Steve Blank and Alex Osterwalder have combined their respective methodologies, Customer Development and Business Model Generation, into a powerful business model generation and testing framework. There are several good sources for how these two mesh, including this Jan post on Osterwalder’s blog, here and most recently, in Blank’s SXSW presentation:
Blank’s Customer Development is critical, otherwise speculating what comprises your startup’s business model is just another academic exercise. Arguably, one could easily waste as much time documenting assumptions on your business model canvas as documenting them inside a 40 page business plan. The canvas exposes your hypotthesis and customer development tests them. It’s a laudable ambition to document and test all of your business model canvas components.
But how much is necessary to get going?
All building blocks are not created equal. I believe there’s a natural progression towards figuring out your business model and many blocks are directly dependent on prior blocks. Is it worth the time to document 2nd or 3rd tier blocks before establishing the reality of 1st tier? The answer, of course, depends on you and your business. It doesn’t hurt to go as far as you can at the start, unless the activity inhibits you from getting started, i.e., “getting out of the building.”
To use a rather simplistic example, you might presume that your customer is an enterprise-sized business that requires a field sales force and partnerships with highly technical systems integrators. What if your customer ends up being a medium-sized business that requires SaaS product distribution? Early customer development might very well point you down the correct path from the outset. Some business model components flow naturally from validated core hypotheses.
The real dilemma in my mind is, what do you test first? The key to getting started is to nail the validate of the core hypotheses: Customer, Problem, Solution.
Go to the #CustDev White Board
In our book, The Entrepreneur’s Guide to Customer Development, Patrick Vlaskovits and I developed a white board exercise to help think through business model risk in order to determine what to test first. The key components are:
=> draw the ecosystem around your business as you imagine it, including partners, distributors, customers.
=> determine which are mission critical — in other words, can you get going without any? Which are absolutely necessary?
=> state the value proposition for each mission critical participant — what determines whether or not they join the ecosystem?
=> list the minimum product functionality necessary to get entities to participate.
=> prioritize the risks (technical and market) based on the above.
Ultimately, what you trying to prioritize is: what’s the quickest way to fail your business model. The “value path” of testing your business model runs through testing the the core value proposition of each of your mission critical ecosystem entities. Easiest to test means: what you can test in the shortest time frame.
If building a landing page and driving traffic to it has the potential of killing your present business model hypotheses, then it’s a legitimate “intermediate MVP” and worth testing. But be careful. Are you sure you’re not testing your ability to drive some amount of traffic or your positioning? If a 3rd party API doesn’t provide the hooks you need to develop a critical piece of technology and therefore your business model fails, maybe that’s what you test first.
Documenting the building blocks of your business model = good. Using the #CustDev White Board exercise in conjunction helps you determine what to document and test first.
How do you determine what to test first?