Some years ago, Alex Osterwalder with 100+ collaborators created theBusiness Model Canvas to provide leaders, innovators and entrepreneurs with a simple tool to design a sustainable business model for their organizations. Recently, Salim Ismail and Francisco Palao led a process with 100+ innovators around the world to design the ExO Canvas, a tool to easily build Exponential Organizations. The combination of both tools, the Business Model Canvas and the ExO Canvas, is a powerful way to design exponential business models.
Reading advice: Designing an exponential business model is key to creating an organization with impact (or output) disproportionately large, at least 10x larger compared to peers, through the use of new organizational techniques that leverage exponential technologies. If you’re just learning about this type of organization, reading this article sequentially will give you all the details you need to get started. If you’re already familiar with the Business Model Canvas, the ExO Canvas and the Exponential Organization model you might want to skip ahead to the section steps to design an exponential business model which focuses on the process.
What’s a business model?
Innovators and entrepreneurs love brainstorming and coming up with cool new ideas many of which deliver true value to people and to the world. However, it is often a challenge to make these great ideas profitable, bringing real cash and not just expectations.
Business models provide a way for organizations to create, deliver and capture value. This means it’s not only about providing a great value proposition for users but also about having a way to monetize that value and make a profit as well.
The Business Model Canvas (BMC) is a tool that allows entrepreneurs and innovators to design a business model by identifying and describing the following ten key elements:
- Customer Segment: the different groups of people or companies an organization aims to reach and serve
- Value Proposition: the bundle of products and services that provide value for a specific Customer Segment
- Channel: where an organization communicates with and reaches each Customer Segment to deliver a Value Proposition
- Customer Relationship: the types of relationships a company establishes with specific Customer Segments
- Revenue Sources: the way that an organization generates income from each Customer Segment
- Key Resources: the most important assets required to make a business model work
- Key Activities: the most important things an organization must do to make its business model work
- Key Partners: the network of suppliers and partners that make the business model work
- Cost Structure: all costs incurred to operate a business model
The BMC was created by Alex Osterwalder in collaboration with hundreds of innovators around the world and published and described in the book Business Model Generation.
It has been adopted by innovators and entrepreneurs around the world to easily make sure that they incorporate the nine key elements that make a sustainable economic model. The BMC is a great tool to explain business models to others in a simple way.
However, defining a business model using the BMC doesn’t mean that you’ll automatically have a successful business. In order to increase our possibilities, I recommend using techniques such as Lean Startup to help evaluate and iterate your business model in the right direction.
Yet, combining the BMC with Lean Startup is also not enough to mean you’ll be building the next unicorn. An important piece in still missing in order to make a successful global business: the exponential factor.
What’s an Exponential Organization (ExO)?
We’re living in an amazing time in human history where current technologies are developing rapidly. Computer power is doubling processing capabilities every year, solar energy doubles performance every eighteen months and 3D printers are exponentially improving speed and resolution.
This exponential technologies trend has profound implications for the world. Peter Diamandis came up with the 6Ds framework, which describes the six phases experienced with technologies: Digitalization, Deception, Dematerialization, Disruption, Demonization and Democratization.
The last D (Democratization) is a powerful concept. Technology takes things that were once scarce and makes them abundant. We all now have unlimited and free access to knowledge. Soon we will have unlimited and free access to energy, Internet, 3D-printed objects at home, etc. Diamandis describes this in his bestseller Abundance, a very recommended read to understand how technology is reshaping the world.
This new environment is forcing businesses to operate in a completely different way than they have in the past . As David Rose says, “Any company designed for success in the 20th century is doomed to failure in the 21st”. The key question now is, what type of organization and business model will succeed in this current technology-based context?
A few years ago, Salim Ismail researched deeply this very question. His quest to understand what common elements make 21st century companies successful led him to describe a new type of business called Exponential Organizations (ExOs). These are purpose-driven entities that leverage new exponential technologies and a set of common organizational attributes allowing them to tap into and manage abundance to scale exponentially as technology does. Some examples include Google, which taps into an abundance of information; AirBnB, which taps into an abundance of places to stay; Uber, which taps into an abundance of drivers, etc.
The common elements that make ExOs successful can be broken down into 11ExO Attributes:
- MTP (Massive Transformative Purpose): An MTP reflects an organization’s aspiration — the core purpose of its existence. It describes the change in the world that an organization wants to achieve.
- Staff on Demand: This attribute relies on a pool of prequalified workers hired on an as-needed basis to conduct operational elements of your core business. Responsibilities range from simple tasks to complex work and may even include mission-critical processes.
- Community & Crowd: Communities are made up of a large global group of individuals (or entities) who are passionate about your MTP and are directly involved in the main functions of your organization. They are loyal to a shared goal and devoted to solving the grand challenges surrounding your organization‘s MTP. Crowd is made up of an even larger global group of individuals — including infrequent users — who have some passive interest in your MTP but are not (yet) directly connected to your organization.
- Algorithms: Algorithms automate what people do, so the business grows without increasing staff at the same pace. Algorithms allow products and services to be fully scaled and improve quality by finding better solutions to problems — through decision-support systems, for example.
- Leveraged Assets: Similar to Staff on Demand, the Leveraged Assets attribute gives you on-demand access to resources, replacing the need for ownership.
- Engagement: These include the use of techniques such as reputation systems, gamification, loyalty programs and incentive prizes to keep these groups interested, involved and increasingly committed to your shared purpose.
- Interfaces: Interfaces can be either what your users interact with or what other systems interact with. For users, the user interface (UI) is the visual part of the software application that they interact with. For systems, application programming interfaces (APIs) are the code-based connections your systems will have with other external (or internal) systems in order to gather and exchange data and functionality.
- Dashboards: These provide the real-time information you need to run your business. ExOs use dashboards with non-traditional metrics, such as innovation accounting and indicators focused on tracking the process towards the purpose.
- Experimentation: This activity validates assumptions before making significant investments into the organization or new ideas. Each experiment creates a set of learnings that can be used to improve products or services.
- Autonomy: With this attribute, self-organized, multi-disciplinary teams operate with decentralized authority. Autonomy can be also applied to staff on demand or even users, providing them with freedom to operate more independently, thereby offering the organization greater potential for exponential growth.
- Social Technologies: Internal operations can be improved by encouraging social interaction via technology — which includes communications, collaboration and workflow — and exploring how to do this well.
The minimum number of ExO Attributes an organization needs to become an ExO is four plus the MTP (which should always be present). Actually, the MTP is one of the key differences between startups and ExOs.
We like to say that the formula for an ExO is MTP + SCALE + IDEAS, where SCALE Attributes are focused on reaching abundance and IDEAS Attributes are focused on managing it in order to achieve exponential growth.
To harness ExO Attributes, a few years ago a group of 100+ ExO practitioners around the world gathered together to co-create the ExO Canvas, a tool that allows innovators and entrepreneurs to easily design an Exponential Organization applying the ExO Attributes.
The ExO Canvas has 11 blocks for the ExO Attributes that help facilitates the process of designing an ExO by considering all the ExO Attributes that will connect and manage abundance in order to scale in an exponential way. It includes two additional blocks, one focused on defining the sources of information that help us to connect with the abundance and the other focused on defining the specific steps needed to launch and manage an ExO.
The ExO Canvas was published and described in the book Exponential Transformation that Salim, Michelle Lapierre and myself published in order to open source this tool and a 10-week process to transform existing organizations into Exponential Organizations called the ExO Sprint.
As you will see now, to design an exponential business model you simply combine the BMC and the ExO Canvas. Let’s go for it!
Steps to design an exponential business model
The exponential technologies trend we are now living in is creating enormous business opportunities and, at the same time, the possibility to change the world for the better. The biggest business opportunities are connected to solving the global challenges the world is currently facing.
Whether you are an entrepreneur thinking about launching a new ExO or an innovator in an organization ready to transform your existing business into an exponential one, following the five-step process described below will help you to design a truly exponential business model
Real example - Case description: In order to explain this process, I’m going to use a real example based on an organization we all know. Imagine you are an innovator working for a hotel chain (e.g. Marriott, etc.) trying to disrupt the hospitality industry by launching a new exponential business model. How cool would it be to come up with the Airbnb business model? Airbnb is a clear example of an ExO as it is nowadays the largest hotel chain in the world (and they don’t own a single hotel!).
1. Start fresh
Don’t try to design an exponential business model from an existing one, or use an existing set of assets or an existing organization as the place to build and execute your new business model. You won’t be able to do it.
Existing business models will limit your ability to think outside of the box, existing assets will constrain the way you think and operate since you will try to leverage those, and existing organizations will react against your innovative business model since the current one works. Remember that the immune system of established organizations always attacks innovation!
The only way to design, develop and scale a new business model is either by doing it on the edge-if you are trying to do this from an existing organization, or as a completely new project- if you are an entrepreneur thinking about launching a new Exponential Organization. I’ll provide some further advice about this at the end of the article.
Real example - Step #1: In order to come up with an exponential business model like Airbnb’s, you should start the idea process from scratch. If you work for Marriott, you can’t start by thinking about how to leverage your organization’s current assets, even though that might seem to bring an advantage. They will actually be a constraint moving forward. Start fresh!
2. Define your MTP
One of the key differences between a startup and an ExO is that, while startups are focused mainly on making huge economic profit, ExOs are rooted in a purpose to change the world for the better. The biggest business opportunities are the biggest world challenges, so doing good and making money is compatible. The best way to come up with a great Massive Transformative Purpose (MTP) is by thinking big, so as Richard Branson says ”if the dreams of your company don’t scare you, they are too small.”
Real example - Step #2: Your thought process might start by focusing on the current challenges travelers face with hotels. For example, hotels are very impersonal. All of them look the same! Wouldn’t it be awesome to be able to travel and live like a local, while feeling like you were in a real home everywhere you went? Sure, but that’s something only wealthy people could afford… we are living in an age of exponential technologies and abundance, why not try to make something for everyone by creating a world where everyone can belong everywhere! That would be your MTP moving forward.
3. Find a global problem and a scalable solution
Now that you have an MTP, give yourself the opportunity to explore and think about new problems inside of this MTP. Also, remember that to think about global problems ( not just local ones specific to a region or country). You want to create an ExO that can eventually scale globally.
After thinking about a global problem, the next step is to think about a scalable solution based on technology. This is the only way to make something really scalable. Also, consider the exponential development of technologies. Even though some solutions may not seem viable today, they might be in one or two years, as technology is evolving at an exponential rate. Don’t project your plans in a linear way, but in an exponential fashion.
Lastly, take into account that you might have chosen a problem and a solution that either doesn’t have a market or isn’t viable to implement. In that case, you can come back to this step and tweak your problem within the domain of the MTP.
Real example - Step #3: In the example with Airbnb, you already have an amazing and inspiring MTP: Creating a world where everyone can belong everywhere. Now, it’s time to find out what problems are preventing people from achieving this purpose. One potential problem is that current hotels aren’t a place where travellers can truly feel the local experience and, at the same time, there are so many places (houses, rooms, etc.) that people own but are not always using, for different reasons. So what about implementing a solution focused on using technology to connect owners of non-used places with travelers who would like to stay in local places to have a better and/or different experience that the one we may have in a hotel? Awesome! Now you have a global problem and a scalable solution that will help you to achieve your MTP.
4. Define your ExO Canvas
The next step is to start thinking about how to leverage the ExO Attributes in order to connect your problem with the abundance available and solve your problem in an exponential way. To do this, we have seen that the best practice to scale exponentially is to go through all the ExO Attributes.
Remember, you don’t need to use all of the ExO Attributes, but by defining the MTP and applying at least four of them you increase your chances to achieve exponential growth.
Real example - Step #4: Using the ExO Canvas you can define the ExO Attributes to your new exponential business model easily Above you can see Airbnb’s ExO Canvas, which is aligned with the example from the previous steps and you will be using it to move forward to keep designing an exponential business model.
5. Define your BMC based on the ExO Canvas
Now, it’s finally time to start defining your exponential business model. You will do this by using the BMC. You should think about what type of business model will help you to scale quickly.
Some business models aren’t scalable, such as business models based on services or manufacture of products. These businesses require increasing the number of operations and investments in direct proportion to the number of services we deliver or products we sell.
These business models are able to scale quickly:
- Automation-based business models: These are strongly based on algorithms that automate certain core tasks to deliver value to users. Google is a great example of this.
- Platform-based business models: These have a software-based platform that serves as an intermediary connecting producers or service delivery and consumers. A great example of this is Airbnb.
- Ecosystem-based business models: These have a set of services, products or even companies that work together towards the same purpose. When a client or user starts to interact with some of those, they automatically enter the ecosystem. It isn’t necessary that all the initiatives have to have a profitable business model, but the overall balance of the ecosystem does. Google is a great example of an ecosystem. As a foundation it has main search engine, but it also provides other services such as Drive, Gmail, Maps, etc.
You can use one of the above business model types or research new business model trends in your industry and others.
Once you have in mind the type of business model you want to use, it’s time to start working on your exponential Business Model, which will take into account the previously generated ExO Canvas as follows. While the BMC provides a guideline to make sure your organization is profitable, or at least sustainable, the ExO Canvas provides a guideline to make sure your organization reaches its full potential scaling in an exponential way. In particular, the SCALE attributes will help to shape your business model so that you can reach abundance and be exponential.
These are the steps to follow in order to combine both the BMC and the ExO Canvas to design an exponential business model:
5.1 Define the Customer Segment and the Value Proposition blocks in in the BMC. Note that it’s important to start thinking about the customer segment block before defining a value proposition for each of them.
5.2 Check the Staff on Demand of your ExO Canvas and remember that the people here are not going to be internal resources, so you won’t include the actions they do as a key activity (otherwise it wouldn’t be scalable). Think about the key activities that the Staff on Demand are doing (or will do) for you and, instead of including them in the key activity block of the BMC, include the type of individuals or entities that compose your staff on demand as a Customer Segment. Also, include the Value Proposition for this Customer Segment in the BMC. The key activity, though, will be to maintain the piece of technology or platform that will allow your ExOs to implement staff on demand.
5.3 Check the Community & Crowd of your ExO Canvas since it is important that all the members of this group (customers, key partners, etc.) have a space to interact and make the customer experience and relationship better. This could even have a positive impact on costs as some of the activities you may want to do and pay for will now be performed by the community of your organization. After checking this attribute, make sure you update the changes in your BMC or define it in a way aligned with this.
5.4. Check the Algorithms of your ExO Canvas and think about which activities currently being performed by partners or inside the company as key activities can be done through algorithms. This will have a positive impact on costs. Also, algorithms can improve or automate the value proposition for your customer segments. Keep this in mind while designing your BMC.
5.5 Check the Leveraged Assets of your ExO Canvas and remember you won’t use them as key resources (since they are not yours), instead you will access them from either external partners or customer segments.
5.6 Check the Engagement of your ExO Canvas and use it as a way to improve the customer relationship and the way you interact with users, key partners and providers.
5.7 Finish the exponential business model and make sure you don’t leave any key element out and that you fill in all the BMC blocks. You can repeat the above steps going from the BMC to the ExO Canvas back and forth, since they will benefit one another.
Real example - Step #5: Finally, we got a platform-based business model for our new Exponential Organization. Actually, the below BMC is pretty much the same one that Airbnb uses, which was the result of going through the above 5-step process to design an exponential business model combining the BMC and the ExO Canvas. We made it!
Airbnb Exponential Business Model
And now, what next?
Well, you now have your fresh and new exponential business model that eventually could become a truly Exponential Organization. That’s exciting!
However, designing your business model isn’t only about making a nice BMC and using a lot of colourful Post-it notes. Being successful is more than a matter of having the best idea. It is executing it properly. In order to do this, let me give you two extra pieces of advice.
First of all, whether you are an entrepreneur launching a new ExO or an innovator in a company launching a new business model for your industry, remember that any new ideas you may have is just a hypothesis. As Steve Blank says, “there is no innovative business plan that survives first contact with real clients”. So instead of just designing the business model and executing it, you need to run experiments in order to learn and keep iterating it while developing your new ExO.
Secondly, if you are an innovator leading an existing organization and want to transform it into a new Exponential Organization, it’s great that you have already designed a new exponential business model. It could actually be the future of your industry! However, you should never ever implement it inside your existing organization. If you try to develop a new disruptive business model inside your current company, the immune system of your business will attack it. Instead, implement this new exponential business model on the edge of your current organization.
In the book Exponential Transformation, Salim, Michelle and I describe a 10-week process called the ExO Sprint that will help your existing organization to not only define a set of new and fresh exponential business models as we saw before, but also to prevent the immune system of the organization from attacking these new ideas. The OpenExO Ecosystem is another resource you can use committed to sharing hands on experience on how to become an Exponential Organization.
The key factor to designing and successfully developing a new exponential business model aren’t the processes or the tools, it’s the mindset. That’s why the ExO Sprint is a process focused on switching the mindset of the organization, improving your current business model and launching new ones on the edge (following the process explained in this article) that will provide you not only the way to design the right exponential business model, but the way to execute it.
Over all, even though designing is a very important step, remember that it’s not about ideas, it’s about execution!