Okay, we've talked some about customers, customer segments, value propositions, product market fit, the business model canvass. Let's try to put all these together for this week and say, how do you develop a business model? How do you use these different parts to put together a business model? In Lecture 1, we said that the heart of a business model is a product market fit. Now we can be a little more explicit. Now we can say that a business model is a value proposition that satisfies a need or solves a problem for a customer segment. We can say that a business model is a plan to enter or create a market for attracting, persuading, selling to and retaining a customer segment. And we can say that a business model is a plan for how to build the product or service in a way that it can deliver the value proposition. So entering and creating the market is the right hand side of the business model canvas. How to build the product or service is the left hand side of the business model canvas. But we have the business model canvas filled in with hard facts, things we can bank on, then we've got a decent business model. But how do you get hard facts? How do you go from the state of a business idea that we have now to a business model? The way we're going to do it is we're going to make guesses. And we're going to make the guesses better and better as we go along until we're pretty sure they're good. You start with just playing old swags, guesses that you just pull out on your hat and put him in the business model. I mean that they shouldn't be just arbitrary, they should be things that you think but, they're really nothing more that your desires or wishes or thoughts, there's nothing proving them. We're going to go on with guesses about everything in the business model canvas. The customer relationships, the channels, the revenue streams, the cost, the supplier's, everything that goes into the business model. We're just going to put down our guesses, and we're always going to be willing to refine them. And then we're going to prove some of our guesses wrong. We're going to invalidate our guesses until they're right. If you chip off all that's wrong in a guess, pretty soon you'll get to a guess that's right. It's a scientific method. You make a hypothesis, which is a fancy word for guess, you test the hypothesis, and then you sharpen it. So how do you test a hypothesis in this area? How do you test a business model hypothesis? How do you prove it right or wrong? Well the ultimate test is selling to a customer segment. If you get out a product, and the customers take out their wallet and they pay for it, that's a pretty good proof that you got at least some of your hypotheses right. It's not possible at first. You probably don't have a product you can offer to customers now, you probably don't know who the customers are you're going to offer to. And you probably don't know how you can reach them or how you'd offer it to them. So what you do at first is you ask the customers to help you. You ask the players in the market to help you, and you ask them to invalidate your guesses. You ask them which of your guesses are wrong. You can never of course prove a hypothesis right. You can only prove a hypothesis wrong. So we're going to prove all of the hypothesis wrong until we end up with ones that we can't prove wrong. And we're going to guess that those are right. So we're going to start out with guesses in the area of value proposition and customer segment, because that's really at the heart of a business model. If you get a value proposition that nails a real need for a customer segment. If you have product market fit in other words, then you've got the heart of a good business there. And the other stuff will hopefully fall into place. But this is the main thing, this is the thing to get right, right out of the starting gate. We're going to state our guesses, we're going to test the problem. We're going to go out, we're going to talk to customers. We're going to ask them what their needs and problems are. We're not going to pitch a solution to them, we're going to ask them how things look to them. We're going to test value propositions by asking them about them. And we're going to iterate or pivot. Iterate means, okay, we sort of got that right, let's refine it a little bit. They do like the idea of teleportation but they don't like the idea of teleportation to other planets, they only want to teleport to Chicago. Good, that's an iteration. Or you pivot, they don't like it all. They're worried if they teleport their bodies will dissolve. Therefore, you move to something else. You try to find a different customer segment, or you try to find a different value proposition. Okay, maybe someone else wants to teleport to Chicago. Or maybe the people who want to go some place need at different means to do something, you need a different value proposition. So you iterate, in which case you successively refine your guesses or you pivot. Pivot means you're changing some fundamental assumption and trying again. And you keep doing that until you can't falsify your guesses anymore, and then you think you probably got something. Rinse and repeat. That's a never-ending process, even when your startup becomes a business. Businesses that don't keep up customer development, even when they're serving customers, even when they're a mature business, are companies that are sooner or later going to get blindsided by something, because it's a bad world out there, and things change awfully fast. And if you're not on top of stuff, you're going to be gazumped by something that comes in from a blind side and gets you. So it's a never ending process. Some of the companies we've invested in continue customer development even as they're shipping product, even as they're selling more and more copies of the stuff they work on. So the main points are, you're going to turn guesses into facts by testing them. The kind of test that your going to do, is your going to talk to customers at first and then your going to offer customers a minimum viable product, and then you're going to see if you can sell the minimum viable product in some repeatable fashion, and then your going to build the business in that incremental fashion. You're going to turn guesses into facts, your going to use facts to drive your business model, and you're going to accept the fact that this process is never going to end. This week, we're going to start with a preliminary cut at the business model canvas. Your assignment, we're going to ask you to fill out a preliminary business model canvas for your idea or business concept, and we'll see how you think about it. Thanks.
