Alexander Osterwalder:


028 – Inventing The Future with Business Model Innovation with Alex Osterwalder

036-Inventing the Future with Business Model Innovation Alex Osterwalder of Strategyzer Innovation Ecosystem

Alexander Osterwalder:


028 – Inventing The Future with Business Model Innovation with Alex Osterwalder

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Alexander Osterwalder is an entrepreneur, author, business model innovator, and co-founder of Strategyzer, a SaaS company that helps organizations develop better growth engines, powerful business models, and so much more. On this week’s episode, Alex discusses the innovative way he wrote the Business Model Generation book and explains why the Business Model Canvas is an excellent tool for businesses looking to challenge their current business model.

02:55 – Why did Alex write the book, Business Model Generation.

04:00 – How Alex crowd sourced the book.

09:00 – What is the Business Model Canvas all about?

11:15 – There is no such thing as the one and only business tool. You need to combine tools based on your needs.

17:15 – What kinds of conversations is Alex hearing from the C-suite executives about business models?

19:40 – How do you price a cure that’s going to heal people with one injection?

21:35 – You can still be innovative on inferior technology.

24:00 – We’re still stuck in the last century when it comes to developing innovation.

29:00 – There are some great lessons you can learn from Expresso.

34:15 – Large corporations are trying hard to be innovative, but only a few of them are able to succeed.

36:55 – What is Alex’s business model?

41:55 – What has Alex changed his mind about recently?

43:40 – What does Alex do to remain creative?

44:35 – What does Alex attribute his success to in life?

Summary

Alexander Osterwalder is an entrepreneur, author, business model innovator, and co-founder of Strategyzer, a SaaS company that helps organizations develop better growth engines, powerful business models, and so much more. On this week’s episode, Alex discusses the innovative way he wrote the Business Model Generation book and explains why the Business Model Canvas is an excellent tool for businesses looking to challenge their current business model.

Alexander Osterwalder

Alex is entrepreneur, speaker and business model innovator. He is co-founder of Strategyzer, a SaaS company that helps organizations develop new growth engines, better value propositions and powerful business models via online applications and facilitated online courses. In 2015 Alex won the strategy award by Thinkers50, called the “Oscars of Management Thinking” by the FT, and ranks #15 among the leading business thinkers of the world. In 2013 he won the inaugural Innovation Luminary Award by the European Union.

What Was Covered

02:55 – Why did Alex write the book, Business Model Generation.

04:00 – How Alex crowd sourced the book.

09:00 – What is the Business Model Canvas all about?

11:15 – There is no such thing as the one and only business tool. You need to combine tools based on your needs.

17:15 – What kinds of conversations is Alex hearing from the C-suite executives about business models?

19:40 – How do you price a cure that’s going to heal people with one injection?

21:35 – You can still be innovative on inferior technology.

24:00 – We’re still stuck in the last century when it comes to developing innovation.

29:00 – There are some great lessons you can learn from Expresso.

34:15 – Large corporations are trying hard to be innovative, but only a few of them are able to succeed.

36:55 – What is Alex’s business model?

41:55 – What has Alex changed his mind about recently?

43:40 – What does Alex do to remain creative?

44:35 – What does Alex attribute his success to in life?

Hello, this is Mark Bidwell of the Innovation Ecosystem. With me today is Alex Osterwalder, who is the author of two seminal books on innovation. Alex, very good to have you on the show today.

It’s my pleasure. Thanks for inviting me.

So Alex, we’re both in Switzerland. You’re an hour and a half south from me. Now, what would be interesting, I think, is just to start the conversation by telling us how did you come to write this book which has sold so many copies, Business Model Generation. What led up to that?

So, the start was actually about doing a doctoral dissertation with my now long-time co-author and friend, Yves Pigneur. He was looking for somebody to work on business models, and he was my favorite professor. So, when he had an opening for a research position, I joined, and from then on, we started working on all these business tools that we came up with so far. So, the basis, if you want for the books that we published are in PhD research. So, that was a PhD on business models. It was called “The Business Model Ontology”. The word alone gives you a doctoral title. Then, after that, we just wanted to make all of this more accessible, more practical, so we decided to write a book in 2008, and we self-published it in 2009, and then sold the publishing rights to Wiley in 2010.

The process was very innovative because it was essentially crowdsourced, wasn’t it?

Yeah, so we thought you can’t write on business model innovation without doing it. That wouldn’t be very credible, wouldn’t it? So, we asked ourselves what could we do, and we came up with a lot of different potential prototypes for this book, and some more complicated to do, and some less complicated, and we decided to do a couple of innovative things. Some worked, some didn’t. What did work is that we self-published. We thought, today, it’s relatively easy to self-publish, not that easy to reach a million strong audience. Got there eventually.ie28-alex-osterwalder-key1

But, we also decided to co-create. Basically, we sent out every book chunk that we wrote in a very raw state before the visuals were finished, before we did all the wordsmithing, and people could give feedback. So, we had 470 people join us, and they all paid, actually, to be part of this because they wanted to be part of a potential bestseller. Now, they all have their names in the book and they would give us feedback on every single word we wrote. They would even help find the title of the book. So, that’s part of the story.

We also self-published, meaning we had to take care of all of the logistics, we worked with a logistics company. That completely failed. I ended up going to the post office. I was really entrepreneurial. But then we eventually moved to our initial plan A, which became plan B, and became plan A again. We started selling through Fulfillment by Amazon over Amazon, which was a great experience, and really entrepreneurial. Then in 2010, we decided to sell the publishing rights to Wiley because we wanted to move on from this book experiment, which was an absolutely great first phase, great experiment, and I do think that whole experiment actually helped create the foundation for our success.

That’s interesting. I don’t know whether you read the science fiction book, “The Martian”, but he did exactly the same thing and turned it into a bestseller. It’s one of these few science fiction books that was recommended by the Financial Times on the front cover. So, that’s how I stumbled across it. But, when he was trying to sell the rights, he said, “There’s a slight problem here. There are probably 50,000 copies of this book floating around cyberspace,” and luckily, the publisher saw the potential of it. But the crowdsourcing model is a very innovative and very timely model these days, of course, isn’t it?

Yeah, it makes it very vulnerable, as an author, when you put out every piece you write. At an early stage, people give you feedback and they can tell you, “Look, in the reality, the world looks differently. This is how we work. This doesn’t make sense.” We would have to push back and either explain why we made certain choices, or if enough people pushed back, revise our initial thoughts and come up with something better. In particular, when things were unclear, they would push us and then say, “This is not very clear. What are you trying to achieve here?” So, every single page of the book, if you want, because we designed it in book spreads. There’s no message that goes beyond a double page. Every single message we put into that book was scrutinized from the beginning. So, that makes it very vulnerable but it also makes for a stronger book, because you stress test it in up front.

That was before we learned about this whole Lean Startup methodology which is about testing your ideas before you scale them. Here, we did it intuitively because we thought the practitioners out there have a lot of experience. Us business authors, we have some experience, but if we can build on the experience of 470 people rather than just ours, it will be a better book.

Well, it’s funny you mentioned lean startup because before we met, when I took over the business unit at Syngenta, the two books I gave out to my team was your book, Business Model Generation, and Lean Startup, and they were the kind of core readings. Of course, as you said, you implemented the lean startup without knowing you were doing it in the sense of the publishing process, which is nice. I think you said on your site that the canvas, which is the central element of the book, if you’d like. The Business Model Canvas itself is used by, I think, five million people. It’s in use by five million people around the world. That was the latest number now. But, a lot of people use the canvas. Perhaps you could just — for those who aren’t familiar with the canvas and we’re going to put it in the links in the show notes, but perhaps you could just describe the canvas at a very high level, and then maybe answer the question, why has this received so much traction and attention in organizations? What’s so special about this canvas?

It’s a very simple tool that allows you to describe how you create, deliver, and capture value, and it has nine building blocks. You could call it a template if you want. I think it’s more sophisticated than that, ultimately, because you can do a lot of things with it. It just describes the nine essential building blocks any business has, whether you’re a large division of a large company, or if you’re a startup, or even an individual business. There are nine questions you need to answer. Who are your customers? What are you offering them? Through which channels are you reaching them? What’s your customer relationship? How are you earning money? Then how do you make all of this possible with the key resources, key activities partners, and resulting in costs.

When you map out those nine elements, you have all the essential building blocks of your business, and that will lead to the financial equation, hopefully, of making more money than you’re spending. So, it’s really a sketch of how you’re creating value for your business. One tool doesn’t do it all. We designed the Business Model Canvas for one single job to be done, which is describing the business model of how you create value for your organization. Now, when you do business, you need to use several tools because you have several different jobs to be done. If you’re aiming to describe how you’re creating value for your customers, how your products and services are creating value for your customers, you will use a different business tool. We created one called the Value Proposition Canvas. Just recently, we came up with a new one called The Culture Map, which is based on work from Dave Gray. So, we helped him turn it into a tool.

So, I think the business practitioner of today and tomorrow will increasingly use several different business tools together to do a great job. Any business thinker who says, “I have the tool that will help you,” like magic is simply delusional, or just wants to sell more speaking gigs. The reality is we need to use the best business tools out there together, and they are very likely to come from different business thinkers, and we need to create bridges between these tools so business practitioners can do a better job. I don’t think sitting around a table in meetings and having conversations simply based on our past experience and our smart knowledge and great education is going to do it. These blah-blah-blah meetings are just not enough anymore. I think those companies who are good at designing tools into their processes and the right kind of mental mindset to boost innovation, they’re going to win.

Because the students I see coming out of business school are equipped differently. They don’t just master the execution and management of businesses, which is the traditional domain of business schools. They have a great tool set now to create new businesses, to create new growth engines, and they will eventually replace the older guard that doesn’t have that toolbox and tool set yet, and the knowledge of how to use it.

ie28-alex-osterwalder-key2As you say, the canvas, essentially, what you’re able to do is you’re able to map any business in any industry onto a one-page document, which then is a basis of a conversation across functions across different components in the industry. So, is that really where the value lies? Do you think that it creates a common language and a common unit of analysis, if you’d like?

Yeah, and we did some research to validate that because we were intrigued by the success of the Business Model Canvas and even as an academic, I was an academic. I’m still on that part, I still am. We wanted to understand why did this tool have so much success, because we were not the first to write about the topic. So, it was not the only tool out there, and it still isn’t the only tool out there, but it got out an enormous amount of traction. No other tool, curiously, got as much traction, and what we did learn is that what people really value is a couple of things. Probably the most important one is share language. But also, what you’ve mentioned, this ability to create a business model, or talk about a business model across different functions. If you’re having the IT people, the technology people, the marketing people, and the finance people around one table, it’s very likely that they don’t speak the same language.

So, with a tool like this, with the Business Model Canvas and the other tools, you can make business topics that are usually pretty abstract, like a business model, a lot more tangible. The question is, of course, why today? Why did this topic take off today, and these days? And my here, it’s more of a hypothesis. My hypothesis is that 20 years ago, we weren’t questioning our business models. You were in an industry and everybody basically had the same model. It’s what Kim and Mauborgne would call a red ocean from the blue ocean strategy. Everybody would compete on the same business model. They would compete mainly on price and quality of the product, and maybe on product innovation, coming up with new products.

Today, companies are increasingly competing with different business models. Think Amazon, think Google, think Microsoft even. They’re competing in similar spaces with very different business models. Google earning money from advertising, Apple earning money from hardware, mainly, and a lot of other sources, but still the main source. And Amazon initially earning money from retail, but now also from business to business. So, they’re all competing in similar spaces, but all with very different business models.

The unit of analysis today really is the business model, so we’re forced to rethink business models, and business models expire faster than ever before. In this kind of context, if you don’t have a tool or a concept to make sense of business models, you’re lost. You’re going to be killed, you’re going to be disrupted. So, it was almost like filling a vacuum with something that helps senior executives and entrepreneurs make sense of this relatively new topic. It’s a relatively new topic that we need to rethink business models. It’s just that it’s now, which is really fun to watch, it’s affecting companies in every single industry. What started out more in digital is now a reality for pharmaceuticals, for banks, even for the nuclear industry, we’re seeing companies in that space using the Business Model Canvas. Business models expire faster than ever before. I like to say business models have an expiry date like the yogurt in the fridge.

I’m glad you said that. I’m curious. You got where I was going very quickly. Beyond the Apple and the Google and the Amazon, which are the traditional models that are put out there fairly frequently in the context of business models. Those are tech-enabled B2C. Now, we’re sitting in Switzerland, and within a couple of miles of me, there’s three companies with a combined market cap of half a trillion dollars. A couple of pharma companies and ag company, and there’s also a big bank as well. Where you are, I guess, there’s a lot of MedTech, there’s some technology firms, but you’ve got Nestle up the road as well.

For a lot of our listeners, I think, are in the more mature industrial business to business long-product life cycle companies who are beginning to feel at risk of disruption, but they’re not based in Silicon Valley, necessarily, at the risk of a new software program coming out and stealing their business. What do you see? Because I know you work with some of these organizations. What kind of conversations are you hearing in the executive suites now around business models? Let’s get really specific. Around a pharmaceutical company, for instance. Can you give us a sense of how big an issue is this and how that’s evolving?

Let’s take the two big topics that companies like pharmaceuticals, or even take Nestle down the road here, or banks that they’re very concerned about. One is, indeed, disruption, but I don’t think that’s the biggest thing on the minds of many of these established companies, though it probably should be. The other one is simply growth. You know, it’s harder and harder to create substantial growth year over year when you reach a certain size. If you take Nestle as an example, they have this ambition of growing 5 to 6 percent every year. But, if you make 100 billion Swiss francs in revenues, growing 5 to 6 percent means adding a 5 to 6 billion Swiss franc or dollar business every single year. With all this talk about Unicorns, this challenge, the big companies of this world, they have to continue to grow.

Traditionally, they could grow in emerging markets, but once these markets are saturated, how do you grow? You actually need to innovate, and that, I think, is not the core skill of many of these companies. These companies take the pharmaceutical industry, banking industry, food industry here. They are excellent at execution and managing existing businesses with existing business models – world class. Nestle has been around for 150 years. You don’t remain relevant for 150 years and you don’t stay the biggest food company if you’re not good at managing your existing business and incrementally improving it, and growing in emerging markets, and with new product lines.

But, that growth is really coming to an end. What we now need to figure out is how do we grow beyond the business models that have worked for so long? How do we create new growth engines, and actually while this is really happening in all the established companies, I think the ones we can learn from are unfortunately still some of the tech companies. But, let’s remain with the established players for a moment. Think of pharma. How do you price a cure that heals you with one injection? Nobody’s going to pay that insane price, yet for the pharmaceutical industry, they actually want to bring those drugs to the market for healing with a single shot. It’s just that if they do it at a low price, they’re completely undermining their innovation. Those are real challenges. You cannot solve them with the existing business models, so you really have to come up with new, new ways of figuring out how do we build a business around a curve that is substantially different.ie28-alex-osterwalder-key3

So, those are the real challenges, but I’d like to challenge the assumption that innovation always has to come from new technology. I think that’s a myth and it’s a very dangerous one, and I’ll just give you one example and then come back to the Swiss banking industry. The example that shows us that you can create a better and more profitable and bigger business model with inferior technologies is the Nintendo Wii. So, what they did is they brought a console to the market with the Nintendo Wii. That was back when we still had the Sony Playstation 2, where they disrupted the gaming industry with an inferior technology. Imagine that. And it’s because their business model was not inferior. Their business model was superior. They were targeting a larger market – casual gamers – contrary to the other companies who were targeting a niche market – hardcore gamers – and they targeted them, these casual gamers, with a value proposition that really catered to their needs, which was just the more fun experience, but based on the Wii Remote, which was very fun but didn’t actually cost a lot in terms of technology innovation. So, you can innovate based on inferior technology. That’s just the first thing that I want to clarify is this myth that innovation is based on technology. It’s not the case.

I think we’ve talked about the NuCoffee example in Syngenta, which is this double-sided model where there was no new technology. It was just wrapping services around existing technology.

That’s great. I think a lot of the people who are in innovation, they get that, but not everybody.

Fair enough.

I think the other one, just if we take the banking industry as one example of many, when we say innovation and banking today, we talk about FinTech. Yes, surely, a block chain is going to change a lot, and we’re going to see some crazy disruptive innovations around that. But, when you look at the fundamental problem of banking, it’s better value propositions. If you ask customers, banks could actually do the same thing, customers of business books, same thing, you will learn that the value propositions today are not very satisfying for customers. It’s just that none of the banks, just like none of the business book publishers are really pushing forward on better value propositions, which may or may not be based on new technology.

So, I think we’re often kind of looking at innovation from the wrong angle, and the way I like to frame it is I ask senior executives around the world how much their company invests in R&D, research and development around product and technology. Those are huge sums. Maybe not in banking, but in many industries, R&D is a huge, huge, huge established position. It’s institutionalized funding which goes into the billions. Now, if you take that number and you ask yourself, “How much of that money is allocated to finding the right value propositions and business models?” which is also research. How do we search for the right value propositions and business models? If you ask what that number is, it’s usually very small, if nonexistent.

In many companies, the teams searching for better value propositions and new business models, or better business models, and teams that have hundreds of thousands of employees, a team really looking at substantial business model innovation and value proposition innovation might be 10 people. That’s just ridiculous. It’s completely imbalanced, meaning we’re still stuck in the innovation processes of the last century, and that is R&D. I’m not saying we don’t need R&D. It’s just not enough anymore.

That generating some interesting conversations once the execs appreciate that distinction, right?

Yes, I think when I tried to sell the concept of innovation and how to do it right with the tools we have, with the lean startup process, I like to frame it as we need not to replace our existing culture, which is all about managing existing businesses and being great at it. It’s adding a new space where new business models and new value propositions can thrive, where we can search for them, where we can experiment and fail and learn. So, it’s more like creating a dual operating system with two different organizational cultures. One focused on execution of the present and one focused on inventing the future.

The problem is just that, today, while some of these spaces exist, it’s still more innovation theater than anything else because these are usually, to be a bit provocative here, powerless constructs. The innovators are still considered the pirates. What do you do with pirates? In history, we used to hang them and kill them. So, we need to create a space where innovation has real power, and I’m not talking R&D again. I’m talking about the intrapreneurs. We need to create a powerful organizational structure. We wrote a Harvard Business Review piece on this saying, “Hey, what if we had a Chief Intrapreneur who had just as much power as the chief executive?” One would be the chief execution officer, focusing on managing the present, one would be the Chief Intrapreneur, focusing on creating the future, creating growth. Both have similar power and they report to the executive chairman or the board and they collaborate. They’re not enemies; they’re collaborators. Because once the Chief Intrapreneur grows a new growth engine, it becomes an execution business, and then it’s not part of that skill set anymore. It becomes part of the execution engine.

So, we need completely new organizational structures to do this right, and Amazon, just to cite one example, as different as it might be for most of the companies of the people who are listening and their companies, we can learn a lot from them. I hear a drill in the back. Can you hear that?

I can a little bit. Yes, yeah.

Let’s just… Until it goes away. Alright, sorry for that. The reason I’m mentioning Amazon is because Jeff Bezos published a letter to shareholders in the last annual report, 2015, and he explains why Amazon is so good at growing new businesses. Amazon is the company that grew fastest from 0 to 100 billion dollars in revenues in the history of companies, and in the last decade, they grew a 10 billion-dollar businesses with Amazon Web Services, which is very different on the surface from e-commerce. They could only do that because they focused on the long-term, and because they created a space to experiment.

ie28-alex-osterwalder-key4So, in that letter Jeff Bezos writes that Amazon is the best place in the world to fail because you can’t innovate without a culture of experimentation, which includes failing, but it also includes learning and creating something that works based on those learnings. You don’t have that in many of the established companies of the world today, great structures that can systematically invent and grow new business models. Nespresso at Nestle was a lucky punch. I don’t think they have the structures today to systematically create a Nespresso. You know, they’re not the only ones out there. I would say 90% of companies do not have the required structures yet.

Well, I think you read my mind because I was going to go to Nestle in a minute. But, what Amazon have done, which is very clever is they’ve recruited a shareholder base and educated that since the first annual letter that Bezos wrote to actually prepare them for that. Whereas if Nestle were to — I mean, the Nestle example is great because they’ve got a very different type of shareholder base, and clearly, as you say, the Nespresso, that project got killed countless times, and it was for many years that the Nespresso machine was banned in the Nestle boardroom by the chairman because it wasn’t seen as something that was — it was cannibalizing the existing business, right?

Yes, and the only reason Nespresso actually survived is because they were physically at a different place. Probably, if they had been at the headquarters, this project would have been killed before an outside CEO came in, Jean-Paul Gaillard, to create the right business model to bring the technology to succession. So, there are a couple of great lessons from Nespresso, and one is that even with the best technology, the Nespresso machine alone was not enough to create a growth engine. They actually had the Nespresso technology, took a couple of years to make that perfect. But, the first business model is designed around the Nespresso machine resembled the business model of Nestle a lot more than Nespresso today, and those business models didn’t work for that technology. It’s only when Jean-Paul Gaillard came in from the outside, became CEO, and designed the right business model that Nespresso eventually took off.

So, the right business model can help technologies through breakthrough. The classic example is Kodak with the digital camera. They actually invented the digital camera. It’s just that they didn’t see the potential, so they didn’t invest in figuring out the right business model for digital images, which could have saved them. Of course, this story is complex, but you can simplify it down to the fact that there was no space at Kodak to experiment with new business models. They had a great research department, great technologies came out of that. The digital camera was the best seller, but there was no business model for the digital camera that could have helped Kodak transition from analog film to the digital era. They should have been able to do that, just like Sony should have been able to come up with the iPod. They couldn’t because they were so stuck in past success that they couldn’t invent the future. Nobody can see the future but you can participate in inventing the future, and that includes experimentation.

Now, all these companies, basically, the reason for their failure is success. Today’s success is the root for tomorrow’s failure. You have to set up a structure where you continuously think about the future, and future growth engines don’t always have to cannibalize the current business. Great example is Amazon Web Services. That’s a very profitable business for Amazon that doesn’t cannibalize the existing e-commerce business in any way. So, that’s another myth that we often think new businesses are always at the expense of the old ones. That’s not true. We just need to have a space where we can really reflect on what could we? What is console? What could be? How could the future look like? And then we need to experiment. The question is not when. The question is when is it too late?

By space, it’s obviously not just physical. It’s actually having space to reflect. So, stuff taken off your plate so that you can actually explore, collaborate, co-create. I mean, that’s part of the issue, which is, I think, why you address it from an organizational perspective too to give people the process space, if you like, and the organizational space to do this kind of work.

Yeah, when I say “space”, it’s a collection of a lot of things, and one is physical space, indeed, but it goes, obviously, a lot further. It’s the skills of the people working there. It’s the time they can allocate to these kinds of projects. It’s the organizational culture you have there, the processes, the rewards system, the incentives. It’s many, many things, and the reason why so few companies have been able to build that “space”, again in quotes, is because there’s so many things that are different from our execution businesses. There’s a lot to do.

That’s one of the reasons why we worked with Dave Gray on the Culture Map, which is another tool. This one to intentionally design organizational culture. We worked on that because we saw that it’s very hard for companies to design this innovation culture, this lean startup culture because it’s all based around experimentation and learning, and not about linear processes of execution. It’s very different, and that mindset, those ways of working don’t exist in most companies today.ie28-alex-osterwalder-key5

Absolutely, and I think a number of previous guests, we’ve gone into the how do you create a culture where it’s okay to fail? A lot of it how do you take stuff off people’s jobs so they actually can step back and reflect. There’s a huge amount in there, and as you know, I’m a former anthropologist, so I’ve got a lot of energy around the cultural side. Because, at the end of the day, as you said earlier on, it’s not about technology, it’s not about new product. It’s about creating a culture of innovation, which as you say — I think one of the reasons you constantly talk about companies like Amazon, there’s only a handful of organizations that seem to be doing these really well. These are companies with fresh cultures completely designed with business model innovation in mind, essentially.

To be fair, I’d say there are only a few companies that succeeded so far. All of the companies I’m talking to now, and of course, it’s a small window on the world, they’re really trying hard. I mean, you take companies like GE, like Colgate, like MasterCard, like Intel, they’re all really trying to figure it out. They’re not ignorant to this. Even banks and pharmaceutical companies in Switzerland, they’re investing energy into this. I’m not always sure that it’s enough energy, it’s enough budget, it’s enough leadership attention that’s going into this, but it’s rapidly changing. I mean, the effort is here. I would say in five years, you’ll see a lot more companies operating in spaces like pharma and banking and food, consumer goods, that will operate like Amazon from an organizational design point of view.

Those will be the companies that will outperform all of the others. I would make a bet, easily, that if you take some of the companies that have big R&D budgets, if they took 10, 20 percent of their R&D budget and they put it into designing the right research processes and structures for value proposition research and business model research, I’d make a bet that many of those companies could double the revenues in a short amount of time, somewhere around five years. That’s the new way of doing research. It’s R&D on the one hand, but research and development, and value propositions, and business models on the other hand. Very few companies are doing that today very well on a large scale. They’re doing it on a small scale, and it’s the moment to scale up now. Because if we don’t scale up, many companies will disappear.

The Kodak phenomenon, many companies will know a Kodak moment and they will disappear just like BlackBerry and Nokia have become irrelevant in the technology industries, I think we’re going to see the same thing in pharma, banking, and consumer goods. We’ll see very, very many Kodak moments, meaning companies that had over 100,000 employees becoming irrelevant because they couldn’t move beyond their one successful business model. That’s a phenomena that we’ll see a lot more in many, many different industries.

Absolutely. I fully agree with you. Alex, quick, just shifting before we go to the final questions. We touched on it earlier on, you’re an academic at heart, but you’re also an author, an entrepreneur because you have a software business. Can you just say a little bit about business model Alex Osterwalder. I’m just intrigued in terms of how is that evolving. You and I, we’ve had some conversations around this over the past. I’m just interested where that’s got to, if you’d like.

So, I think we’ve figured out a lot of the things that we’re struggling with. We now know how to do innovation a lot better with a lot less risk. There’s still a lot of talk. I think the big challenge now is operationalizing this.

This being the software business, is it?

You know, tools and software. So, the way we see it, the vision that my team and I have is that somebody is going to create this strategic operating system for companies, just like we created enterprise resource planning for the operational parts. So today, companies cannot exist without ERP systems. They’re dependent on them because that’s how we run operations. Operations can’t run without software anymore. I believe strategy has become so dynamic that we can’t do serious strategic planning anymore, and innovation without software. I think, to do it well, to constantly create new growth engines, to constantly adapt our strategies in an age of dynamic strategy, we will need software to help us: PowerPoint and Excel spreadsheets are just not enough.

ie28-alex-osterwalder-key6So, we’re designing this strategic operating system, and that’s what Strategyzer is aiming to become. Now, that’s a new market that doesn’t exist yet because we would have to transform the way people do strategic planning. You can’t do that overnight, so the way we’re getting there is by training people in the large scale to learn the business model canvas and value proposition canvas, and lean startup to start, at least, in the innovation, marketing, and product development space to be more dynamic, and that is moving up towards strategy.

So, we train people on our online platform, thousands of people in companies where we train the entire marketing force, etcetera to use these tools, and then part of those people become customers of the software. So, we’re creating the market that doesn’t exist yet, which is a bit of a crazy undertaking, but it’s a lot of fun. Why would I want to do just talks and consulting – the easy stuff – when you have this great, juicy, big challenge in front of you to help change the world and help change the way business is done.

So, my team and I are crazy enough to go for the big challenge. Will we succeed? We’ll see. I think somebody will do it, so why not Strategyzer?

I notice, as you say, the business model is — I mean, you’re speaking and your consulting is creating those opportunities. So, that’s a lead generation engine, if you’d like. What you’re doing is, if I’m understanding correctly, is have a grass roots sales force, for want of a better expression, in organizations who are going to get the religion, if you like, and see the value of the software and promote it within their organizations. Is that essentially the model?

Yeah, I think the grass roots is partially true, actually just getting people to work that way. We typically work with chief marketing officers, chief technology officers, chief product officers to convince them, “Hey, if you train your workforce, you will have better results. So, they then decide, “Yeah, I would like my entire team to work like this.” So, it is a top down, bottom up effort, if you’d want.

Excellent. So Alex, before we come to the last three questions I’ve sent in advance, we’ll put some of the information in the show notes, some materials which we’ve talked about early on and make that easy for people to find and to understand how to use such as a canvas, and also your blog in Strategyzer. Where else can people get in touch with you?

I think on Strategyzer is the best way, through the blog comments, etcetera. We give talks around the world. I run public enrollment workshops in cities around the world: Europe, Berlin, London, San Francisco, Boston. So, just join one of our workshops. You’ll get a deep dive over two days and you’ll see really, truly how this can change the way we work. People, even those who have used the tools for years, they come to our workshops and they walk away with a very different way of looking at the world. I think it’s really, really changing the way we’re doing business today and we’re having a lot of fun being a part of this.

Absolutely, and you’re actually on Twitter, I think, as well, aren’t you?

Oh, yeah. Absolutely. I enjoy Twitter as a medium to post some messages, but also see what’s going on in the world of innovation.

Super. So, we’ll put all that in the show notes. So Alex, just wrapping up with the last three questions I sent out to your earlier on. So, first question, what have you changed your mind about recently?

About being a nice guy. I think you do need a certain toughness in business, so I’m always changing my mind a bit. But, I think my conclusion is always what are better ways to do business to remain nice guys and do business in a nice way without becoming a victim? And that all has to do with creating new organizational structures to do business in a way that people are excited to come to work every day, and we don’t become over-competitive, but we can still get the best out of people without squeezing them like lemons.

The before was that you were a little bit of a hard taskmaster. Is that fair to say?

Sorry?

Before you changed your mind, you were a bit more of a hard taskmaster as a boss?

I don’t know if it’s — I’m just amazed how business is done today and how many people are not happy with how business is done. I mean, people in companies around the world, I hear them complaining. So, what I changed my mind about is I do think we can create organizational systems where people can really thrive, have fun, and be happy at work on a large scale, not just for a small group of people.ie28-alex-osterwalder-key7

Absolutely. I think a lot of that comes down to the purpose in connecting the individual with a legitimate organizational purpose. I mean, that’s what certainly something I’ve seen that works very well, but it requires a lot of work to uncover or create that purpose. Second question, what do you do to remain creative and innovative for the personal level?

I try to always try out new things. So, typically, at a workshop, something I learned from comedians is that use 80% of your proven material, but then do at least 20% of new stuff all the time, and see what works and what doesn’t. So, I really adopted that rule, sometimes maybe moving towards 40% of new stuff. But, creating this mix of established stuff that works, but constantly trying to reinvent and experimenting with new things, a lot of it will fail, but a lot of it will work, and maybe it’s not completely wrong at the beginning, but you can fine tool that the message. So, constantly trying out new stuff within 20% of a workshop is always new, and that’s important because you will be able to explore completely new areas and if you take that approach.

Then, the third question I have for you, Alex, is to what do you attribute your success in life? So, are there any specific skills or habits or mindsets that you think you’ve mastered that have made such a big difference in what you’re doing these days?

I’d say a big part of it is luck, being at the right place at the right time. But, a lot of that luck is also based on hard work. If luck falls on a fertile ground, there’s more of it. So, I think that’s definitely part of it. I’ve been very, very lucky to meet the right people, but I’ve also tried to meet more people. Going to events when I didn’t feel like it and those kind of things and produce results. Then, the third element besides luck and hard work, I really do think, is experimentation. You don’t figure out new stuff if you don’t try out new stuff and are willing to accept failure.

But then, learning from that and trying out new things. I never really liked to settle with “this is the way things are done”. I always liked to challenge that and ask myself, “What’s the right way of doing things?” and then trying something without having the answer, failing miserably first since what happened when we self-published our book. The logistics really didn’t work out, but then we figured it out eventually. So, experimentation is definitely the third element I would add to finding success. Failing a lot all the time, learning from that, and it trading towards understanding what really works. So, luck, hard work, and experimentation, willingness to fail have been the three things, I’d say, contributed to allowing me to do what I really have fun doing.

I think it’s fair to say your software business today is not your first software business. I think before, in the late 90s, you had a financial services software business, which I guess, the experience that you gained from that journey have informed how you’re running Strategyzer. Is that reasonable?

Oh, you bet. All of the things that I’ve done until now, I’ve tried out a lot of things. Some of them less scalable businesses like consulting, you know. All the lessons learned over the years have led me to work the way I’m working now, and there are a lot more mistakes I’m going to do. I mean, I’ve never scaled a company. Our team hasn’t scaled a company, so we try to learn from others who’ve done it. We try to bring in best practices, but we also have to figure out new practices, because the company we are today, there are not that many companies that are so globally distributed that we are. We have 22 people around the world, two offices, but we’re working in a distributed way, and there are not that many best practices on doing this well. So, we continually try to learn from those who’ve done it, who’ve made the mistakes, and we continuously try to ask ourselves, “What’s the best way to do things?” and experiment ourselves.ie028-alex-osterwalder-summary-framed

I think the fascinating thing, as well, which you used the word right at the beginning around vulnerability. I mean, you probably feel a level of vulnerability as you develop your business model about business models, right? So, it’s alive for someone who is one of the world’s experts on business models. I guess you probably are concerned that your business’ business model is the right one because that’s going to attract a little bit of attention.

Oh, you bet. I mean, we’re also pretty aware that we’re trying to do something that hasn’t been done in this space. We’re creating a new market and we learned a lot about the difference between serving an existing market and creating a new one. To turn our ambition into reality, we had to say, “Well, you can’t go directly from non-existing market to an existing market.” You have to go via the detour of taking those existing markets. Part of it is education. So, we do workshops, we do online training to work towards our vision of a software business.

So, absolutely, you won’t figure it out directly, and I think the big lesson is also if you want to do something new, you have to accept being vulnerable. Success doesn’t happen overnight, and those who make us believe, like the press, that people figure it out from one day to another and they’d become billion-dollar companies. That’s just not true. If you look at all the startups out there, the successful ones even, it is a long path of experimentation, of being vulnerable until you figure it out. Then, afterwards, you can make up the story you want, but the reality is a lot of people will tell you that overnight success takes 10 years.

Absolutely. Very good, Alex. Well, it’s been wonderful to connect again. Thank you very much for your time. I’m sure our guests, our audience will have enjoyed learning from you and will enjoy looking at the materials that are on the website, and thanks very much for your time.

Thanks for having me. It was a pleasure.

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