new dog old trick

Pivoting to Plan B at EchoSign

I've posted quite a bit about business models and lean startups and related topics. Inherent in a lot of what I've posted is the idea of a "pivot" - a change to a startup's business model based on learning from experience. This is the central idea of Mullins and Komisar's book "Getting to Plan B: Breaking Through to a Better Business Model" - that most initia business models (i.e. Plan A) are flawed in one or more ways that either limit growth or even threaten existence. Further, the only way to find those flaws and pivot or break through to a better business model is through learning based on actually trying to sell and deliver the startup's product or service.

All of that is a somewhat long-winded way to get to the point of this post - there is a nice example of a startup pivoting to a better business model in this article from last Friday's San Francisco Business Times. The startup in question is Palo Alto-based EchoSign. The pivot was changing the target market for the company's web-based service from small, web-based startups to larger, older, more established companies:

One year into his business venture, Jason Lemkin nearly made a fatal mistake.

As a web-based contract service, he naturally pursued other tech companies as clients because they were more likely to take a risk on his product, he said.

“The largest mistake we made was not listening to our customer,” Lemkin said, co-founder and CEO of Palo Alto-based EchoSign, a web-delivered contract, signing and tracking service.

Sexy tech companies can come and go in the Internet world, but Lemkin recognized bigger opportunities with older, more established businesses cautiously open to e-commerce tools. “Small businesses don’t have anybody out there looking for web solutions. Nobody has any time,” he said.

So Lemkin switched focus, and rapid growth followed. He had $3.5 million in sales in 2009, up 400 percent from $700,000 in 2007. This year he expects $8 million in revenue. “Strategically, we said we’re not really a sales tool. Let’s focus on webbies,” he said. Then “we said listen, we are a nitty-gritty sales tool.”

Questioning the value of academic business plan competitions

Good Steve Blank post today wherein he continues to beat the drum for the value of business models over business plans. Today he specifically targets startup business plan competitions as having little real value for students. And he proposes that these competitions change their focus to creating and testing ("getting out of the office", or classroom in this instance) a start-up business model.

Thought-provoking stuff. As a big proponent of worrying about the business model in a startup, I agree with Blank. Not to say business plans don't have their place, they do. Unfortunately, in most academic entrepreneurship training there is a dramatic over-emphasis on the business plan and inadequate focus on the business model.

Teaching Entrepreneurship as a design exercise

Steve Blank has an interesting post on an entrepreneurship class at Stanford that he helps to teach. There are a number of interesting points made in his post, which is titled Teaching Entrepreneurship - By Getting Out of the Building. The most interesting was that they teach entrepreneurship as an exercise in designing a business model. As Blank says:

As I’ve described in previous posts; a startup is an organization formed to search for a repeatable and scalable business model.

Some of us at Belmont University are taking the same approach to teaching entrepreneurship. The concept of treating the early stages of launching a new venture as a design exercise is very powerful.

Business modeling and new venture design

Oh dear. My friend Jeff Cornwall gave me a very nice shout out this morning on the topic of business modeling. It's something that he and I have kicked around a few times over the last year or so and that both of us have integrated into entrepreneurship classes we're teaching this semester. It's also a topic I've posted on a few times in the last year but I've promised more and not delivered. Jeff has shamed me into coming back to the subject.

It's a subject that I've been interested in for years but felt stymied in terms of trying to apply due to a lack of useful tools and published material on the topic. But last year there were two significant contributions on the topic published: Business Model Generation by Osterwalder and Pigneur and Getting to Plan B by John Mullins and Randy Komisar.

These two books complement each other. Both treat a business model as a living, breathing thing that must be thoughtfully designed, continuously monitored and regularly evolved. Both have a design-oriented approach to business modeling. Where they differ is in offering totally different and yet complementary views of what constitutes a business model.

Osterwalder and Pigneur present a visual, qualitative tool called the business model canvas that has nine boxes that contain the major components of a business model - items such as value proposition, customers, channels, key resources, revenue model, cost model, etc. Mullins and Komisar define a business model as consisting entirely of five quantitative models: revenue model, working capital model, gross margin model, operating model, and investment model. I think both definitions, by themselves, are lacking in very important ways. Combined, they seem to provide most or all of the tools that an entrepreneurial team needs to design, implement, and refine the business model of a new venture. That's a preliminary judgement and I'm sure experience will lead to improvements and tweaks but taken together these two books give us tools that represent a huge step forward for those of us who want to launch new ventures, improve our existing ventures, or teach folks how to improve their chances of success as entrepreneurs.