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.