Business models of development
Yet as powerful as the Business Model Canvas (a template with the nine blocks of a business model) is, at the end of the day it was a tool for brainstorming hypotheses without a formal way of testing them.
Business Model Design Gets Dynamic, Customer Development Gets Strategic
One of the key tenets of Customer Development is that your business model is nothing more than a set of untested hypotheses. Yet Customer Development has no structured and systematic way of describing a business model.
In the last year I found that the Osterwalder Business Model canvas could be used for something much more than a static planning tool. I realized that it was the launch-pad for setting up the hypotheses to test, and a scorecard for visually tracking iterations and Pivots during Customer Discovery and Validation.
Meanwhile on the other side of the world Alexander Osterwalder was coming to the same conclusion: tying the two processes together would create a “strategy stack for entrepreneurship.” We got together this weekend (along with our partners Alan Smith and Bob Dorf and my student Max Marmer) to try to integrate the two.
Business Model Design Meets Customer Development
In its simplest form the way to think about the intersection of the two processes is that you start by designing your business model. Next, each one of the 9 business model canvas boxes then directly translates into a set of Customer Discovery hypotheses that are described in Customer Development and the Four Steps to the Epiphany.
Pivots and Iterations
Many entrepreneurs assume that the assumptions in their original business model (or business plan if they wrote one) will be correct. Confronting the reality that one of these hypotheses is wrong (finding out you have the wrong sales channel, revenue model, target market or customer) creates a crisis.
Tying Osterwalder’s Business Model Canvas with the Customer Development process turns these potential crises into learning opportunities called the Pivot. Customer Development forces you to get out of the building and discover and validate each one of the assumptions behind the business model. A Pivot is when reality leads you to change one or more business model hypotheses. The result is an updated business model not a fired VP of Sales.