Seizing the White Space (2010)

The book, Seizing the White Space: Business Model Innovation for Growth and Renewalby Mark W. Johnson, is a rather quick read and primarily for people who have not read Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengersby Alex Osterwalder, Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevantby W. Chan Kim and Renée Mauborgne, and Clayton M. Christensen's The Innovator's Dilemma.

For people who have followed the development of the business model concept, and read case studies such as Southwest Airlines, Hilti, Xerox, Kodak, DEC, FedEx, and Tata, this book is a bit of a disappointment. I looked forward to reading this book and wanted it to be a 5 star experience, but after reading it I have more questions about the author and the writing of the book, than about any new content or ideas.

The book in three bullet points:

• It presents the concept "White Space" defined as an area where new or existing customers are served in fundamentally different ways and there is a poor fit with the current (incumbent) organization; "The range of potential activities not defined or addressed by the company's current business model".
• It provides a business model framework, "The four box business model", comprising a customer value proposition, a profit formula and key resources and processes, very similar to the model presented in the 2008 HBR article Reinventing Your Business Modelby Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann, with the focus point on the customers' job-to-be-done .
• It briefly explores the circumstances when a new business model might be needed, being when you must change your current profit formula (overhead cost structure, resource velocity or both), develop many new kinds of key resources and processes, and/or create fundamentally different core metrics, rules and norms to run your business.

A brief summary of the different chapters:

1. The White Space and Business Model Innovation

Introductory discussion on core vs. non-core business, defining the white space that lies far outside an organization's usual way of working, where assumptions are high and knowledge is low. In contrast to the Blue Ocean concept, described in the book Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne, (not mentioned in Seizing the White Space), the white space focus on what a specific organization can do, whereas blue ocean is about doing things differently than competition to be in uncontested markets. In the first chapter Mark includes a nice table on companies founded in the last quarter century that have entered the Fortune 500 in the last decade.

The book contains some questionable statements without references or discussion and chapter one is no exception: "Most successful innovative business models are forged by start-ups" (p. 18) - I would like to see the reference and discussion (and definition of "successful", "innovative" and "start-up") as most examples and discussions covered in this book are not on start-ups.

2. The Four-Box Business Model Framework

The chapter starts off with the discussion about the lack of a shared vocabulary, "No one to my knowledge squarely focuses on the elements in the business system that are central to value's creation and delivery and the way those elements work together to ensure or impede the overall success of the enterprise" (p. 23) I laughed out loud when I read the references related to the statement above, all from the same page: Peter Drucker (Harvard Business Review), Joan Magretta (Harvard Business School, former strategy editor Harvard Business Review), Henry William Chesbrough x2 (Harvard Business School Press). I would argue that the MAIN reason why there is a lack of shared vocabulary regarding business models is due to academics/consultants that ignore the work of other academics/consultants working in other schools/companies than their own.

The first element of Mark's Four-Box Framework is the Customer Value Proposition (CVP), an offering that helps customers more effectively, reliably, conveniently, or affordably solve an important problem (or satisfy a job-to-be-done) at a given price. In some versions of the model, such as Figure 9, 19, 20 and 24, there is no explicit customer mentioned in the CVP. In other versions, such as Figure 21 and in the model presented in the 2008 HBR article "Reinventing you business model", a target customer is included. The second element is the Profit Formula that defines how the company will create value for itself and its shareholders. It specifies the revenue model, the cost structure, target unit margin and how quickly resources need to be used to support target volume. The third element is Key Resources, the people, technology, products, equipment, information, channels, partnerships, funding, and brand required to deliver the value proposition to the customer. The fourth and final element is Key Processes such as design, development, sourcing, manufacturing, marketing, hiring and training by which a company delivers on the customer value proposition. Readers familiar with popular concepts such as Osterwalder's business model canvas recognize most terms and ideas.

3. The White Space Within: Transforming Existing Markets

Chapter three discuss business model innovation opportunities within existing markets by delivering new customers value propositions, something Mark argues often relate to predictable shifts in what customers are willing to pay a premium price for (at least the primary basis of competition). He presents an argument based on one example on how companies compete and differentiate with different forms of innovation according to the figure below. The references used for the "predictable shifts" are to colleague Christensen's The Innovator's Dilemma, and Geoffrey A. More's Crossing the Chasm, a book about selling disruptive products to mainstream customers. I would love to read more about these shifts, the research behind it, and how for example design and the use of brands affects the shifts in the basis of competition?

The chapter contains a nice case study on Dow Corning and Xiameter (mostly covered in HBR article from 2009), and the more classical case studies on Hilti, FedEx and IKEA.

4. The White Space Beyond: Creating New Markets

Seizing the white space beyond means developing new business models to serve entirely new customers and create new markets, often where large groups of potential customers are shut out of a market because existing offerings are too expensive, complicated or that the potential customers lack access. In the chapter Mark provides a table of archetypal business models and a nice case study on Hindustran Unilever and the Shakti Initiative together with some shorter versions covering MinuteClinic and SAP.

Obvious concepts to discuss in relation creating new markets are the tools, frameworks and methodologies presented in Blue Ocean Strategyby W. Chan Kim and Renée Mauborgne. Even though the Blue Ocean Strategy concepts are trademark protected, registered by ITM Research (INSEAD), other authors have been able to refer to the concepts and tools presented in the book.

5. The White Space Between: Dealing with Industry Discontinuity

Chapter five focus on the uncharted territory between what was and what is to be, after game changing events such as the commercialization of Internet technology or the push to address greenhouse gas emissions. Mark presents ideas in relation to unpredictable or radical shifts in market demand, in technology and in government policy targeted at the business environment. Examples are in the defense industry (transformative market shifts), Encyclopaedia Britannica (technology driven shifts), and Better Place (shifts in government policy and regulation). The chapter also contains a nice table including the industries and infrastructure of each technological revolution, from Carlota Perez' Technological Revolutions and Financial Capital.

6. Designing a New Business Model

In the chapter Mark discusses the business model innovation process from identifying a job-to-be-done to creating the customer value proposition, and compares the new business model that would be required with the existing model. When searching for unfilled jobs-to-be-done Mark puts emphasis on not only functional aspects of a job but also its social and emotional aspects, together with a short reflection on that Web 2.0 tools give businesses the ability to deeply understand their customers through increased interaction, with Threadless as an example. He introduces a way to use levers to contrast offerings, and mentions the reverse income statement to working up the projections for a business with a new profit formula. This chapter also contains an original and interesting case study from a project undertaken by Innosight with the customer name changed for purposes of confidentiality and a table with business model analogies.

7. Implementing the Model

For the implementation of a new business model, Mark describes three stages: incubation (1-3 years), acceleration (2-5 years), and transition (1-3 years). Incubation is the process of testing (early, cheaply and often) to identify and verify the assumptions most critical to success. Once the new model is proven viable, the Acceleration stage focus on setting up processes, together with rules, norms and metrics, to make the business model profitable. The final stage addresses the question if the new business can be integrated into the core or if it must remain a separate unit in order to thrive. Mark also discusses acquisitions and some successful and less successful examples.

8. Overcoming Incumbent Challenges

In the final chapter Mark describes three dangers incumbent face when implementing new business models: 1) Failure the allocate resources, 2) The Urge to cram new opportunities into the existing business model, and 3) Impatience for growth. He also briefly addresses the problem of the existing rules, norms, and metrics used by the company something that would be very interesting to dig deeper into.

My main questions after reading this book:

Why do Mark ignore existing body of knowledge and obvious references when defining the White space and his business model framework, and instead almost exclusively refer to his own or colleagues' work? Why does he focus so much on old examples, already covered in other books and articles, without using his frameworks to provide more depth into the cases? Why not look at modern examples of companies pushing its core business into new areas? Why are several included figures not referenced in the text, nor referenced for source?

A quick comparison with some other popular books on business models:

• Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers by Osterwalder and Pigneur is the obvious book to compare with. It also aims to introduce a standard language, a business model framework, and ideas on how to develop, test and implement new business models. In contrast to Seizing the White Space, Business Model Generation uses many sources and refers to popular management concepts, including Blue Ocean Strategy when looking at new market opportunities. Osterwalder focus much more on the customer and customer segments, and have that as a very explicit element of the business model framework. For me, Business Model Generation is a more original and content rich book. See my review here
• Getting to Plan B: Breaking Through to a Better Business Modelby John Mullins and Randy Komisar focus more on the financials and the start-up situation. It defines the business model slightly different from the two books above but shares the idea to experiment and adjust the business model as you learn new things. See my review here
• The Profit Zone: How Strategic Business Design Will Lead You to Tomorrow's Profitsby Slywotzky, Morrison and Andelman, has a heavier focus on profitability and the changing areas in which high profit is possible to keep, it is a quick read. See my review here
• Open Business Models: How to Thrive in the New Innovation Landscapeby Henry Chesbrough has a heavier focus on technological innovation in the context of business models and also covers the important area of Intellectual Property in relation to open business models.

All in all, Seizing the White Space is a good book, containing many valuable lessons. It will not WOW you, and it presents surprisingly few new case studies. One of the most important (implicit) lessons from the book is that business models need to be consciously designed and that companies must always stay on their toes looking for new opportunities around their core business, but also in the white space.

If you find this book review/summary helpful, please go to the Amazon book review page and rate my identical review "Helpful" Thanks!

Albert S Humphrey's business model elements from 1968

Albert S Humphrey (1926-2005) who during his work at the Stanford Research Institute developed SOFT analysis that was later developed into SWOT analysis, also outlined an early version of the business model concept in 1968. For a business to be successful, Humphrey defined six inter-related areas which had to be developed simultaneously:

1. Products & Services - What are they, how do they work, and when and how should they be improved
2. Process - How the products and services are to be made and/or assembled, including subcontracting and purchasing labor and machinery
3. Customer - Who will buy the products and services and how will customers be persuaded to buy them
4. Distribution - How the product and services be warehoused, transported and delivered
5. Finance - Where will the money come from and how will the cash flow be controlled
6. Administration - How the organization will be managed, the management style, the organization structure and the people skill required

This was part of TAM (Team Action Management), a step by step method for improving company performance. The inter-related areas above are almost identical to modern definitions and elements of the business model concept. To read more about TAM see this article.

Mark Johnson on Business Model Innovation and his new book Seizing the White Space

Mark Johnson, chairman of Innosight and author of Seizing the White Space: Business Model Innovation for Growth and Renewal (see review & summary here), explains his version of the business model concept "The Four-Box Business Model" comprising the Customer Value Proposition, the Profit Formula, and the Key Resources and Processes. This model was also the topic of yesterday's discussion at Innochat, see transcript here.

"Where are there opportunities to deliver new value propositions, where are there important unmet jobs that this company has the potential to make a successful product or service to address."

"Think about where these opportunities are and then allow the organization the flexibility to start devising ways at which it could deliver on that value proposition, that may not be the traditional way it does business"

Related videos:

Clayton Christensen on jobs needing to get done
Scott Anthony on Disruptive Innovation

Net Working Capital - Inventory & business models

In the last post, introducing Net Working Capital (NWC), some of the conclusion were that money tied up in working capital is money not available to grow the company, that different business models need different amounts of working capital, that organizations that need lots of working capital will have to raise it from somewhere and that capital always comes at a price.

Also, we saw that NWC can be measured in days, in what is called the Cash Conversion Cycle (CCC) and that the noncash portion of NWC can be both positive and negative:

Positive NWC:

Negative NWC:

In this post I will focus on inventory and the role it has in different business models, and how different organizations have reduced their working capital by reducing DII, days in inventory.

Keeping an inventory

Businesses with value propositions that directly or indirectly involve physical products generally need to have some form of inventory. This can be divided into raw materials, work-in-process, finished goods, goods for resale and spare parts. Determining the optimal level of inventory requires that the benefits and costs are measured and compared.

DII - Days in inventory

Days in inventory measures the number of days inventory stays in the system. The lower the inventory days, as long as there is enough inventory on hand to meet customer demands, the better. In some businesses such as wholesaling and retailing inventory constitutes a very large percentage of total assets, and a difference in DII can spell the difference between success and failure.

Benefits of holding inventory

The reasons for keeping an inventory of raw materials and components are to meet uncertainties in demand, supply, production, and movements of goods, to get quantity discounts, to give the organization flexibility with the respect to timing the purchase of raw materials, scheduling production facilities and employees. If rising prices, shortages of specific items, or both are forecasted for the future, maintaining a large inventory ensures that the company will have adequate supplies at reasonable costs. Work-in-process inventory give each operation in the production cycle a certain degree of independence and minimize costly delays and idle time. The benefits of having finished goods inventory are to be able to fill orders promptly, minimize lost sales, and avoid shipment delays and damaged reputation due to stock-outs. Spare parts are kept to minimize costly delays and idle time.

Costs of holding inventory

There are a number of inventory-related costs, including ordering costs, carrying costs and stock-out costs.

Ordering costs are all the costs of placing and receiving an order from an external or internal source. When ordering from an external source there are costs such as preparing purchase requisitions, expediting the order, receiving and inspecting the shipment, and handling payment. Costs within a company can be production setup costs such as expenses incurred in getting the plant and equipment ready for a production run.

Carrying costs represent all the costs of holding items in inventory and include storage and handling costs, obsolescence and deterioration costs, insurance costs, taxes, and the cost of the funds invested in inventories. The later in the production process, the more funds have been invested in the inventory and the more working capital is tied up:

Stock-out costs are incurred whenever a business is unable to fill orders because the demand for an item is greater than the amount currently available in inventory. A stock-out in raw materials generates expenses in placing special orders and expediting incoming orders, in addition to the costs or any production delays. When a stock-out in work-in-process occurs, stock-out costs include the costs of rescheduling and speeding production, and may also result in lost production costs if work stoppages occur. A stock-out in finished goods inventory may result in customers deciding to purchase the product from a competitor and in potential long-term losses if customers decide to order from other companies in the future.

Business models using Just-in-Time inventory

With just-in-time inventory management, required inventories are supplied to the manufacturing process at precisely the right time. This reduces the need for inventory, making the production more agile and able to adapt to changing customer needs. The concept, also known as lean manufacturing, was developed Toyota Motor Corporation in the 1950's, and often requires that the supplies are standardized, that the suppliers are highly trustable and close to the manufacturing plant. As there is very little buffer inventory between work stations, the quality and timing must be precise to prevent stock-outs.

Business models reducing product uncertainty

In most business models future sales is uncertain resulting in high inventory of some items and stock-out in other items. To take the apparel industry as an example it is difficult to create hit products on a continuous basis, and predict the demand down to the style, color and size, resulting in inventory of unwanted clothes. Threadless' business model uses an online community to contribute and vote for t-shirt designs, and only produce the ones that becomes highly popular. Threadless t-shirts are run in limited batches with 9 new designs a week, and when sold out reprinting only occurs when there is enough demand for a new batch.

Zara, on the other hand, is a vertically integrated retailer with that can go from design to finished goods in stores in as short as two weeks. Shop managers report back every day to designers on what has and has not sold, information that is used to decide which product lines and colors to keep or alter, and whether new lines should be created. Reducing the time to get the clothes into the shelves and the batches of clothing in small quantities also keeps the costs down by keeping stocks low, and if a design doesn't sell well within a week, it is withdrawn from shops, and further orders are canceled.

Business models where customers pay in advance

Getting paid before producing anything is the main ingredient in the recipe for Negative Net Working Capital, but also for limiting the need for inventory. Dell revolutionized the computer industry when it in the 1980s pioneered the configure-to-order approach, delivering individual PCs configured to customer specifications. It could thus keep a minimal inventory in an industry where components depreciate very rapidly.

The subscription revenue model is another way of getting paid in advance and to get information about the quantity to produce. The subscription-based periodical publishing industry has for a long time been able to have Negative Net Working Capital, keeping inventory to a bare minimum and with large current liabilities for all issues due for the rest of the subscription period.

Business models reducing the need for spare parts

Some business models require an inventory of spare parts to assure customer satisfaction and minimize costs and delays if something needs replacement. Maintaining inventory of spare parts has associated costs. The decision what to keep "just in case" is thus a compromise between inventory cost and the probability and cost of failure. One way to reduce inventory of spare parts is to reduce the number of different types of equipment for which spare parts is needed. To keep its operating model lean Ryanair only fly one model of airplane, a stripped-down Boeing 737, reducing its inventory of spare parts and reducing the need to train its maintenance staff.

Analyzing the need for inventory

So what is it in your business model that requires inventory? What is the reason for having it? What would you need to do to lower or reduce it? What would happen if you reduced it too much and could there be other ways to compensate for stock-out that is more cost effective?

Analyzing the customer

Do some existing customers or market segments result in higher needs for expensive inventory? Do customers appreciate all versions of the products and services or can it be reduced? Do customers realize (and perhaps pay for) the service of getting extra orders or spare parts in short time? Would some customers even be willing to pay more if you held the right inventory? What creates value for them?

Analyzing the value proposition

Would it be possible to configure value propositions to reduce the need for inventory? Would it be possible to create value propositions due to the fact that you keep inventory? What are the level of service commitments you make to your partners and customers? Is it possible to modularize components and products and perform final assembly later in the process? Is it possible to deliver in any other way reducing the days in inventory? Can someone else, such as suppliers, partners or customers keep your inventory? Could you reduce someone else’s costs by holding their inventory and charge for it?

Analyzing resources and activities

What are the activities that need expensive inventory? Can the activities be made more lean without disrupting operations? Can better information on how much will be needed control production? Is there an inventory policy on what products or components to keep in inventory? Can it be bought instead of manufactured?

Analyzing suppliers and partners

Can suppliers and partners be the ones that keeps inventory? Would other suppliers or partners be willing to do it? What if we change specifications? What if we change batch sizes from supplier or internal processes? Do we keep inventory due to uncertain delivery from suppliers? Could this be changed? What if we configure the value network in a different way? Could we get quantity rebates? Are we being fooled by quantity rebates? Could we negotiate lower minimal order sizes?

Every dollar freed from inventories contributes to the cash flow of the company. But the reduction of Net Working Capital not only generates cash, it also forces companies to produce and deliver faster and run their businesses more efficiently.

Further reading:

• Net Working Capital - a reflection of the design and execution of a business model
• The cost structure of a business model

Net Working Capital - a reflection of the design and execution of a business model

An organization can improve its financial performance without increasing revenues or lowering costs. With two organizations generating the same revenues and costs, the one that needs the least financial investments will generate the highest return on investments, and have the highest freedom of action. Many interesting and innovative business models implemented by companies such as Dell, Southwest Airlines, Toyota and Zara, have at its core an effective Net Working Capital model. This post is an introductory to the concept and will be followed by a post exploring it further, with examples from different industries.

What is Net Working Capital?

Net Working Capital (NWC) is defined as current assets minus current liabilities and is a financial metric which represents operating liquidity available to a business. It indicates the firm's ability to convert its resources into cash and by quickly turning resources into cash, have the ability to put the cash to use again, ideally to reinvest and make more sales.

Current Assets comprises of cash and cash equivalents, inventory, and accounts receivable. To take a manufacturing company as an example: it needs cash to buy raw material or components (inventory), use the material in production (work-in-process inventory) to produce finished-goods (finished-goods inventory), to sell to customers who might get some days to pay (creating accounts receivables).

Current Liabilities includes accounts payable for goods, services or supplies that were purchased for use in the operation of the business. In the case with the manufacturing company above perhaps it didn't have to pay cash for the raw material or components, but had some creditor days (creating accounts payable).

Net Working Capital can thus be positive or negative depending on when raw material is paid to suppliers, how long the goods are in inventory and when goods are paid by customers.

Positive NWC:

Negative NWC:

Let's assume that the manufacturing company buys raw material and convert it to products which it sells on average after a total of 20 days in inventory, plus providing customers with 20 days to pay, creating total current assets (other than cash) of 40 days.

Scenario 1 - Positive NWC: The manufacturing company needs to pay its suppliers in an average of 30 days. The cash it takes to finance the business is 10 days multiplied by average sales per day.

Scenario 2: Negative NWC: The manufacturing company needs to pay its suppliers in an average of 60 days. The company has 20 days multiplied with the average sales per day in cash surplus, cash that can be used for other things.

Funding growth

If the company in Scenario 1 is growing rapidly, increasing amounts of cash will be needed to pay its suppliers and eventually to hire more people, and the cash from sales will never be able to catch up thus other sources of cash is needed. Failing to find additional sources of cash, profitable companies sometimes go bankrupt. If the company in Scenario 2 is growing rapidly, increasing amounts of cash will be available to fund the growth and other initiatives.

Capital always comes at a price

Different business models require different amounts of working capital depending on things such as the need for different inventory, when customers pay and when suppliers are being paid. Companies with business models that can use cash from customers require less investment and can thus generate higher return on those investments. Companies with business models that need lots of working capital will have to raise it from somewhere and capital always comes at a price.

How much NWC is needed?

All components of a business model have an effect on NWC and every organization needs enough cash and inventory to do its job. Reducing inventory too much and the production might be interrupted, push the suppliers too hard and they might run out of cash and perhaps go bankrupt, push the customers too much and they will go to someone else, too much leverage using other organization's assets and you might lose control. Finding the right balance is a challenge and using the business model concept to identify tied up cash can be a very useful exercise.

Using the business model concept

In the next post I will exemplify how the business model concept and business model innovation can have a huge direct effect on Net Working Capital but also have indirect effects such as improved efficiency, quality or customer satisfaction. It will be a "How to" post with questions to ask to find where money is tied up, and money tied up in working capital is money not available to grow the company.

Further reading:

• Net Working Capital - Inventory & business models
• The cost structure of a business model

Bob Iger, President and CEO Walt Disney on Digital Business Models

Bob Iger, of Walt Disney, in an interesting interview with Fortune's Richard Siklos.

"When we think about monetization we look at advertising, micropayments, paid-for-content and subscription"

"We believe that anything that serves consumers better is a good thing so consumers who have subscribed to multi-channel services, being able to watch those programs and those channels online, we think is a good thing. We do believe though that it is something that should be charged for."

"You have to have one hand in the future and one hand in the present, if you have two in one place then you fail. If you have two in the future then you are not managing your business day to day and that's a big problem operationally, and if you are just managing today, you will miss out opportunities or you will completely ignore significant threats and not prepare yourself for that, so this notion of protecting the present is something that I talk about a lot at the company"

"The most important thing is what is the consumer doing and where the consumer is going"

"The record industry was propped up by a business model selling a 15 song CD for $15, that wasn't sustainable because the price to value relationship was not there, and the other thing that was really interesting was that consumers knew that they could access music in much more convenient ways online and they ended up getting angry that the retailers or the record industry wasn't providing that experience"

Related videos:

• The Future of Content & Telecoms: Flat Rate Content Bundles and Social Media (Gerd Leonhard @ eComm 2009)
• David Heinemeier Hansson on Charging for Online Services
• Nick Bilton on new technology that will enable interesting business models for news

Getting to Plan B (2009)

The book Getting to Plan B: Breaking through to a better business model, written by John Mullins and Randy Komisar, contains several important lessons, primarily for start-up entrepreneurs, on developing successful business models. Though very repetitive around a few key ideas, the book is well worth reading especially for those who want to better understand how the business model is reflected in the different financial statements. with interesting examples from: Amazon, Apple, Celtel, Costco, Dow Jones & Company, eBay, GlobalGiving, GO airlines, Google, Oberoi Hotels, Pantaloon, Patagonia, Ryanair, Shanda, Silverglide, Skype, Southwest Airlines, Toyota, Walmart, Zara and ZoomSystems.

The book in three bullet points:

• The business model concept is in the book defined as the pattern of economic activity comprising of five key elements that together determines the viability of any business. The five key elements being the revenue model, the gross margin model, the operating model, the working capital model and the investment model. Companies are successful when the five elements work together.

• Getting to Plan B is about the process of discovering a business model that works, with the assumption that the initial plan is most often wrong. The discovering process can be made systematic by constantly formulating different hypothesis and measurements and continuously follow up and iterate the business model into a new Plan B.

• The starting point for a new business model is to learn from successful examples worth mimicking in some way and examples to which you explicitly choose to do things differently, where the ultimate judge is the customers and the cash flow generated from your business model.

A brief summary of the different chapters:

1. Don't reinvent the wheel, make it better - the concepts of analogs (successful predecessors), antilogs (predecessors that you want to differ from), and Leaps of Faith (beliefs about answers with no evidence) is covered with the key take out to learn, mix and match to create your own business model, to experiment to test different hypothesis to prove or refute them.

2. Guiding your flight progress - the concept of dashboarding (a systematic way to guide experiments and track results) is presented with examples showing that measuring of specific parameters or results increases the focus of the company's activities, and that the dashboards, including parameters and goals, need to evolve over time based on the learnings they uncover.

3. Air, food and water - the chapter, focusing on revenue models, hits home two important points: the importance of resolving customer pain or providing customer delight, and the need for actual evidence of how customers are likely to respond. To develop a revenue model questions that need to be asked are: Who will buy? What will they buy? Why will they buy? How soon, how often, and how many will they buy? With what effort and cost on your part? At what price will they buy, and on what basis will they pay?

4. Avoiding rocks and hard places - the topic for the chapter is gross margin models; the spread between the price at which products and services are sold and the cost of selling those (COGS). The key messages with the chapter are that digital technology enables gross margin models in which COGS approaches zero, that a superior gross margin model creates leverage that can be applied differently depending on strategy, and finally the fact that pricing decisions should be value-based and not cost-based.

5. Trimming the fat - is a short chapter on operating costs; all the day-to-day costs that must be incurred in addition to COGS. Key ideas are that by doing things differently in relation to other actors in the industry, operating cost can be lowered or eliminated, and by starting the analysis at the most costly or scarcest resources in the industry areas for business model innovation might occur. Another key point is that adding costs might also enhance the customers' experiences and willingness to pay premium prices, so cost cutting is not always the answer to profitability.

6. Cash is king - is according to me one of the more important chapters in the book as the balance sheet, working capital and cash management is often forgotten in business model discussions. Different industries and business models requires different amount of working capital (the cash a company needs to keep the business running) and all elements in the business model have implications for the cash generated and the cash consumed. From page 139: "Failure to earn a profit won't put you out of business, as long as you still have cash. But if you run out of cash, even if you are profitable, you'll be gone in a heartbeat"

See my related blog posts:

• Net Working Capital - A reflection of the design and execution of a business model
• Net Working Capital - Inventory & business models

7. It takes money to make money - focus on the investment needed to get the business started and through the period until it can generate enough cash itself, and the general goal (there are exceptions) is to find a way to get to breakeven with as little investment as possible. The authors mention some of the many trade-offs involved with external funding from different sources, but primarily focus on venture capital. The conclusions are: Less investment means giving away less of the business, less credibility lost when leaving a business model for another, and fewer sleepless nights if you've mortgaged your house.

8. Can you balance a one-legged stool? - tries to summarize, at least on a conceptual level, the different elements of the authors' definition of a business model, and their implications on one another. The conclusion is that the revenue model, gross margin model and operating model directly affect the working capital model, and these four models directly affect the investment model.

9. Getting started on discovering your Plan B - ends the book where it started with a focus on the talented and visionary entrepreneur. In the beginning of the book there were statements such as "Intuitively, as is almost always the case for committed, passionate, entrepreneurs, they felt that the answers to all five questions were yes" (p29) and in the end "dreaming your entrepreneurial dream" (p214)...

A quick comparison with some other popular books on business models:

• Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengersby Osterwalder and Pigneur, atempts to introduce a standard language and format for analyzing and innovating business models based on the business model canvas. Getting to Plan B define the business model concept in financial terms and is not overlapping with this book. See my review here
  

• Seizing the White Space: Business Model Innovation for Growth and Renewalby Mark W. Johnson, explores the circumstances when a new business model might be needed from an incumbent perspective, with several classic examples. See my review here

• Open Business Models: How to Thrive in the New Innovation Landscape by Henry Chesbrough has a heavier focus on technological innovation in the context of business models and also covers the important area of Intellectual Property in relation to open business models.

• The Ultimate Competitive Advantage: Secrets of Continually Developing a More Profitable Business Model by Mitchel, Coles, Golisano and Knutson, has a heavier focus on marketing with some ideas and questions relating to one-sided business models, so if you are looking to "sell more" perhaps you like this book. See my review here

• The Profit Zone: How Strategic Business Design Will Lead You to Tomorrow's Profits by Slywotzky, Morrison and Andelman, has a heavier focus on profitability and the changing areas in which high profit is possible to keep, it is a quick read. See my review here

All in all, the book is somewhat repetitive and rather long for the ideas it delivers, but with many interesting examples and important chapters on gross margins, operating costs and cash flow, it is well worth reading and a good complement to other books on business models not going into the financial details.

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