Network Revenue Streams Revenue Streams Distribution Channels Key Issues To Solve Source: Describe and Improve your Business Model Who What How How Much?

Business Model - 16 © Minder Chen, Reverse Engineering Facebook’s Business Model with Ballpark Figures

Business Model - 17 © Minder Chen, Source: “Why the Lean Startup Changes Everything“ HBR 2013Why the Lean Startup Changes Everything

Business Model - 18 © Minder Chen,

Business Model - 19 © Minder Chen, The Use of the Business Model Canvas Describe Discuss Design Challenge Improve Innovate Invent Pivot Choose Your Business Model