How To Innovate Against Your Competitors with Alex @ – Escape Velocity Show #21

How To Innovate Against Your Competitors with Alex @ – Escape Velocity Show #21

Technology or not,
every organization has a business model. Some are conscious. Some are not. Some try to change it. Some don’t. And some just
compete on products, whereas they could compete
on superior business models. So that idea of,
hey, can we help companies rethink their business
models, come up with new stuff? Be aware of it, and then– It was something I
was interested in. Ignition sequence start. Three. Two. One. Alex Osterwalder. How’s it going, man? Good to see you. I’m so excited to
have you on here. It’s a pleasure. This is fun, because
it’s the first time we get to meet in person. Yeah. We’re definitely
Instagram friends. And I had the
privilege of working with you and Alan [INAUDIBLE]. I’m assuming everybody knows
you as the guy that created the Business Model Canvas. That was the start. Dude, crazy. It’s been– is it 9 years? Now the book came out in 2010? So the book came out 2009. So it’s actually 10 years. We self-published first. OK, [INAUDIBLE]. Because we wanted to do
something differently. So we created an
innovative business model. And then we sold it
to Wiley a year later. OK. So most people think it’s
nine years because when Wiley published it. 10 years. And then I first heard of it– Steve Blank. Was that– now, I don’t
know outside of Steve and Lean Startup. Was it was it known in the
business community prior and Steve brought a
different audience to it? Or maybe he had no
impact whatsoever. But just from my
perception [INAUDIBLE].. So I think he had an
impact later on, for sure. I mean, we’re really
good friends now. It started out– we focused
on the startup community. So I did a PhD on the
topic of business models with my co-author Yves Pigneur. And we were targeting startups. So that’s how it all started. Yeah. But then later on it was
really large companies. So I’d say in the
startup community, Steve really boosted it,
brought it to another level. In the corporate space, we
were always international, so the book just spread
across the world. So amazing. And we have a freemium
model where we always gave part of the book away. Part of the book? So that’s it all started. How does that work? 70 pages. OK. Yeah, our publisher freaked out. They– Wiley gave you
that even after the fact? Well, you know, when
we did the book, we had four colors,
landscape format. We gave 70 pages away. Because we were self-publishing,
we could do what we wanted. So later on, I
asked Wiley, well, would you have let
us do this if we had started publishing with you? And our publisher
said, not a chance. You did everything wrong. You did the opposite. We did the opposite of
what you’re supposed to do. But it is true to the DNA of
what you’re teaching, right? Yeah. So it started out that way. We thought we can’t write a book
on business model innovation and not do it. So practice what you preach. So we self-published. We got people to pay us to
participate in the book. We have 470 people who paid us
to be part of the book project. This is like early Kickstarter. This was before Kickstarter. Yeah, that’s what I mean. Yeah. And then we asked
them to– later on, the first ones joined. We thought, eh, it’s
probably too cheap. So we doubled the price. And We doubled the price
every couple of weeks until we got to $250. Wow, that’s real money. Because people would get
their name into the book. So that was fun. We just played around. That’s real money to just
have your name in the book. Where did the love for
business models come from? So I was a student
at the University of Lausanne doing computer
science information systems. And Yves Pigneur was
one of my professors. And he was looking
for a PhD student. And he said, I
need somebody who’s going to work on
business models. And I was interested
in a topic that would look at business
from a different angle– would help me understand
not marketing, operations, or finance, but kind
of across the board. Like, what’s the
essence of a business? Because I studied
political science– you question institutions. So I thought, well, what
is a business really? Oh, this topic of
business models would allow me to
go a bit deeper. So that’s how it started out. And that’s how we thought about
different business models. How could we change things? And we were lucky
with the timing. The internet boom was
just starting out. But with Yves, we
always believed the topic of business
models is for any company. Technology or not,
every organization has a business model. Some are conscious. Some are not. Some try to change it. Some don’t. And some just
compete on products, whereas they could compete
on superior business models. So that idea of,
hey, can we help companies rethink their business
models, come up with new stuff? Be aware of it, and then– It was just something
I was interested in. And did Yves have the
foundation of what became the core components? No, so his starting
point was, what if we could architect something
like computer-aided design for entrepreneurs? That was the starting point. And he was looking
for a PhD student to come up with the model. And it was called a
business model ontology. And it’s a complicated
word so you can get a PhD. Just make the word complicated. You’ll get a PhD. Sounds fancy, yeah. But the idea was, could we
come up with a rigorous model so we could build
computer systems on top? So that was complicated
stuff– went really in details in modeling. And then later on, after I left
academia, went into practice, we took kind of the top layer. And that became the
Business Model Canvas. But what was below was
rigorous academic research. Was it like instruction? What was it, just a
way to essentially quantify each aspect? It was– Ontology
means you’re going to come up with a very rigorous
description of a domain. You create the language
for that domain. OK, like a lexicon. And there was nobody who
really defined business models. We were not the first
to talk about it. But nobody had a really
rigorous approach. So we just looked at
all the work there. And some people would make
ontologies for birds– we made an ontology
for business models. So that was kind of
the starting point. Now, was that your PhD thesis? Yeah, it was called the
business model ontology. Wow. The funny thing is, people
started downloading that. And that was early indicators–
hey, there’s something there. People want to know more. And what’s the timeline
between that and the book being self-published So I started my
academic work in 2000. So I had two job
interviews in my life. One was with McKinsey. And I got steamrolled. I was not ready for that. They just destroyed me. The other one was with Yves. So I was super lucky to
get killed by McKinsey. And now we’re work and we help
them or we compete against them at Strategyzer. And then I finished my PhD 2004. Then I went out in
the world, helped the not-for-profit scale, then
became an entrepreneur more in the consulting space. And then at one point– I always got requests
on business models because I had a blog. And I thought, hey, it’s
time to write a book. So I went back to Yves. That was 2008. And I asked him, hey, let’s
write this book that we always wanted to write. And we hired a
designer– at that time we needed somebody to
help us with the visuals. That was Alan Smith.
who’s now my co-founder. So cool. Canadian. Love it. So that’s how it started out. Yeah. So Strategyzer started
at the same time, then? Or was that a spin-out of– No, that started later. So after the book
was published and it started to be a success,
I had to ask myself, well, what am I going to
do with my life? And the traditional path
is, you do consulting or you do training if
you’re not in academia. And I already left
academia a while ago. And I didn’t want
to do consulting. I already did that. And I just didn’t think it was
the fun thing to do normal– you know, selling your hours. So I talked to
Alan and said, hey, what if we started
a software company? Having no idea, never
done it, total ignorance– any entrepreneur who starts
out is always ignorant. And we started that
with an iPad app. So we said we want
to go into B2B. But let’s start
with an iPad app. So we created an iPad app. And that you know sold a couple
100,000 copies for $30 dollars. That was the starting point. Yeah. And right now, what does
the work you do look like? I know you do a
lot of workshops. I follow you on Instagram. Everybody should. You’re really good
at documenting the-behind-the-scenes
of the creative process. What does your work
look like day-to-day? It’s a mix. So you know Strategyzer, the
company, is still at the core. And building a platform is still
the core thing we want to do. But one of the
things we realized– and this was an
interesting experience in entrepreneurship– there was
no real market for that type of software– B2B creating strategy software. So that is still in the coming. And we’re getting
a pretty good idea and moving towards
the right direction. But it turned out that the
thing that companies bought most at the beginning while
we’re building this market is actually online
training– scalable, interactive, online training,
where on the one hand you have videos, but
on the other hand, you have coaches who
can accompany people in corporations. So we work with companies like
MasterCard, Nestle, and so on. And we help them
scale these tools. So that brings me
to one of the parts that I’m most passionate
about is building tools for business people. And I deliberately say business
people because there are lot of tasks that are similar from
the entrepreneur and startup– even solo-entrepreneurs,
they have a business model– all the way to companies
the size of GE or Nestle. Every company has
a business model. Now, what changes, of
course, are the constraints. If you’re a solo entrepreneur,
a VC-backed entrepreneur, or if you’re a corporation
trying to invent new stuff, the context is different. So I’m passionate about
building those tools and helping people do
a better job in terms of inventing new stuff, in terms
of managing their business. I think we can get a
lot better at that. And what’s an example of a tool? So the Business Model
Canvas was our first tool. And I believe that innovators
or managers can be a little bit more like surgeons. We always think, oh, we’re
going to make a business tool. It should do everything. No, it shouldn’t. It should do one job. Thing really well. The Business Model
Canvas does one thing. It allows you to sketch
out a business model– a new one or an existing one. And then you can do
other things with it. But a surgeon will never operate
with a Swiss Army Knife– you know, a tool
that does everything. It should be the
same in business. We should be like innovation
surgeons or management surgeons, where we use different
kinds of business tools– like the Business Model
Canvas, the Value Proposition Canvas the culture
map, or strategy maps. There are quite a
few tools out there. I don’t think all
of them are really as rigorous as I’d
like them to be, or as simple to
use as they should be to get to better adoption. So there’s a lot there I
think that we can still do as a community of thinkers
making better business tools to help people do a better job. How often do you create a tool
framework and then revisit it? How does that– because I like
to take a lot of my thinking and draw a model. But then it’s going to evolve. How do you– what’s your
process for creation? Yeah, good question. It’s something we’re thinking
about a lot at the moment. Together with Yves,
we’re going to train some of the top
business thinkers at the Thinkers 50 event
to create better tools. Because they have
great concepts– You’re going teach them
how to create the tools? Yeah. Oh, cool. So they have great concepts. They do amazing research. But maybe their tools could
be a little bit better. So we’re trying to teach them. Let’s see how they react. But if you take the
Business Model Canvas, that was the result of a PhD–
so very long, four years, going deep, but then just
taking the top layer. If we take our second tool,
the Value Proposition Canvas, that was a bit different. There was no academic
research behind it. But we do read all of the
literature in that space. When anybody writes something
on value propositions, is there anything
good there already? Is anything being adopted? So we try to cover the bases. And what’s the knowledge there? Yeah, what’s the state
of the art right now? Based on that, we try to
come up with some kind of first concepts. And we immediately test it. Like a unique aspect to it? Or a point of view? So we call it
mutually exclusive, collectively exhaustive. I love that. So trying to cover
the problem space. And we don’t try
to do everything. So when we say
value proposition, that’s all we try to do. And we’re not going to
look at competitors. We’re not going to
look at the process– like, OK, how do you come up
with new value propositions? No– just how do I map
a value proposition? That’s the only goal. And then everything we
do is targeted at that. And then make it as
simple as possible so people will actually use it. And then we test a lot. And we change it. In the workshops? Yeah, definitely. That’s a cool way of doing it. So we give talks. And then it might change
over a couple of weeks or so. And then at one
point, we’re pretty sure that’s the mature version. So with the Value
Proposition Canvas, we even changed the
shape of the thing because we realized
people were saying, oh, that’s just an evolution
of the Business Model Canvas. No it’s not. It’s a plug-in. As a business, you need
great business models and you need a great
value proposition. They’re not the same thing. They’re two different–
I’d like to call it– jobs to be done of
the businessperson. And then you need
great implementation. Again, that’s a different
job to be done where you’ll use different tools. So we really think
in terms of, what are the most difficult jobs
that business people are trying to get done? And where don’t they
already have tools? If there’s something
there, that’s great. We’re not going to reinvent it. We’re going to use it. But if we think it’s
either not good enough, or the adoption hasn’t
been good enough and we can do
something to change it, we’ll create something new. So our last tool is the
business portfolio map. That’s really at the
decision-maker level, not business models. But how do I allocate resources
in great products and business models in order to reinvent
my business all the time systematically? And when you– I mean, you work
with such incredible companies. How do you communicate to them? Because it’s easy for
you, seeing the forest from the trees– they’re in it. Sometimes as
consultants, it’s oh, change this and laddy daddy. And they’re thinking of all this
other complexity around bonus structures and you
know job stuff. How do you communicate
or influence change? What’s your tool for doing that? Because I feel like
every leader has to– Yeah. And then, there’s, as you said,
so many consultants out there. There’s so much information. What are we doing differently? And I think one of the
things that we always try to do with Strategyzer, with
Yves, is to simplify things. What’s the essence of what you
want, what you need to know? And I think when it
comes to innovation– which is the core topic
that we work on most– we help large
companies with that– there are a lot of myths. One is innovation is
expensive and it’s risky. Well, no, it’s not. It’s only expensive and
risky when you make big bets. But in innovation, we now
know we make small bets– many small bets– and we only
invest in those projects that show some– That have promise. –evidence and have promise. So it’s like venture
capital investment. So there are two things I
try to show senior leaders. The first one is, in a business
you have two main goals– managing the existing
and inventing the future. For a very long time,
it was sufficient to be world-class at execution,
managing what you have. Is at the portfolio stuff
that we talked about? Yeah, that’s the
existing portfolio. And companies do
that relatively well. But it’s not enough anymore. No. And more and more companies
are getting disrupted– Speed of change. Yeah. And the classic
example is Kodak. They got disrupted. And it’s not that they
didn’t do innovation. They actually invented
the digital camera. But that’s innovation
suicide because they killed analog film. So they almost innovated
themselves to death. What they didn’t do
well enough is come up with new business models
that would prepare them for the future. They did a little bit,
but they didn’t take it seriously enough, because
all of their assets were invested in factories. But there’s a counterexample–
that’s why I like still using Kodak– this is an example
that everybody uses. Fujifilm turned into
a technology company because early enough they
realized, hey, that business is being disrupted right now. They saw it dying. They saw it coming. They were the number two. Maybe that’s why
they saw it coming. They weren’t arrogant. So they created a
portfolio of new things. You know what the
obvious thing is? You know one of the first
things they invested in? No. Cosmetics. If you’re in film,
you go into cosmetics. You know why? No, I don’t see the connection. I’m like, it’s
not obvious to me. I’m sorry. It’s like keeping film
alive is like aging skin. So it turns out the
chemicals and the patents and the knowledge you have
in keeping film alive– analog film– is very similar
to keeping your skin nice. Wow. Scientists. Research. So they could take the
knowledge they had there. And that’s one of the
first things they did. So based on the technology they
had, on the patents they had, the knowledge and the
production capabilities, they said what else could we do? So innovation doesn’t always
start with the customer. In that case, it started
with knowledge and patents. Inventory of their assets. But they were rigorous
enough to explore– to explore new business models. So that’s a great case of a
company that did that well. And I think today, there’s
still not enough companies that do that well. So I’d like to first position
it as, if you want to stay alive for another 10 years,
another decade, you need to not just manage
the existing– mergers and acquisition is
not going to do it. Cost-cutting is
not going to do it. You’re going to more
efficiently die. So you going to get disrupted. You need to create a
portfolio of new opportunities of which only few will succeed. Even that concept, I’m sure,
for managers out there, of saying I’m probably
going to be wrong, is a foreign concept for them. It doesn’t exist. And so you come in
and tell them that. And then what’s
your prescription to help them innovate? Like in regards to saying,
well, you don’t make big bets? Is there guidelines for how
to properly allocate resources and create a feedback cycle? Yeah. The first one is to
really admit that you don’t know– to be very humble. So you know what the
ratio is to create one outlier, one big success? If you’re an
established company, you know how many projects
you would have to invest in to create one outlier? Turns out it’s 250 projects
to get one outlier. Now where do I take
those numbers from? From early stage
venture capital. So 60% of all, early
stage investments, they don’t return capital– so you lose money, right? And there’s only– Very small. –one out of– 4 out
of 1,000, one out of 250 that returns
50 times capital. So if you want to
get to that outlier, guess what you have to do? 250 failures. You have to invest in many. You will have a lot of failures. And I talked to the CEO of
Logitech just a couple of weeks ago– Bracken Darrell–
amazing person. He said, Alex, don’t
call it killing projects. That’s negative. Call it shelving projects. It’s like you read a book. You learn something. You’re going to put it away. And maybe you’ll actually
take it out there. But you read a lot of books
to get to one really good one. And it’s the same in innovation. You might invest in 250. And then for six
to eight weeks– But they influence– Yeah, they influence what
you’re going to get out there. So after 6 to 12
weeks, let’s say you do this kind of
innovation discovery sprint– That’s the timeline, yeah. That’s the first time line. You only do followup investments
in those that show evidence. So you might weed
out– you might shelf– 50% of the projects. So see how the small bets– already, after 12 weeks,
you know now OK, I’m going to weed out 50% because
maybe the ideas were wrong. The teams are not
necessarily stupid. They just worked on some things. It’s not the moment. But you’ll also weed
out the teams that are not so entrepreneurial. They’re better
maybe at execution. That’s what I was going to ask,
because it sounds like this is true entrepreneurship. Yes. And I’m assuming a leader could
misallocate a resource, a team member to that team. And you’re saying
that that’s actually one of the things
they’re looking at. That’s the point, yeah. It’s like, oh, they
don’t really have that. You don’t know. So you can’t you can’t
pick the winners. It’s impossible. Not even venture capitalists
can pick the winner, so a manager’s not going
to be able to do it either, how could you say? It’s super arrogant. Yeah, it’s very arrogant. So it’s this funnel
that you create. And the best ones will
kind of bubble up. What do you see that
kind of dollar investment to create that for our large
companies looking like? So in terms of stages– so it always depends. The more you want to get out of
it– so if you want a billion dollar return,
you’re going to have to invest in many projects. But in this– Like 250-ish. Yeah, something like that. But you know we work
with Bayer and Bosch. And they have about 60
to 80 teams every year. You already get some
really good results. You won’t get a billion
dollar business out of that, but you will get
some good returns. So in the beginning
stage, you know for the first eight to 12
weeks, something like $10,000 is enough– or maybe even $5,000 per team. That’s peanuts. That’s nothing. And then at the next stage,
you will increase their time that they work on the project. And you’ll also give them
a little bit more money so they can do different
types of experiments. Interviews doesn’t
cost anything. You can do that
just with your time. But then afterwards,
you might start making some first
proofs of concept, whatever industry you’re in. So there you might
allocate $50,000. But you already have less teams. So the budget might actually
stay the same per phase. And then afterwards,
after maybe four months, you narrow it down again so
you take away 50% of the teams. And you might give
them $500,000. So it’s the same process as
in venture-backed startups. It’s very similar. It’s just that we don’t
really do this in corporations as much as we should today. We invest in startups–
which is also good– but it shouldn’t be either/or. It’s both. And what’s the– I mean, if you call
pods or teams– what is the makeup of a good project
innovator team look like? It should be a mix. So it really depends
on the industry. So if you’re in
pharma, you probably want a lawyer as
part of the team, or at least the lawyer
part of the cohort. If you’re in software,
it always will be– –a developer. –at the beginning, just
a designer and a coder. And the teams at the beginning
should be very small. I’d say one to three people max. Max. Because you’ll overinvest. And the problem is
the more resources you put into a project
at the early stage– The more you’re going
to want it to work. The less you can
actually kill it. It’s even worse than that. That’s it. Sunk costs. Because then teams
are going say, we invested so much
time and energy. We can’t turn around. And then, all of a sudden,
this project is really big. Nobody dares to kill it anymore. So these things grow,
whereas they should be should be shelved– let’s call it that way. So really having
a rigorous process where after a couple of
weeks, couple of months, you always check– who’s
showing most evidence? It’s the evidence that
should allow a team to move from one state
to another, not the idea. Ideas are easy. It’s the evidence. When you sit down
with big companies– or any company I’m assuming,
because you’re so passionate about the business
model concept– do you map it out in your head? if you’re sitting next
to a guy on a plane, and he’s like, yeah I run this
$100 million a year company, what are kind of
the questions you’re asking him to reverse engineer? And I don’t know if you
do that, because I– I Oh, yeah. For sure. Yeah, so immediately– in
my head– in my glasses, you can’t see it– there’s the
Business Model Canvas in there. Yeah, there’s the
Business Model Canvas. And you’re just like– So I really think it
through, because I do believe today
there’s still just room for improvement for
what questions people ask, leaders ask. They’re very focused on
product and segment– maybe pricing– and that’s OK. But that’s just the foundation. I start to really ask
about the business model. So a typical question
I would ask is, OK, is the customer locked in? Are there switching costs? If it’s easy for a customer
to switch, well, guess what? The business model’s
not that good. So remember– take
GoPro as an example. GoPro was hyped by
stock market analysts. And, yeah, they had
a great product. My kids love it. I think it’s pretty cool. But their business
model was a disaster. There was no lock-in. There was no
proprietary technology. So it was all branding. And branding can’t always
keep you ahead for very long. It’s very it’s getting
very competitive out there. So they tried to change
the business model, become more of a media company. But they had no lock-in. So that’s a one fundamental
question I would ask. So the first it’s just like– Things like that. – Can the customer
easily switch? Yeah, those kind of questions
get you to understand. Or are you earning transactional
revenues or recurring revenues? So when you’re in
SaaS, it’s easy. It’s recurring revenues. But in many industries,
people don’t question the difference between
transactional revenues– which are hard. Cost of sales again
and again and again. Yeah, success fees
are performance-based. Recurring revenues–
sometimes you can bring them into an
industry that didn’t have them. So that’s what
Nespresso did to coffee. Crazy. And that’s an old example,
but still, amazing how they changed the business
model of an industry. They created recurring
revenues and lock-in where it didn’t exist. So the question I
always try to ask is, how could you change
the business model in your industry? And most companies don’t
because they don’t even question the business model. They focus so much on product
and target customer segments that they forget, well, maybe
you could change the business model. Great example is HeelTee– the toolmaker. What they did is they
moved from selling products transactionally to
a service model. And they became a
logistics company managing a fleet of tools
for their customers. Because that was a problem
they needed to get done. Yeah, but nobody
looked at it that way, because while it seems
easy to say it like this, it’s a big change from
a production company. Did they pivot from their
core business to that? They pivoted. That’s tough. They pivoted, yeah. But I think– so that’s
what’s interesting. I’m seeing more
and more companies not just coming up with
new business models, but also pivoting the old ones. You call that
business model shifts. Shifts. Yeah. And people ask and debate
how many different types of businesses there are. And it’s tough– because
the Business Model Canvas, you’ve got those components,
so if you change, it’s a factor of whatever. It’s unlimited. Unlimited. And that’s what I would think. There’s no right or
wrong business model. There’s a better business
model for certain moment. And you don’t know which
one is going to work. So all you can do is experiment. So what we’re working on
with our new book called The Invincible Company–
very arrogant, right? The Invincible Company. Yeah, I saw that. –but is it pattern library
where you can go and look– this and this business model. Could I use it? Like in software. A pattern library. Yeah, just like design patterns. Bring it in– exactly, design
patterns and architecture– bring it in. Then still you can create a
better business model design. You still need to test it. Yeah, but it’ll get
you there faster. Yeah. And I think companies
are so focused on just aspects of the business
model that they forget, well, let’s work on the
business model itself. That’s a design aspect– a business design aspect. And in particular,
the more you’re in an engineering-driven
culture, the less people really think
through the business model. You can really ask some
fundamental questions– could we do this or could we do that? But you need to unlearn. You actually need to forget
which business model you’re in today and ask what could be– like an architect or
industrial designer. They ask what could be and
they imagine possibilities. And then try to figure out
if the physics could work. Exactly, if they
can make it work. If you had to design
a business, Alex, what is your favorite business? From a model point
of view, people like reoccurring because
it’s predictable, I get it. But your point of
view, what model– So I have a favorite pattern,
which is getting others to do the work. Of course. How did that work? How did that work? I think of it. Facebook gets 2 billion people
to work for them for free. The value of Facebook
comes from the content that 2 billion people create. I mean that’s my favorite thing. Then I mention that to
Fortune 50 companies and they say, yeah,
that’s but that’s digital. That’s you that’s Facebook. They can do that. We can’t do that. But then think IKEA. Like, people used
to buy furniture– I definitely work for
IKEA when I buy IKEA. There you go. So now what they did is they
outsourced part of their value chain, their supply chain. So true. So you can do it anywhere. Or think credit card company. Who does the work for the
credit card companies? The banks. The issuing banks. The issuing banks, but also the
merchants and the people who buy, who go to the restaurants. And create the demand, yeah. So there are a lot
of other stakeholders who actually do
the work for you. So you want to ask
yourself, how can you get others to create value
in your business model? It’s a very
interesting question. And the more you get others to
create value in your business model, the higher the value. Or think you know Apple when
they launched the App Store. Who does the work
in the app store? All the developers. There you go. So there’s so many ways of
getting others to create value for your business model. And it’s not just for digital
companies like Facebook. You really can
ask that question. So that’s one pattern that I
really like because that’s fun. And you increase the
barriers of entry as well, at the same time. Because you have an army of
people innovating for you. And that’s hard to copy. So take the iPhone. The technology is easier to
copy– all the phones kind of look the same these days. What you can’t copy overnight
is the App Store or Google Play. Those two bastions are
impossible to copy overnight. It’s practically impossible. And that’s why you have two
operating systems today. And that’s why Windows died. They could never build up
that army of developers. That’s why you
have two platforms. I love that question. Is there other questions? One question I like to ask is
if somebody bought you tomorrow, what’s the first thing
they would change? If they bought our company? Any company. It’s just like a really good
way to get rid of your biases. Andy Grove came up with
that question from Intel. Is there any other
questions that you like to ask to help leaders
get clear about strategy or priorities and
stuff like that? The biggest one is,
what’s the evidence? So I think leaders
today, they rely a lot on opinion or past experience. But the fundamental thing
you want to ask these days is, what needs to be true
for this idea to work? I find that an incredibly
powerful question. I think the framing of it
came from Roger Martin– number one business
thinker in the world. It’s really powerful because
that will always give you the underlying
assumptions– or you could call them hypotheses,
to use a fancy word. What needs to be true
for this idea to work? And then based on that, you’ll
figure out some assumptions– –which is, in some ways,
first principles to the idea. Yeah. But people don’t question
their assumptions. They just believe them. You just gave me this flashback. I had these kids that
were building a gym– like a park, like a play park. And the idea was– their
business idea– they got– they won the award to build a
energy-generating play park. What needs to be true? Well, that the amount
of energy being produced is actually
materialistic enough to– or the cost to
produce the equipment. It was like these
first principles. I’m like, you did not talk to
anybody that knows any good. It’s just– it’s such a good
question, of just like, OK. It’s like Uber. It’s like, for this to
work, what needs to be true? OK, let’s go see if we can
validate these assumptions. And then, do you
ever see yourself getting bored just digging and
scratching around the business model stuff? Because you’ve been at it for– Yeah, but we’re way beyond
the business model stuff. So we still don’t see enough
adoption of business model thinking, so we still push that. So when I don’t see
people doing something that I believe
could be important, you need to ask yourself,
are you hallucinating? Or is it something that you’re
doing wrong in how you’re getting it into the market? So there’s some of that still. But we didn’t get stuck with
the business model stuff. So as I said, we– Strategyzer and Yves and so on– we always ask ourselves, why
do established companies– our target market– why don’t they innovate yet? And as long as they
don’t innovate, well, we didn’t have
the right answers. So it’s easy to say,
well, they’re stupid. No, they’re not. We’re not doing our job. So we need to help them. So that’s interesting. So you had to figure out the
question to ask yourself. It’s almost like
one level up first. So we go one thing
after the other. So the beginning was
the business model. Then it was the
value proposition. We have a language
to talk about this. Yeah, exactly. And why are they not innovating? Exactly. And what’s the answer to that? Well, then we came to culture. So together with a
guy called Dave Gray, we created the Culture Map. So we started that. But then the big
thing for me was, the more I was able
to talk to leaders, the more I realized there’s
still a lot of myths out there about innovation. They’re just not true. So with Yves, we sat
down and we asked, what language can we
create for leaders? So with the Business
Model Canvas, We created something for doers. But at the top level of
Nestle or GE or whatever, you don’t think business models. You think allocation
of resources to different business
units or business models. So what’s the language we
could create at that level? What’s the tool we could create? So we came up with
the Portfolio Map. So that’s how we kind of just go
from one problem to the other. Chip away from one
problem to the next. And as long as we haven’t solved
it, I’m not going to get bored. The moment we solve it,
maybe, we’ll find something. Yeah, it’ll uncover
the next step. So the new book is around that. And what are some
of the high level concepts in the
book that you feel the market have resonated with? So the big one is the
business portfolio map. So it’s this whole idea that
in an established company– and that could be a
30 person company– you need to manage the existing
and you need to invent the new. OK, and that’s what
for a long time we called this the
ambidextrous organization. So the term has been around. A lot of books have
been written about it, but nobody’s really done it. So we tried to create
practical tools to get companies to
become ambidextrous. And the portfolio map
is one of those tools. So that’s a big one that really
got traction with leaders. Because every leader
has to do that. Yes. And also push the innovation. So in the SaaS base of Slacker,
Dropbox, what would you– if you’re looking at Dropbox– what is the thing that they need
to manage, versus where did– how do you see them doing that? What’s the right way
to think about it? I think the right way to think
about it is just to create this space where people– and when I say space, I don’t
mean the physical space, but the cultural space– and the– To talk about it. –the metrics and so on,
just to try out new stuff. And I don’t know Dropbox
from the inside well enough. But you take a
company like Amazon. Or take Ping An in China– a finance company that
became a tech company. They demystify failure. And it’s popular these
days to say, yeah , you need to let people fail. But how many companies
actually do that? How does Amazon do that? Amazon– well, it’s
from the top down. The CEO says,
failure and success– innovation, invention,
failure– are inseparable twins. And to investors, he says–
he wrote this in an investor letter 2016 for the
2015 annual report– he said, Amazon is the best
place in the world to fail. Period. How many CEOs do you
hear saying that? It turns out Ping An in
China has the same approach. So if at the very
top, you really allow failure to happen– for innovation, I’m not talking
about build a new warehouse you’re not going
to fail at this– you’re not going to
last for very long. But they really experiment. They ask, why not? And they have tons of failure. Amazon Fire. Yeah, you bet. And they’re proud of it. So teams don’t get
fired for failing. Celebrate. If it’s an experiment. Right, they celebrate–
because they know that they need to fail a
lot to create that one outlier. Remember the numbers? 250 to 1. You’re not going to
get that outlier. [INAUDIBLE] So if you want to produce
a billion dollar business, it’s not going to
come from 10 projects. It’s impossible. And companies who
do innovation well– and Amazon is still at
the very top there– and add some Ping An in
China there, and maybe Tencent, Alibaba– they
really have this culture of experimentation. Why not? But not just in their
core business– beyond. Imagine– a book retailer
launches Amazon Web Services. Who would have ever thought that
the biggest competitor in cloud comes from a retailer
because they said why not? They had to sell this service
internally from the networking team to the software team. And then they said,
well, why shouldn’t we do this for internet companies? And then all of a
sudden was banks, pharmaceutical companies,
it’s a why not culture. And we don’t have that enough in
established companies– again, from small to big. The more success you have,
the more risk averse you get. It’s a paradox. And then you should
actually reinvent yourself while you’re successful. So did a lot of that come
from the culture work you did? And then [INAUDIBLE] Yeah, we were just
seeing this in companies. And then we tried to
find little answers, to go next step,
next step, next step. I think the big one
that we just finalized now is innovation metrics. How do you measure the reduction
of risk and uncertainty? Because that’s
what managers fear. So if we can measure it, we can
take away some of that fear. So that’s one thing. Another one of these concepts. What’s the answer to that? Well, you measure
risk and uncertainty. So you say, this project, this
level, based on the evidence, is 100% uncertainty. We have no evidence. It’s just an opinion. Looks great on paper,
but there’s no evidence. The slide deck looks great. The spreadsheet looks great. So the metrics is probability? What do you measure? You actually measure for each– so there are
basically about four– we narrow down to
four risk areas. Desirability– do
people want it? Feasibility– can we
actually build it? Can we get the IP? And so on. And then viability– can
we make more money from it than we spend? And then we add a fourth
one– so these three are pretty popular–
and we add a fourth one called adaptability. Is it the right timing? And can our
technology, et cetera, survive for the
next five, 10 years? Those are four risk categories. So you need to show me– for all
of those four risk categories– the evidence that you’re
on the right track. Did you do some
pricing experiments? OK, we talked to 10 customers. That’s pretty weak evidence. Show me stronger evidence. So it’s qualitative
at that point. At that point, it’s qualitative. But then you do
stronger experiments. So it’s only with the
stronger experiments that you reduce risk more. You can price that, yeah. If you have pre-sales, great. Boom. If you have simulated sales,
even better, because that’s the real thing. So that’s how you will prove
that you could actually scale this. And you can do simulated sales
before you build anything. So another one of
these myths– you need to build
something the test. You don’t! Kickstarter’s proof of that. And even before
Kickstarter, know you put a data sheet in
front of your B2B customers, and you can have a
great conversation. You could even put a brochure
in front of B2B customers, almost get to the
sales conversation, get very, very strong feedback–
do they have the budget? Will they be willing to pay? So I think we’re not
sophisticated enough in how we test. So we wrote a book
together with David Bland called Testing Business Ideas. It’s a library of
44 experiments. It’s going to come
up in November. Super cool. So that is really
to help people get more sophisticated
in how they test and how they reduce
risk and uncertainty. And you can measure that
based on the evidence. Alex, you have made
the transition which I think a lot of people
in academia hope– to entrepreneurship and
building this really incredible consulting– or product company. How did you do that? Like, who are the
people that you looked to maybe in their
career, or that inspired you? What model of– you
know what I mean? Like how did that just– or was it just every year, you
just kept plugging away at it? I mean, it’s really remarkable. Just following my passion. You know something about that–
just doing what I enjoy most. And then things
fall into place– and then getting very lucky
with the people I meet, going in the right
direction, meeting know Yves, Steve Blank, Alan. It was really just
following my passion. So I’d say the biggest
inspirations were probably Prince the musician
because he never really cared what people think. I don’t care what people think. I’m going to follow my passion
and try to do great work. That’s as basic as it gets. Just do great work. And then based on that,
just follow my path. And in academia, I found
there’s too much rigor. So you publish to publish in
journals that nobody reads. I couldn’t get
passionate about that. So I went out. Actually, one of the reasons
also that I left academia is I tried. Nobody wanted to hire me. Now they bring me back a
lot of money to give a talk. Feedback cycle. And I go to Standford
and Berkeley and so on. So it’s just kind
of funny, you know? I tried out stuff. Some of it worked. Some it didn’t. But most important for
me, the fact was always, what am I passionate about? What do I really want to do? What do I want to
spend time with? And then if you don’t
like it, just move on. How do you juggle the
entrepreneurial stuff with the family stuff? That’s a very good question. So it’s up and down. And probably now– was that
three or four years ago? For me, it was a big eye-opener. I was spending way
too much time at work and I had to recalibrate. And actually had to recalibrate
my definition of success. Success is not just
fame and wallet. Success is, well, individual. You have to ask yourself, what
do you want to achieve in life? What’s important to you? And I had to just
recalibrate and say, well, important for me is my family. It’s my kids, my wife– is number one and two is,
really, that was core. And then give business
a bit less space. Today we’ve seen a talk here
at the business of software where somebody said, oh, you
can only get three out of five. No, you can’t. It’s a question of choice. But then it’s hard to actually Discipline. Say– well, you’re disciplined. Do I have to go from $0 to $50
million in revenues in x years? What’s the difference? What is it going to
make as a difference? In some industry, yes,
because you might get killed. Yep. American golf. But in some industries,
it doesn’t matter. It’s just a burden
you put on yourself. And you’ll pay the price. Are you happy with the price? Do it. If you’re not, don’t. And for me, family
was important. Be aware. So you essentially
fast-forwarded and you said, hey, if I continue– Yeah. And since I’m a bit
obsessed by modeling, of course I went and sat
down, made some circles. Did you really? Yeah, I took some of
my personal offset. I took two days and just
started putting up sticky notes, drawing and just asking, what
do I really want from life? Do you think that
type of content will ever show up in
your professional work? I think so. Yeah, so already
now in the company– so I really believe that we
want to create a workspace where everybody, number one,
does their best work. And they only work on stuff
they really want to work on. That’s pretty hard, but
I think you can do it. And then if somebody
leaves because they don’t have a problem to solve at
Strategyzer that excites them, that’s fine. That’s OK. But people should never
leave for any other reason other than starting
a new company or working on something
else that they’re passionate about that
they won’t find with us. That you won’t
find in Stategyzer. So, in that sense, it’s already
showing up today in the work. And then later on–
so I don’t just believe in innovation
for financial growth. That’s one thing. But I believe in innovation
for a better workplace. So what are the
tools that will help us create a better workplace? And that’s where the cultural
map is already a start. We use it for innovation
at the moment. But at the end of the day– Better place to work. Yeah. And I think that’s
where a lot of companies could have a huge impact
on the world immediately. All the employers– if
they felt focused on that– the world would
change overnight. We just say business
is business. That’s different. No, it’s not! You’re still a human being. So the role of
business, I think, is changing, through
great leaders like Paul Polman at Unilever. They’re changing their mindset. In that case, it’s
sustainability. You have Patagonia. But you have a lot of
companies are here– HubSpot– Yeah, culture. They really put people
at the center now. And I think you know
less and less people are going to accept the
crappy workspaces or workplaces that we have. And they’re just going
to vote with their feet. So that’s a great thing to do. One question I’d like to
ask, Alex, as we wrap up– obviously, you’ve had a lot
of success as an entrepreneur. But who did you
need to become to be the CEO you are today, when
you look back at the Alex–? Well, I think just
constantly question yourself. So I have a great
coach, [INAUDIBLE].. I had the opportunity to work
with Marshall Goldsmith, number one leadership coach the world. It’s just always questioning,
am I doing the right thing? Always trying to get
to the next level. In terms of how I work– so I think I got better at what
I’m doing because I was never happy with– I’ve always wanted a
better version of myself– which is terrifying. And maybe sometimes you also
need to say, hey, just relax. You’re a human being. But that, I think, gets
everybody to improve. And I was lucky enough to
find some great coaches. So that was pure luck. But that helped me get
to a different level, look at things differently. And I do think if I look
at who I was 10 years ago. I’m embarrassed. Two different people. Oh my goodness, yeah. And that’s what it should be. Alain de Botton,
the philosopher, says if you look
back and you’re not terrified by the person
you were, you probably didn’t make enough progress. I like that way of
looking at things. Alex, where do people
find you online? So just that Strategyzer
blog at That’s where we share a
lot of our ideas for free. That’s awesome. Thanks so much for coming on. Thanks for having me. This was great. Appreciate you, man. That was awesome. I appreciate it. Thanks. Cheers. Thanks for watching this
episode of Escape Velocity. Be sure to like and
subscribe and leave a comment with your biggest
insight from our conversation. Be sure to check out
the next episode.

5 thoughts on “How To Innovate Against Your Competitors with Alex @ – Escape Velocity Show #21

  1. A superior business model can be your competitive edge. Let’s hear from Alex Osterwalder, business model expert, creator of the Business Model Canvas and founder of Strategyzer.

  2. 27:22 I never really thought through the real potential and the almost unlimited amount of posibilities of this principle (make others "sell" or put value into your product). To apply to my own business(es), I've really only thought of resellers – or "product experts" really – that closes the deal with, and helps the end customer to get the product set up and get it customized. But I guess there must be several other and more creative opportunities with this kind of business model, in the B2B SaaS realm to take advantage of? It would be awesome to be able to dive deeper into the posibilities here…

    Btw, great and very interesting episode. Thanks, Dan!

  3. Hi Dan, your videos are always amazing and I love all of them and it is easy to understand that I am sincere because I am here watching another of your videos but this one for me is absolutely mind blowing! I am at min. 18 and I can't believe how many incredible insights Alexander has already spit out, and the merit is of your questions. When two people that have a great experience and expertise in the same field/area are chatting with openness then pearls of knowledge, pearls necklaces of knowledge are magically revealed. I have seen others interview with Alexander, but this is at another level because he has the chance to explain how everything started and he had the chance to talk about his creative process, and of the facts that led him to this very successful book and so on. Thank you for this video!

  4. Thank you so much for this interview! One very cool thing I got out of this video (among many) is getting people outside to bring values to your company: the Ikea model…

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