Okay we've talked some about customers, customer segments, value propositions, product market fit, the business model canvas. Let's try to put this all together for this week and say, how do you develop a business model? How do you use these different parts to put together a business model? In lecture one we said that the heart of a business model was the product-market fit. Now we can be a little more explicit. Now we can say that a business model, is a value proposition that satisfies a need or solves a problem for a customer segment. We can say that a business model is a plan to enter or create a market for attracting, persuading, selling to and retaining a customer segment. And we can say that a business model is a plan for how to build the product or service in a way that it can deliver the value proposition. So entering and creating a market is the right-hand side of the business model canvas. How to build the product or service is the left-hand side of the business model canvas. But we have the business model canvas built in with hard facts, things we can bank on. Then we've gotta do some business model. But how do you get hard facts? How do you go from the state of a business idea that we have now to a business model? The way we're going to do it, is we're going to make guesses. And we're going to make the guesses better and better as we go along until we're pretty sure they're good. We start with just plain old swags. Guesses that you just pull out of your hat and put them in the business model. I mean that they shouldn't be just arbitrary, they should be things that you think but they're really nothing more than your desires or wishes or, or thoughts. There, there there's nothing proving them. We're going to go on with guesses about everything in the business model canvas. The customer relationships, the channels, the revenue streams, the costs, the suppliers, everything that goes into the business model. We're just going to put down our guesses and we're always going to be willing to refine them. And then we're going to prove some of our guesses wrong. We're going to invalidate our guesses until they're right. If you chip off all that's wrong in a guess, pretty soon you'll get to a guess that's right. It's a scientific method. You make a hypothesis, which is a fancy word for a guess. You test the hypothesis, and then you sharpen. So, how do you test the hypothesis in this area? How do you test a business model hypothesis? How do you prove it right or wrong? Well the ultimate test is selling to a customer segment. If you get out a product, and the customers take out their wallet, and they pay for it, that's a pretty good proof that you got so, at least some of your hypotheses right. That's not possible at first. You probably don't have a product you can offer to customers now. You probably don't know who the customers are you're going to offer it to. And you probably don't know how you'd reach them, or how you'd offer it to them. So, what you do at first is you ask the customers to help you. You ask the players in the market to help you, and you ask them to invalidate your guesses. You ask them which of your guesses are wrong. You can never, of course, prove a hypothesis right. You can only prove hypothesis wrong. So, we're going to prove all of our hypothesis wrong until we end up with ones that we can't prove wrong, and we're going to guess that those are right. So, we're going to start out with guesses in the area of value proposition and customer segments. Because that's really at the heart of the business model. If you get a value proposition, it nails a real need for a customer segment. If you have product market fit, in other words, then you've got the heart of a good business there and, and the other stuff will hopefully fall into place. But, this is the main thing. This is the thing to get right right out of the, out of the starting gate. We're going to state our guesses. We're going to test the problem. We're going to go out, we're going to talk to customers. We're going to ask them what their needs and problems are. We're not going to pitch a solution to them. We're going to ask them how things look to them. We're going to test value propositions by asking them about them. And then we're going to iterate or pivot. Iterate means okay, we sort of got that right. Let's refine it a little bit. They do like the idea of teleportation. But they don't like the idea of teleportation to other planets. They only want to teleport to Chicago. good. That's a, that's an iteration. Or you pivot. They don't like it at all. They're worried that if they teleport their, their bodies will dissolve. Therefore you, you move to something else. You, you try to find a different customer segment or you try to find a different value proposition. Okay, maybe someone else wants to teleport to Chicago. Or, maybe the people who want to go someplace need a different means to do so. You need a different value proposition. So you iterate, in case you successively refine your guesses, or you pivot. Pivot means you're changing some fundamental assumption and trying again, and you keep doing that until you can't falsify your guesses anymore, and then you think you've probably got something. Rinse and repeat. It's a never ending process. Even when your start up becomes a business. Businesses that don't keep up customer development, even when they're serving customers, even when they're mature business, are companies that are sooner or later going to get blindsided by something, because it's a, a bad world out there, and things change awfully fast. And if you're not on top of stuff you, you're going to be gazumped by something that comes in from a blindside and gets you. So it's a never ending process. Some of the companies we've invested in continue customer development even as they're shipping product, even as they're selling more and more copies of, of the stuff they work on. So the main points are, you're going to turn guesses into facts by testing them. The kind of test that you're going to do is you're going to talk to customers at first, and then you're going to offer customers a minimum viable product, and then you're going to see if you can sell them the minimum viable product in some repeatable fashion, and you're going to build the business in that incremental fashion. You're going to turn guesses into facts. You're going to use facts to drive your business model. And you're going to accept the fact that this process is never going to end. This week we're going to start with a preliminary cut at the business model canvas. Your assignment, we're going to ask you to fill out a preliminary business model canvas for your idea for business concept and we'll, we'll see how you think about it next.
