INFO5992 Understanding IT Innovations Assignment II – Commercialisation Report Ivan Chua Semester 1, 2020 The University of Sydney Page 1 Copyright warning COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 WARNING This material has been reproduced and communicated to you by or on behalf of the University of Sydney pursuant to Part VB of the Copyright Act 1968 (the Act). The material in this communication may be subject to copyright under the Act. Any further copying or communication of this material by you may be the subject of copyright protection under the Act. Do not remove this notice. The University of Sydney Page 2 Focus of your assignment The University of Sydney Page 3 Assessments Assessment name Team-based Weight Due Weeks Assessed OutcomesAssessed Assignment I No 15% Week 7 Week 1-3 LO1, LO2, LO3 Mid-Semester Exam No 15% Week 8 Week 1-6 LO1, LO2, LO3, LO4, LO5, LO6, LO7 Assignment II No 20% Week 13 Week 7-10 LO8 Final Exam No 50% Exam Period Week 1-12 LO1 to LO11 The University of Sydney Page 4 Commercialisation Report Assessment II The University of Sydney Page 5 Innovation Report – Learning Objectives – Research into the business model of a company which is at the commercialization stage – Undertake critical analysis of a company’s business model and the – Analyse impact of an emerging technology on a company’s business model The University of Sydney Page 6 Overview of Assignment II – – – Select an IT company which has an IT product in the market and is being used by paying customers – this is your “case study”. The company can be in any industry. If the company offers more than one product, choose ONE product to focus on for this assignment. The company which you choose must be deploying the emerging technology which is assigned to you in Assignment I. Key details: – Individual assignment – There is a 2,000-word limit for this assignment. – Due 31 May 2020 at 11:59pm. The University of Sydney Page 7 Report Structure Section % of Requirements marks • Section 1: Value Proposition Canvas & Value Pyramid • 40% • • The University of Sydney Apply and evaluate ‘Customer Profile’ from the Value Proposition Canvas to your chosen case study (consisting of customer jobs, pains and gains). Provide supporting evidence. Apply and evaluate ‘Value Map’ from the Value Proposition Canvas to your chosen case study (consisting of products, pain relievers and gain creators). Provide supporting evidence. Discuss and evaluate the Fit between the Customer Profile and the Value Map Identify and discuss the three most significant value propositions from the Value Pyramid Recommended Word limit (optional) Additional 800 words You are not required to identify a complete list of jobs – after you have done your research, rank them, and focus on the most significant ones (refer to page 11 of the lecture week 9) Page 8 Report Structure (Continued) Section % of Requirements marks • Section 2: Business Model Canvas The University of Sydney 40% • Apply and evaluate all nine building blocks of the business model canvas – in the same order that is discussed in the lecture. Provide a one-page summary of your business model canvas – you may download the template here: https://www.strategyzer.com/canvas/businessmodel-canvas Recommended Word limit (optional) 800 words Additional For the ‘Customer Segment’ and ‘Value Proposition’ discussions, you may draw on the conclusions of your discussion in Section 1 without repeating the analysis. Make sure that you have a clear structure in your response (i.e. a heading for each block, and your response under the heading) Page 9 Report Structure (Continued) Section % of Requirements marks • Section 3: Impact of Emerging Technology on Business Model The University of Sydney 20% • Recommended Word limit (optional) Additional Identify and discuss the impact of your assigned emerging technology on the business model canvas (i.e. which blocks are affected and how?) Drawing on your discussion in Assignment I, how would 400 words the future development of the emerging technology change the business model canvas? Page 10 Report Template Section 1 – Value Proposition Canvas & Value Proposition Pyramid Section 1.1 Value Proposition Canvas Customer Profile Customer jobs {insert discussion} Pains {insert discussion} Gains {insert discussion} Value Map Product offering {insert discussion} Pain Relievers {insert discussion} Gain Creators {insert discussion} Fit between Customer Profile & Value Map {insert discussion} Section 1.2 Value Proposition Pyramid {insert discussion on value proposition #1} {insert discussion on value proposition #2} {insert discussion on value proposition #3} The University of Sydney Page 11 Report Template Section 2 – Business Model Canvas Section 2.1 Business Model Canvas Discussion Building Block #1 – describe it (e.g. “Customer Segment”) {insert discussion} Building Block #2 {insert discussion} Building Block #3 {insert discussion} … Building Block #7 {insert discussion} Building Block #8 {insert discussion} Building Block #9 {insert discussion} Section 2.2 Business Model Canvas Summary {insert a summary based on the diagram which can be found here: https://www.strategyzer.com/canvas/business-model-canvas} The University of Sydney Page 12 Report Template Section 3 – Impact of Emerging Technology on Business Model {insert discussion} The University of Sydney Page 13 Report Structure (Cont.) – Figures (images or diagrams), tables and quotes are typically very effective in an essay. Please use them, but only if it adds useful information to your report. If you do, you must reference the source of the information. – You are encouraged to create your own figures and tables. If you do, show that you created them (e.g. “created by Firstname Surname for INFO5992”) – When referring to a figures / tables, make sure appropriate description is given so that they are understandable – figures / tables contain a lot of information! – There is no template – please use a template of your own choice. It is OK for the text to be either single-spaced or double-spaced. – Use Harvard or Vancouver referencing style – keep your referencing style consistent The University of Sydney Page 14 Notes for the Report – Choosing two example companies from an Industry: – If possible, choose examples that are current or from the last three years. – Try to pick examples that are discussed in a reputable Journal / Conference articles – You may choose to use examples from your own company (if you have permission to use any material needed). – If in doubt about whether your topic or examples are appropriate, check with the Teaching team – Do not rely on a single paper which introduces two examples! – New examples – innovation is a fast moving topic! – Do not necessarily accept all that you read at face-value, e.g. from self-published articles. The University of Sydney Page 15 Notes for the Report – Sources: – Read widely; read journal articles (eg online through the library), online magazines and high quality blogs. – Using reliable scholarly sources – innovation literature – Wikipedia is highly variable in quality, derivative and typically not a good source for your essay (except perhaps for gaining a general understanding before reading more deeply from the literature or highquality blogs) – Company websites are rarely unbiased descriptions of examples (though may provide some useful information that should be understood in its context) – There are tips on library use (and referencing) at http://www.library.usyd.edu.au/skills/ The University of Sydney Page 16 Assignment Topics -Technologies The University of Sydney Page 17 Refer to the “Assignment Topic List” on Canvas to find out which technology you are assigned for Assignment I & II The University of Sydney Page 18 The ten technologies selected for this assignment are based on the Gartner Hype Cycle The University of Sydney Page 19 Option 1: 3D Sensing Cameras 3D sensing cameras generate 3D images. For the purpose of this assignment, students should focus on the software aspects and the application of the technology. However, a brief explanation of the hardware is provided below for context. There are 3 common ways: stereoscopic imaging, structured light illumination, and flood illumination. Stereoscopic imaging use two cameras at different angels to capture images. Image-processing software identifies common features in both images and extract distance information following a triangulation method. In a structured light camera, the infrared illuminator projects a predetermined pattern onto the scene, which can be decoded by specific algorithms to extract depth information over the entire image. A time-of-flight camera (flood illumination) requires a uniform, high-frequency modulated infrared light to be projected onto the scene. The sensor is synchronised with the illuminator and utilises the light that is reflected by objects into the scene to determine the distance to these objects. The University of Sydney Page 20 Option 2: Graph Analytics Graph analytics is analytics applied to a graph database. Graph databases are based on a model of representing individual entities and numerous kinds of relationships that connect those entities. It employs a graph for representing connectivity, consisting of a collection of vertices (aka nodes or points) that represent the modelled entities, connected by edges (aka links, connections or relationships) that capture the way that two entities are related. Unlike the traditional relational database, graph databases places greater emphasis on the relationships between entities - in which analytics can be applied on the graph (hence graph analytics) to conduct path, connectivity, community and centrality analysis. The University of Sydney Page 21 Option 3: Edge Analytics Edge analytics refers to data analytics undertaken close to the edge, where things and people generate or consume that data to save response time and save bandwidth. Examples include on self-driving cars, satellites and wearable devices. The University of Sydney Page 22 Option 4: Earth Observation Software via Low-Earth Orbit Satellite Systems (also known as "CubeSats") Low-Earth Satellites, also known as "cubesats", revolve at an altitude between 160 to 2,000 kilometers. Unlike a traditional satellite, a low-earth satellite is small, located at lower altitudes, and . A constellation of LEO satellites can provide continuous, global coverage as the satellite move, as well as provide images of the earth with higher resolution given that they are located at lower altitudes. For the purposes of this assignment, emphasis should be placed on the software rather than hardware -- meaning "earth observation" (the software capturing and analyses images) rather than the satellite itself. The University of Sydney Page 23 Option 5: Explainable AI (XAI) Recent years have seen significant advances in the capabilities of artificial intelligence -- being able to produce highly accurate results (e.g. predictions). However, they are also highly complex if not outright opague, rendering their workings difficult to interpret. There has been growing discussion about the extent to which individuals are able to understand how AI works and why a particular decision was reached. Explainable AI addresses the issues of "black-box models" by making AI interpretable, explainable, transparent, justifiable and contestable. The University of Sydney Page 24 Option 6: Transfer Learning Traditional data mining and machine learning algorithms make predictions on the future data using statistical models that are trained on previously collected labelled or unlabelled training data. Most of them assume that the distributions of the labelled and unlabelled data are the same. Transfer learning, in contrast, allows the domains, tasks and distributions used in training and testing to be different. In the real world, we observe many example, we may find that learning to recognise apples might help to recognise pears. Similarly, learning to play the electronic organ may help facilitiate learning the piano. The study of transfer learning is motivated by the fact that people can intelligently apply knowledge learned previously to solve new problems faster or with better solutions. Traditional machine learning techniques try to learn each task from scratch, while transfer learning techniques try to transfer the knowledge from some previous tasks to a target task when the latter has fewer high-quality training data. The University of Sydney Page 25 Option 7: Emotion AI (Emotion Detection) Emotion AI is the task of recognising a person's emotional state -- for example, anger, confusion or deceit both voice and nonvoice channels. The most common analyses the characteristics of the voice signal, with word use as an additional input, if available. The University of Sydney Page 26 Option 8: Virtual Reality (VR) or Augmented Reality (AR) (Only choose one) Virtual reality provides a computed-generated 3D environment (including both computer graphics and 360-degree video) that surrounds a user and responds to an individual's actions in a natural way, usually through immersive head-mounted displays. Gesture recognition or handheld controllers provide hand and body tracking, and haptic (or touch-sensitive) feedback may be incorporated. Room-based systems provide a 3D experience while moving around large areas, or they can be used with multiple participants. Augmented reality (AR) is the real-time use of information in the form of text, graphics, audio and other virtual enhancements integrated with real-world objects. It is this "real world" element that differentiates AR from virtual reality. AR integrates and adds value ot the user's interaction with the real world, versus a simulation. The University of Sydney Page 27 Option 9: Digital Twin A digital twin is a digital representation of a real-world entity or system. The implementation of a digital twin is an encapsulated software object or model that mirrors a unique physical object, process, organisation, person or other abstraction. Data from multiple digital twins can be aggregated for a composite view across a number of real-world entities, such as a power plant or a city, and their related processes. The University of Sydney Page 28 Option 10: Robotics Process Automation (RPA) Robotic process automation (RPA) is a productivity tool that allows a user to configure one or more scripts (which some vendors refer to as "bots") to activate specific keystrokes in an automated fashion. The result is that the bots can be used to mimic oor emulate selected tasks (transaction steps) within an overall business or IT process. These may include manipulating data, passing data to and from different applications, triggering responses, or executing transactions. RPA uses a combination of user interface interaction and descriptor technologies. The scripts can overlay on one or more software applications. The University of Sydney Page 29 Submissions The University of Sydney Page 30 Submission Notes – Due at the end of Week 13 on 31 May 2020 (11:59PM) – The essay must be submitted electronically through Canvas and must be submitted in PDF format. – It will go through Turnitin – The electronic submission must be accompanied by a signed individual assessment coversheet (either in the same file or in a separate file) available from: – http://sydney.edu.au/engineering/it/current_students/postgrad_coursework /guidelines/assessment-guidlelines.shtml The University of Sydney Page 31 Late assessments – Suppose you hand in work after the deadline – If you have not been granted special consideration or arrangements – A penalty of up to 20% of the available marks will be taken, per day (or part) late • E.g. your work would have scored 60% and is 1 hour late you get 40% • E.g. your work would have scored 70% and is 28 hours late you get 30% – Submit early; you can resubmit if there is time before the deadline – Each semester, there are always unfortunate cases – if any issues with the submission, email BEFORE the submission time as a proof The University of Sydney Page 32 Finding the right References The University of Sydney Page 33 References – Find journal articles or high-quality online sources on the topic – News / Magazine / Editorial articles can be used to support your topic, e.g., used as an example – Consultancy reports e.g., HBR, McKinsey are OK, especially as they introduce newer topics / examples – If in doubt about quality of reading, please check with your teaching team – Note: Be careful in how you treat information from companies (such as press releases, product websites, whitepapers) as they may be biased!) The University of Sydney Page 34 References – University Library – https://library.sydney.edu.au/ – Google Scholar – https://scholar.google.com.au/ – Google – Be careful of identifying reliable sources – ! Wikipedia – perhaps only for you to read and understand The University of Sydney Page 35 Reference Management Software – Make maintaining references and creating bibliographies easy – EndNote: • Free for Uni of Sydney staff and students • For Windows, Mac • Plug-in for MS Word • http://libguides.library.usyd.edu.au/endnote – Zotero: • Free, open source • For Windows, Mac, Linux, … • Plug-in for Firefox, MS Word, Open Office • http://www.zotero.org – Many others: • http://en.wikipedia.org/wiki/Comparison_of_reference_management_s oftware The University of Sydney Page 36 Other resources – https://library.sydney.edu.au/help/online-training/elearning/ The University of Sydney Page 37 Academic dishonesty and plagiarism The University of Sydney Page 38 Academic dishonesty and plagiarism • Please read the University policy on Academic Honesty carefully: http://sydney.edu.au/elearning/student/EI/academic_honesty.shtml • All cases of academic dishonesty and plagiarism will be investigated • There is a new process and a centralized University system and database • Three types of offenses: The University of Sydney • Plagiarism – when you copy from another student, website or other source. This includes copying the whole assignment or only a part of it. • Academic dishonesty – when you make your work available to another student to copy (the whole assignment or a part of it). There are other examples of academic dishonesty. • Misconduct - when you engage another person to complete your assignment (or a part of it), for payment or not. This is a very serious matter and the Policy requires that your case is forwarded to the University Registrar for investigation. Page 39 Penalties • The penalties are severe and include: 1) a permanent record of academic dishonesty, plagiarism and misconduct in the University database and on your student file 2) mark deduction, ranging from 0 for the assignment to Fail for the course 3) expulsion from the University and cancelling of your student visa • Do not confuse legitimate co-operation and cheating! You can discuss the assignment with another student, this is a legitimate collaboration, but you cannot complete the assignment together – everyone must write their own code or report, unless the assignment is group work. • When there is copying between students, note that both students are penalised – the student who copies and the student who makes his/her work available for copying The University of Sydney Page 40 Detection • • We will use the similarity detection software TurnItIn and MOSS to compare your assignments with these of other students (current and previous) and the Internet • Turnitin is for text documents: http://www.turnitin.com/en_us/higher-education • MOSS is for programming code: https://theory.stanford.edu/~aiken/moss/ These tools are extremely good! • • e.g. MOSS cannot be fooled by changing the names of the variables or changing the order of the conditions in if-else statements Examples of plagiarism in programming code: • The University of Sydney http://www.upenn.edu/academicintegrity/ai_computercode.html Page 41 Student excuses • All these are cases of plagiarism and academic dishonesty we have seen in our school • The student excuses are not acceptable: • I sat the test and then posted the questions and solutions to my friends whose test was later in the week. I only wanted to help them understand the concepts that are examinable. • I posted parts of my code on my web page (or the group discussion forum) because my solution was cool (or I wanted to help them). I didn’t expect them to copy it. • I tried to do the assignment on my own but I had problems with the extension part that I couldn’t fix, so I submitted my core part and his extension part. I didn’t cheat. • I finished my assignment but my friend had family problems. I felt sorry for her, so I gave her my assignment as an example. She said she only wanted to have a look and promised not to copy it. The University of Sydney Page 42 Students excuses (2) • The test has finished but the tutor hasn’t collected the papers yet. I showed my answer to my friend. I didn’t expect him to copy it. • He is my best friend. I had no choice but to let him copy my assignment. • I couldn’t find a partner to work in pairs, so I joined their pair as they are my friends (when only groups of maximum of 2 students are allowed – illegitimate collaboration). The University of Sydney Page 43 Key message • Plagiarism and any form of academic dishonesty will be dealt with, and the penalties are severe • We use plagiarism detection systems such as MOSS that are extremely good. If you cheat, the chances you will be caught are very high. • If someone asks you to see or copy your assignment, or to complete the assignment instead of them, just say: I can’t do this - we can both be thrown out of the University. I will not risk my future by doing this. Be smart and don’t risk your future by engaging in plagiarism and academic dishonesty! The University of Sydney Page 44 The University of Sydney Page 1 Unicorns, Decacorns and Undercorns – Unicorns – private companies valued at more than $1 billion…. – Private companies are run the same way as public companies, except that ownership in the company is limited to a relatively small number of investors. Some of the most famous companies in the world are private companies, including Facebook, Ikea, agriculture giant Cargill, and candy maker Mars. – Decacorns – private companies valued at more than $10 billion are now the gold standard for startup success. – Uber… US100M? Airbnb ? Pinterest? SpaceX ? – Undercorns - Unicorns that sell or go public below their last private valuation The University of Sydney Page 2 https://www.visualcapitalist.com /visualizing-the-unicornlandscape-in-2019/ The University of Sydney Page 3 INFO5992 Understanding IT Innovations Week 7: Commercialisation I Startups, Customer Development Process, Lean Startup Methodology & Agile Development Ivan Chua Semester 1, 2020 The University of Sydney Page 4 Copyright warning COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 WARNING This material has been reproduced and communicated to you by or on behalf of the University of Sydney pursuant to Part VB of the Copyright Act 1968 (the Act). The material in this communication may be subject to copyright under the Act. Any further copying or communication of this material by you may be the subject of copyright protection under the Act. Do not remove this notice. The University of Sydney Page 5 The University of Sydney Page 6 Innovation by Startup Companies The University of Sydney Page 7 The Unicorn Club – Billion dollar Startups – Coined in a TechCrunch article "Welcome To The Unicorn Club: Learning from Billion-Dollar Startups". – A unicorn is generally defined as a privately held startup that has a $1 billion valuation – something rare (like a unicorn). – Private companies are run the same way as public companies, except that ownership in the company is limited to a relatively small number of investors. Some of the most famous companies in the world are private companies, including Facebook, Ikea, agriculture giant Cargill, and candy maker Mars. The University of Sydney https://bits.blogs.nytimes.com/2015/07/05/unicorns-afitting-word-for-its-time-and-place Aileen Lee https://en.wikipedia.org/wi ki/Aileen_Lee Page 8 The Unicorn Club – Growing pace – Venture capital investors have noted in recent years that billion-dollar companies are being created at a rapid pace, with 2014 through 2015 seeing a notable uptick in unicorn births. With this in mind, we decided to visualize the increasingly crowded unicorn club. The University of Sydney https://medium.com/startup-grind/unicorn-club-revisited-e641f9c80e8d Fortune’s Unicorn List http://fortune.com/unicorns/ Page 9 The University of Sydney https://www.cbinsights.com/research/increasinglycrowded-unicorn-club/ Page 10 Why so many more ‘unicorn’ companies now? – Compelling products that are easier than ever to adopt – A perception of winner-take-all markets (Dominant design) – Competitive later stage capital – Vibrant public markets – Optimistic private markets sheltering a thicket of “paper unicorns.” https://techcrunch.com/2015/07/18/welcome-to-the-unicorn-club-2015-learning-from-billion-dollar-companies/ The University of Sydney Page 11 Five primary business models among Unicorns – 36% E-Commerce companies – companies where a consumer pays for a good or service through the internet or mobile; e.g., companies like Uber and Airbnb – 27% Audience companies – the product is free to use for consumers, the company makes money thru ads or leads; e.g., SnapChat – 20% Enterprise software companies – where a business customer pays for larger scale software, often ‘on premises’ vs cloud-based; or hardware with software; e.g., Cloudera, MagicLeap – 12% SaaS companies – cloud-based software offered often via a ‘freemium’ or monthly model; e.g., Slack and MangoDB – 6% Consumer Electronics/Internet of Things – where the consumer pays for a physical product, e.g., Xiaomi https://techcrunch.com/2015/07/18/welcome-to-the-unicorn-club-2015-learning-from-billion-dollar-companies/ The University of Sydney Page 12 Five primary business models among Unicorns – An important note – 32% has characteristics of broad or local network effects, where the value of the product/service gets better the more people are part of the system. – Many are platform companies https://techcrunch.com/2015/07/18/welcome-to-the-unicorn-club-2015-learning-from-billion-dollar-companies/ The University of Sydney Page 13 Unicorn Landscape (Examples) https://www.visualcapitalist.com /visualizing-the-unicornlandscape-in-2019/ The University of Sydney Page 14 What’s a startup company? The University of Sydney Page 15 Recap week1: Innovation as “Creative Destruction” Schumpeter The University of Sydney – Economy is in a state of constant tumultuous change – Innovation propels the economy – Entrepreneurs within new firms drive innovation: – All companies react adaptively to change – Creative responses to change come via innovative acts by entrepreneurs – Different forms of innovations: – New products; New organisations (e.g. mergers); New markets – Innovating firms emerge after technological breakthrough Page 16 Recap: Organising for Innovation: Overview – A company’s size and structure impact its ability to innovate – Some structures may foster creativity and experimentation – Others may enhance efficiency of product development – Some structures may enable both simultaneously – Traditionally large companies have done most technological innovation inhouse in R&D labs – Trend towards more “open innovation” – involving other organisations and individuals in their innovation The University of Sydney Page 17 Size and structural dimensions of companies – However, large companies might also be disadvantaged for innovation because… – R&D efficiency may decrease due to loss from managerial control – Large companies can have more bureaucratic inertia – More commitments tie companies to current technologies • Learning effects (see Week 3); dominant design – Small firms are often more flexible and entrepreneurial – Can change direction quickly based on changing circumstances or new observations (pivot) – Innovation favors agility - It’s easier for a small company to be agile than a large company The University of Sydney Source: Schilling (2013) Page 19 How can a couple of people beat and displace major global corporations? – vs What the Google founders recognized about search on the Web was that information about LINKS could be added to the algorithms. – Links are, in effect, another kind of indexing altogether. Web page authors link to related material, and often to very carefully and consciously selected related material. This link information could be wrapped into the search algorithms to improve the accuracy of retrieval. – The University of Sydney Altavista – known for its efficient search and crawling…. But lost focus to portal / features https://www.quora.com/Why-did-Altavista-search-engine-lose-ground-so-quickly-to-Google Page 20 How can a couple of people beat and displace major global corporations? – vs The University of Sydney But, the brilliance of Mark Zuckerberg was his willingness to allow Facebook to go wherever the market wanted it. Farmville and other social games - why not? Different ways to find potential friends - go for it. – The founders kept pushing the technology to do anything users wanted. – And looking within the comments for what would be the next application - the next promotion - the next revision that would lead to more uses, more users and more growth. http://www.forbes.com/sites/adamhartung/2011/01/14/why-facebook-beat-myspace/#7fae4f177023 Page 21 Traditional approach: Treat startup as small version of large company – Traditional approach (still often used today) – Startups treated as small version of large company – Founders used techniques learned in business schools as used by big companies – Most businesses needed a business plan to start – Business plan needed for investment (bank, venture capital, etc) The University of Sydney Page 24 Traditional approach: Treat startup as small version of large company – Business plan focused on: 1. Identifying business opportunity (addressable market) 2. Problem to be solved 3. Planned solution to the problem 4. Forecast for income, profit, costs etc (e.g. for 5 years) The University of Sydney Page 25 Traditional business plan – The business plan usually has: – Exec summary – Description of product/service – Industry analysis Frequently unsuccessful for tech – Customer analysis startups as: – Competitor analysis • For tech startups, there are many uncertainties – Marketing and sales plan • The plan may have many untested – Operations and HR plans assumptions • Much of the plan may rely on these – Financial plan untested assumptions • The business plan is often rigid and hard to change direction quickly The University of Sydney Page 26 Business Plan Templates and Examples – Many samples from various industries – Templates to help https://www.bplans.com/software_publisher_business_plan/executive_summary_fc.php The University of Sydney Page 27 Established companies and startups are very different types of things The University of Sydney Page 28 What’s a startup company? – Term first used in the 1970s – Most used for starting technology companies – Steve Blank: “a temporary organization in search of a scalable, repeatable, profitable business model” – The Startup Owner’s Manual (2012) The University of Sydney www.steveblank.com/about Steve Blank Engineer / entrepreneur / Lecturer at Stanford and others Page 29 What’s a startup company? – Eric Ries: “a human institution designed to deliver a new product or service under conditions of extreme uncertainty” – The Lean Startup (2011) www.theleanstartup.com Eric Reis Software developer/ entrepreneur The University of Sydney Page 30 Established companies vs startups – Established companies… – Startups… – Execute a business model – Search for a business model The University of Sydney Page 31 How do I get an idea for a startup? The University of Sydney Page 32 Paul Graham: How to get startup ideas – The way to get startup ideas is not to try to think of startup ideas. It's to look for problems, preferably problems you have yourself. Paul Graham, Founder of Y Combinator Some of their startups: Reddit, Scribd, Dropbox, Airbnb, Stripe, Heroku, Weebly, … The University of Sydney The very best startup ideas tend to have three things in common: – they're something the founders themselves want, – that they themselves can build, – and that few others realize are worth doing. Microsoft, Apple, Yahoo, Google, and Facebook all began this way. http://paulgraham.com/startupideas.html Page 33 Recap : Many innovations start at “user innovation” Eric Von Hippel MIT Sloan School of Management http://sloanreview.mit.edu/article/the-user-innovation-revolution/ The University of Sydney Page 34 Paul Graham: How to get startup ideas – Real problems: – Address real problems, not made-up problems – The “Well”: – Build something a small number of people want a lot, rather than something a large number of people want a little – Getting yourself ready – Be at the leading edge of a field (even if just a user) – “Live in the future, then build what’s missing” – External stimulus hitting a prepared mind – Noticing: – Not “think up ideas” but “notice” – It’s OK to work on projects that produce “toys” as it prepares you to notice – “Live in the future and build what seems interesting” http://paulgraham.com/startupideas.html The University of Sydney Page 35 CSIRO: Global Megatrends That Will Change The Way We Live https://publications.csiro.au/publications/ #publication/PIcsiro:EP126135 The University of Sydney Page 36 CSIRO: 7 Megatrends The University of Sydney Page 37 Differences between established companies and startups The University of Sydney Page 38 Some differences between established companies and startups Established companies Startup companies Markets for products Known Mostly unknown (hypothesis only) Customers Known Mostly unknown (hypothesis only) Products Known Mostly unknown (hypothesis only) Future product features Learn from customers Learn from potential customers and test hypotheses Business model Company executes the current business model Company searches for the best business model Product Full specifications as needed by market Minimum feature set (for speed to market and flexibility for change) Product development Smooth execution using proven methods Pivots (until find market, customers, products, business model) Structure Relatively stable Fluid Based on work of Steve Blank eg http://www.slideshare.net/sblank/why-product-managers-need-sneakers?from=ss_embed : The University of Sydney Page 39 Towards more systematic methods for startups – Emerging “management science” for startups – Techniques to help startups build successful innovative companies despite level of uncertainty – Some influential books: – “Four Steps to the Epiphany”, Steve Blank, 2005 – “Business Model Generation”, Alexander Osterwalder, Yves Pigneur, Alan Smith, and 470 others across 45 countries, 2010 – “The Lean Startup”, Eric Ries, 2011 – “The Startup Owner’s Manual”, Steve Blank and Bob Dorf, 2012 – “The Value Proposition Design”, Alexander Osterwalder, Yves Pigneur, Greg Bernarda, Alan Smith, 2015 – “The Leader’s Guide”, Eric Reis, 2015 (Kickstarter campaign) The University of Sydney Page 40 The startup – 3 key principles – Customer Development “get out of the building” – including hypothesis-driven experiments with customers, pivoting etc – Business Model Canvas “Sketch Out Your Hypotheses.” – Agile software development – Week 10 “Quick, Responsive Development.” Steve Blank, Why the Lean Start-Up Changes Everything, Harvard Business Review, 2013, https://hbr.org/2013/05/why-the-lean-start-up-changeseverything The University of Sydney Page 41 Customer development Steve Blank The University of Sydney Page 42 What’s wrong with the New Product Introduction Model (for startups) – “The 9 deadly sins of the New Product Introduction Model”: 1. Assuming “I know what the customer wants” 2. The “I know what features to build” flaw 3. Focus on Launch date 4. Emphasis on execution instead of hypotheses, testing, learning and iteration 5. Traditional business plans assume no trial and no errors 6. Confusing traditional job titles with what a startup needs to accomplish 7. Sales and marketing execute to a plan 8. Presumption of success leads to premature scaling 9. Management by crisis leads to a death spiral The University of Sydney Source: Steve Blank and Bob Dorf, “The Startup Owner’s Manual” (2012) Page 43 Introducing new products to a market: Traditional model New Product Introduction model: Concept / Seed The University of Sydney Product Development Alpha/Beta Test Launch/ 1st Ship Created by Bill Simpson-Young based on Steve Blank and Bob Dorf “The Startup Owner’s Manual” (2012) Page 44 Introducing new products to a market: Traditional model New Product Introduction model: Concept / Seed Product Development Alpha/Beta Test Launch/ 1st Ship First contact between product and customer. Too late! “No business plan survives first contact with customers” – Steve Blank The University of Sydney Created by Bill Simpson-Young based on Steve Blank and Bob Dorf “The Startup Owner’s Manual” (2012) Page 45 Alternative approach for startups: Customer Development Process Customer Development Process: Works where customers are unknown, product features unknown, market unknown, basis of competition unknown – i.e. Designed to solve “the 9 deadly sins” The University of Sydney Source: Steve Blank and Bob Dorf, “The Startup Owner’s Manual” (2012) Page 46 Alternative approach for startups: Customer Development Process Capture vision and turn it into business model hypotheses. Develop plan to test hypotheses with customers. Test hypotheses. Test whether related business model is repeatable and scalable Product/market fit Build end-user demand. Build sales channel. Scale business. The University of Sydney Source: Steve Blank and Bob Dorf, “The Startup Owner’s Manual” (2012) Transition from startup to typical company Page 47 Product-Market Fit – A degree to which a product satisfies a strong market demand. – A step in between customer validation and customer creation – Steve Blank https://fourweekmba.com/product-market-fit/ The University of Sydney Page 48 The Customer Development Manifesto (The 14 Rules) Rule 1. There are no facts inside your building, so get outside Rule 2. Pair Customer Development with Agile Development Rule 3. Failure is an integral part of the search Rule 4. Make continuous iterations and pivots Rule 5. No business plan survives first contact with customers so use a business model canvas (more soon) Rule 6. Design experiments and test to validate your hypotheses … The University of Sydney Source: Steve Blank and Bob Dorf, “The Startup Owner’s Manual” (2012) Page 49 The Customer Development Manifesto (The 14 Rules) Rule 7. Agree on market type. It changes everything – Bringing a new product into an existing market – Bringing a new product into a new market – Bringing a new product into an existing market and trying to: – Re-segment that market as a low-cost entrant – Re-segment that market as a niche entrant – Cloning a business model that’s successful in another country … Source: Steve Blank and Bob Dorf, “The Startup Owner’s Manual” (2012) https://www.youtube.com/watch?v=6y3WIrgp_ NY The University of Sydney Page 50 The Customer Development Manifesto (The 14 Rules) – … Rule 8. Startup metrics differ from those in existing companies Rule 9. Fast decision-making, cycle time, speed and tempo Rule 10. It’s all about passion Rule 11. Startup job titles are very different from a large company Rule 12. Preserve all cash until needed. Then spend Rule 13. Communicate and share learning Rule 14. Customer development success begins with buy-in The University of Sydney Source: Steve Blank and Bob Dorf, “The Startup Owner’s Manual” (2012) Page 51 Agile Development The University of Sydney Page 52 How can project management be done for innovation? The University of Sydney Page 53 Background – In innovation projects, there are many unknowns: – Feasibility of idea may be unknown – Product or process concept may be vague – Target customers may be unknown – The way to make revenue may be unknown – Some companies attempt to use traditional project management approaches for innovation projects – This often fails The University of Sydney Page 54 Introducing new products to a market: Traditional model New Product Introduction model: Works where customers are known, product features can be specified in advance, market well-defined, basis of competition understood The University of Sydney Created by Bill Simpson-Young based on Steve Blank and Bob Dorf “The Startup Owner’s Manual” (2012) Page 55 Introducing new products to a market: Traditional model New Product Introduction model: Concept / Seed Come up with concept Define product and product features Determine customers Do market research (statistical and some interviews) Develop business plan The University of Sydney Created by Bill Simpson-Young based on Steve Blank and Bob Dorf “The Startup Owner’s Manual” (2012) Page 56 Introducing new products to a market: Traditional model New Product Introduction model: Concept / Seed Product development Specify market requirements Develop product/service - typically using waterfall model: Requirements, design, implementation, testing, maintenance Promote future product/service The University of Sydney Created by Bill Simpson-Young based on Steve Blank and Bob Dorf “The Startup Owner’s Manual” (2012) Page 57 Introducing new products to a market: Traditional model New Product Introduction model: Concept / Seed Product development Alpha / Beta test Sign up alpha/beta customers Run alpha/beta trials Develop sales and marketing materials Get channel partners and build sales organisation The University of Sydney Created by Bill Simpson-Young based on Steve Blank and Bob Dorf “The Startup Owner’s Manual” (2012) Page 58 Introducing new products to a market: Traditional model New Product Introduction model: Concept / Seed Product development Alpha / Beta test Launch / 1st Ship Launch product Publish press releases Build sales and marketing The University of Sydney Created by Bill Simpson-Young based on Steve Blank and Bob Dorf “The Startup Owner’s Manual” (2012) Page 59 What’s wrong with this model when there is high degree of uncertainty? (e.g. where customers are unknown, needed features unknown, basis for competition not known) The University of Sydney Page 60 Problems with the traditional model – Impossible to know all Capture requirements in advance requirements – The project takes time so Specify the requirements at the functionality time of capture may be different from those at Specify design the time of delivery – Some requirements are Implement only clear when users are using the product Test / – Too long to get customer Maintenance validation of product The University of Sydney Page 61 “The Agile Manifesto” (2001) – We are uncovering better ways of developing software by doing it and helping others do it. Through this work we have come to value: – Individuals and interactions over processes and tools – Working software over comprehensive documentation – Customer collaboration over contract negotiation – Responding to change over following a plan http://agilemanifesto.org http://agilemanifesto.org/principles.html The University of Sydney Page 62 Success of agile approaches on projects Source: The CHAOS Manifesto by the Standish Group 2015 referred to by http://www.infoq.com/articles/standish-chaos-2015 The University of Sydney Page 63 Agile development – – – – Iterative, incremental and evolutionary Efficient and face-to-face communication Very short feedback loop and adaption cycle Quality focus The University of Sydney Page 64 Agile Alliance - Key Agile Concepts (Management) – User Stories: In consultation with the customer or product owner, the team divides up the work to be done into functional increments called "user stories." Each user story is expected to yield a contribution to the value of the overall product. – Daily Meeting: Each day at the same time, the team meets so as to bring everyone up to date on the information that is vital for coordination: each team members briefly describes any "completed" contributions and any obstacles that stand in their way. – Incremental Development: Nearly all Agile teams favor an incremental development strategy; in an Agile context, this means that each successive version of the product is usable, and each builds upon the previous version by adding uservisible functionality. The University of Sydney Page 65 Agile Alliance - Key Agile Concepts (Management) – Iterative Development: Agile projects are iterative insofar as they intentionally allow for "repeating" software development activities, and for potentially "revisiting" the same work products. – Team: A "team" in the Agile sense is a small group of people, assigned to the same project or effort, nearly all of them on a full-time basis. A small minority of team members may be part-time contributors, or may have competing responsibilities. – Milestone Retrospective: Once a project has been underway for some time, or at the end of the project, all of the team's permanent members (not just the developers) invests from one to three days in a detailed analysis of the project's significant events. – Personas: When the project calls for it - for instance when user experience is a major factor in project outcomes - the team crafts detailed, synthetic biographies of fictitious users of the future product: these are called "personas." The University of Sydney Page 66 Principles behind the Agile Manifesto https://www.agilealliance.org/agile101/12principles-behind-the-agile-manifesto/ The University of Sydney Page 67 Three common forms of Agile development – There are at least a dozen agile innovation methodologies, which share values and principles but differ in their emphases. Experts often combine various approaches. Here are three of the most popular forms and the contexts in which each works best. The University of Sydney https://hbr.org/2016/05/embracing-agile Page 68 Common Agile methodologies – Lean Methodology eliminates waste through such practices as selecting only the truly valuable features for a system, prioritizing those selected, and delivering them in small batches. It emphasizes the speed and efficiency of development workflow, and relies on rapid and reliable feedback between programmers and customers. – Lean uses the idea of work product being “pulled” via customer request. – It focuses decision-making authority and ability on individuals and small teams, since research shows this to be faster and more efficient than hierarchical flow of control. – Lean also concentrates on the efficiency of the use of team resources, trying to ensure that everyone is productive as much of the time as possible. – It concentrates on concurrent work and the fewest possible intra-team workflow dependencies. – Lean also strongly recommends that automated unit tests be written at the same time the code is written. The University of Sydney https://www.versionone.com/agile-101/agile-methodologies/ Page 69 Common Agile methodologies – Scrum is a process framework used to manage product development and other knowledge work. Scrum is empirical in that it provides a means for teams to establish a hypothesis of how they think something works, try it out, reflect on the experience, and make the appropriate adjustments. – Kanban is used by organizations to manage the creation of products with an emphasis on continual delivery while not overburdening the development team. Like Scrum, Kanban is a process designed to help teams work together more effectively. The University of Sydney https://www.versionone.com/agile-101/agile-methodologies/ Page 70 The Lean Startup MVP, Product Market Fit etc The University of Sydney Page 71 The Lean Startup – Eric Ries developed the concept of “The Lean Startup” – Combines Steve Blank’s Customer Development process with Agile Software Development www.theleanstartup.com Eric Reis Software developer/entrepreneur – Video of Eric Ries speaking, Oct 2011: – https://www.youtube.com/watch?v=tNw4Ht75DvA – (10 minutes) The University of Sydney Page 72 The Lead Startup by Eric Ries – Learn Faster – Code Faster – Measure Faster http://theleanstartup.com/principles The University of Sydney Page 73 The Minimum Viable Product (MVP) – Definition (from Eric Reis): “the minimum viable product is that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.” The University of Sydney Page 74 The Minimum Viable Product (MVP) Frank Robinson, CEO, SyncDev, Inc. “When I first said ‘minimum viable product’ I never had to repeat myself. The words went viral right before my eyes.” http://www.syncdev.com/minimum-viable-product/ The University of Sydney Page 75 The Minimum Viable Product (MVP) https://www.youtube.com/watch?v=Fj0qsAyKPN8 The University of Sydney Page 76 The Minimum Viable Product (MVP) 1. 2. 3. 4. 5. Entrepreneurs are everywhere - You don't have to work in a garage to be in a startup. Entrepreneurship is management - A startup is an institution, not just a product, so it requires management, a new kind of management specifically geared to its context. Validated learning - Startups exist not to make stuff, make money, or serve customers. They exist to learn how to build a sustainable business. This learning can be validated scientifically, by running experiments that allow us to test each element of our vision. Innovation accounting - To improve entrepreneurial outcomes, and to hold entrepreneurs accountable, we need to focus on the boring stuff: how to measure progress, how to setup milestones, how to prioritize work. This requires a new kind of accounting, specific to startups. Build-measure-learn - The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere. All successful startup processes should be geared to accelerate that feedback loop. The University of Sydney http://theleanstartup.com/principles Page 77 Product Market Fit – Definition (Marc Andreessen): “Product/market fit means being in a good market with a product that can satisfy that market.” – You can always feel when product/market fit isn't happening. – The customers aren't quite getting value out of the product, word of mouth isn't spreading, usage isn't growing that fast, press reviews are kind of "blah", the sales cycle takes too long, and lots of deals never close. Marc Andreessen https://youtu.be/zfOsP3PmI1U http://web.stanford.edu/class/ee204/ProductMarketFit.html The University of Sydney Page 78 Product-Market Fit Pyramid for Lean Product Process • Test your MVP with customers • Create your MVP prototype • Specify your Minimum Viable Product (MVP) feature set • Define your value proposition • Identify underserved customer needs • Determine your target customer The University of Sydney https://leanstartup.co/a-playbook-for-achieving-product-market-fit/ Page 79 Monopolies: “Winner takes all” markets Peter Thiel, co-founder of PayPal, entrepreneur and investor http://www.forbes.com/profile/p eter-thiel/ – Focus on big vision rather than purely incremental niche-making by pivoting – Focus on monopoly for a time in a market (eg Goolge, Twitter, Facebook) rather than continual competition – “Networking effects” are driving the winner-take-all economic shift – Unicorns are also influenced by this concept The University of Sydney Page 80 Differences between the Lean Startup approach and the traditional approach (for established companies) Steve Blank (2013) The University of Sydney Page 81 Good sources of tips for startups – – – – Steve Blanks’ blog – http://steveblank.com Paul Graham’s articles – http://paulgraham.com/articles.html Andreessen Horowitz ‘software is eating the world’ – https://a16z.com/ “Lean Startup” isn’t all you need to know - Marc Andreessen on role of lean startup - https://youtu.be/GGui1AB66k8?t=2416 (from 40:16 to end) The University of Sydney Page 82 INFO5992 Understanding IT Innovations Week 7: Commercialisation II Innovation Management, Value Proposition Canvas & Business Model Canvas Ivan Chua Semester 1, 2020 The University of Sydney Page 1 Copyright warning COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 WARNING This material has been reproduced and communicated to you by or on behalf of the University of Sydney pursuant to Part VB of the Copyright Act 1968 (the Act). The material in this communication may be subject to copyright under the Act. Any further copying or communication of this material by you may be the subject of copyright protection under the Act. Do not remove this notice. The University of Sydney Page 2 The University of Sydney Page 3 Innovation Management The University of Sydney Page 4 20,000 Feet View • • • The University of Sydney Business Model Canvas Value Proposition Canvas Value Proposition Pyramid Lean Startup Methodology; • Customer Development Process • Agile Development • Organisational Culture & Structures Supporting Innovation Page 5 Value Proposition Canvas The University of Sydney Page 6 Part of the Business Model Canvas The University of Sydney Page 7 Value Proposition Canvas The Value Proposition Canvas helps you to design and test great value propositions in an iterative search for what customers want. Value proposition design is a neverending process in which you need to evolve your value proposition(s) constantly to keep it relevant to customers. The Value Proposition Canvas has two sides. With the Customer Profile, you clarify your customer understanding. With the Value Map, you describe how you intend to create value for that customer. You achieve Fit between the two when one meets the other. The University of Sydney Page 8 Customer Profile The University of Sydney Page 9 Customer Profile The Customer Profile describes a specific customer segment in your business model. It analyses what the customer does (customer jobs), and in doing so, the gains that the customer wants, as well as the pains that it experiences. There are three components: 1. Customer Jobs: Describe what customers are trying to get done in their work and in their lives, as expressed in their own words. 2. Gains: Describes the outcomes customers want to achieve or the concrete benefits they are seeking 3. Pains: Describes bad outcomes, risks and obstacles related to the customer jobs. The University of Sydney Page 10 The University of Sydney Page 11 The University of Sydney Page 12 Customer Jobs Jobs describe the things your customers are trying to get done in their work or in their life. A customer job could be the tasks they are trying to perform and complete, the problems they are trying to solve, or the needs they are trying to satisfy. Make sure you take the customer’s perspective when investigating jobs. What you think of as important from your perspective might not be a job customers are actually trying to get done Functional Jobs When your customers try to perform or complete a specific task or solve a specific problem, for example, write a software, write a report, help clients as a professional. Social Jobs When your customers want to look good or gain power or status. These jobs describe how customers want to be perceived by others. For example, perceived as competent as a professional or look trendy. Personal & Emotional Jobs When your customers seek a specific emotional state, such as feeling good or secure. For example, seeking peace of mind regarding one’s investments as a consumer or achieving the feeling of job security at the workplace. The University of Sydney Page 13 Customer Pains Pains describe anything that annoys your customers before, during and after trying to get a job done or simply prevents them from getting a job done. Pains also describe risks, that is, potential bad outcomes, related to getting a job done badly or not at all. Undesired outcomes, problems and characteristics Pains are functional (e.g. a solution doesn’t work or doesn’t work well, or has negative side effects), social (“I look bad doing this”), emotional (“I feel bad every time I do this”), or ancillary (“it’s annoying to do it”). This may involve undesired characteristics customers do not like (e.g. the user interface is ugly). Obstacles These are things that prevent customers from even getting started with a job or that slow them down (e.g. “I lack the time to get this done accurately” or “I cannot afford any of the existing solutions”). Risks (undesired potential outcomes) What could go wrong and have important negative consequences (e.g. “I might lose credibility when using this type of solution” or “A security breach would be disastrous for us”). The University of Sydney Page 14 Customer Gains Gains describe the outcomes and benefits your customers want. Some gains are required, expected or desired by customers, and some would surprise them. Gains include functional utility, social gains, positive emotions and cost savings. Required Gains These are gains without which a solution wouldn’t work. For example, the most basic expectation that we have from a smartphone is that we can make a call with it. Expected Gains These are relatively basic gains that we expect from a solution, even if it could work without them. For example, since Apple launched the iPhone, we expect phones to be well-designed and look good. Desired Gains These are gains that go beyond what we expect from a solution but would love to have if we could. These are usually gains customers would come up with if you asked them. For example, we desire smartphones to be seamlessly integrated with our other devices. Unexpected Gains These are gains that go beyond customer expectations and desires. They wouldn’t even come up with them if you asked them. Before Apple brought touch screens and the App Store to the mainstream, nobody really thought of them as part of a phone. The University of Sydney Page 15 Value Map The University of Sydney Page 16 Part 2: Value Map The Value Map describes how you create value for your Customer Segment. It is a combination of gain creators and pain relievers which addresses the pains and gains of your customer. There are three components: 1. Product offering: It is the product offering and its associated features. 2. Gain Creators: Describes how your product offering and its associated features create customer gains. 3. Pain Relievers: Describe how your product offering and associated features alleviate customer pains. The University of Sydney Page 17 The University of Sydney Page 18 Product Offering This is simply your product offering, including the list of features. Types of Product Offering: Digital Products such as software as-a-service (SaaS), marketplace platforms, music streaming etc. Physical/ tangible Goods, such as manufactured products. Intangible Products such as copyrights or services such as after-sales assistance. Financial Products such as investment funds and insurances or services such as the financing of a purchase. The University of Sydney Page 19 Pain Relievers Pain Relievers describe how exactly your product offering alleviate specific customer pains. They explicitly outline how you intend to eliminate or reduce some of the things that annoy your customers before, during or after they are trying to complete a job or that prevent them from doing so. Great value propositions focus on pains that matter to customers, in particular extreme pains. You don’t need to come up with a pain reliever for every pain you’ve identified in the customer profile – no value proposition can do this. Great value propositions often focus only on few pains that they alleviate extremely well. The University of Sydney Page 20 Gain Creators Gain creators describe how your product offerings create customer gains. They explicitly outline how you intend to product outcomes and benefits that your customer expects, desires, or would be surprised by, including functional utility, social gains, positive emotions, and cost savings. As with pain relievers, gain creators don’t need to address every gain identified in the customer profile. Focus on those that are relevant to customers and where your product offering can make a difference. The University of Sydney Page 21 Fit The University of Sydney Page 22 Fit You achieve fit when customers get excited about your value proposition, which happens when you address important jobs, alleviate extreme pains, and create essential gains that customers care about. The University of Sydney Page 23 Business Model Canvas The University of Sydney Page 24 Block 1 Block 6 Block 8 Block 2 Block 4 Block 7 Block 3 Block 5 Block 9 The University of Sydney Page 25 Business Model Canvas: Introduction • • • • • A business model describes how an organisation creates, delivers and captures value. A business model is built around an innovation – a clear business model is required for successful commercialisation The Business Model Canvas provides us with a framework to analyse and develop business models There are 9 building blocks in the Business Model Canvas: 1) Customer Segments 2) Value Proposition 3) Channels 4) Customer Relationships 5) Revenue Streams 6) Key Activities 7) Key Resources 8) Key Partnerships 9) Cost Structure The combination of the building blocks make up the business model. The individual building blocks, as well as the relationships between the building blocks are important to ensure that there is alignment within the business model To understand the business model canvas for the first time, it may be intuitive to think about it in the sequence provided above (1 to 9) The University of Sydney Page 26 Overview of the 9 Building Blocks Customer Segments Block 1 … are the groups of people and/or organisations a company or organisation aims to reach and create value for with a dedicated value proposition. Value Propositions Block 2 … are the value created and delivered to a Customer Segment in the form of Pain Relievers or Gain Creators. Channels Block 3 … describe how a value proposition is communicated and delivered to a customer segment through communication, distribution, and sales channels. Customer Relationships Block 4 … outline what type of relationship is established and maintained with each customer segment, and they explain how customers are acquired and retained. Revenue Streams Block 5 … result from a value proposition successfully offered to a customer segment. It is how an organisation captures value with a price that customers are willing to pay. Key Activities Block 6 … are the most important activities an organisation need to do to deliver Value Propositions to a Customer Segment and generate revenue in the process. Key Resources Block 7 …. are the most important assets required to offer and deliver the previously described elements. Key Partnerships Block 8 … shows the network of suppliers and partners that bring in external Activities and Resources. Cost Structure Block 9 … outlines all major costs incurred to operate the business model The University of Sydney Page 27 Customer Segments Block 1 The University of Sydney Page 28 Block 6 Block 8 Block 4 Block 1 Block 2 Block 7 Block 3 Block 9 The University of Sydney Block 5 Page 29 Block 1: Customer Segments The Customer Segment building block defines the different groups of customers (e.g. people or organisations) the company aims to reach and serve with its products. Customers comprise the heart of any business model. Without profitable customers, no company can survive for long. In order to better satisfy customers, a company may group them into distinct segments with common needs, common behaviours or other attributes. A business model may define one or several large or small Customer Segments. An organisation must make a conscious decision about which segments to serve and which segments to ignore. Once this decision is made, a business model can be carefully designed around a strong understanding of specific customer needs. Customers represent separate segments if: • • • • • Their needs require and justify a distinct offer They are reached through different distribution channels They require different types of relationships They have substantially different profitability They are willing to pay for different aspects of the offer The University of Sydney Page 30 5 Types of Customer Segments Mass Market Business models focussed on mass markets don’t distinguished between different customer segments. The Value Propositions, Distribution Channels, and Customer Relationships all focus on one large group of customers with broadly similar needs and problems. This type of business model is often found in the consumer electronics and automotive sector. Niche Market Business models targeting niche markets cater to specific, specialised Customer Segments. The Value Propositions, Distribution Channels, and Customer Relationships are all tailored to the specific requirements of a new niche market. Such business models are often found in supplier-buyer relationships, where the supplier depend heavily on purchases from the buyer. Examples include Qualcomm which depend heavily on purchases from smartphone makers for its systemon-chips (Snapdragon). Segmented Some business models distinguish between market segments with slightly different needs and problems. For example, Apple distinguish between users that want computers with varying mobility, performance and size requirements – all of whom had similar but varying needs. As such, Apple offers each segment with slightly different Value Propositions with its MacBook Air, MacBook Pro and iMac/ iMac Pro. Diversified An organisation with a diversified customer business model serves two unrelated Customer Segments with very different needs and problems. For example, in 2006, Amazon.com decided to diversify its retail business by selling “cloud computing” services: online storage space and on-demand server usage. Thus, it started catering to a totally different Customer Segment (i.e. organisations requiring cloud computing). The strategic rationale behind this diversification can be found in Amazon.com’s powerful IT infrastructure. Multi-sided platforms (or multi-sided markets Some organisations serve two or more interdependent Customer Segments. An data annotation platform needs a large base of AI companies that require labelling services, and a base of annotators that can label data. Both segments are required to make the business model work. The University of Sydney Page 31 Case Studies Mass Market Strategy The University of Sydney Niche Market Strategy Segmented Strategy Diversified Strategy Multi-Sided Platform Strategy Page 32 Value Propositions Block 2 The University of Sydney Page 33 Block 6 Block 8 Block 4 Block 1 Block 2 Block 7 Block 3 Block 9 The University of Sydney Block 5 Page 34 Block 2: Value Propositions The Value Propositions Building Block describes the bundle of products and services that create value for a specific Customer Segment The Value Proposition is the reason why customers turn to one company over another. It solves a customer problem or satisfies a customer need. Each Value Proposition consists of an offering that caters to the requirements of a specific Customer Segment. • • • What is the organisation’s offering? What are the Gain Creators and Pain Relievers? (Refer to the Value Proposition Canvas) What Value Propositions are offered to the Customer Segment (as a result of the Gain Creators and Pain Relievers)? The University of Sydney Page 35 Value Proposition Canvas The Value Proposition Canvas helps you to design and test great value propositions in an iterative search for what customers want. Value proposition design is a never-ending process in which you need to evolve your value proposition(s) constantly to keep it relevant to customers. You achieve Fit when your value map meets your customer profile – when your product offering produce pain relievers and gain creators that match one or more of the jobs, pains, and gains that are important to your customer. Value Proposition Map • Product & Services represent your offering • Gain Creators describe how your products and services create customer gains • Pain Relievers describes how your products and services alleviate customer pains Customer Profile • Customer Jobs describe what your customers are trying to get done in their work and in their lives, as expressed in their own words. • Gains describe the outcomes customers want to achieve or the concrete benefits they are seeking. • Pains describe bad outcomes, risks, and obstacles related to customer jobs. The University of Sydney Page 36 Value Proposition Pyramid Product offering deliver fundamental elements of value that address four kinds of needs: • Functional • Emotional • Life Changing • Social Impact In general, the more elements provided, the greater customers’ loyalty and the higher the company’s sustained revenue growth. The University of Sydney Page 37 Case Studies Self-Trancendence The University of Sydney Affiliation & Belonging Design & Aesthetics Provides Access Simplifies Page 38 Channels Block 3 The University of Sydney Page 39 Block 6 Block 8 Block 4 Block 1 Block 2 Block 7 Block 3 Block 9 The University of Sydney Block 5 Page 40 Block 3: Channels The Channels Building Block describes how a company communicates with and reaches it Customer Segments to deliver a Value Proposition. Communication, distribution and sales Channels comprise a company’s interface with customers. Channels are customer touch points that play an important role in the customer experience. A few questions to be considered here are, “through which Channels do our Customer Segments want to be reached? How are we reaching them now? Which ones work best?” Channels serve several functions, including: • Raising awareness among customers about a company’s product offerings • Helping customers evaluate a company’s Value Proposition • Allowing customers to purchase specific products and services • Delivering a Value Proposition to customers • Providing post-purchase customer support The University of Sydney Page 41 Channel Types & Phases Channel Types There are online and offline channels. Online channels include: • Web: This include self-service sign-ups, logins and documentation; and live chats with a real person or AI (chatbot). • Phone calls: With a real person or chatbot. • Emails: Replied by a real person, or via pre-determined logic pathways • Advertisements: Social media and search • Payments And more Channel Phases Phase 1- Awareness Phase 2 - Evaluation Phase 3 - Purchase Phase 4 - Delivery Phase 5 – After Sales How do we raise awareness about our company’s product offering? How do we help customers to purchase specific products and services? How do we allow customers to purchase specific product offerings? How do we deliver a Value Proposition to customers? How do we provide post-purchase customer support? The University of Sydney Page 42 Case Studies Web + Phase II, V The University of Sydney Email + Phase I, II, III Advertisement + Phase I Payments + Phase III Web + Phase I, II, III, IV, V Page 43 Customer Relationships Block 4 The University of Sydney Page 44 Block 6 Block 8 Block 4 Block 1 Block 2 Block 7 Block 3 Block 9 The University of Sydney Block 5 Page 45 Block 4: Customer Relationships The Customer Relationships Building Block describes the types of relationships a company establishes with specific Customer Segments A company should clarify the type of relationship it wants to establish with each Customer Segment. Relationships can range from personal to automated. Customer Relationships may be driven by the following motivation: • • • Customer acquisition (Onboarding new customers); Customer retention (Retaining repeat customers); Upselling and cross-selling (Selling higher priced product offerings, or selling other complementary products) The University of Sydney Page 46 Types of Customer Relationships Personal Assistance This relationship is based on human interaction. The customer can communicate with a real customer representative to get help during the sales process or after the purchase is complete. This may happen on-site at the point of sale, through call centres, by email or through other means. Dedicated Personal Assistance This relationship involves dedicating a customer representative specifically to an individual client. It represents the deepest and most intimate type of relationship and normally develops over a long period of time. In private banking services, for example, dedicated bankers serve high net worth individuals. Similar relationships can be found in other businesses in the form of key account managers who maintain personal relationships with important customers. Self-Service In this type of relationship, a company maintains no direct relationship with customers. It provides all the necessary means for customers to help themselves. Automated Services This type of relationship mixes a more sophisticated form of customer self-service with automated processes. For example, personal online profiles give customers access to customised services. Automated services can recognise individual customers and their characteristics, and offer information related to orders or transactions. At their best, automated services can simulate a personal relationship (e.g. offering book or movie recommendations). Communities Increasingly, companies are utilising user communities to become more involved with customers/prospects and to facilitate connections between community members. Many companies maintain online communities that allow users to exchange knowledge and solve each other’s problems. Communities can also help companies better understand their customers. Co-Creation More companies are going beyond the traditional customer-vendor relationship to co-create value with customers. Amazon.com invites customers to write reviews and thus create value for other book lovers. Others, such as YouTube, rely on their content producers to develop and maintain relationships with their followers and supporters. The University of Sydney Page 47 Case Studies Personal Assistance The University of Sydney Dedicated Personal Assistance Self-Service Automated Services (e.g. Recommendations) Communities Page 48 Revenue Streams Block 5 The University of Sydney Page 49 Block 6 Block 8 Block 4 Block 1 Block 2 Block 7 Block 3 Block 9 The University of Sydney Block 5 Page 50 Block 5: Revenue Streams The Revenue Streams Building Block represents the cash a company generates from each Customer Segment (i.e. how the company earns money from its Customer Segment) If customers comprise the heart of a business model, Revenue Streams are its arteries. A company must ask itself, how can it quantify the financial value of the Value Proposition which it delivers to its Customer Segment? How much of that financial value can the company capture? What methods can it capture that financial value? For example, a certain product offering saves a Customer Segment 5,000 hours per year which is estimated to be equivalent to $1 million in financial value per year. Out of the $1 million, the company expects to be able to capture $200,000 per year via an annual subscription model. The University of Sydney Page 51 Types of Revenue Streams Asset Sale The most widely understood Revenue Stream derives from selling ownership rights to a physical product. Amazom.com sells books, music, consumer electronics, and more online. Fiat sells automobiles which buyers are free to drive, resell or even destroy. Usage Fee This Revenue Stream is generated by the use of a particular service. The more a service is used, the more the customer pays. A cloud computing platform may charge customers based on the number of minutes which a virtual machine is being run. A scooter ridesharing startup like Lime may charge customers based on a combination of the number of kilometres travelled on the scooter (it can also be argued that Lime is ). Subscription Fee This Revenue Stream is generated by selling continuous access to a service. A SaaS platform like Asana sells its members monthly or yearly subscriptions in exchange for access and usage of its project management tool. Lending, Renting or Leasing This Revenue Stream is created by temporarily granting someone the exclusive right to use a particular asset for a fixed period in return for a fee. For the lender, this provides the advantage of recurring revenues. Renters or lessees, on the other hand, enjoy the benefits of incurring expenses for only a limited time rather than bearing the full costs of ownership. Zipcar.com allows customers to rent cars by the hour Licensing This Revenue Stream is generated by giving customers permission to use protected intellectual property in exchange for licensing fees. Licensing allows rights-holders to generate revenues from their property without having to commercialise an invention. In the technology sector, patentholders grant other companies the right to use a patented technology in return for a license fee. Transaction or Brokerage Fees This Revenue Stream derives from intermediation services performed between or on behalf of two or more parties. Tripe, for example, generate revenue by taking a percentage of the value of the transaction executed between the merchant and the buyer. Advertising This Revenue Stream results from fees for advertising a particular product. For example, Google Adwords has a “pay-per-click” model and may charge their advertising customer $1.50 for every click of their advertisement displayed in the search results on Google. The University of Sydney Page 52 Case Studies Asset Sale The University of Sydney Usage Fee Subscription Fee Lending, Renting or Leasing Transaction or Brokerage Fee Page 53 Key Activities Block 6 The University of Sydney Page 54 Block 6 Block 8 Block 4 Block 1 Block 2 Block 7 Block 3 Block 9 The University of Sydney Block 5 Page 55 Block 6: Key Activities The Key Activities Building Block describes the most important things a company must do to make its business model work Every business model calls for a number of Key Activities. These are the most important actions a company must take to operate successfully. Key Activities enable other building blocks (Value Propositions, Channels… etc). Key Activities differ depending on the business model of the organisation. For example, the key activities for Microsoft would be software development, whereas for Dell (PC manufacturer), it would be supply chain management. The University of Sydney Page 56 Key Resources Block 7 The University of Sydney Page 57 Block 6 Block 8 Block 4 Block 1 Block 2 Block 7 Block 3 Block 9 The University of Sydney Block 5 Page 58 Block 7: Key Resources The Key Resources Building Block describes the most important assets required to make the business model work Every business model requires Key Resources. These resources allow an enterprise to create and offer a Value Proposition, reach markets, maintain relationships with Customer Segments, and earn revenues. Different Key Resources are needed depending on the type of business model. An self-driving car startup requires large volumes of training data to develop their computer vision model, whereas Wikipedia requires the underlying open-source software (Media Wiki). The University of Sydney Page 59 Types of Key Resources Technology This may include proprietary or open-sourced software. Various libraries and frameworks are often used in the development of proprietary technologies. Data Data is particularly important for AI companies as training data is required for the development of AI models. Either open data or proprietary data may be accessed and used. Human Every enterprise requires human resources, but people are particularly prominent in certain business models. For example, human resources are crucial in knowledge-intensive and creative industries. A pharmaceutical company such as Novartis, for example, relies heavily on human resources: its business model is predicated on an army of experienced scientists and a large and skilled salesforce. Intellectual Intellectual resources such as proprietary knowledge, patents and copyrights, insights of technical and business problems, are increasing important in a modern business model. Intellectual resources are difficult to develop but when successfully created may offer substantial value. Smartphone maker Huawei has the most patents on 5G in the world, which has enabled the organisation to achieve its dominant position in 5G globally today. Physical This category includes physical assets such as manufacturing facilities, buildings, vehicles, machines, systems, point-of-sales systems and distribution networks. eCommerce platforms like Amazon rely heavily on physical resources for its logistics and fulfillment functions. Financial Some business models call for financial resources, such as cash, debt or stock options for hiring key employees. The University of Sydney Page 60 Key Partnerships Block 8 The University of Sydney Page 61 Block 6 Block 8 Block 4 Block 1 Block 2 Block 7 Block 3 Block 9 The University of Sydney Block 5 Page 62 Block 8: Key Partnerships The Key Partnerships Building Block describes the network of suppliers and partners that make the business model work. Companies forgo partnerships for many reasons, and partnerships are becoming a cornerstone of many business models. Companies create alliances to optimise their business models, reduce risk, or acquire resources. We can distinguish between four different types of partnerships: • Strategic alliances between non-competitors • Cooperation: Strategic partnerships between competitors • Joint ventures to develop new businesses • Buyer-supplier relationships to assure reliable supplies The University of Sydney Page 63 Cost Structure Block 9 The University of Sydney Page 64 Block 6 Block 8 Block 4 Block 1 Block 2 Block 7 Block 3 Block 9 The University of Sydney Block 5 Page 65 Block 9: Cost Structure The Cost Structure describes all costs incurred to operate a business model This building block describes the most important costs incurred while operating under a particular business model. Creating and delivering value, maintaining Customer Relationships, and generating revenue all incur costs. Such costs can be calculated relatively easily after defining Key Resources, Key Activities, and Key Partnerships. Business models enabled by technology are more cost efficient than others. Fixed Costs Costs that remain the same despite the volume of goods or services produced. Examples include salaries, rent, and physical manufacturing facilities. Some businesses, such as manufacturing companies are characterised by a high proportion of fixed costs. Variable Costs Costs that vary proportionally with the volume of goods or services produced. Some businesses such as SaaS companies, are characterised by a high proportion of variable costs. The University of Sydney Page 66 
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