What is Open Source Entrepreneurship?

Recently, I commented to Dogpatch's blog which coined the idea of Open Source Entrepreneurship for their philosophy; "the community benefits from a very high level of interactivity and sharing between the members". With the growing role of open source as an enabler of entrepreneurship, I believe that coining the idea carries responsibility and deserves further elaboration.

With EasyPeasy, a community providing an open source operating system for netbooks, I observe that some competitors makes use of open source software alike. They don't, however, share their source code or new builds back with the community  - which in the first place provided them with the opportunity. Open source software may be an impetus to entrepreneurship, but is it mutual? Should open source enabled entrepreneurs contribute back, or does the argument “we give back when we grow big” holds?

With the dissemination of open source software, technology becomes commodity and allows entrepreneurs to shorten development and time-to-market cycles. Since open source software is available to almost anybody, it's not the technology itself, but the application and capacity to meet with customers’ needs that makes it a competitive edge. Consequently, the basis of value creation migrates from "back-end" product development towards "front-end" customer development. For an example, the threshold for putting up a LAMP architecture and yet another Digg-clone script is minimal.

I believe that entrepreneurs that are using open source should share their modifications and extensions from the start. Even in spite of competitive risk. And it is more to it than ethics. The nature of open source methods allows startups to leverage the true value of building user and customer relationships, learn from and test their hypothesis with early adopters. This is essential to user-lead product development which turns out to be a promise of value creation. As with social media, community management becomes a necessity and startups will be able to get a head start when it comes to tapping into their users' needs. When done right the startup will be able to recruit from the open source community, and create market evangelists as they get increased ownership to the product.

There is probably more to it, but I hope that open source entrepreneurship adapts open source software thinking but exploiting it. See also Matt Mullenweg, WordPress founder: Why it pays to stay faithful to open source. In the long run "giving back" will help the open source paradigm to evolve, and in turn spur entrepreneurship.

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The network economy calls for new models – entrepreneurship or management?

Technology changes. Yet, methodology remain. When managers develop strategies for their companies, many still use the methods and tools of the traditional organization. As mentioned in the previous post on the Lean Startup Business Model Pattern, there are new methodologies in town. However, the traditional business strategy formulation frameworks still fail to adapt technology change and the network economy, as well as the understanding of entrepreneurship as process but a whim. I reckon that there are some trajectories especially fruitful for adaption.

  • Take Michal Porter's frameworks for an example. How do you apply the value chain framework to networked businesses, two-sided markets (e.g. social networks, online dating, auction sites, search marketing, credit cards, banks, etc.) where manufacturing is not the locus of value creation [1]. Management and consultants of all colors tend to stand by the former, but are the models still valid?
  • Also consider whether entrepreneurs have the time and resources to sit down and carefully lay out their long-time strategy. Or whether strategy formulation should come as consequence of processes where resources are scarce and uncertainty is extreme. This calls for new frameworks that embrace entrepreneurial learning and change methodologies. To site Steven Blank, A Startup is Not a Smaller Version of a Large Company. Instead early stage ventures require their own tools and techniques.
  • Commodification of web services, API's and social media allows unstructured strategic models to become structured. That is, conceptual models would integrate data about your customers, such as user behavior and demographics to aid in decision support and increased responsiveness. Similarly, how does rapid collaboration and the free flow of information that are made possible with the social web affect the technology adoption life cycle?

The management challenges presented by entrepreneurship are different [2]. Nevertheless, the management challenges presented by the networked economy (read cloud computing, social web, you get it) are different. Network companies create value by facilitating connections between two or more customers. Not by efficiency in A-to-B manufacturing. Too often  managers try to use traditional strategy methodologies when dealing with new technology paradigms. Similar to what Clayton Christensen & co may think of as cramming. When dealing with the introduction of disruptive technologies of any kind, managers still have to align with entrepreneurial approaches. Indeed, there is a need for change methodologies.

[1] There are some excellent work on value networks and multi-sided markets by among others Ø. Fjeldstad and E. Andersen's Casting of the Chains , Tom Eisenmann, and the contributors at the Catalyst Code blog.

[2] This post was also inspired by Is Entrepreneurship a Management Science? by Eric Ries for Harvard Business Review

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What Do You Want To Read About Startup Methodologies?

While talking about user generated content and customer development in general, and in order to learn about my readers, I figured that I would walk the talk. Having some new ideas on the subject of startup methodologies, I would ask of your opinion on what should be my next post. For those of you who would consider the case studies, EasyPeasy is an open source operating system for netbooks. It has 1M downloads with users in over 142 countries, and currently attempts to pivot into the Social OS space.

How to Design Your Business Model as a Lean Startup

If you spend time exploring innovation frameworks you know that their configuration to a large extent apply, assembly or build upon previous work (hat off to science). Here, I explore the conformity of two emerging frameworks: the Business Model Ontology by Alex Osterwalder and the Lean Startup methodology by Eric Ries. The result, the Lean Startup and Business Model Canvas pattern.

Osterwalder's Business Model Ontology proposes a single reference model based on the similarities of a wide range of business model configurations. The business model canvas (used as basis for the illustration above) describes nine building blocks that form a high-concept business model.

Eric Ries coins the Lean Startup, a methodological approach for creating and managing startups using principles of Steven Blank's customer development  methodology alongside agile development methodologies.

The Lean Startup Business Model adopts key principles from the Lean Startup (i.e. agile development and customer development) with the building blocks of the business model canvas. In his recent book, Business Model Generation, Osterwalder uses the notion of Design Patterns alongside the ideas of Christopher Alexander and Tim O'Reilly among others to describe common configurations of business model components. Hence, the Lean Startup Business Model Pattern.

The Lean Startup Business Model Pattern aligns the pillars that constitutes the Lean Startup methodology; customer development and agile software development as well as technology commoditization.

As illustrated in the business model canvas above, one key tenet with the Lean Startup methodology is the Product-Market fit, which optimally results from agile product development, the solution offered, to match with customer development, the problem that is solved for a customer.

The Customer Offering or Value Proposition component of the template can be understood with the Minimum Viable Product concept used with Lean Startup method (see also whole product or doughnut diagram in Crossing the Chasm). The Customer Segments in which the Minimum Viable Product is offered, typically is characterized by early adopters or lead users in the social system.

Eric Ries also speaks of how free and open source software (FOSS) availability and user generated content reduce startup costs. This is typically allocated the Key Resources component. That is, technology leadership is a key resource to a Lean Startup. Similarly, open web hosting services are recognized with the Partner Network component. As is convenient search engine marketing with the Distributions Channels component. Social media supports the Customer Relationship component, enabling user-generated content, viral loops, and interaction with customers.

Data-driven approaches based on customer-centric metrics applies to Distribution Channels, but can be considered a key activity as well. Among the Key Activities are agile software development methods and techniques, and use of metrics (e.g. Dave McClure's AARRR, Startup Metrics) to help a startup measure performance and adjust its direction accordingly.

Although “listening to customers” is considered a technique within the agile development methodologies, this is central not only to customer development, agile development and the Lean Startup – it is also central to Business Model Generation (Emphatic Design), disruptive innovation (Jobs-to-be-done), lead user innovation, and voice of the customer among other customer-centric innovation frameworks.

The conformity of the frameworks is not straightforward though. One challenge is that the level of abstraction differs - think numerator and denominator. How to distinguish between tactics, process, strategy and concepts herein? According to Steven Blank’s customer development methodology (slide #29 in this presentation), product development and customer development can be viewed through the tactical lens, while the business model view could be viewed through the strategic lens. Osterwalder understands business models as a facilitator between business processes and strategy. Myself, I would start from the premise that strategy or goals often come as consequence of continuous learning in early stage ventures where resources are scarce and uncertainty is extreme.

Another challenge is how to make the pattern illustrate iterative development and internal feedback loops that are fundamental to the Lean Startup methodology. When working with models and methodologies there is a general challenge in uniting behavior (process) and structure; to what extent the two frameworks are integratable in terms of methodologies and notations.

Borrowing from areas such as software engineering and system dynamics, future work would envision a tool that aid in rapid entrepreneurial learning and aggregates key metrics in order mitigate risk in new-product introductions.

Further discussion should consider which principles from the Lean Startup methodology that should be included in the Business Model Pattern and where they belong. Coming up, I will address how a startup could use this pattern to validate their business model as a part of their lean methodology. Stay tuned.

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