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Business model experimentation: From hypothetical Plan A to successful Plan B

“How do I know if my business model is the right one?” This is a question all entrepreneurs rightly ask themselves. It is rare for the business model that is initially designed for the launch of the project to enable the company to generate profits and boost growth. The solution to this gap between the initial Plan A and the successful Plan B is probably an iterative process of experimentation that makes it possible to move from a hypothetical business model with uncertain sustainability to a viable and profitable business model built on the basis of field experimentation.

In their book Getting to Plan B published in 2009, John Mullins and Randy Komisar developed a process of experimenting with the different components of the business model that they broke down into five parts – revenue model, gross margin model, operating model, working capital model, and investment model.

This particularly interesting experimentation process is structured in a dashboard based on the benchmark and the systemic validation of postulates posed by the entrepreneur – what they call “leaps of faith”.

Since this proposal for an experimentation model of the business model, Alexander Osterwalder and Yves Pigneur (2010) have brought in new tools to structure the business model and have proposed the business model canvas that is widely used today. This tool significantly complements Mullins and Komisar’s approach by facilitating the validation of the coherence and alignment between the different components of the business model and, therefore, the testing of the solidity of the entire business model.

By combining these two approaches, SKEMA Ventures offers an innovative dashboard of business model experimentation to entrepreneurs who want to ensure that their initial strategic choices are the right ones (or must be pivoted), and are transcribed effectively in the business model that will reflect these choices.

The process is simple:

  1. For each component of the business model’s constituent elements, namely, the value proposition model, the customer model, the organizational model, and the financial model… (View table 1)
  2. … and based on the theory of strategic groups, which makes it possible to identify the best practices of the best actors of the ecosystem targeted by the entrepreneur, it is possible to identify analogs and antilogs. The analogs, as qualified by Mullins and Komisar, are the business models of companies to benchmark to avoid “reinventing the wheel” and from which it is particularly relevant to innovate. Antilogs are previous unsuccessful business models that failed in doing things differently than what you have planned to do. (View table 2)
  3. Once the good practices have been identified, the entrepreneur must define his/her “leaps of faith”, that is, the postulates on which he/she intends to build the business model of the company. (View table 3)
  4. To validate each leap of faith, it is necessary to define hypotheses, which will then be validated or refuted during a defined period of time. (View table 4)

By applying this iterative process to the different components of the value proposition model, the customer model, the organizational model, and the financial model, the entrepreneur initiates a process of experimentation that facilitates the development of the business model that will achieve its strategic objectives.

Part 1: About strategy-business model fit

Prof. Philippe Chereau highlights the importance of aligning the choices of strategic positioning with the appropriate business model to implement these choices efficiently. He illustrates the tools required to design a coherent business model.

Part 2: Why your ‘Plan A’ may fail

The perceived value of the proposition by customers and the misalignment of the components of the business model may be the reasons why one must think of a ‘Plan B’… as soon as possible. Learn more about it in this video.

Part 3: The process of business model experimentation

Designing the business model using analogs and antilogs, testing the hypotheses of the leaps of faith with the right metrics – this is the path to a successful business model experimentation. Get to know the details through this video.

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SKEMA Ventures is a business unit created by SKEMA Business School dedicated to entrepreneurship and innovation. Through a unique value chain, that encompasses teaching, coaching, incubation, and acceleration, SKEMA Ventures allows each SKEMA student and alumni to think, design, test and launch an entrepreneurial project in a global context, on six innovative territories on four continents, benefiting from the best of each local ecosystem. With SKEMA Ventures, GloCal entrepreneurship is born!
Watch this video to know more: https://youtu.be/OAYVo9wtWZM

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