Learnings from Stanford GSB: Wk4
- Dylan Pathirana
- Feb 12, 2024
- 12 min read
This was a quiet week in terms of content, so I have dragged across the business model content that was actually covered last week.
Business Models
Business models are concrete ways to create value for users in a way that can sustain the business.
The Hype Cycle
“Sustain” is the key word. You can have a great idea that people love, but if there is not a strong business model behind it, it won’t last. The hype cycle defines the usual path of businesses based on their maturity.
Often companies will become front page stories when they launch and then as time goes on, people lose hype as it becomes more main-stream. It is up to the founders to show people the practical use cases to enlighten customers and bring hype back to a sustainable level.
Business Model Framework
The business model is split into 3 key categories. Value creation model, profit model and the logic of the business.
Source — Mendelson
Value Creation Model
There are 4 main forms of value creation. A business can combine multiple as part of their business model.
Operational Excellence
Operational excellent businesses aim to reduce the costs associated with their products and focus on ‘value’ instead. They also focus on intangible costs to their customers such as timeliness and reliability. These businesses often start in the low end of a market and work their way up with scale. A great example of a business that focuses on operational excellence is Walmart. They focus on having thin margins so they can deliver products to their customers as cheap as possible. In doing so they build up volume which ultimately allows them to be successful.
Customer Intimacy
Customer intimacy is focussed on delivering the best overall solution by tailoring their products or services to the needs of their customers. It requires a strong customer relationship full of dialogue to deeply understand the behaviours and preferences of their customer. A prime example of a business that focusses on customer intimacy as one of its core pillars is Ritz-Carlton. From the moment you step foot in one of their hotels, they are taking note of the things you like and dislike. They will offer you a variety of cookies on the first day and then make note of which one you like and then only give you that cookie for the rest of your stay. They note down any restaurant recommendations you ask for and keep all of this preference data on file to improve you stay now and into the future.
Product Leadership
These companies are centred around innovation. They aim to make the best product or service, focussing on features, user experience and product performance. A great example of this is the ice hotel in Sweden. It provides such a unique experience for guests, with everything being made from ice. This is clearly not a normal hotel experience and this innovation is what draws in customers and creates value.
Ice hotel in Jukkasjärvi
Value Chain Coordination
The goal for this model is to coordinate several elements of the value chain to provide ease and remove complexity for users. A key example would be marketplaces such as airbnb. While airbnb does not directly create the value for the user (they don’t provide the home to stay in), they coordinate the transaction between the host and guest.
Profit Model
The profit model of a business is at the heart of how they make money. There are 3 key questions to ask in this stage:
What are your sources of revenue?
What is your cost structure?
What are the key drivers of your profitability?
There are a few common revenue models to consider:
Transactional
Customers pay a fixed price for the product of service
This can be split into 2 categories: Metered and Outcome-Based
Metered — pay based on how much you use. i.e. $0.25/kWh of electricity.
Outcome Based — Customer only pays based on a result. i.e. you only pay an advertiser per lead that gets generated by an ad. This helps to align the incentives of the buyer and seller. Commissions are another example of this.
Subscription
Customers pay a fixed fee per unit of time and in return they get a fixed number of products/services (i.e. magazine subscription) or unlimited access (i.e. Netflix).
This model incentivises a business to invest in customer loyalty and focus on retention.
Licensing
Customer pays a royalty or fixed fee which allows it to use, sell or copy a product within a given time period, subject to some limits.
Usually associated with intellectual property or B2B software
Freemium
All customers get access to a basic version of the product for free, while there is an option to get access to additional features in exchange for a premium.
Google drive is a great example. Most people use it for free, but if you want extra space, you pay a premium.
Cost Structure
Once the revenue stream has been identified, it is important to assess the costs associated with your product/service. Costs can be split between:
Fixed Costs
Independent of the level of activity
e.g. rent
Variable Costs
dependent of the level of activity/volume produced
e.g. cost of materials
The lower the ratio of variable to fixed costs makes the business more scaleable. This is one of the reasons that digital goods are such a scalable solution.
Unit Economics
Unit economics is the process of analysing the costs associated with the production of a single unit and revenue that it brings in. This analysis allows you to determine your break even point. This is the volume at which the business exactly recovers its fixed costs based off its gross margin.
The Logic
This is the argument as to why the business will be successful and the assumptions for success to occur. This section should provide the understanding of how the business will build a competitive moat and be defensible from competitors.
Network Effects
Network effects are the principle whereby your product or service becomes more valuable the more people use it. Airbnb is a great example. The more guests searching for places to stay on Airbnb, will create more incentive for hosts to list more options on the site. By doing this, more guests are likely to search for accomodation on Airbnb. It is a positive feedback loop. This is one potential moat.
The Journey
The process of building the business model is a journey which is filled with hurdles. You must try, struggle and sometimes fail to eventually overcome these challenges. however, it is this struggle that helps to protect your business from others. They can have the same idea, but they wont have the knowledge from all the learnings to implement it the way you do. This was a great reminder to do things that don’t scale.
Adopter Segments
The product adoption curve defines the groups of customers you will have and at what point in in the products maturity they will adopt your solution.
When starting out, your goal is to focus purely on the innovators/pioneers and the early adopters. These customers will accept a non-polished product and may in fact enjoy it in its rawest form. They will provide you invaluable feedback which will help you develop your solution. There is however a chasm between the early adopters and adoption by the mass market. Most businesses are not able to cross this chasm. You will inevitably run out of early adopters and will need to attempt to break through the chasm to continue growing. Your business model has to be flexible enough to evolve as you cross the chasm.
Adoption curve — Source: Chamelion.io
Communication
This class was taught by the renowned Matt Abrahams and we covered techniques to communicate and pitch effectively.
CASE Method
When communicating, there are a lot of small improvements that can be made to dramatically improve your effectiveness. The CASE method segments these improvements.
Clear
This stage is all about ensuring you have clarity around who your audience is and what is your communication goal. Often times when we have to present, we think “ok what do I want to tell these people”. This is the wrong way of thinking. We should instead be focussed on conveying the information that they need to hear. Therefore, it is important to research your audience prior to your session to ensure you understand a bit about them and their backgrounds. It is helpful to understand a few key things about your audience:
Their expectations and current knowledge level
Their attitudes and interests
Areas of resistance and hesitation
What inspires and motivates them
This information can be found by reaching out to your audience or people who know them prior to your session, or you can look them up on linkedIn to get some of the info.
Oftentimes, presentations happen to a group of people with varying levels of subject knowledge. It is helpful to acknowledge this fact and keep both low and high knowledge people engaged. This can be done with a simple callout at the beginning of your presentation: “ We have people with various knowledge levels, so I will spend the first 5 minutes getting us all on the same page and then we will carry on”. This makes sure neither party zones out, as you have now set a clear expectation. This helps to build your credibility as a speaker.
For your communication goal, you should highlight the following three factors:
What do you want your audience to know by the end?
How do you want them to feel during your presentation?
What do you want them to do afterwards?
This is a highly valuable framework as it allows you to structure your presentation around it. It is common to overlook evoking a feeling from your audience, but it is an extremely valuable tool. Emotion gets into our brain better than information does and it is more memorable. I remember how a speaker made me feel long after I forget the content. Another common pitfall is the ‘do’. Often, we ask for something very generic which doesn’t stick with the audience. It is vital to make your ask very specific. If you are seeking funding, simply state “ We need a cheque of ….” or if you need people to fill out your survey: “Fill out this survey”. That way there is no ambiguity and you drastically increase the likelihood of your outcome.
Accessible
Structure your arguments with the following framework:
Problem
Solution
Benefit
This will help to keep your ideas connected and that saves a lot of people from becoming lost. We also touched on a very simple elevator pitch framework that can prompt you when you need to quickly explain something:
“What if you could…..”
“So that…..”
“For example…..”
“And that’s not all…”
Try doing this for a revolutionary product. For example the iPhone.
“What if you could have access to the entire internet in a device that fits in your pocket, so that you could communicate and be connected with the digital world. For example, you get lost in a new city, now you can open your phone and get directions back home. And that’s not all. You can take amazing photos, listen to music, video call your family from all over the world.” That’s not a great one, but I’m sure you get the jist.
Supported
There are three key ways that you can support your pitch and the ideas you present.
Testimonials
If you have testimonials from a 3rd party, include it to show that other people believe in the value you are creating. This could be from a customer or an advisor/expert who is vouching for the viability of your idea.
Examples
USE STORIES! Our brains are wired to understand story much better than outright information. If you share a personal story backing up why you have ‘skin in the game’ or about you experience, it will help boost your credibility.
Show Data
It is important to not just throw numbers out, but also to contextualise them. i.e. “This will save ‘XXX’ tonnes of CO2, which is equivalent to the emissions from all US Road transport”. This way, your data can be put into perspective and understood better by your audience.
Not everyone will have the same level of knowledge as you. It is important to make sure that you define any acronyms or key terms that you use in your presentation to get everyone on the same page.
Engaging
Getting people’s attention is easy, but sustaining it is a real challenge. There are four key methods to facilitate long-term engagement:
Invite physical engagement
Ask your audience for questions, split them into groups or get them to discuss with the person next to them. By doing this, you boost participation and get people actively contributing.
Engage cognitively
Tell Stories or use analogies. As mentioned before, story is more easily interpreted by the brain and it is a helpful tool to engage your audience. When using analogies, it is important that your audience will actually understand them. There is no point of using a sport analogy (“Hit this for six”) to a group of people who have no idea about sport.
Use inclusive language
By using language that include the audience, such as “we”, “us” or “let’s”, they feel as if they are part of the solution. This will help build their attention and engagement
Refer to common ground
If possible, appeal to a shared experience. This will build rapport and will bring people together.
By using a combination of these methods, you will engage your audience for longer, enabling you to get your point across.
Q&A
Questions can be extremely daunting, but it is important to see them as an opportunity, rather than an attack. This section will go over a few tips to make this easier.
Setting Expectations
When presenting, it is important to set clear expectations regarding questions. Explain when your would like to take questions, so everyone knows when they will have to opportunity to ask. I.e. I will ask for questions in between topics, so please save your questions until then.
Setting Boundaries
Questions can get send your presentation off-track very quickly if you don’t set clear boundaries. There are three main boundaries you can set:
Time Based Boundary
Defining how much time you have to take questions
“I have five minutes for questions”
Number Based Boundary
Setting out the number of questions you can take
“I can take 3 questions before I need to move on”
Topic Based Boundary
Clearly defining what you would like the questions to be related to
“We will now take questions regarding our go-to-market strategy”
Orchestration
When presenting as a group, it is important to have one ‘air traffic controller’ whos job it is to field questions and then delegate them to the best suited team member to answer. This will help to make your team look more cohesive and coordinated. When a question gets asked, the ‘air traffic controller’ should paraphrase the question prior to delegating it. This allows them and the entire team a little bit of extra time to think about the answer and also ensures you understood the question.
ADD Answer Structure
It can be difficult to answer a question off the cuff in an easy to understand manner. That’s why the ADD structure was developed. It provides a framework to build your response around.
A — Answer the Question
In this line be really concise and directly answer the question
D — Detailed Example
Here, give an example of to reinforce your answer
D — Describe the relevance
Link your example back to the direct question and make it relevant to your audience
Credibility
What happens if you don’t know the answer to the question? Should you just make something up? Absolutely not. Even if none of your audience will be able to tell you are faking it, it is a valuable skill to be able to accept when you don’t know. However, don’t just say “I don’t know” and move one. Instead, tell your audience that you don’t have an answer but you will find out and get back to them. This helps to boost your credibility.
Wrap-up
When you have come to the end of your question time, the ‘air traffic controller’ should close with a sentence of gratitude and a key statement related to your Call to Action. An example would be: “Thank you for your valuable feedback and questions. I hope you can see that we are the best team to build this project…”
Non-Verbal Presence
Managing Anxiety
Public speaking is an anxiety-inducing task for most of us. We have all felt the sweaty palms and butterflies in the stomach before a speech, but there are a few tips to reduce these feelings.
Take deep belly breaths focussing on 3 counts inhale, 6 counts exhale
Be present — listen to music or say tongue twisters before you start, to keep your mind occupied
When you are presenting, step towards the crowd to help build your confidence
Reduce how much you are judging yourself. You are always your own worst critic
Stage Presence
This section is going to go over a few tips on how to present in different formats.
Standing
Have your feet parallel
Shoulder blades down and back to pull your shoulders back
Have your hands by your side (even though this feels super uncomfortable) or have them interlocked and just above your waist.
When you gesture, make sure your hands go beyond your shoulders.
When answering questions, move towards the person who is asking the question. Then step back and answer the question to everyone
Positioning is very important when presenting with slides. If you want people focussed on the slides, you should position yourself right next to the screen. If you want people focussed on you, you should step forward and away from the screen to draw your audience’s attention away from just reading the slides.
Seated
When you are seated, it is easy to lean back in the chair but it looks like you are disengaged. Sit forward in your chair with a good posture
Have your hands on your lap or on the table (if seated at a table)
Avoid bouncing your legs as it distracts the audience
Video Call
Make sure that you fill at least half the screen and when you are talking, look directly into the camera. This makes it feel more personal.
If you plan to do video calls often, invest in good lighting to brighten up you and your room.
Tips for presenting with slides
When using slides, they can either be a help or a hinderance. To build an effective presentation, make sure you build your story based on your communication goal BEFORE starting to build your slides. This will help the flow of your presentation. It is also critical to remember that your slides are NOT for you. They are for your audience. You shouldn’t be reading off your slides.
Try to incorporate multiple forms of media in your presentation. By adding graphics and short clips, you appeal to different parts of the knowledge centre and improve engagement/retention. Wherever possible, choose visuals over a chunk of text. If you do need to present a high level of detail, have a printed handout to pass around after you have presented.
People will always want to read the slides if there is information. on it, rather than focussing on you. There is a little hack to regain people’s attention. you can black out the screen mid-presentation using the ‘B’ key. This will eliminate the distraction and bring people’s attention back to you.
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