5 vital steps often neglected by product managers

Ash Maurya, the creator of the lean canvas, famously coined the phrase ‘the business model is the product’. 

Maurya’s point was that most of us are more passionate about our solution than any other part of the business model. This tendency left unchecked over time can become a major problem, regardless of how innovative or successful your solution is. 

Worth noting that I have been guilty of getting too close to the product and taking my eye off the business model myself! It comes from my love of creating things and overcoming problems. Taking a step back and seeing the bigger picture of the business model has helped me become a more strategic and effective product leader.

I am a huge advocate of taking a human centred centred approach to creating and optimising value propositions, however, the long term success of any product requires a more broad and constant attention across the full range of levers that sit within the business model that underpin your product. 

The evidence of getting this wrong includes a long list of once dominant companies who have reached the heights of success only to stall and crash down to earth.
Jeff Bezos captured this well in his reference to Day 1 and Day 2 companies.

“The outside world can push you into Day 2 if you won’t or can’t embrace powerful trends quickly. If you fight them, you’re probably fighting the future. Embrace them and you have a tailwind” — Jeff Bezos

Jeff Bezos has famously called Amazon a Day 1 company. The term “Day 1” originated from Jeff Bezos 2016 Letter to Shareholders, where he sketched out a philosophy that he calls “Day 1” and “Day 2”. This idea came about in the very early days of Amazon where Bezos occupied a building called “Day 1”, named as a reminder the company should always be in “Day 1” mode. 

Bezos sees “Day 2” a stasis, or worse the reversal of the “Day 1” concept followed by irrelevance and then excruciating, painful decline…and then death. 
Rob Llewellyn from CXO Transform, recently wrote a post touching on this as part of his commentary around the four stages of disruption

Stage-1 — is the early stage of disruption when established companies feel almost no impact to their business. Loss of market share is blamed on other factors such as Covid-19.

Stage-2 — a new industry trend becomes apparent and new business models get validated on a small scale — often by start-ups run by young people with little if any experience in the industry.

Stage-3 — is when new business models prove themselves to be superior, which is when established firms are forced to prioritise transformation, and some executives with old beliefs get replaced.

Stage-4 — disruption reaches a point where companies have no choice but to accept the fact that their industry has fundamentally changed. Their old business model fades away into nostalgia — like little rolls of Kodak film.
The objective of this post is to help you place greater focus on your business model (vs. the product) and assess what you might do differently now vs. find yourself facing the unfortunate situation of your business being left behind.

Taking the first steps to understand and define your business model:
As a product manager, a big part of your role is to create, launch, manage and evolve your product over time. In doing so, are you able to explain the business model you operate within? Additionally, how often have you questioned the business model vs. the product itself?

Fortunately, there are some excellent tools available to help you and your business assess your current business model, refine it or define an entirely new one.
To help with this task, I’ve noted five essential steps towards getting into the habit of paying more consistent and effective attention to your business model.

Step 1: What is your starting point?
Are you starting from scratch with an entirely new proposition? Or, are you looking to enhance or reimagine an existing proposition? Depending on your answers to these questions, some of the tools I mention below may provide differing levels of value.
Interestingly, the underlying approach you might take in using the appropriate tools are very similar. Specifically, to take a rapid, learning based approach to understanding the best business model to gain traction with your target customers.

Step 2: What kind of business are you in?
In Ash Maurya’s Lean Stack, he provides a simple way to consider the business model you are operating within based on three business model archetypes:
Ash Maurya — Lean Canvas

Direct:There is the customer and you. You sell direct to them. An example of this is your local pizza shop where your customer walks in and you sell them a pizza. This is one of the more common archetypes.

Multi-sided:This model includes ‘users’ and paying ‘customers’. Google is an example of this where the users are those who conduct searches on Google (for free) and the paying customers are the advertisers. Google of course needs to cater for the needs of both the user and customer, but it is the ‘customer’ who ultimately pays for exposure/access to the user.

Market place:Marketplaces are a special case of multi-sided models where you also have 2 actors but instead of users and customers, you have buyers and sellers. Both of these actors are considered to be customers. Ebay is an example of a marketplace model. This model provides added scale to the revenue potential by providing a way to earn revenue from both the buyers and sellers. Amazon, AirBNB and Uber are some of the dominant players using this model.

Step 3: Choose your tool.
This is where things can get confusing. There are a plethora of tools available to evaluate, define and refine your business model.

Lots of tools = potential for overwhelm = get nothing done.
To help you more easily identify which tool might be useful, I’ve provided a brief summary of some of the more well known (and in my opinion, more useful) tools below. Each plays an important role depending on your starting point as outlined in step 1 above.

The Business Model Canvas, created by Alexander Osterwalder from Strategyzer. 
This tool is the granddaddy of simple business model tools. It was the first to simplify the business plan down to a single page and many alternate versions have emerged based on this version. 

Although the Business Model Canvas can be applied to almost any business context, I’ve found it work best for those with a pre-existing business model. The tool helps to visualize and communicate a simple story of your business model and areas to improve and can be used to manage a larger portfolio of business models providing a way of juggling between “Explore” and “Exploit” business models. 

Strategyzer Business Model Canvas
You can read more about this as well as download the canvas for free at the Strategyzer website.

The Lean Canvas — from Ash Maurya is based on Alexander Osterwalder’s Business Model Canvas, however, has a few tweeks aimed at optimising the canvas as a learning based tool to iterate your business model. 

In my opinion, Maurya’s Lean Canvas works best for new businesses or start-ups as the canvas provides a more accurate and simple way of reflecting on and iterating your business model over time. 

Lean Canvas — Leanstack.com

The tool can be downloaded for free at LeanStack

Business Model Navigator — the St. Gallen Business Model Navigator created by Oliver Gassman, Karolin Frankenberger and Michaela Csik of BMI labs. It is their belief that 90% of all new business models have recombined already existing ideas, concepts and technologies. Based on this premise, they evaluated hundred of business models over the last 25 years and from this distilled 55 business model patterns common to these. You can view all of these here. These patterns provide a handy reference to reflect on some of the options available to you that you may have never considered. Analogy is a powerful tool for ideation and the BMI Lab patterns and workshop process help to facilitate the exploration of what has been done before and how this might be applicable to your business.

Accompanying the Business Model Navigator is an extremely simplified and useful tool, the business model pyramid. The model outlines in a very simple way the 4 key elements that a business needs to consider in exploring opportunities to create a new business or to transform an existing business model. I find this model great for initial discussions / back of napkin thinking around new business models. Using this model also helps to foster conversations that quickly delve into the core of a business model and the underlying assumptions.

Step 4: Assess your business model 

Strategyzer has recently added to their series, “The Invincible Company”, which includes new tools and frameworks to help you assess your business model. The assessment covers 9 questions across three of the core areas of the business model covering:

Front stage factors: Market size, access to customers and ease of customer switching.

Backstage factors: Your position around resources, activities and ability to scale.

Profit formula: Revenue, cost, margin considerations.

Strategyzer Business Model Assessment

To conduct your own assessment using this tool, check it out on the Strategyzer business model assessment page.

Step 5: Test and iterate the business model 

Now that you have taken the steps to define a business model it is time to put the model to the test! This is where the rubber hits the road.

The common denominator in using the tools above is to take a learning based approach. It is the best way to gain a real understanding of whether your business model assumptions stand true in the real world.

Worth calling out, this will not be a process that will happen overnight! It will take continuous iteration, effort and diligence. Know that failure is the default! Therefore, it pays off to move fast and take a measured and disciplined approach to iterating your business model until it begins to show evidence of gaining traction or leads to a pivot to an alternative option.

Business model testing tools:
So what tools might be available to help you and your team conduct business model testing? There are many resources out there with some of the best available for free from Strategyzer.

Four of these tools are noted below including the useful business model testing reference guide.

Strategyzer Testing Tools

In closing, I wish you all the best with your journey to continuously evaluate, test and refine your business model and ultimately, stay ahead of the pack! 

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