Teach the Business Model Canvas: Part 3 – Test

October 17, 2021 Doan Winkel Comments 0 Comment

Dr. Alex Osterwalder, one of the creators of the Business Model Canvas (BMC), uses a 3-step process to teach it to students. This article outlines his third step:

How to test a business model canvas.

In the first step of his process, Alex introduces students to the different components of the BMC by having them match the business model hypotheses to the appropriate boxes of the canvas. In the second step, Alex helps students learn to write their hypotheses by asking students to complete partially finished BMCs.

In this third step, Alex helps students learn how to use the Business Model Canvas as a tool to prioritize their business models’ riskiest assumptions so they can design tests to validate them.

Prioritization Exercise

It’s critical to teach this prioritization step because it’s one of the major benefits of teaching the BMC over traditional business plans. Once entrepreneurs have a prioritized list of their riskiest assumptions, they can design experiments to test each of those assumptions in order of their prioritized risk.

To introduce prioritization, Alex presents an example from one of Steve Blank‘s classes that you’re welcome to use as well. Steve’s students were working on a company called Ceres, where they wanted to fly drones over farmland to capture images and generate data to help farmers fight drought, disease, and pests.

To help your students visualize what that means in practical terms, you can show them this video:

Step 1: Technical Hypotheses

Show your students the following BMC for Ceres and ask them to brainstorm what technological challenges have to be addressed for the business model to work.

Your students might share similar thoughts as Steve’s students had, such as:

Demonstrate they can build drones
Develop software to extract data from images the drones collect
Present data to farmers in a way they could use it

As with the previous exercises in this series, we recommend using the Think. Pair. Share. technique where students first reflect on the question individually, then share their thoughts with a partner, and finally, you facilitate a discussion with the entire class. This approach enables a lot more interaction and discussion than immediately starting with a class-wide discussion.

Step 2: Business Hypotheses

Next up, have your students brainstorm the non-technical challenges Ceres will have to tackle for their business model to be successful.

Your students may come up with challenges like:

Farmers want data to treat their fields
Farmers want to forecast their production
Farmers have a budget for our value proposition
Farmers are willing to pay for data
Farmers struggle with diseases and drought
Local water utilities and fertilizer/pesticide producers are interested in partnering

Step 3: Prioritizing Hypotheses

Now ask “which of these hypotheses should Ceres test first?” In other words, when there are so many assumptions about a business model, how do you prioritize which ones to test first?

Ask your students which 3 of the 9 hypotheses listed above would they test first. This is another great opportunity to utilize the Think. Pair. Share. technique.

After sharing, tell students that when we talk about the riskiest hypothesis of a business model, we say…

The riskiest assumption of a business model is the one that is most likely to kill the business.

With that in mind, it might make sense that the Ceres students chose the following as their riskiest assumptions:

Demonstrate they can build drones
Develop software to extract data from images the drones collect
Present data to farmers in a way they could use it

You could imagine the Ceres students saying, “Without drones and the data they collect, we have no business!” What they and most entrepreneurs don’t realize is, as Alex puts it, “Desirability” hypotheses are almost universally riskier than “Feasibility” hypotheses.

It turns out that “Feasibility” hypotheses (i.e., “Can we build it?”) are nowhere near as difficult to validate as “Desirability” hypotheses. That’s because…

A problem without a solution is a matter of time. A solution without a problem is a waste of time.

Put another way, if you find out someone has a problem, there are a myriad of ways you can try and solve that problem. But, if you have a solution to a problem, but no one actually has or cares about solving that problem, the solution is useless and all the time spent building it was wasted.

So Ceres’ riskiest assumption isn’t that they can build a drone; their riskiest assumption is that farmers have problems that can be solved with drones.

Their actual riskiest assumptions all fall under the “Desirability” category:

Farmers struggle with diseases and drought
Farmers are willing to pay for data
Local water utilities and fertilizer/pesticide producers are interested in partnering

Once the desirability and viability hypotheses have been validated, the riskiest assumptions fall within the feasibility category.

To demonstrate this point, tell your students about the…

Step 4: Ceres Case Study Update

What happened, in reality, is that Ceres students started interviewing farmers, and farmers asked:

Why would you build drones to take pictures when we already fly planes over our fields to spray for fertilizers and pesticides?

Farmers told students they could just attach a camera to the planes that are already flying over the fields to capture images. If students had built their drones first and talked to customers second, they would have invested millions of dollars building unnecessary technology.

Instead, because the Ceres team validated their desirability hypotheses before their feasibility hypotheses, they were able to simplify their business model and lower costs for themselves and their customers by eliminating the need for developing drones entirely.

As a result, the Ceres team was able to scale its business model to secure significant funding and recognition for its innovativeness.

The lesson for your students:

Always test desirability before feasibility.

Step 5: Homework

At this point, students have experience with the Business Model Canvas that they’re ready to apply what they’ve learned.

For homework, assign students to fill in the BMC for a venture they’d like to validate, as well as identify the 3 riskiest hypotheses of their business model.

The Business Model Canvas and variations of it (e.g. Lean Canvas, Mission Model Canvas, etc.) are some of the most popular and ubiquitous tools in use. Dr. Alex Osterwalder’s use of matching, fill-in-the-blank, and prioritization exercises is intentional, and helps educators avoid some of the common pitfalls when teaching the BMC, namely:

disengaging learners with lectured-based instruction,
overwhelming learners with insufficient structure, and
not adequately addressing how to use the BMC as a hypothesis prioritization and validation tool

In this 3-article series, we shared the steps Alex uses to teach this important tool for entrepreneurship educators.

In the first step, Alex introduces students to the different components of the BMC by having them match the business model hypotheses to the appropriate boxes of the canvas.
In the second step, Alex helps students learn to write their hypotheses by asking students to complete partially finished BMCs.
In this third step, Alex helps students learn how to use the BMC to prioritize the riskiest assumptions so they can design tests to validate them.

Want More from Dr. Osterwalder?

If you like this exercise, Alex also has two new books that are great resources for the classroom:

Find more about Alex’s work at Strategyzer.com.

Watch Alex Teach

If you’d like to see Alex teach the Business Model Canvas himself, just enter your email below to watch his full workshop on Teaching the BMC:

Get the Teaching the Business Model Canvas: Part 3 Lesson Plan

We’ve created a detailed lesson plan for the “Teaching the Business Model Canvas: Part 3” exercise to walk you and your students through the process step-by-step.

It’s free for any/all entrepreneurship teachers so share it with another instructor you know.

What’s Next?

In upcoming posts, we will share more exercises to engage your students and more tips and tricks to improve your evaluations.

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