The Value Checkup

With the previous post as context…

You’re #4: Broad Experience, and Experience in the Industry

I start here because the path is clearer in this case. I recommend talking to people to attempt to validate or invalidate the business model. Because of your background and experience, you know who to talk to. I recommend asking questions like: “Does this make sense?” “Does this fit within our system?” “What would it take to make this work?”. You want a variety of perspectives. You want to avoid failing to consider alternatives and issues outside your normal perspectives.

If you’re pretty much convinced that the business doesn’t fit together and is destined for roadblocks, disappointments, maybe failure, you need to start a conversation with someone who has power to make decisions about this business. Get their ok for you to spend some time investigating the issues. Maybe this is “off the clock”, maybe this is part of your job. The specific goal of your investigation is to raise your confidence level from “Does this work?” to “I have the confidence in my beliefs on this issue that I’m willing to stand out from the crowd and ask some questions, maybe difficult questions.” (Or maybe your investigation convinces you the plan should work.)

After some more work and discussions, you may want to negotiate with the decision maker for a time and dollar budget for your investigation, negotiate the effects on your existing projects, negotiate that no matter what you find, that you’ll still have a place in the organization. Negotiate how open or vague you will need to be as you talk with other people. Negotiate whose heads-up or OK is required on important issues. It’s important to set expectations. You might find something very ugly, you might find something very valuable.

You’re #1, 2, or 3 (from the previous post)

In this situation, I recommend that you work informally at first, and with a goal of educating yourself, to collect the basic facts, and identify knowledgeable people. Your basic stance when you talk to people is “I want to understand how …”. I always use a starting point of “Do you have a few minutes?”

If asked why you’re doing this, I would say “I’m working on … but when I look as the bigger picture, I find that I can’t understand it. I figure I’ll be more effective if I understand the big picture.” At first your goal should be to learn, not to influence.

At some point after many discussions, you’ll talk with someone with power, maybe say “I’ve been talking with a variety of people related to this project, and I think it’s possible that … (state the possible problem)”. “I don’t feel that I should spend more time on this without getting an OK from management.” Describe what you see and perhaps they will tell you that it is potentially worthwhile to spend more time on this.

This conversation may evolve to the negotiations described above, maybe in other directions.

I want to be clear what we’re trying to do. We’re trying to validate or invalidate a specific business model, customer segments, value propositions; all the elements of the business model and business model canvas. I’ve called this a value checkup. This can be difficult, but I believe it is much easier than discovering a business model, as is almost always the case in a startup. If you and your organization decide that the business model doesn’t work, is invalid, then you have the harder problem of discovering a business model that does work, maybe even discovering the best business model for the situation. This is a much more complex and difficult situation, but at least you know sooner rather than later and perhaps have the opportunity to discover a working business model.

At this point it becomes too complicated for me to provide advice. You might decide that the situation is different that you initially perceived and other people are working on it. You might become a behind-the-scenes change agent. You might become an in-the-spotlight change agent. You might decide that the organization cannot be changed but you want to remain with the organization. You might decide that you should update your resume.

Being part of a project that has a business model that doesn’t work is a tough spot, but I believe this is the reality in many cases. If you don’t perceive the problem, the chances of solving the problem are very slim.

The Business Model Canvas, Enabling a Sanity Check of the Business

In the last post I described that instead of your project operating on “knowns”, the IIoT context of your project, or other aspect might have turned one or more of the “knowns” into “unknowns”. I believe the best reaction to this possibility is to examine the high level pieces of your project, product, or business to see if the individual pieces still fit together as a workable whole. I call this a Value Checkup.

Before I write more about a Value Checkup, I want to take a slight detour to describe a concept needed to perform the Value Checkup. Many of you who are familiar with Lean Startup or Steve Blank will already know about the Business Model Canvas. It’s a surprisingly simple idea that makes it much easier for anyone to grasp the essential concepts of a particular business.

In the past, the standard advice for understanding a business would have been to build or read the business plan. A business plan typically consists of 10 to 20 pages of text with a couple of supporting spreadsheets, one a balance sheet, one an income statement. There may be other supporting spreadsheets and analysis as attachments. This is what they teach in business school, and this is appropriate for running an established business with 100s or thousands or more employees. However all this detail is also quite powerful at obscuring the essential concepts of a business.

The Business Model Canvas, invented by Alex Osterwalder and others, is a higher level simplification of a business. It consists of one sheet of paper with 9 boxes for the most essential elements of the business. Stuff like customers, channels, key resources, revenues, and the like. The author(s) of a particular Business Model Canvas will choose a handful of text bullet points summarizing the essentials of each of these elements. Sometimes there will be 2 or 3 numbers in one or two boxes to suggest quantitative measurements and goals for the most important high level concepts. Perhaps lifetime value of a customer, cost to acquire a customer … whatever is critical to the particular business. A representation of a Business Value Canvas is below. It doesn’t yet have the bullets describing the elements of any particular business, but it highlights the thinking process of how value, customer segments, customer relationships, and channels should fit together.

In situations like we are facing here, the level of detail in a typical business plan is an unnecessary obstacle to grasping the essentials of a business. A Business Model Canvas representation will reduce the hundreds numbers and hundreds of concepts in text in the business plan to the most essential 30 bullet points and perhaps a few of the most important numbers.

This simplification will dramatically change accessibility of the business essentials. With a business plan, skilled business and finance types will often need to invest hours of poring over the business plan to understand, distill, and discuss the business. For those with lesser skills, gaining such an understanding will be very, very time consuming. With a Business Model Canvas, a much wider audience of people with some business awareness can discuss the business within a few minutes of familiarization.

Learning about the Business Model Canvas

Because of the wide range of backgrounds of people who will be reading this blog post, I will provide comments and a link to more information on the web for 4 different audiences.

For each of the first three groups I recommend the following video by Steve Blank. Keep in mind that Steve describes this from the perspective of a startup, a company that wants to search to find a working business and business model. In the situation of a Value Checkup, we are approaching this from the perspective of an established business, one whose business model already works, and is expected, or assumed to work after the next product, or version, or feature introduction.

You: 1. “I have not heard of business model canvas and I’m not very familiar with business concepts.”

In addition to the video, you might want to search for info on the web or ask someone with a business background for help.

You: 2. “I have not heard of business model canvas, but I’m fairly familiar with business concepts.” and

You: 3. “I have heard of business model canvas and I’m fairly familiar with business concepts.”

The video link above.

You: 4. “I’m quite confident with using a business model canvas for thinking about a business.”

If you’re in this group, you’re all set. The advanced material covering business model canvas focuses on the most powerful usage for developing new and powerful businesses (Specifically new business models.) We don’t have such an ambitious goal here.

Our goal is to see if the business model still makes sense and fits together in a way that works … a Value Checkup

P.S You’ll find variations of Business Model Canvas on the web. Use the one that seems to keep the most important information front and center for your situation.

Once Upon a Time …

A Cautionary Tale About Change and Success

Eric Ries tells a story in his book The Lean Startup that makes an emotional connection for me, and serves as a clear motivation to think in a different way, no matter whether you’re in an established company or startup. He says that in a startup, no one can predict the future, unlike in an established company where the bosses or expert can predict the future.

“Once upon a time, bosses could make a prediction… and then the prediction would come true.”

Ability to predict the future may seem absurd, but in most established companies, in stable situations, it is not a fairy tale. It is true. Maybe not exactly true, but close enough to often result in success.

Not only would the boss or expert predict the future, but that prediction would be the reference point for determining whether someone was deemed a success or a failure. If a project succeeded, it was because a person did a good job. If the project failed, it was because they did a poor job.

I think it is helpful to extend this “once upon a time” statement to say that:

“Once upon a time, the boss or expert could make a plan, and when this plan was faithfully executed, the project or organization would succeed.”

This is what typical established organizations are depending on with their “execution” culture.

Eric said that he had never experienced an organization that could predict the future in his years of experience (mostly with startups). Perhaps that’s why he gives it a fairy tale form. I have experienced this ability of bosses to predict the future in only one situation in my career, and I’ve been part of a number of big companies that are regarded as successful. Think carefully about your career. Think of times when the predictions or plans of the boss or the expert came true? Hopefully the project or business was a success. That’s the way established, successful companies are supposed to work, and mostly they do to this day.

Here are some other words that can be used to describe the distinction. (For background, see the previous post “Knowns and Unknowns in IIoT Projects).

For “Knowns”                    For “Unknowns”

the plan                               a guess
just execute                       an experiment
value prescription           value discovery

I’m trying to sensitize you to an important issue that is commonly invisible. Most organizations believe that they can achieve success by executing the plan, even if the situation is one where they actually need to discover value by experimenting. Since you’re working on an IIoT related project, there’s a fair chance that some new aspect of this project has changed one of more “Knowns” of the project into “Unknowns”.

In subsequent blogs, I’ll suggest what you might do knowing this.

Knowns and Unknowns in IIoT Projects

I believe that one of the most important issues in IIoT projects is to think about your project and the individual aspects of your project along the dimension of unknowns and knowns. This distinction will have broad consequences on effective ways to organize and run your project. This concept comes from Steve Blank, a long time entrepreneur, college professor, and thought leader in the lean startup world. (1)

Steve characterizes startups as facing a “Series of Unknowns”. The typical startup doesn’t really know who the customers will be, why they will buy, what the product or service will be, how much they are willing to pay, how to sell to them, and a long list of other “Unknowns”.  He recommends intensive interaction with potential customers in a series of experiments to understand all the Unknowns and make a successful business. He characterizes established businesses as a “Series of Knowns”. When you’re doing version 7.0 of something, you have existing customers, your sales force interacts with them every day, you have a working sales channel, you pretty much know pricing, and other “Knowns.” For a startup, it is expected that “No business plan survives contact with potential customers unchanged.” For an established company, it is expected that success is a matter of execution of “the plan.” The path to success for a startup and an established company are very different.

However I think this is a simplified stereotype of reality. Established companies trying to do new things will find some “knowns” and some “unknowns”. IIoT often introduces new aspects that are unknowns: new customers, new influencers, new business models, new sales channels or others. A team that thinks it is facing a “known” but is actually facing an “unknown” will develop a plan up front and execute. The chances of this plan succeeding are very low. If a team is facing an “unknown” and knows it, and acts in appropriate ways, it can do 10s or hundreds of experiments that iterate toward a solution that works. Success isn’t guaranteed, but if the team is skilled in this approach, the probability of success in the long run can be fairly high.

These ideas are not new and not unique to IIoT. I’ve quoted Steve Blank but others who have been developing and talking about these ideas are Eric Ries, Dan Olsen, Marty Cagan, and many more. These ideas are known as “Lean Startup”, Startup Way”, and others. These ideas have become mainstream in the startup community and in internet businesses, but are often little known elsewhere. Another good characterization for this distinction is between “its an experiment” and “just execute”. In a situation of “unknowns”, a series of experiments is the best and maybe only path to success. In a situation of “knowns”, “just execute” is often the shortest and best path to success.

I’ve attempted to provide a short description of these approaches above, but the whole story is quite complex and powerful. I hope these few paragraphs have convinced you that getting the known vs unknown story wrong can easily result in the failure of an IIoT project.

In subsequent blogs, I’ll provide many other details, examples, and implications of this distinction.

(1) Steve Blank describing Knowns and Unknowns

IIoT = Technology + Business Value

There’s a lot written about IIoT. IIoT is hot, and in many ways the success of IIoT is inevitable. If you’ve read very much of what’s written on IIoT, you might come to the conclusion that it’s all about the technology, the platforms, security, analytics and the like. I’m convinced that the business side of IIoT is just as important as the technical side. My goal for writing this blog is to make the argument for the business side and stimulate your thinking about the business value of IIoT.

Providing advice about the business is something that is hard to do in general, because the business side of IIoT is about your business. And one business is often wildly different from another. So we have to look at IIoT and businesses in broader terms, yet say something generally correct and useful.

As a bit of a preview, here are some of the ways that I think it can be helpful to look at businesses and how these apply to IIoT.

  • The unknowns and knowns of your business
  • Finding and delivering business value
  • Product Management and Project Management for IIoT projects
  • Maybe you need an innovation portfolio or pipeline
  • Is there value in your organization in a tight feedback loop between prospects (or customers) and your IIoT development team? If yes, how can you achieve that feedback most effectively
  • Is your IIoT project an experiment? Or is it mainly execution? Or a mix of the two.
  • What can we learn from The Startup Way?
  • What can we learn from Design Thinking?

Check back for more on these topics in this blog. Or sign up to the mailing list and I’ll send announcements of new blog postings. And if you’d like to talk about the business issues in IIoT, contact me, I offer one-half hour “Office Hours” sessions at no charge.