206. The Ultimate Testing Framework (Alex Osterwalder)

206. The Ultimate Testing Framework (Alex Osterwalder)
Nick Moran Angel List

Alex Osterwalder of Strategyzer joins Nick to discuss The Ultimate Testing Framework. In this episode, we cover:

  • Take me back and talk through the origin of the business model canvas?
  • Just to refresh listeners can you provide a high-level overview of the business model canvas and how it’s used?
  • Let’s chat about your new book, Testing Business Ideas, co-authored with David J. Bland… Why’d you right the book?
  • Who is the target audience?
  • If I’m the reader, what outcome can I achieve after reading this book and applying it’s principles?
  • What are the four phases outlined in the book?
  • Walk us through the objective and key elements of the testing phase.
  • A significant focus is the elimination of risks?  How does one systematically reduce or remove risks from their business?
  • We recently had Leo Polovets on the program and discussed the challenge of balancing testing with executing.  I think it can be difficult to know when something is working well enough that you should stop testing and move forward quickly in that direction.  What’s your guidance here?
  • How does one avoid getting too caught up in rigid frameworks and checking boxes vs. finding that key insight that warrants 90+% of their attention?

Guest Links:

Key Takeaways:

  1. It’s important to understand the challenges of companies, whether you’re a startup or a large corporation. At Strategyzer, they focus on building the tools and the technology stack to help companies innovate through challenges.
  2. There are nine core components to building a business model, that Alex has mapped out in the Business Model Canvas: Customer Segments, Channels, Customer Relationships, Revenue Streams, Key Resources, Key Activities, Value Proposition, Key Partners and Cost Structure. 
  3. If you take one of the elements in the Business Model Canvas away, you do not have all the components needed to build a successful business. With these 9 building blocks, you can successfully define all of the key elements of your business model.
  4. What about competition? Alex advises that after you’ve defined the 9 core components, you can zoom in to more detailed elements, such as the corporate culture. Or you can zoom out to look at more macro elements, such as the competitive environment. 
  5. The more you can structure or visualize each element, the more tangible they become. When you make things visual, visible and tangible, you’ll have a shared language and understanding, which leads to greater alignment across the team and better execution when testing assumptions.
  6. One of the challenges that companies face today is the difficulty of competing on technology, products and services alone. Generally, founders focus too much on just the product/tech, without a full understanding of the value behind a superior business model. Articulating what makes your business model special is key. 
  7. There are 3 target audiences for Alex’s book “Testing Business Ideas”: The individual with an idea or side hustle, looking to find desirability, feasibility or viability within their idea, the funded entrepreneur, and corporations that are ready to scale.
  8. In order to scale a business from idea to success, you first need to reduce the risk and uncertainty of your idea. The way you reduce the risk and uncertainty is by testing it rigorously with the right experiments, at the right time. 
  9. Often people have the false assumption that in order to test, you need to build the product first. However, if you build the product and don’t get any traction, you now have a big problem that you don’t know how to fix, because the idea was never tested. 
  10. In “Testing Business Ideas,” the 2 main components of the process are business design (shaping your idea) and testing the idea. It’s a rigorous process where, once you have shaped your idea, you then need to ask what is the most fundamental assumption, the most important hypothesis, what needs to be true for this idea to work?
  11. Alex’s rule of thumb is to begin testing at the very beginning when risk and uncertainty is high, doing very quick experiments with relatively weak evidence. The more you experiment and learn, the stronger your evidence should get. The stronger your evidence gets, the more you refine the testing and dig deeper into more granular elements of the business, until you’ve de-risked the challenge. 
  12. It’s important to be relatively stubborn about the vision, but not about the direction of how you get there. Being very curious, flexible and open to discovering new patterns will lead you to the right next steps and ultimately your vision. 
  13. If you believe there is an opportunity in a particular market, the testing phase really helps to figure out how to get from point A to point B. Compromising on your vision is often not necessary, however continuously adjusting your next steps is. 
  14. Creating a static business plan often does not work. Over time as the company evolves, the business model should also have enough flexibility to evolve simultaneously. The teams that are flexible with their strategy, are often the teams that succeed. 
  15. By investing in a business plan, you’re actually investing into one idea and one way for it to be executed. Instead, it’s most beneficial to invest in a team and the team’s ability to continuously adapt the value proposition and business model until it works.