Alexander Osterwalder: Using Business Models to Beat the Competition | Summary and Q&A

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February 6, 2012
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Stanford eCorner
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Alexander Osterwalder: Using Business Models to Beat the Competition

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Summary

In this video, the speaker discusses the different levels of understanding a business model. He explains that at level one, entrepreneurs focus on customer product market fit, while at level two, they start to understand the connections between different elements of the business model. At level three, they begin to understand the dynamics that exist in different business models.

Questions & Answers

Q: What are the two levels of understanding a business model?

The two levels of understanding a business model are level one, where entrepreneurs focus on customer product market fit, and level two, where they start to understand the connections between different elements of the business model.

Q: Can you provide an example of a company that played a level two strategy?

Yes, a good example of a company that played a level two strategy is Nespresso. Nespresso created a strategy where they connected the machine and the pods to create recurring revenues at a high margin, allowing them to maximize their profits.

Q: How can entrepreneurs develop the understanding of a level two strategy?

Entrepreneurs can develop their understanding of a level two strategy by first understanding the hypothesis of their business model. They should then get out of the building and test their assumptions, which will help them realize that there is another game to be played. This game involves understanding the connections between different elements of the business model.

Q: Can you provide an example of a company that played a level two strategy successfully?

Microsoft is a great example of a company that played a level two strategy successfully. They didn't have the best engineering solution for an operating system, but they played a channel game that involved using distribution and pricing in a strategic way. This allowed them to outperform their competitors, who were only focused on the technical aspects of their products.

Q: How can entrepreneurs develop the idea of a story and connections between pieces of their business model?

One effective way to develop the idea of a story and connections between pieces of a business model is by starting from a blank canvas. Rather than putting everything on a slide, entrepreneurs should put up one post-it note or building block at a time to walk through the business model. This helps to create a coherent narrative and makes it easier to explain the model to others.

Q: Are there more levels of understanding beyond level two?

Yes, there is a level three of understanding a business model. At level three, entrepreneurs not only understand their own story and connections within their business model but also start to understand the dynamics that exist in different business models. This deeper understanding allows them to learn from successful companies like Google and apply similar dynamics to their own models.

Takeaways

Developing a deep understanding of a business model involves more than just focusing on customer product market fit. Entrepreneurs need to go beyond level one and understand the connections between different elements of their model. Furthermore, they should strive to reach level three, where they also understand the dynamics that exist in different business models. This knowledge can help them create more successful strategies and ultimately achieve greater success in their ventures.

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