Book SummaryBusiness Model Generation, by Alexander Osterwalder and Yves Pigneur

1-Page Summary1-Page Book Summary of Business Model Generation

Business Model Generation, by innovation experts Alexander Osterwalder and Yves Pigneur, is a contemporary guide to systematic business innovation. We’ll look at the book’s basic template, the most successful business model formulas, and strategies to create or optimize your existing business model.

(Shortform note: Many experts agree that the average lifespan of successful business models has fallen to less than five years. Therefore, to achieve a sustainable competitive advantage, businesses need to continually evaluate and redesign their business models.)

The Business Model Template

Osterwalder and Pigneur developed a flexible template, which they refer to as the “Business Model Canvas,” to help you understand and focus on the nine overarching elements that they believe make up any successful business model. The template offers a visual framework to describe, assess, update, or design business models. You can use it to analyze the strategies of your competitors, to evaluate or to create new strategies for your existing business, or to design an entirely new business.

(Shortform note: The Lean Canvas is a popular adaptation of the Business Model Canvas. Developed by Ash Maurya, the author of Running Lean, it’s designed specifically for action-orientated start-up companies that rely on continuous experimentation to develop their products and services. Consequently, it places more emphasis on defining customer problems and identifying competitive solutions.)

The 9 Elements of the Business Model Template

Osterwalder and Pigneur encourage you to consider each of the nine elements as interdependent components that impact the effectiveness of the other elements. In other words, changes to one element can impose constraints or amplify the effects of other elements. Therefore, as you work on your business models, consider how you can leverage all of your elements to work together.

Element 1: Define Your Customer Groups

Define the different groups of customers your business intends to target—Osterwalder and Pigneur refer to this element as “Customer Segments.” You may serve one group of customers or several groups of customers depending on the needs you intend to fulfill.

The Four Steps to the Epiphany by Steve Blank emphasizes the importance of identifying and validating your customer groups before you develop your business model. The book includes a four-step customer development process to help businesses effectively define and target customer groups.

Element 2: Define Your Touchpoints

Define your touchpoints, how you’ll communicate with your customers and deliver your products and services—Osterwalder and Pigneur refer to this element as “Channels.” For your communication, sales, and distribution, you have the option of using your own touchpoints (assets under your direct control such as your website or your store), or partner-owned touchpoints (external touchpoints that result from cooperation with marketing agencies or distribution partners), or a mix of both. In addition, the authors also make a distinction between direct touchpoints (communication you control such as your blog), and indirect touchpoints (communication you can’t control such as user reviews).

Touchpoints and Interactions (Element 3) are closely linked—consider the level of interaction you want to have with your customers when defining your touchpoints.

Businesses tend to assume that more touchpoints will lead to more customers, so they work hard to create multiple interaction points across the five stages. However, research indicates that too many touchpoints can reduce the quality of service that you deliver and damage customer experience. Customers care more about the quality of service you provide than what touchpoints you use—you’re more likely to create successful channels if you prioritize the development and integration of fewer touchpoints.

Element 3: Define Your Interactions

Define the type of interactions you want to establish for each of your customer groups—Osterwalder and Pigneur refer to this element as “Customer Relationships.” The authors advise that you consider what your motivations are for communicating with your customers as your approach will differ depending on whether you intend to acquire new customers, retain existing customers, or upsell to existing customers.

Brand relationship experts have identified 29 different types of interactions that customers expect from a business—they use relationship metaphors such as “one-night stand” or “marriage” to clearly define each interaction. These experts argue that businesses can’t understand or leverage customer relationships unless they collect and analyze the relationship signals their customers send.

Element 4: Define Your Value Offer

Define how you intend to offer value to these customers—Osterwalder and Pigneur refer to this element as “Value Propositions.” Your value offer outlines the benefits you intend to provide in the form of products and services. The authors state that successful value offers align with the needs of your customers and differentiate themselves from existing solutions.

Businesses often associate value creation with competition—they assume that they need to offer something that...

Business Model Generation Summary Shortform Introduction

Business Model Generation, by innovation experts Alexander Osterwalder and Yves Pigneur, is a contemporary guide to systematic business innovation. Co-created by 470 practitioners from across 45 countries, the book provides a template for brainstorming and visualizing the overarching elements that make up a successful, holistic business model.

With this template, the authors analyze the different ways you can combine these elements to create successful business model patterns. In addition, they provide techniques you can use to generate your own innovative business models, as well as strategies you can incorporate to regularly analyze and optimize your existing business models.

About the Authors

Dr. Alexander Osterwalder is an entrepreneur and highly respected strategy and innovations expert. Osterwalder has co-authored a number of books on the subject of business strategy and innovation:

• High-Impact Tools for Teams: 5 Tools to Align Team Members, Build Trust, and Get Results Fast, co-authored with Stefano Mastrogiacomo
• _[Testing Business Ideas: A Field Guide for Rapid...

Business Model Generation Summary The Business Model Template

Business Model Generation, by innovation experts Alexander Osterwalder and Yves Pigneur, is a contemporary guide to systematic business innovation. Using their business model template, the authors analyze the different ways you can combine these elements to create successful business model patterns. In addition, they provide techniques you can use to generate your own innovative business models, as well as strategies you can incorporate to regularly analyze and optimize your existing business models.

(Shortform note: Many experts agree that the average lifespan of successful business models has fallen to less than five years. Therefore, to achieve a sustainable competitive advantage, businesses need to continually evaluate and redesign their business models.)

In this chapter, we’ll first briefly define what the Business Model Template is. Next, we’ll explore each of the nine overarching elements that you need to consider to create a successful business model.

What Is the Business Model Template?

Osterwalder and Pigneur developed a flexible template that they refer to as the...

Shortform Exercise: Create an Overview of Your Business Model

Create an overview of your business model by focusing on the what, who, and how of your value offer.

Think of one product or service you intend to offer. What value does it offer? What problem does it solve?

Business Model Generation Summary Business Model Formulas, Part 1

Osterwalder and Pigneur argue that you can combine the nine elements into distinct patterns to create specific outcomes for your business. To illustrate this, they present patterns they claim are common across all successful business models—a single business model can include several of them. Once you familiarize yourself with these patterns, you’ll understand how the combination of certain elements can create dramatically different results, and you’ll be better prepared to manipulate the elements to successfully position your business.

(Shortform note: The Business Model Navigator presents an alternative way to approach business model patterns—it offers 55 patterns that you can pick and choose from, manipulate and combine to suit your needs. This method may be more suitable for established businesses looking to innovate existing business models.)

In this chapter, we’ll look at the first three formulas: Unbundled, Long Tail, and Multi-Sided Platforms. In the next chapter, we’ll explore the remaining two formulas, Free and Open, as well as specific formulas for nonprofit and...

Business Model Generation Summary Business Model Formulas, Part 2

In this chapter, we’ll look at the remaining business model formulas: Free, Open, and specific formulas for nonprofit and beyond-profit organizations.

Formula 4: Free

The Free business model pattern ensures that at least one customer group always receives value for free. While different patterns make the model financially viable, Free users are always financed by another part of the business model or by another customer segment. Osterwalder and Pigneur categorize Free models into three groups, based on where their revenue comes from: advertising, premium services, and continuing purchases.

Advertising

In this model, Multi-Sided Platforms encourage advertisers to subsidize free users. For example, the revenue that Google receives from advertisers enables Google users to make unlimited searches for free. The more free users, the more advertisers are willing to pay to access these users.

Osterwalder and Pigneur suggest the following priorities for Free business models subsidized by advertising revenues:

...

Business Model Generation Summary Innovation and Strategy Techniques

Now that you understand the most common business model formulas, we’ll look at techniques you can use to generate innovative ideas to adapt or create your own business models. We’ll also explore strategies you can incorporate to help you regularly analyze and optimize the effectiveness of your business models. The following nine techniques will help you develop, test, and evaluate your business model:

Part 1: Innovation Techniques

• Technique 1: Generate Innovative Ideas
• Technique 2: Empathize With Your Customers
• Technique 3: Create Visual Representations
• Technique 4: Build Detailed Scenarios
• Technique 5: Create a Story to Communicate Your Business Model

Part 2: Optimization Techniques

• Technique 6: Prototype Multiple Versions of Your Business Model
• Technique 7: Use a SWOT Analysis to Evaluate Your Business Model
• Technique 8: Use Blue Ocean Framework to Evaluate Your Business Model
• Technique 9: Align Your Organization and Resources

Part 1: Innovation Techniques

Technique 1: Generate Innovative Ideas

Osterwalder and Pigneur argue that you first need to generate and evaluate a large number of ideas before you can come up with viable options to...

Shortform Exercise: Challenge Assumptions to Generate Ideas and Solutions

Sometimes, we get stuck on seeing things a certain way and find it difficult to think of more efficient or creative alternatives. Reframing questions can help you to challenge your assumptions to generate new ideas and solutions for your business model.

Think of one product or service you intend to offer and the customer group you intend to serve. What is the worst possible feature you could add to this product or service? What would upset your customer group?