Interview
with
Alexander Osterwalder,
Business Model Innovator
Alexander Osterwalder is an entrepreneur,
speaker and business model innovator. Together
with Professor Yves Pigneur he co-authored Business Model Generation, a global bestseller on the
topic of business model innovation. His Business
Model Canvas is used by leading organizations
around the world, like GE, P& G and Ericsson.
Alexander is a f requent keynote speaker and has
held guest lectures in top universities around the
world, including Stanford, Berkeley, MIT, IESE
and IMD. Alexander holds a PhD f rom HEC
Lausanne, Switzerland. He is recipient of the
Innovation Luminary Award 2013. He is also a
founding member of The Constellation, a global
not-for-profit organization aiming to make HIV/
AIDS and Malaria history.
Please explain in three sentences, what the Business
Model Canvas is.
The Business Modell Canvas is, simply said, a way of visually depicting business models. It is a broad
tool that can also be used for already existing business models. The interesting thing about this too is its
applicability both for startups and major enterprises like GE, Gazprom or P&G. This offers a broad range of
possibilities. In In the beginning it was intended to facilitate drafting new business ideas. Nowadays, its
mainly used to evaluate already existing business models of corporations. It is crucial to understand the
difference between a framework, respectively a concept, and a tool. We consider the Business Model Canvas
as a tool, since it can be directly implemented in a meeting or a working session. The „Tool-Aspect“ here is
extremely important, because it directly increases the efficiency of a meeting, conference or conversation.
What triggered the development of the Business Model
Canvas and the Business Model Innovation?
The journey started with my PhD thesis. My thesis supervisor Yves Pigneur also coauthored “Business
Model Generation“. He asked himself how a business model could be simplified to fit one page. We didn’t
pursue coming up with a business plan. The actual question was rather how to model a business model.
Further, we asked ourselves whether we could make it a computer-aided designed, if we were able to model
it. So basically, our vision was to conceptualize computer-aided designs for business models, like an architect
so to say. After publishing my thesis in 2004, we made a book out of it. In the end our vision came true:
today we use our company “Strategyzer” to develop those computer-aided designs.
26 – Winter 2014
Interview with – Alexander Osterwalder
St. Gallen Business Review
What is the BMC’s main value? Do you see any threats
that it might over simplify and suggest too much linearity?
We did some research and asked ourselves: „Why is the Business Model Canvas so successful?“. We weren’t
the first ones elaborating ideas on that topic developing such a model. However, no single model has had
the same reach as the Business Model Canvas. More than one million books in thirty languages have been
sold. The question is, why? We conducted a survey with more than 3000 participants and interviewed
businesses and managers. It was surprising that the answers were quite simple and straightforward. The
difference to other models was the component on drawing it onto a sheet of paper, not simply talking
about it.
The Business Model Canvas allows us to quickly communicate the idea behind a business model. If that
only happens in words, it is rather difficult to understand the different links and correlations. One will most
likely talk about the product, notify it and think about how to get money out of it. But the fundamentals
of business models are much broader than that, which the BMC tries to explain with its nine building boxes. The Business Model Canvas helps people to better lead strategic conversations about existing business
models and to implement new ones. People also mentioned that ideas could be implemented better via
the BMC because they become more tangible.
A person works way more efficient when using a tool. I always do the analogy: If I gave you a nail and
told you to hammer it into the wall with your bare hand, you would realize right away that this doesn’t
Winter 2014 – 27
Interview with – Alexander Osterwalder
St. Gallen Business Review
make any sense. In business it is the same thing. We don’t use tools, but rather try again and again to
hammer this nail into the wall with our bare hands. The BMC is a tool, which is supposed to help in these
situations. In general, when tools are needed, one most likely won’t cut it. Many people like to say “the
BMC doesn’t do this and that“. But the BMC only has one goal: Sketching business models. If you want to
do other things such as formulating a Value Proposition, another tool has to be used. This is one reason
why we also invented the “Value Proposition Canvas” (VPC). In the future we will have many more tools,
for instance a tool for corporate culture. Today there is none, but sooner or later there will be a tool that
enables us to work on corporate culture, to draw an outline for it and to change it.
Considering the question whether it is too simple: I don‘t think so. If it was too complicated, people would
not use it anymore. We have tried to make the notion of the business model as simple as possible, but not
too simple. A well-known adage by Albert Einstein says: “Make it as simple as possible but not simpler.”
That‘s what we tried and I think we succeeded, taking the amount of people using this tool into account.
At the moment it seems linear only creating a picture; but that‘s as linear as a business plan. It always
depends upon how tools are being used. For instance, launching a new idea or a startup like Strategyzer,
I start with a model. I test different aspects of this model in order to see what works and what doesn‘t
work. Then I adapt my model. That means that I have a series of different BMCs and continue testing.
Especially at university, students are being taught that there are different models. But only all methods
and processes together have the potential to develop better business models. An example: when giving
a workshop people often ask me “Where is the competition?” But this is not the goal of the model. The
goal is to depict the business model. The competition is part of the business model environments (BME),
another tool. The BME and the VPC, as a second tool. That allows us to zoom into blocks and define more
precisely how to create customer value. For different processes different tools are needed.
28 – Winter 2014
Interview with – Alexander Osterwalder
St. Gallen Business Review
How can findings of the BMC be implemented
afterwards?
There are different opportunities. In the past you had to write a business plan. Today there are existing
teams that think about business models, integrate and immediately test them in a real market environment.
This is one way to apply the BMC. The other way of application is, for instance, seen at Mastercard. They
use the BMC for a coherent language in teams developing new products. This means you don’t draft new
business models, but at the launch of a new product you outline how the adding value appears within the
business model. It needs a coherent language to approach the topic. There are companies that draft every
single “business unit” in order to have
prospect about different types of business models. At a workshop, which I was guiding, people needed a
model for M&A transactions. Reasonable as well as the BMCs’ target is to make a business model clear. If I
pursue M&A activities, I have to evaluate whether those two models fit together to an extent which would
justify a dea. In return, the BMC creates clarity. So there are many different possibilities how the BMC can
be implemented. SAP, for example, needs the BMC to draft the business model of their clients. Why? After
understanding how the business model of their clients works, they can explain them how SAP products can
help them with their business model. This was an interesting assignment, because the BMC wasn’t used to
picture their own business model, but rather to reproduce the business model of their own B2B customer.
Speaking of M&A: For years the internet has taken the
center stage when it comes to new business ideas and
startups. Do you see a danger of engorgement or a second dot com bubble?
The internet has given us countless opportunities to create value
and the market is far from being satisfied. Quite to the contrary,
I think we are only at the beginning. Yet, acquisitions of a number of companies have been rather highly valuated. Just think
of Facebook’s acquisition of WhatsApp for 19 Billion $ – that’s a
staggering price. It is interesting to think about alternatives: How
much would it have cost Facebook if a competitor had undermined
its business model? It’s always difficult to measure the exact value,
which is why many investors get a nasty surprise nowadays. Take
Zynga as an example. Very few people actually thought through
their business model which had only very few entry barriers leaving
them vulnerable to competitors. Apple’s business model also has
only very few entry barriers, yet it is robust: Even if they didn’t
innovate their products over the next few years they’d still be
rather successful. That being said, I expect Apple to surprise us
with a new business model: their project “Carplay” for example
sounds interesting and visionary.
Winter 2014 – 29
Interview with – Alexander Osterwalder
St. Gallen Business Review
Do the rules of Business Model Innovation also apply for
online companies as they do for corporations in established industries?
There are profound differences. Therefore, I wouldn’t differentiate between Online- and Non-Online
companies, but between companies with new ideas and more established ones. Imagine a company with a
successful business model. It will try to realize profitability by further improving efficiency. These companies
grew considerably and introduced some new products that had been compatible with their existing business
models. These companies have become averse to bearing the risk of revolutionary ideas. In other words, it
is much more difficult to launch new ideas in a corporate environment than in a startup. The latter is easier
to handle as it suffers less constraints than established corporations. Big companies will have to adapt to
this way of thinking, as the life cycle of a business model today is shorter. Kodak is virtually non-existent
at this point, Alcatel-Lucent is barely surviving and Nokia has also seen better days. They are all examples
of established companies who failed to proactively innovate themselves while being successful. Right now,
the whole pharmaceutical industry is experiencing what I described. The life cycle of their business model
already ended some years ago: Many important patents are about to expire and the industry is struggling
to find potent replacements. This will cut heavily into their revenues and threaten the existence of some.
Which industry do you think needs a basic innovation
at most?
Basically, all industries are desperately trying to innovate themselves at the moment. Almost all major
companies increase their R&D budget. However, many of them still have to become aware of the fact that
R&D, in terms of new products, will not be enough, but the best business model will win. They are struggling
to successfully combine both – a new business model and existing products, which I partially account to
the structure of these companies. In this context, some industries, the telecom industry for example, are
further than others, but still not quick enough. Just think about how WhatsApp and Skype have damaged
their previous business model. This has taught them to handle innovation better than the banking industry
for instance. Banks have not been able to introduce effective processes to build new business models and
value propositions as they are lacking a tradition of innovation.
30 – Winter 2014
Interview with – Alexander Osterwalder
St. Gallen Business Review
You gained experiences with startups in Europe and the
U.S.A. What distinguishes these enterprises and the
people standing behind them?
It is always very dangerous to generalize such questions. I recognized that a global culture of startups
seems to be evolving. I met a lot of different people that want to execute new tools to be able to develop
new ideas. A ‘global movement’ exists. However, we have to draw a general difference between the Silicon
Valley and the rest of the world. The Silicon Valley is interesting to look at, because you find many young
people who act naive and think they can change the world with really fatuous ideas. If hundreds of people
pursue this behavior and only one of them succeeds, it always seems like everyone were to succeed. Those
people exist and they don’t have any qualm to continue their dream. The fear of standing there with egg
on one’s face isn’t around. I partly like the European approach, since people act less greenly. It is important
to find the correct mixture between those two cultures. Fascinating to see - whether it is the US, especially
Silicon Valley, Europa or Asia - is that there is always a small group of people who perform better in certain
things than others. Today you are most likely to find such people in the US though, because there are more
people who try very hard. In Europe you sense and recognize a wave of companies with new startup ideas.
The benefit for these corporations clearly is that new ideas are less naively proceeded which therefore
decreases the risk.
Which advise would you give students interested in
founding to take along?
Last year I was in the jury of the “International Business Model Competition”. In this competition the
students do not develop a business plan and present it. No, they show how they started with their business
model and how they have strengthened it. It was impressive for the jury to see how the students went
through their business models in a process after BMC, Business Model Design and Customer Development,
since they have started without any experience from a very naive point. That was eye-opening for the students. They are quickly content and think they know how the world works. The winners of the competition,
“Owlet”, showed us how rigorously they tested their ideas and how often they have failed by doing that.
Since they have tested it in a process they haven’t lost money, but time. So my advice is quite simple: we
should use the tools and processes we need in entrepreneurship. Writing business plans is non-sense. It’s
not entrepreneurship. If an investor asks you for your business plan and decides to invest in you based
upon that business plan, I would not choose him as an investor. This investor is investing in a fantasy you
can’t prove. An investor believing in you as a team and your capabilities to spread ideas is likely to be more
successful than an investor blindly investing in absurd numbers. There are still investors that want business
plans. Nevertheless, this process slowly ceases. We all know these business plans are made up. The real
thing is to try out things. My advice to students is: try it out! And then test it, test it, test it! Important
in this case is to slightly fall flat on one’s face. To fall heavily on one’s flat face is easy. Taking small steps
in this case is much more exhausting, but it leads to success. Many young entrepreneurs think they have
succeeded as soon as they have acquired funding. But success determines itself upon how many customers
want to pay me in the long run.
Winter 2014 – 31