Operations, part 1: Scaling up your business model

A business model is a rationale 
of how a company creates, delivers, 
and captures value. It can be cash, 
love, or network effect, as long as
it is beneficial to a lot of people or 
companies, and to the business itself.

Capital helps test and improve 
business models, but to create 
wealth, one must build assets that 
enable growth - so capital will be 
the product, not the input.        

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Operations, part 1: Scaling up your business model?

Eric Ries and Steve Blank have used complementary concepts to define what a startup is and their combined definition goes like this:

Startups are temporary human organizations delivering a new product or service while searching for a scalable and repeatable business under conditions of extreme uncertainty

That search happens over a spectrum, going from extremely risky at the early days to strongly mitigated when the "I am not uncertain" stage is reached. Hence, quantifying and constantly minimizing that uncertainty is critical not only to early-stage startups but also to fast-growing scale-ups. If E= C x O (i.e. Execution= Capital x Operations), then Operations will be a strong reflex of a startup's business model. Hence, the business model is the fundamental decision driver of execution.

The search for a scalable, repeatable business model

Business Model Generation is an incredible book by Alexander Osterwalder and Yves Pigneur , co-created and validated by hundreds of practitioners from 45 countries. Though many accelerators and courses rely on their business model canvas for mentoring, not many founders (or the mentors themselves) understand its underlying concepts and how they are essential to startup execution. There's more to learn about it all over the web or on numerous courses such as Strategyzer's.

The right side of the canvas deals with the external world: how to deliver the core proposition to which customer segments, and what are the revenue streams. The left side solves the internal business mechanics, with processes, and assets, how to leverage them with key partners and what is the cost structure to execute the value proposition and maintain a thriving business.

When used the right way, the canvas will gather a collection of assumptions under different levels of uncertainty and portray the business as it is at a particular instant. Some assumptions will be hypotheses yet to be validated, others will be business affirmatives derived from founders' learnings and discoveries from previous validation or expansion cycles.

[ Click image to zoom in ] Some may argue the business model canvas will only fit early-stage companies, but that's an understatement: it is a strategic tool for any business, anytime. For example, if Cirque du Soleil tried to use the canvas to scale up the traditional circus business model, their reasoning would have been considerably facilitated by switching post-its in a streamlined train of thought.

Relating business model, operations, and scale

Startups at all stages can do the same since the business model canvas reflects important issues when planning for scale. I'll address them individually:

1. The first scaling factor is the value proposition itself. A startup may develop an unfair advantage by offering the best product in the market or easing a strong pain of a particular customer segment. Canvas tip: constantly refine and occasionally review your value proposition based on updated customer pains, not the product. The central canvas block with its underlying problem/solution fit is a strong base for the core marketing strategy.
2. The second factor is a combo: the canvas representation of the product/market fit, i.e. how the Value Proposition services each Customer Segment. A startup won't grow unless it finds the right ICP (Ideal Customer Profile) and delivers the best product for that segment. Hence, any business will scale in proportion to the ICP's TAM as long as it is serviced by a satisfying value proposition. Canvas tip: concentrate on adapting or changing your value proposition and ICP towards a larger scale, exploring features, habits, reactions, and adjacent profiles.
3. The third scaling factor is the Key Channels block. Not many founders dedicate effort and time to understanding the behavior or return of investment of each channel. Canvas tip: systematically run through all the possible channels, from social media to paper flyers, from live events to networking dinners, then prioritize by crossing the lowest cost with the widest reach.
4. Next comes the Revenue Streams block. This is where specific monetization strategies can dramatically contribute to growth, such as freemium models and layered pricing plans. and even tactics such as PLG (Product Led Growth). Canvas tip: though revenue streams tend to solidify over time for a particular company, there is great potential in discussing small changes in the monetization strategy when expanding to new markets or servicing different customer cohorts. Always aim for recurring revenue or at least monetization strategies that will emulate recurring revenue (such as long contracts with seasonal, predictable payments).
5. The fifth scaling factor is Customer Relationship. In addition to the format of the relationship - such as "personalized", "loyalty" or "automated" - this block can be improved by defining the right emotion connecting the customers to the business. If that bond is positive and strong, scaling up will be way easier by overtaking competitors when stimulating that same feeling in other customers. Canvas tip: when in close contact with customers, pay attention to feelings and emotions that are somehow used to express how they experience the product. Look for words such as "safe", "confident", and other positive verbalizations, then incorporate those into your market and product strategy. After reinforcing them, review the canvas to register potential new findings.
6. The sixth scaling factor is the combo composed of Key Activities and Key Resources. Those are the fundamental processes and assets that enable the company to perform and excel in its business model. For example, Youtube needs top-notch R&D in video compression algorithms (a key activity) to reduce costs and leverage bandwidth and as key resources, fast storage enhanced by global content distribution networks. Canvas tip: be very conscious of the main assets, technologies, and core processes that sustain the business, then plan for strong differentiation. It is imperative to operate better than competitors and build proprietary assets, so it will be easier to use KA and KR to scale.
7. Next is Key Partners, mostly overlooked but as important as any other. This block is not just about partnering up with other companies, but naming specific companies or brands that will benefit from the startup's business model and at the same time explore synergic products, assets, or channels to leverage growth. Canvas tip: look for big corporations with complementary products, services, or solid penetration on specific channels. Plan for a sustainable partnership format, making sure they will also gain as a key partner.
8. Last but not least, there is considerable scaling potential when defining Cost Structure. The CS block contains all the critical costs that need careful management since they are strong inhibitors for growth. Yes, every business needs to budget for people, marketing, R&D, and others, but the CS block is about the 3 to 5 heaviest items on your balance sheet. Canvas tip: usually the CS block supports a handful of key activities and key resources at the heart of the business. It is not about mitigating their occurrence by reducing costs, but making sure they are properly controlled, managed, and their return is carefully measured.

Understand that each block will connect to others and that scalability can be enhanced by combining their power. For example, servicing a market niche instead of a huge one, but charging a high price with low-cost structure. In that example, there's no scalability potential in the Customer Segment, but the difference between Revenue Stream and Cost Structure will compensate with larger margins and increase the potential for scale.

Final word: think big, start small

The habit of constantly reviewing a company canvas helps package reasoning, fixating on one variable and letting the brain go wild - but still, somewhat constrained inside those nine blocks. Going through the blocks one by one, acknowledging the connections with others and realizing how a tiny change may impact all other assumptions for better or for worse. The canvas brings structure to typical founder brainstorms when co-creating for business improvement since those are often too subjective and self-centered.

For me, working a business canvas of any company with strong growth potential is like taking a ride on a Ferris wheel and a rollercoaster simultaneously. Viewing the business from a height and having a wide perspective on everything, but gradually going down to examine details happening very close to the ground. Enjoying the occasional blood rush when a new idea suddenly pops up, then taking the inevitable dive on how to make it work and improve the business. Defining potential strategies and discussing priorities, then deriving them into operational actions to estimate budgets. Just by looking at a piece of paper.

I believe the business model canvas is a simple and agile way to strategize for scale. It consolidates important findings and validation evidence, still giving room to a sprinkle of founder creativity. Instead of simply reacting to new opportunities, founders can rely on the canvas to plan for growth, reduce uncertainty, experiment with new tactics, distribute task lists, and improve their business efficiency. It's Operations 101.