An evolution of the Business Model Canvas for Growth Companies.
The Business Model Canvas is now 4 years old, and it needs an enhancement. When combined with the Lean Startup methodology, it works incredibly well for startups or new ventures. But when a company graduates to “growth mode”, the Canvas starts to lose its effectiveness. In this post I propose an enhancement better suited to growth-companies in the process of scaling. If you can answer these 22 questions, you will be able to define your Company’s DNA.
Business Model Design Needs an Update
It was 4 short years ago that Alex Osterwalder introduced the Business Model Canvas for the first time. In the following few years, Eric Ries and Steve Blank picked up and progressed Osterwalder’s core ideas to found the Lean Startup movement. In their books, published in 2011 and 2013 respectively, Ries and Blank combine the Business Model Canvas with a methodology focused on testing business model hypothesis to lead a startup towards product/market fit. Together, these three thought leaders have transformed the way new businesses are designed.
However, there are two major problems for companies ready to scale. Firstly, when a company leaves “startup” mode and enters “growth mode”, the Business Model Canvas starts to lose its effectiveness. It’s just too high level for companies who have found their initial fit and want to pursue growth. Secondly, for all the virtues of the Lean Startup methodology, the process has a hard-stop at the product/market fit milestone. Lean Startup presents no guidelines for what an entrepreneur should do to scale their company, other than “spend like there is no tomorrow”.
One of the biggest benefits of Lean Startup is its focus on hypothesis testing. This should continue to be done even after a company has entered growth-mode. In fact, the fastest growing companies are in a continuous state of reinvention, and the companies that fall behind lose their market position. We can look to Apple and Netflix as excellent examples of successful reinventions. By contrast, Microsoft has struggled, RIM is dying, and Blockbuster is in the grave.
The differentiating factor is how the successful companies respond to competitive pressures to reinvent their offerings and pivot their business models to enable successive waves of rapid growth. In fact, the successful companies create new competitive pressures; the failures cannot and do not respond. Neither the original business model design work, nor the lean startup, properly considers this necessary dynamic.
22 Questions: The Company DNA Board
For this reason, we need a new tool. Let’s call it the Company DNA Board.
(Note: from a mobile device, save to your photo stream for easier reading)
The Company DNA board is designed to support more detailed business model design and iteration for companies who are in growth-mode. It acknowledges that growth-companies know more about their customers and market, and have more factors to consider when designing their business model.
You will see the DNA board fits a core set of themes central to business model design: (a) What is the offering; (b) To which market; (c) How is it executed; (d) How is it communicated; (e) What direction is the company heading; and (f) how does it make money? There is also an inherent separation of internal and external factors. These become important when examining the scalability of the business model from the perspective of it’s “Growth Engine” and “Execution Engine”. In this previous post, I propose that the scalability of a business model is a function of the inherent “Fuels” and “Frictions”: the business model will be more scalable if to the extent that Fuel > Friction.
A Process for Improving Scalability
It takes about 2 hours to complete the Company DNA board. It’s best if everyone on a team attempts it individually, then the group gets together to collect the best ideas. The whole process can be completed with 2-4 hours of work. Once that’s done, two powerful perspectives can be achieved for a company in growth-mode.
Firstly – Company DNA is the foundation when improving the scalability of a company. When you look at a company through the Fuel/Friction window, you can see what is holding the company back, and what could drive it forward. Any of the components of Company DNA can be either Friction or Fuel, at any point in time. By evaluating them continuously, the Fuel/Friction balance can be improved to increase scalability. Any improvement, however marginal, will improve a company’s ability to grow frictionlessly.
Secondly – It can be used to drive detailed and continuous hypothesis testing while in growth-mode to keep the company relevant and tuned into its market place. Growth companies much be as externally focused on customers and competitors, as they are internally focused on operations and people. This makes the DNA Board significantly more useful than the classic business model canvas, which does not directly contemplate competitive pressures – nor the practical realities of running and managing a company.
The Company DNA board builds on the methodologies of business model design to help companies in growth-mode stay competitive and relevant in its market, well past the startup stage. Scaling is a race, and Strategy is about winning. This is a tool that will help you win and take you one step closer to market leadership.
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