How to build an invincible company through business model innovation

Alex Osterwalder:

That’s where the real competitive advantage is. It’s not in products. It’s still a bit in business models, but ultimately, the real competitive advantage of companies is their ability to constantly reinvent value propositions and business models.

Alex Osterwalder:

Happy to be here. Thanks for having me.

Alex Osterwalder:

It was a very arrogant book title, but we believe in testing and adapting so we tested different book titles, and this is the one that resonated most with CEOs, one of our target audiences. The point is that you can’t be invincible. It’s impossible. So when you are humble enough to know that you constantly need to reinvent yourself, you get closer to invisibility. If you stop reinventing yourself, you’re very vulnerable to disruption. Business models expire like a yoghurt in a fridge, faster than ever before. So today, to be successful, you need this ability to be world class at execution, at the same time constantly reinvent yourself. If you’re able to do that systematically, that’s when you get closer to invincibility.

Alex Osterwalder:

Of course not, because when you start, you have nothing, you’re actually on the search for a value proposition or value propositions and a scalable business model. You first have to focus on the one thing, is to create a value proposition that customers care about and a business model that can scale. That’s your number one goal. But the thing is, once you start to find that, you scale your business and you’re successful, well, you can get arrogant. You focus just on that while there are other competitors and maybe just your team and you forget to reinvent yourself.

Every established company today was once a startup. So the challenges when you’re a startup, you need to find that business model, but when you’re established, you need to reinvent yourself. And for a long time, this wasn’t important, but now you actually need to create startups within your established companies. So there’s similarities between startups and established companies, but when you’re a startup, you just have one goal, is to find those value propositions that customers care about and embed them in business models that can scale. That’s the only thing as a startup that you need to focus on.

Alex Osterwalder:

Yes.

Alex Osterwalder:

Yeah. And I’ll push back on a word you used before. You said protect, something to protect. I think that is exactly the challenge of established companies, that they tried to protect what they have rather than try to invent new value propositions and new business models. So this ability to reinvent yourself is very different from protecting. And actually, if I may, I’ll quickly draw something to make this a little bit clearer. I always like visuals.

Alex Osterwalder:

Is that okay?

Alex Osterwalder:

Okay. I’ll talk about it so the listeners can follow. Right? So when you are established, that means you have a business model, you have value propositions that customers care about, you actually have to manage what you have. And I’ll just draw a business model canvas or tool here to manage existing business model. So here, you manage and improve. We call this exploit, managing the existing. And that’s what most established companies are really focused on and they’re pretty good at it. This is not important, this is crucial. You need to manage what you have. You need to improve what you have. But at the same time, you need to have this ability to invent. And that’s what we call explore. And the logic here is very different. You try something, you explore, you experiment, and you have to adapt because generally your ideas are wrong. Your innovation projects that look good in a spreadsheet and good on a PowerPoint are not going to work. So it’s this idea of testing and adapting your ideas until they work, that you need to focus on.

So in an established company, you need these two universes. You need exploit and explore. And the challenge for most established companies is that they forgot how to explore. Again, they were once startups, sometimes a hundred years ago, sometimes two years ago. But generally, when we start to manage our company, we develop these antibody towards anything that’s new. So we’re not good at exploration anymore. So it’s not either manage the existing or explore the future, it’s an and. This and is very challenging because these are two different cultures under the same roof.

It’s interesting to watch these days, is that this is a challenge even for young companies that just emerged out of the startup phase or scaling. But then because they’re so focused on scaling, they kind of forget that you need to invent the future while you’re scaling, because otherwise, you might hit a wall. And for established companies, this is a huge challenge because 99% of their team members, of their talent is focused on execution. But that means you’re probably going to lose the best innovators. They’re going to leave your company if you don’t build an innovation ecosystem where innovation talent can thrive. So that’s the challenge, is to create this dual kind of culture, world class at execution and world class at exploration. This exists in very, very few companies today, but it’s changing. Good news is, it’s changing rapidly. There’s a lot of good work that has been done, and leaders are now really starting to try to build these ambidextrous organisations like academics like to call them.

Alex Osterwalder:

Correct. It’s not a matter of size. This challenge is the same for small companies, even young companies that are just emerging out of the startup phase and multinationals. Of course, the numbers will differ. Right? If you are a large company, because you need big returns, you actually need to invest in hundreds or better even a thousand innovation projects to get one winner that will be an internal unicorn. If you’re a smaller company, it will just be a different dimension. You might explore three different possibilities for one to emerge.

And that is the challenge, that the smaller we are, the more we say, “Yeah, but we don’t have the time, energy, or resources to focus on innovation.” And that is just wrong because it’s part of your job today, in particular, if you’re the CEO in the leadership team, to establish the future. Managing the existing should just be the kind of basis that allows you to even play the game, but to stay ahead and to survive for the next five or 10 years, you need to innovate. And that’s the CEO’s job. They need to take care of building this innovation ecosystem. And that goes for a 10-, 50-person company, all the way to a company that has 50,000, 100,000, or a million people, or 1.5 million people like Amazon. I have lost count, they’re probably beyond that now.

Alex Osterwalder:

So it’s the same challenge, but at a different size. The responses, the approach is very similar, it’s just a different numbers game, of course.

Alex Osterwalder:

Yeah. Yeah. I think with our company, Strategyzer, we’re in a scaling phase. Scaling is very hard. I think it’s relatively easy to go from zero to one million or a couple of million, but then to scale to a larger size, that’s really hard and it’s a different ball game. It’s all consuming. But once you’ve figured out actually how to scale and you’re on path for some type of profitability and you’re not profitable because you’re reinvesting in growth but you figured out the numbers, that’s when you actually should start thinking about the next wave.

I like founders who already have a very long term vision. So I’ll give you the example of Netflix. It’s a big company today, of course, but they were small one day. Right? So we should use that as an inspiration. So when the founding team started, they already had this vision of a streaming video company where you could watch video over the internet. But they also knew that at the time, when they created the company, the infrastructure was just not there. So they got the timing right and said, “This is not possible today, but we’re aiming for that business model ultimately.” But they started with, which was also a disruptive idea but not as technologically advanced, was this idea of DVD by mail. And that disrupted blockbuster. So they started with something that was feasible from a technology point of view, disrupted the field, and worked towards the next wave, which was streaming. So they already had this long-term vision.

So you can think of consecutive business models. Sometimes you have to change course because you’ll see that that vision is not achievable and you’re kind of going that direction. But think of it this way, consecutive business models. There is no one business model that will, this isn’t exist anymore, that will help you survive for the next 10, 20, 50 years. You constantly have to reinvent. And that’s really, really crucial that you have this in mind. Of course, again, it’s very hard to scale so you’re so focused on the scaling of your organisation that you tend to forget you might want to work on the next wave.

The best companies today, I believe, they keep that innovation culture while they’re scaling and they experiment with new stuff while they’re ultra focused on scaling. So in that case, exploit doesn’t mean managing a portfolio of businesses. It just means scaling, at the same time reinvent the future. We’re doing the same thing. We are now somewhere between 50 and a hundred people depending on how you count, but we’re ultra focused on experimenting with new things while we’re scaling a business model that today is making money because we want to play somewhere else than where we’re playing today. So you just have to think of consecutive business models. It doesn’t matter what size you are. Once you have a business model, you should already start thinking of the next wave. As soon as you feel like, “Okay, this is the right one to start with,” you should already start thinking about the next wave, at least experimenting to learn.

Alex Osterwalder:

Yep.

Alex Osterwalder:

Yes.

Alex Osterwalder:

Yes. And it’s becoming a real pressure. Last week I was in Sweden and worked with the portfolio companies of an investment fund. They were ranging in size from a couple of 10,000s of revenues to a couple of hundred millions in revenues. They were all at different stages, but we worked on mapping out existing business models and creating that muscle, that innovation muscle and innovation ecosystem, to already do the next thing. And for many of these leaders, CEOs and CFOs were there, this was something new. So innovation today is still, for quite a lot of leaders, a black box. They don’t really know how it works because it looks like business, “Oh, we’re just going to create a new business. Isn’t that similar to running a business?” It’s fundamentally different. It’s a different profession. It’s as if you kind of compared a knee doctor to a brain surgeon. There’s some basic things that are similar, it’s about making money and et cetera. But the fundamental things, they look similar, but the profession is different. And in innovation, the culture is different, the metrics is different, the whole approach is different.

And because there’s this confusion a bit, sometimes people still, in companies, startups, this rarely happens, they still insist on business plans. “I’m going to take this idea. I’m going to map it out. And then I’m going to execute from idea to business. I’m going to treat it as if it’s an execution problem.” But innovation is not an execution problem, it’s a search problem where you need to test and adapt your idea. Ideas are worthless. Right? So it’s not about the idea, looks great on paper, but then I need to test and adapt, test and adapt. That requires completely different process, requires a completely different approach. And I will actually draw another thing. And I’ll put the voice over for the listeners, because this is a really important thing to understand, the difference between innovation, exploration, and managing the existing, exploit.

So when you start with an idea and you want to go towards a existing business, one that makes money, in the past, we used to create these business plans. And then we had these curves going upwards, “It’s going to make money. Idea is great.” And when you are a charismatic founder, you’ll make everybody believe that it’s impossible that this thing is going to fail and you raise money. That was actually a bit of a problem because there’s so much money around. Same thing actually in existing companies, they invest too much money too early in ideas because the ideas look great and the PowerPoint looks great and the spreadsheet looks great. But what you really want to do is, you actually want to admit that risk and uncertainty is incredibly high. Venture capitalists actually know this. That’s why they know that they can invest in one company because the probability that’s going to fail is huge. You need to invest in many.

Alex Osterwalder:

But as a innovator or as a founder, you actually have one task. That’s not to implement your idea. That’s not to build a first version of your product, sometimes known as MVP. No, your task is very simple. It’s to reduce the risk of building something nobody wants. And when I’m saying building, I mean business model, creating a business that nobody cares about, customers don’t care. That is a huge risk and that’s the risk you need to reduce. So how do you do that? Well, what if you just started talking to customers? And you never ask them, “What do you want?” Customers don’t know what they want. They’re not experts of the solution. You asked them, “What are your problems? What are you dealing with? How does the day look like? What are your biggest struggles? What are your objectives?” Sometimes related to your ideas, sometimes a bit beyond that. And what you thought you knew about customers usually turns out to be wrong so you just reduce risk, the risk of exploring some kind of challenge or objective that customers actually don’t have.

Okay, just learn something. You’re going to change your idea. You’re going to adapt it. Well, what if I now made a paper prototype, a PDF that doesn’t visualise the product? It just actually describes the spec sheet. My product or service does this, this, this. It has this quality, this performance, and this price tag. You just created a brochure of your product. Wow. Okay, you can now talk to customers. And they say, “Well, maybe this, I would never do this, or I tried this.” And then you might ask them, “Hey, why don’t you get back to me if you’re interested by email or by phone?” They never call you back. You just realise, “Okay, they’re not interested.” You learned again. So then maybe at one point, when you learned enough, you make a digital prototype, if you’re in the digital space or whatever. It could be physical prototype if you’re creating engines. So you increase the investment with the decrease of risk.

So this drawing here where you start with maximum of risk, you admit, “I don’t know if this is going to work, but I’m a founder and a founding team or an innovator with the right team that will test and adapt the idea until it works.” And you actually only invest in this as a venture capitalist or as a company when the team produces evidence, and a PowerPoint and a spreadsheet is not evidence. It’s evidence from testing desirability, feasibility and viability, different aspects, different risks. Coming from Steve Blank with Customer Development and then popularised with Eric Ries Lean Startup, that’s the kind of process, together with the tools from us at Strategyzer, Business Model Canvas, Value Proposition Canvas, that you need to put in place.

And you actually measure the reduction of risk and uncertainty. How do you do that? You look at the evidence that the team produces over time. So it’s a completely different way of running the process, measuring different KPIs, than you do in running a business. This is how you open up that black box. We now know how this profession of innovation and entrepreneurship works. They have very strong similarities. They’re not exactly the same. Innovating in an existing company is different from building a startup, but they’re very strong similarities in these professions, but they’re very different from managing a business that is established.

Alex Osterwalder:

Yeah.

Alex Osterwalder:

And here’s the thing, here’s the thing. It sounds very trivial. It’s almost like back to the basics, “Oh, but that’s not very groundbreaking to start with customers or to explore that.” But the thing is, the principle is pretty basic, but how we do that, the different types of experiments we do, the evidence that we measure, that’s getting very sophisticated. So today, if you look at the processes in companies, they’re very rudimentary. When we say, “Oh, we’re very customer focused. We still do very outmoded stuff like focus groups,” that’s not what testing and adaptation is about today. It’s about creating stronger and stronger evidence. If you’ve done a hundred interviews, well, that’s just the start, that’s very basic in information. And we call that light evidence. If you get customers to start to prepay, “Oh, that’s already stronger evidence. They have skin in the game.”

There’s two examples here that you can take. One is called Better Place, used to be a startup with a very great goal, making electric vehicles common place. And they created battery swapping stations. So the idea was great and they raised a lot of money, but they didn’t test and adapt the value proposition. So they blew $850 million, well funded startup. Then you compare that to Tesla. From the start, the founding team had testing in their DNA. They actually did a couple of things. They bought a load to sell lease. They took everything out and started to call it an electric vehicle and see how customers reacted. But they also created a so-called landing page where people could sign up with their email if they were interested. So that’s not a big commitment, but you don’t give away your email if you’re not interested. So, slightly stronger than just talking to people.

And then they went a step further and they had this club where they would pre-sell a hundred Roadster Teslas, the first electric vehicle they built, for a hundred thousand dollars, and that was sold out pretty quickly. So they had real evidence and skin in the game. And then later on, Elon Musk played around with the same idea by getting people to make down payments for the Model 3. And over a week, they had 300,000 people make a down payment. That’s evidence and that’s evidence at scale. Not everybody’s going to get there.

Alex Osterwalder:

But they have testing and adapting in their DNA. It’s very different from Better Place. See how these things differ. And today we’re getting more sophisticated. Light evidence, talking to customers; strong evidence, prepaid. If you’re in B2B, you can’t always do that so you’re going to have letters of intent or pre-orders, et cetera, et cetera. So we’re getting sophisticated at this profession. It’s not just about the principles anymore.

Alex Osterwalder:

Right.

Alex Osterwalder:

Yeah.

Alex Osterwalder:

Yes, yes. Love that part.

Alex Osterwalder:

Long time.

Alex Osterwalder:

So you said we were the first to talk about business models. That’s actually not true. We were not the first. When I started, I did a doctoral dissertation with Yves Pigneur who became my co-authored friend on Business Models. We took all this stuff that was existing, but we took a slightly more rigorous approach. And we created this visual model to visualise business models. We tested and adapted that until we had something that would really resonate with managers and startup entrepreneurs. So we went a step further and we made it incredibly simple. And that’s why our approach with the business model canvas kind of emerged as the most successful one. So we weren’t the first, but we paid attention to the usability and user experience, if you want, of the concept and tool itself.

So I believe in visualising business models, by mapping them out with a very simple language, in our case, that’s the Business Small Canvas, that allows you to describe how you create, deliver, and capture value with nine building blocks. And every business startup or established company has nine building blocks in their business model. It’s the same, right? So value proposition for customers, how you reach them, what do you need to actually create and deliver value. It’s the same, same business model. So the point is that we have a shared language to discuss our business models, either the ones we have, to improve them, or the ones we want to invent, to test and adapt them. So again, very simple nine building blocks to describe how you create, deliver, and capture value.

Alex Osterwalder:

I think the parts are less important than the business model’s story. Right? So sometimes people say, “Yeah, but the value proposition is the most important part of the business model.” It’s not true actually. If you don’t have a value proposition that customers care about, well, you don’t need to bother about the business model, for sure. But today what we see is, superior business models are those that have mechanisms, we call them patterns, patterns in them that outcompete others. That could be that you have a business model that locks in customers. Apple with the iPod created that, they locked in customers in their ecosystem. So you had to buy an iPod if you wanted to keep your music library. Right? So that’s one type of superior business model, where there are high switching costs, where you lock in the customer in a positive way.

Then there are other patterns, business models that are more scalable. Guess what? Airbnb has the most scalable hotel, if you want. Technically, it’s not a hotel, but we perceive it almost like a hotel, but they don’t have the inventory. All the rooms are managed by their partners, the hosts, millions of hosts around the world. So technically, it’s actually the biggest hotel. Again, classified as a hotel. So that’s a very scalable business model. That’s another aspect that you can look at. Sometimes people ask, “Alex, what’s the right business model?” Everybody wants this recipe. There is no recipe. The recipe is-

Alex Osterwalder:

Recurring revenue.

Alex Osterwalder:

Exactly. Exactly. So that’s why there’s no right and wrong business model. So typically of course, if you can generate recurring revenue, that’s more stable than transactional revenues because you sell once and you earn money again and again and again. That’s why the subscription models became so popular. But again, you can say, “Oh, that’s the right business model.” No, it’s not. You need to find the right business model for you in your arena. And that could be whatever type of business model. But the more you can integrate some of these patterns, the better. If you can create a business model that locks in customers, creates recurring revenues and is scalable, of course you have a home run and that’s what you should aim for. That’s exactly the reason why we try to inspire people to think beyond products and services, because it’s getting harder and harder, if not impossible, to stay ahead just based on technology and product innovation.

If you don’t have a business model at a superior, it’s going to be hard to stay ahead. So if you take Apple today, why are they so ahead and so hard to compete against? It’s because they have an insanely strong business model with the App Store, right?

Alex Osterwalder:

Or you take other organisations like Amazon. They created a collection of business models that mutually reinforce each other. E-commerce on the one hand and then Amazon Web Services on the other, two different business models that use the same infrastructure. Of course, that’s insanely difficult to compete against. Today, the best companies are not product companies. They have world-class products and services, great value propositions, but in addition, they actually compete on business models. And that’s a big challenge typically for banks and pharmaceutical companies because all their business models look similar. Because they think industry, and that’s kind of the death penalty, I’d say, industry classification and competing on five forces. That’s stuff from 1985, Porter’s Five Forces, supply chain and value chain.

Alex Osterwalder:

Today is a different world. The best companies create superior business models that transcend industry boundaries and are insanely hard to compete against. So that’s the ball game you need to play if you want to stay ahead. Too many entrepreneurs and companies are focused just on products and services. Again, I’m not saying products and services don’t matter, but it’s just your entry ticket to even compete. So if you don’t have a great value propositions, you probably can’t even survive for longer than a year. So in addition to that, you want to build great business models, scalable ones, profitable ones. Ideally, I believe in business models that also have a positive impact on the world.

Alex Osterwalder:

Great friend, good friend.

Alex Osterwalder:

I have a wonderful example of that. It’s actually a physical company, it’s called citizenM. Different from Airbnb, which is ultra scalable. They created actually a hotel chain focused on one segment, which they called the mobile citizen. That’s a person, whatever age, who goes to a city for either partying, for culture, for business, or for shopping. So they’d say, “Oh, very different segments.” But actually they’re very similar. They’ll go for two days and they have very similar jobs to be done. They want sleep in a place, they want to pay an affordable price, but they don’t want the hotel to feel cheap. So they want kind of a standing, but an affordable price. They don’t need a spa. They don’t need a sit-down restaurant because all that stuff, they don’t have time for it or they’re going to go to the best restaurant of the city. So very similar characteristics or jobs to be done of what you traditionally call very different customer segments. But no, mobile citizen, very focused customer segment. And they optimised the hotel experience for that particular customer segment.

So Vitra-designed furniture, and in the lobby, a bar with great espresso and food all around the clock, but not a sit-down restaurant that costs a lot of money. The rooms are very functional, high tech, but relatively small, it’s the width of a bed. And now, mobile citizens don’t care because they’re not going to spend a lot of time in the room. They came there to go to the city so they optimise that part. And then here’s where it gets really interesting. They created a room factory when they started to build rooms and ship them out to plots around the world. Amsterdam is where they started, but now they have hotels around the globe. They build these rooms, ship them out, so the building costs and maintenance costs go down as well. So there you have a business model that is optimised for one segment. That’s really interesting case.

Alex Osterwalder:

But then another case would be Amazon. With Amazon, the e-commerce that they have for end customers, the marketplace that they have for merchants, and then Amazon Web Services to sell infrastructure to companies. So you’d say very different segments and they become very good in each one of those segments. But in the backstage, what we call backstage of the business model, they have really strong synergies. So you can actually be very good at different segments if you create a business model that has strong synergies to support all of them. So you can see, citizenM, one focus; and Amazon, several focuses but with a very strong synergy in the backend. You can almost call it the modern conglomerate. So in both cases, they’re really good at creating customer value for very particular customer segments. And that’s ultimately how you win, you create a superior business model for different types of customer segments.

Alex Osterwalder:

And it’s not-

Alex Osterwalder:

Yep. And that’s not an accident, right? I think we can replicate that kind of culture. I mean, Jeff Bezos, in his letters to shareholders, over the years, he wrote explicitly, you could copy the game plan, he was very explicit to explain why are they so good at innovating. Some very basic principles, obsession about customer, but also focus on long term. So when you innovate, you’re not going to get results in the next quarter or next year or next two years. Amazon Web Services wouldn’t have happened at most companies because it did require very long-term focus. You can love Amazon or hate Amazon depending on what you’re looking at, but you can’t say they’re not world class, one of the best companies when it comes to innovation.

Alex Osterwalder:

So when they’re able to constantly churn out new business models or copy business models and then create superior ones, that’s because they have innovation in their DNA. And I think that’s the real competitive advantage these days. Are you creating this ecosystem in addition to your execution engine that can constantly churn out innovations? That’s where the real competitive advantage is. It’s not in products, it’s still a bit in business models, but ultimately, the real competitive advantage of companies is their ability to constantly reinvent value propositions and business models. That’s where you’re going to see the real winners emerge. Companies that can create that, weave that in through their DNA, from the small age, company of one, 10, 500 people all the way to becoming a company with thousands or hundred thousands of people. That’s where we need to focus our energy, is to become innovation machines in addition to being execution machines, which should just be a given. Right?

Alex Osterwalder:

Yeah. It’s absolutely an example. Stock market analyst at the beginning said, “Why are you investing in this stuff? Because you’re an e-commerce company. Why don’t you focus on staying an e-commerce company?” Because they think industry analysis, they classify Amazon, or they did back then, as player in one industry. But what happened is, they didn’t really care. They have this principle that they will explore anything that could be as big as their existing businesses and creates value for customers and for Amazon. So they branched out into different arenas that had very strong synergies with what they were doing.

So today, the unit of analysis is the business model. Same for Apple. I find it fascinating where you can say, “Well, they make phones.” Yeah, of course. But, there are a lot of companies that make phones. Why were they so successful is because they built an entire ecosystem. It actually started with the iPod and music where they locked in customers. Because once you put all your music into iTunes and on the iPod, you were kind of locked into their ecosystem. And then they grew that and grew that with the iPhone, which was a product innovation. But then what emerged around that was the app ecosystem, by the way, something that Steve Jobs didn’t want. Everybody thinks he was enlightened. Actually, the executives had to push him towards accepting the App Store. So that’s something that emerged. Also, you could say, “Oh, was it locked in?” No, it was exploration. So you’re constantly exploring and learning. Now, you can’t classify Apple anymore. You can say, “Well, phone manufacturer.” Sure. App ecosystem, you bet. That’s what makes them so strong. Entertainment business, absolutely.

So you are starting to see different business models compete against each other in the same arena, but with very different business models. Apple, Amazon, Netflix, Disney, all substantially different business models playing in the same arena. You can’t call that industry anymore. It’s an arena where you have different business models competing against each other. And then you can ask, “Well, which one is superior? Is it Amazon? Is it Apple? Is it Disney? Is it Netflix?” Well, they’re all different and we’re going to see which ones can survive longer. And that’s going to be determined by their ability to innovate.

Alex Osterwalder:

For sure.

Alex Osterwalder:

Absolutely.

Alex Osterwalder:

Absolutely. So the foundation there is that success is the root for future failure. Because when you start to become arrogant and complacent, you’re going to get disrupted. That could be through an insurgent, like with Spotify, or it could be through another incumbent that is just better at innovating. So I think there is no more place for complacency today. That’s one of the reasons why Amazon is good at innovation, because Jeff Bezos always said, “Amazon’s going to die. We’re going to disappear.” So they’re so obsessed with in reinventing themselves because of this fear of disappearing, of overall failure, that they’re actually condemned to innovate. Right? So I think when you don’t have that, when you chill too much, lean back, future failure will happen. There’s some interesting examples where companies tried, but they maybe didn’t try hard enough, or the wrong way. So take GoPro, GoPro used to chair as amazing company. They made these great cameras. My kids loved them when we go skiing.

Alex Osterwalder:

But it was a product company. There was no superior business model. And while they tried to become a media company, which kind of would’ve protected them through a superior business model, they couldn’t pull it off. And by staying a product company, they got into huge trouble. So they tried to innovate on the product side with different things, but that’s just not good enough. And it’s a good example that leading with product innovation is insanely difficult.

Sony, another example of a bigger conglomerate that tried that approach for a long time and almost became irrelevant. Now, I think they’re getting a lot better at starting to understand business models, starting to understand the different pieces in the Sony empire, putting them together just like an Apple would do. So I think we’re going to see great things from companies that move away from a product-only focus or technology-only focus towards a business model focus. Typically, Sony is one where I have huge expectations. I’m starting to see some things emerge. Well, let’s see what happens to their car idea. But at the end of the day, it’s exploration. Some things will work, some things won’t.

Again, Amazon had a lot of failures, big failures. The Kindle, Fire Phone was a bomb, but out of that came Amazon Alexa. So you need to explore and accept that you’ll fail a lot to create a few big winners. The big winners come from a lot of small failures. You can’t win in innovation without investing in failures. And that’s why there’s the venture capital industry in the startup world. We need to create the equivalent for established companies. From small to big, we need to find that risk capital to invest in internal teams, not just in startups.

Alex Osterwalder:

I wouldn’t bother too much about trying to transcend industry boundaries. I would just focus on value propositions and business models. What’s the best business model we could create to capture value and create value for customers at the same time? And what you will see is that, ultimately, some of these will transcend industry boundaries. Right? I’ll give you an example, interesting one. MrBeast, you probably know, famous YouTuber.

Alex Osterwalder:

I didn’t know. And then-

Well, my son told me about him. He’s like, “Let’s watch MrBeast.” I’m like, “That doesn’t sound like what a nine-year-old should be watching.” Anyway, he’s great.

But that’s the point, we don’t know MrBeast. I asked my kids and they said, “Of course, of course, why wouldn’t you know that?”

Alex Osterwalder:

But our generation doesn’t know. But there’s this interesting thing that he started, which was a burger chain, MrBeast Burgers. How did that happen? Because there’s this company, Virtual Dining Concepts, I think, it was called, that said, “We’re going to use famous people like YouTubers or music stars and help them create a food brand by using our infrastructure with restaurants across the US.” They created this business model that isn’t just a marketing concept, but is actually a food chain created based on some influencers. This completely transcends industry boundaries.

The goal was not, how do we transcend industry boundaries? The goal was, how do we actually help these influencer monetize while we use the infrastructure that we have? So at the end of the day, you just constantly need to ask. How can we create value for customers? What would be the right business model? Sometimes that will transcend industry boundaries, sometimes it won’t. But you just need to focus on creating insanely good and powerful and new business models. That should be the focus. And what you’ll see is that many of them will start to transcend industry boundaries. That’s the way I’d look at it.

Alex Osterwalder:

And what I’d add to that is, if you just stay product focused, you’re probably going to stay stuck in an industry. Think about banks, they’re thinking about banking products for their established customer base. Well, what if you asked, how can we as a bank create value for this customer segment and just open it up like that? Oh, what if we work together with whatever, music festivals, or this and that, not just to do marketing but to create an entirely new value proposition that has never been seen? Differentiation beyond industry boundaries. But today, in particular, banks or even pharmaceutical companies don’t think like that. It’s not easy because they’re in a highly regulated environment, but it’s feasible. And I can guarantee you, customers are just waiting for stuff that is different. How many times did you ask yourself like, “Banking products, why do they all look the same and they’re all pretty bad?” Right?

Alex Osterwalder:

Why can’t they really start to focus on what I really need as a customer and explode the traditional boundaries? Well, they will say, “Oh, we can’t. It’s regulated.” But that’s changing. If I look at our customer list at Strategyzer, we have five of the top 10 pharmaceutical companies that are trying to do business model innovation because they know the traditional way of doing things is not going to work. That’s one of the most highly regulated industries on the planet, and they’re trying because they have to. So it’s going to happen everywhere. If pharmaceutical companies can pull it off, there is no more excuse.

Alex Osterwalder:

Correct.

Alex Osterwalder:

And that’s the hardest part-

Alex Osterwalder:

That’s it.

Alex Osterwalder:

Great summary, great summary. And I think you ended with a very, very important point. One of the challenges for leaders is to unlearn, what worked in the past is not going to work in the future. Marshall Goldsmith, number one leadership coach on the planet, likes to say that what got you here, won’t get you there. That’s the hard part, right? In particular, for manager CEOs, who are used to managing a set of business models, they need to unlearn. They need to unlearn how to run a company and they need to unlearn the business models that have succeeded so far. So you really ended on a very, very important point. To reinvent, we need to unlearn.

Alex Osterwalder:

Just Google strategyzer.com, we give a lot of stuff away. All of our tools are available because we’re moving towards a platform business for the largest corporations around the world. So you’ll find a tonne of resources. You’ll even find parts of the book for free. You’ll have online courses. So just Google strategyzer.com and you’ll find everything you need.

Alex Osterwalder:

Thanks for having me, Alex, for a great conversation.