... where visionaries, game changers, and challengers discuss business models
Consider this scenario which is a “Hollywood version” of a business case that I read several years ago in the book, “Discovery-Driven Growth,” by Rita Gunther McGrath and Ian MacMillan. The character, Bob, is a figment of my imagination.
Bob, a father of two young girls, was recently made redundant. Bob is desperate to pursue his dream business idea of owning an antique toy store. However, Bob is seeking advice on the best tool for testing the viability of his dream idea. The options at the top of Bob’s mind are as follows:
Option 1: INTUITION
Based on gut feeling and experience: rent store, buy antique toys, open store to public, and see what happens. Hopefully, monthly revenue from the sale of antique toys will be more than his monthly operating cost. He can make a living from efficiently running the antique toy store as the business grows.
Option 2: TRADITIONAL BUSINESS PLAN
Spend 8 weeks attending an evening course on writing a (theoretical) business plan for the antique toy store. Thereafter, launch the project and open the antique toy store according to the schedule or “waterfall” of activities in the business plan.
Option 3: BUSINESS MODEL CANVAS/CUSTOMER DEVELOPMENT STACK
First, document the proposal (hypotheses) for the antique toy store using the tool of the Business Model Canvas. Then, according to principles of Steve Blank’s Customer Development methodology, “Get Out Of the Building” and talk to at least 50 prospective customers and other stakeholders. Test and validate/reject hypotheses for each of the 9 building blocks of the Business Model Canvas. Continue talking to customers and iterate until there is problem-solution fit followed by product-market fit, that is, until a repeatable and scalable business model is discovered. Then, fully launch the project and open the toy store to the public.
Option 4: LEAN STARTUP METHOD
Start by building a Minimum Viable Product (MVP) for the antique toy store. The objective is to rapidly learn about what works and what does not work regarding outcomes that customers want and can pay for. Rapidly use the iterative loop of “Build-Measure-Learn” to find problem-solution fit as well as product-market fit. Use a Kanban board as well as “Pirate (Marketing Funnel) Metrics” to iteratively manage development of the MVP. The goal is to fail fast while discovering the best customer engine of growth. Pivot if there are insurmountable obstacles. Otherwise, persevere with the project.
Option 5: DISCOVERY-DRIVEN PLANNING
The first step is to prepare a “Reverse Income Statement (RIS)” to check whether the opportunity or profitability of such an antique toy store is worthwhile. Also, the Reverse Income Statement would reveal “profitability-assumptions and hypotheses” of a business model that should be tested, validated, and/or rejected. Nearest Competitor Offers (NCO) should be considered to determine the value proposition of the antique toy store. Thereafter, systematically apply the techniques of “checkpoints” and “real options investment” to determine whether to continue validating the value proposition (business model) or to disengage from the project.
In your opinion, which of the above options would be best for Bob? And why?
My own recommendation is for Bob to use the methodology of Profit Model Analysis and Design (PMAD) for his task of Dream Viability Testing. PMAD is a seamless visual synthesis of the above tools. PMAD consists of three activities as follows:
#1: Visualize the desired profitability of your business model
#2: Design and test your value proposition model
#3: Launch and manage a scalable value creation model
For details of applying PMAD to the above case study, see http://goo.gl/2HAN00
So, once again, which option would be best for Bob in pursuing his dream business idea of owning and running his antique toy store?
Your feedback would be appreciated.