So we all know a standard company balance sheet has three parts: assets, liabilities and ownership equity. The accounting equation states assets and liabilities are known as equity or net worth and this net worth must equal assets minus liabilities. The balance sheet summarises the present position or last audited position.
Well in the Business model canvas we have the cost side, the back-end, made up of the activities, resources and partnership aspects and a revenue side, the front end, made up of customer segments, channels and customer relationships. It is the ‘net worth’ of all these blocks that makes up their contribution to the Value Proposition.
It is the nine building blocks when we put them together, tells the complete story, a little like a business model balance sheet. Balancing this out thoughtfully does need that bringing it all together, so as to give others the compelling story and begin to mobilise around and attract the necessary resources.
My question though is this: “is the BMC understated at the back-end today and should we strike a different balance for more established organizations?”
What happens when one side perhaps gets over emphasised?
Very much the orientation of the business model canvas is presently skewed towards the front end – the market facing part and rightly so. You are in search of a new business model, you will never find it in the building. As Steve Blank rightly stated “you have to get out of the building” to validate your assumptions or hypothesis, to search for the value in the real marketplace.
The present BMC creative energy focuses are mostly placed on the front end as many of the emerging tools, methodologies and creative work seek to explain and explore this in novel ways, helping to work out if you do a have a meaningful business emerging or not. You want to test your ideas or concept as soon as possible. As you learn, you pivot, learning what makes sense to customers, what might not, making continuous adjustments to confirm the business idea.
Now we need the same creative energy application channelled to the back-end to draw out the supporting aspects that underpin the new business model.
Today, the BMC is well accepted for start-up’s, for entrepreneurs but still does struggle to gain the real momentum it deserves and can contribute within larger organizations. Why is this?
The back-end and its lack of real attention just might be holding the BMC back for large organizations. Now we need the back-end to have the same ‘explosive’ forces and focus, as the front end. Let me explain why:
So for me the understated side of the BMC is the back-end.
Here we are looking to ‘plug in’ the key partners, the key activities and the key resources. If you look at any introduction to the BMC you get these as short explanatory introductions to these three parts
Key Partners – what can partners do better than you at lower cost (and thus leverage your business model)
Key Activities – What activities do you need to perform in your business model and how easily?
Key Resources – What resources does your business model require? These are seen as the assets required offering and delivering the other described elements within the BMC.
Perhaps these are just not deep enough in explanations, even for a starting point for a new business model design. These prompters as they initially stand, inadequately address the existing organisations deeper issues in my view.
The ‘drag’ in adoption performance might lie at the back end
The Business model canvas and by extension BM design, struggles with the back-end, this tends to always ‘lag’ as we address ‘breaking opportunity’, especially in established organizations. There is too much invested legacy. This is the ‘drag,’ the anchor weight, that holds bigger businesses back in investing fully in (radical) business model design. We need to open this up, in finding solutions that resolve this back end of the BM canvas.
Originally when Alexander Osterwalder was working through his thesis that ‘spawned’ the BMC, he was talking far more of a multi-layer set of approaches where you had a more defined planning level – the strategic layer, following by the architectural level – the business model layer and then the third level, the implementation level for the process layer. He suggested (at the time) layers ( or you can say stacks) were acting like glue between strategy, business and processes. I think he was right. We need to layer and glue.
We need to ‘layer and glue’ at the back-end
The BMC frame does not need to be changed as resources, partners and activities can be a sufficient ‘catch all’. What we need to actually do is raise often the ‘thorny’ issues, of existing structures, conflicts and possible solutions to overcome these.
This time we don’t get out of the building to learn, we ‘work’ the existing building (or organization) to begin to identify and test aspects of your emerging business model across all the internal ‘touch points’.
We are equally looking to discover and validate in our initial explorations , to pivot and stay agile and aware. To ‘flush out’ roadblocks, internal barriers and search for novel solutions. To keep gaining acceptance and recognition.
Here we are exploring existing infrastructure and looking at what would be needed that would be different to support a new business model. To build anew or extend.
I think it is time to let the infrastructure skeleton out of the cupboard.
We have to acknowledge and talk through the fact that big organizations have involved processes, they operate in complex ecosystems that are difficult to navigate, negotiate change with and seeing where you need to pick certain parts of the value system apart to accommodate the new. Perhaps it is easier to ‘start anew’ or spin out the new business as the antibodies can come rushing in to kill anything life threatening.
The other issue is the reputation risk.
Can you accommodate a small, lean and light weight business in its early stages as it tries to sit alongside the big brothers of existing businesses? Many of the larger organizations have thresholds for revenue size that are telephone numbers to even think of creating something even more ‘demanding,’ a new business model.
You struggle everywhere within established organizations to make the necessary changes to adopt new business models, there is so much vested interest. Yet new business models are desperately needed. So lets address back-end constraints head on?
We need to tackle complexity far more and early on.
Often the complexity within our organizations; the politics, the whole need to convince established positions & overcome legacies will hold most simply back from exploring business models, on a broad, bolder front. They don’t want to acknowledge the necessary holistic fit of all nine building blocks. They attempt to retrofit what they see into the existing back ends, into their known and existing paradigms.
This limits the potential not just of the visionary power of the BMC but the whole design of any new business model. Often new BM’s are squeezed into the existing: the push through existing channels, sold to existing customer segments, delivered within the existing supply chain, managed through the same resources and invoiced through the existing systems. We compromise, perhaps, the greater potential by not reflecting deep enough on what new BM’s can give us.
There is nothing wrong with leveraging what you have, exploiting existing resources and structures but as you are drawing on what you know (exists) you can stay blindsided to what it can potentially offer. If you don’t ‘opened up’ your mind and thinking that little bit more you can constrain a new concepts real, sometimes game changing, potential.
We need to ‘ratchet up’ existing visual methods and tools.
This is the exciting place to be, designing new tools and visualisation but let’s focus fully across the whole Business Model Canvas. We do need to talk more ‘content,’ more purposeful design at the back-end, if the bigger organisation is going to sign up in the way it can, but equally, make it creatively applied.
We need to think how architecture and agility can combine; an opening exploration of operations, systems, applications, and of thinking different ways to be agile thus providing a more transition planning approach to underpin the emerging business model’s design.
Alex talks sometimes about a CAD equivalent for business model design in the future. Perhaps he has something there. We need to design the structure, work through modification, analysis and search for optimisation no different from the front end. This is why we need the Business Model Design Architect as central to this required repositioning, to manage the complete design of any business model’s new blueprint.
My call here is that we need to broaden the back-end conversation.
Let’s get the conversation going on the back-end and then unleash the multiple designers within this part, not just the huge community of IT related architects already out there working on many of these internal problems. We need creative design, ingenuity and understanding, all combining in new ways.
We need to step up one big huge level within conversations around Business Model design in existing organisations. We need to seek creative, visually stimulating solutions to the complexity that lies within the four walls of organisations. Let’s address the internal complexity and all learn by openly exploring this. We need to get the toolsmiths working on forging the internal BMC foundry, block by block.
To play back to the team designing and orchestrating the BMC, we do need to create better conversation at the back-end of the BMC. We need a new depth in the visual tools needed to capture this side of the canvas.
Otherwise, we don’t stay at beginners level Alex, we stay locked into start-ups and entrepreneurial check lists as the use for the business model canvas and that would be such a pity. Addressing the architecture of the back-end is essential.
We need to address the existing organisation far, far better in the back-end
Until we address this back-end far more, then I think the BMC will stay considerably constrained, especially for established organisations. It might simply remain a check list, or as Steve Blank chose to depict it as the Business Model dashboard, or it is only a starting block A4 white board to begin to explore new ideas for start-ups and entrepreneurs.
It might not become the real ‘catalyst’ for exploring new business models as I believe it can be in established organizations. That would be a real shame, if the back-end stays a clear liability on the business model balance sheet. The back-end is hugely different within the established organization and the business model canvas needs to tackle this urgently, in a host of highly creative ways that we have seen extensively applied to other parts of the BMC. Lets get a better balance in our thinking.