This week I’ve been to a very interesting event about testing aspects of a business model. Salim Virani introduced us to his ideas about using low-tech option cards. This it how it works:
The Business Model Canvas
Alex Osterwalder’s business model canvas is the most popular tool for prototyping business models and visualising them. If you don’t know how it works, have look at this introduction:
Basic Level of Business Modelling
Let’s assume you reached a stage where you already went through the process of creating various business model prototypes for a business idea. Now you achieved the most basic level of business model generation and visualised your model by filling-out the building blocks of the canvas, using post-its.
Master Level of Business Modelling
However, as Yves Pigneur recently pointed out at the Business Design Summit in Berlin, the real juice of business modelling isn’t just creating visibility. It is about discovering the dynamics of the models and the inter-relation between the building blocks. The ‘master level‘ of business modelling, how Yves called it, is to highlight the story behind a business model and to realise the patterns of a model. These could be highlighted by using colour coding or arrows to visualise how different elements inter-relate within the business model.
Now that an innovative business model emerged from prototyping, it is time to turn into a real business opportunity. Visualising your model was the first step – but how you know it could succeed? You must validate the workability of your model.
Therefore, and in contrast to the analytical business world, designers and coders use an iterative approach and mindset of testing minimal viable products (MVPs) or similar tangible prototypes in order verify their assumptions and hypothesis. This method is particularly interesting for lean startups that follow Eric Ries’ build-meassure-learn feedback loop. But how does this apply to business modelling? Osterwalder’s book Business Model Generation doesn’t really offer a structured approach to testing – it rather emphasises prototyping of business models on the canvas. So this is where Salim Virani’s option cards start to become handy.
Preparing Option Cards of Testing a Business Model
For making best use of these cards you need to be able to work on a ‘master level‘ of business modelling, since it is about testing the patterns and interrelations of the building blocks of your business model. But one step after another: The cards (get a stack of 1000 flash cards for only 6 quid here) are split in two sections, a section with a simple canvas (quickest way to draw it: H + H + T) and a section of free space below the canvas.
In a first step you need to think about all dynamic inter-relations of your business model that you can identify. With the option cards you can now visualise these patterns by marking those building blocks that are affected with a big fat dot.
The space below the canvas is left blank to note down a question which relates to the pattern that you’ve marked with dots. What do you want to find out about this pattern? What is your hypothesis regarding this dynamic relation between the building blocks? What do you want to find out and test? Note it down in one simple questions.
Go ahead and do this with all patterns and inter-relations that you can identifiy in your business model. These patterns may occur across different combinations between the building blocks. They might be related to just two blocks of your model, or affect an entire range of blocks.
Create one option card for each of these questions and patterns that you can find and create an entire stack of such cards.
Using Option Cards for Testing a Business Model
Now start working with this stack of cards. Start to answer the questions that you have noted down. Think of ways to test these assumptions and how to prototype and verify them in real life. Remind yourself of all the different questions you have about the business model. Use these cards to talk to stakeholders, entrepreneurs, friends, customers or clients. Use the dots on the canvas to remind yourself which parts of your business model are affected and develop a feeling for which of these building blocks become more and more important to your model. If tests show that your assumptions don’t work out, pivot your model and go through another round of iteration using new option cards.
The question of how to test all of your option cards is entire new topic. It really depends on the nature of your product or service and how you could test these assumptions regarding your value proposition, the channels you use, or the customer segment you are targeting. The option cards are only a tool to record all the patterns you want to test, in order to come up with a working business model or to pivot in different directions. They help to keep an iterative approach to business modelling and they lead the way to a mutation and transformation of the model to a more refined stage of market-fit and a more successful business model in real life.
Personally, I really like the low-tech approach of these cards and they are the first practical and structured approach to business model testing that I’ve came about. They remind me of my time when I used up many hours learning Chinese with flash cards, so I am really looking forward to using these cards for testing aspects of business models in an almost gamified way. I will have a go at using them and try to refine and test the business model of our start-up idea with it. I’ll report back on this process on this blog in a few weeks.
Osterwalder, A., Pigneur, Y. and Clark, T. (2010), Business model generation: A handbook for visionaries, game changers, and challengers, Wiley, Hoboken, NJ.
http://www.businessdesignsummit.com Business Design Summit in Berlin
http://www.businessmodelalchemist.com/ Blog of Alexander Osterwalder
http://www.businessmodelgeneration.com Business Model Canvas
http://www.saintsal.com Salim Virani
http://www.startuplessonslearned.com Eric Ries’ Lean-Startup Methodology