Monthly Archives: January 2010

What is Open Source Entrepreneurship?

Recently I commented to Dogpatch’s blog which coined the idea of Open Source Entrepreneurship for their philosophy; “the community benefits from a very high level of interactivity and sharing between the members”. With the growing role of open source as an enabler of entrepreneurship, I believe that coining the idea carries responsibility and deserves further elaboration.

With EasyPeasy, a community providing an open source operating system for netbooks, I observe that some competitors makes use of open source software alike. However, they do not necessarily share their source or new builds back with the community  – which in the first place provided them with the opportunity. Open source software may be an impetus to entrepreneurship, but is it mutual? Should open-source enabled entrepreneurs contribute back, or does the argument “we give back when we grow big” hold?

My take is that with the dissemination of open source software, technology becomes commodity and allows entrepreneurs to shorten development and time-to-market cycles. Since open source software is available to almost everybody, it is not the technology itself, but its application and capacity to meet with customers’ needs that makes competitive edge. As a consequence the basis of value creation migrates from “back-end” product development towards “front-end” customer development. For a simple example, the threshold for putting up a LAMP architecture and yet another Digg-clone script is minimal.

I believe that entrepreneurs that are using open source should share their modifications and extensions from the start. Even in spite of competitive risk. And it is more to it than ethics. The nature of open source methods allows startups to leverage the true value of building user and customer relationships, learn from and test their hypothesis with early adopters. This is essential to user-lead product development which turns out to be a promise of value creation. As with social media, community management becomes a necessity and startups will be able to get a head start when it comes to tapping into their users’ needs. When done right the startup will be able to recruit from the open source community, and create market evangelist as they get ownership to the product.

There is probably more to it, but I hope that open source entrepreneurship adapts open source software thinking but exploiting it. See also Matt Mullenweg, WordPress founder: Why it pays to stay faithful to open source. In the long run “giving back” will help the open source paradigm to evolve, and in turn spur entrepreneurship.

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The network economy calls for new models – entrepreneurship or management?

Technology changes. Yet, methodology remain. When managers develop strategies for their companies, many still use the methods and tools of the traditional organization. As mentioned in the previous post on the Lean Startup Business Model Pattern, there are new methodologies in town. However, the traditional business strategy formulation frameworks still fail to adapt technology change and the network economy, as well as the understanding of entrepreneurship as process but a whim. I reckon that there are some trajectories especially fruitful for adaption.

  • Take Michal Porter’s frameworks for an example. How do you apply the value chain framework to networked businesses, two-sided markets (e.g. social networks, online dating, auction sites, search marketing, credit cards, banks, etc.) where manufacturing is not the locus of value creation [1]. Management and consultants of all colors tend to stand by the former, but are the models still valid?
  • Also consider whether entrepreneurs have the time and resources to sit down and carefully lay out their long-time strategy. Or whether strategy formulation should come as consequence of processes where resources are scarce and uncertainty is extreme. This calls for new frameworks that embrace entrepreneurial learning and change methodologies. To site Steven Blank, A Startup is Not a Smaller Version of a Large Company. Instead early stage ventures require their own tools and techniques.
  • Commodification of web services, API’s and social media allows unstructured strategic models to become structured. That is, conceptual models would integrate data about your customers, such as user behavior and demographics to aid in decision support and increased responsiveness. Similarly, how does rapid collaboration and the free flow of information that are made possible with the social web affect the technology adoption life cycle?

The management challenges presented by entrepreneurship are different [2]. Nevertheless, the management challenges presented by the networked economy (read cloud computing, social web, you get it) are different. Network companies create value by facilitating connections between two or more customers. Not by efficiency in A-to-B manufacturing. Too often  managers try to use traditional strategy methodologies when dealing with new technology paradigms. Similar to what Clayton Christensen & co may think of as cramming. When dealing with the introduction of disruptive technologies of any kind, managers still have to align with entrepreneurial approaches. Indeed, there is a need for change methodologies.

[1] There are some excellent work on value networks and multi-sided markets by among others Ø. Fjeldstad and E. Andersen‘s Casting of the Chains , Tom Eisenmann, and the contributors at the Catalyst Code blog.

[2] This post was also inspired by Is Entrepreneurship a Management Science? by Eric Ries for Harvard Business Review

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What you want to read about Startup Methodologies?

While talking about user generated content and customer development in general, and in order to learn about my readers, I figured that I would walk the talk. Having some new ideas on the subject of startup methodologies, I would ask of your opinion on what should be my next post. For those of you who would consider the case studies, EasyPeasy is an open source operating system for netbooks. It has 1M downloads with users in over 142 countries, and currently attempts to pivot into the Social OS space.

Minimum Viable Product revisited – the MVP Curve?

My professor once introduced me to a concept he called FRUST – an acronym for frustration. Its premise is that products should be built solving a problem or pain for the customer. So is the minimum valuable product (MVP) a systematic, disruptive approach to product marketing. Google, Twitter and Spotify apparently get it. Say no more.

At its shortest, Eric Ries coined the minimum viable product:

.. the minimum viable product is that product which has just those features (and no more) that allows you to ship a product that resonates with early adopters; some of whom will pay you money or give you feedback.

In this Venture Hacks interview with Eric Ries, it is put even more simple:

The minimum viable product (MVP) is often an ad on Google. Or a PowerPoint slide. Or a dialog box. Or a landing page. You can often build it in a day or a week.

More recently, voices of the Customer Development/Lean Startup community have made an excellent effort in elaborating the idea, e.g. Andrew Chen; Minimum Desirable Product and Ash Maurya; How I built my Minimum Viable Product.

If a picture is worth a thousand words, then the minimum viable product would deserve its own least common multiple. Adapting the Featuritis Curve, here is a conceptualization as a basis of discussion.

Minimum-viable-product-illustrated-methodologist1

The MVP Curve questions whether resonance with Early Adopters is relative to the number of features or amount of complexity offered. The minimum viable product does not necessarily mean that the product should be dead simple. Rather, the resonance with customers should peak when the product offering is designed to solve their core problems or jobs-to-be-done, as suggested by Clay Christensen. In accordance with the Customer Development model, this implies not only listening to the customer, but getting out of the building and carefully studying the customer.

I leave to you the question whether the minimum viable product can be conceptualized. In different use cases, what would be the pitch of the curve? Further, the curve might be tested by applying metrics to it: how to measure resonance with early adopters over features, and are there alternative variables?

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How to design your Business Model as a Lean Startup

If you spend time exploring innovation methodologies and models, you know that configuration of such frameworks largely apply new ideas, assembly and build upon previous work (hat off to science). I have come to explore conformity of two emerging frameworks; the Business Model Ontology by Alex Osterwalder and the Lean Startup methodology by Eric Ries. The result, the Lean Startup and Business Model Canvas mashup is illustrated below.

With the Business Model Ontology Osterwalder proposes a single reference model based on the similarities of a wide range of business model configurations. With the business model canvas (used as basis for the illustration above) Osterwalder describes nine building blocks that form a meta-business model.

On methodology, Eric Ries coins the Lean Startup, a practical approach for creating and managing startups using principles of Steven Blank‘s Customer Development  methodology alongside Agile Development methodologies.

The Lean Startup Business Model Pattern adopts principles of the Lean Startup (i.e. agile development and customer development) with the building blocks of the Business Model Canvas. In his recent book, Business Model Generation, Osterwalder uses the notion of Design Patters alongside the ideas of Christopher Alexander and Tim O’Reilly among others, to describe common configurations of business model components. Hence, it could be considered a Lean Startup Business Model Pattern.

The Lean Startup Business Model Pattern aligns with three main pillars that constitutes the Lean Startup methodology; Customer Development, Agile Software Development and Technology Commoditization.

Illustrated above the template using arrows, one key tenet with the Lean Startup methodology is the understanding of Product-Market fit, which optimally results from Agile Product Development, the solution offered, to match with Customer Development, the problem that is solved for a customer.

The Customer Offering or Value Proposition component of the template can be understood with the Minimum Viable Product concept used with Lean Startup method (see also whole product or doughnut diagram in Crossing the Chasm). The Customer Segments in which the Minimum Viable Product is offered, typically is characterized by early adopters or lead users in the social system.

With the Technology Commodity Stack, one of the main principles with the Lean Startup, Eric Ries speaks of how free and open source software (FOSS) availability and user generated content reduce startup costs. This is typically recognized with the Key Resources component. That is, knowledge of and access to open source software is a key resource to a Lean Startup. Similarly, open web hosting services are recognized with the Partner Network component, and convenient search engine marketing with the Distributions Channels component. Social media could as an example be a aligned with the Customer Relationship component enabling user generated content and interaction with customers.

Data-driven approaches based on customer-centric metrics applies to Distribution Channels, but may be considered a key activity as well. Among the Key Activities of the pattern are Agile Software Fevelopment methods and techniques, and the use of Metrics (e.g. Dave McClure‘s AARRR, Startup Metrics) for a startup to measure performance and adjust its directions accordingly. Although “listening to customers” would be recognized as a technique with the Agile Development methodologies, this is central not only to the Customer Development, Agile Development and the Lean Startup methodologies – it is also central to the Business Model Generation (Emphatic Design), Disruptive Innovation (Jobs-to-be-done), Lead User innovation and Voice of the Customer among other customer-centric innovation frameworks.

The conformity of the frameworks is not straightforward though. One such problem is that the level of abstraction differs. Think numerator and denominator. How do we distinguish between tactics, process, strategy and concepts herein? According to Steven Blank’s Customer Development methodology (slide #29 in this presentation), Product Development and Customer Development can be viewed through the tactical lens, while the business model view could be viewed through the strategic lens. Osterwalder understands business models as a facilitator between business processes and strategy. Myself, I would start from the premise that strategy or goals often comes as consequence of continuous learning in early stage ventures where resources are scarce and uncertainty is extreme.

One challenge to consider is how the pattern might express iterative development and internal feedback loops that are fundamental to Lean Startup methodology. It is in my understanding that when working with models and methodologies there is a general challenge in uniting behavior (process) and structure. That is, to what extent are the two frameworks integratable in terms of methodologies and notations. Borrowing from areas such as software engineering and system dynamics, future work would envision a tool that aid in entrepreneurial learning and aggregates key metrics in order mitigate risk in new-product introductions.

For starters a fruitful discussion would consider what are the principles with the Lean Startup methodology that should be included in the Business Model Pattern and where they belong. Later, I will address how a startup would use the pattern to validate their business model as a part of their lean methodology. Stay tuned.

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