What is a startup?

Ignatii I. Telekhov
PhD, Head of Economics and Finance Programs,
ANO «Rosatom Corporate Academy»
What is a startup?

Term “Startup” originates from

English fraise “to start up”, which means
“to begin something”
Startup

›› A startup is a human institution designed

to create a new product or service under
conditions of extreme uncertainty

Eric Ries "The Lean Startup"

Cynefin framework

Snowden, David J., Boone, Mary E. (November

2007). "A Leader's Framework for Decision
Making". Harvard Business Review, 69–76.
Startup

›› A startup is a temporary organization

in search of a scalable, repeatable,
profitable business model.

Steve Blank & Bob Dorf “The Startup Owner’s Manual Strategy
Guide: The Step-by-Step Guide for Building a Great Company”
What
is a business model?

›› A business model creates value by

defining a series of activities from raw
materials through to the final consumer
that will yield a new product or service
with value being added throughout
the various activities.
›› The business model captures value
by establishing a unique resource,
asset, or position within that series
of activities, where the firm enjoys
a competitive advantage.

Henry Chesbrough “Open Business Models”

What
is a business model?

›› A business model describes

the rationale of how an organization
creates, delivers, and captures value

Alexander Osterwalder & Yves Pigneur “Business Model Generation”

Business model: magic triangle
What do you
offer to the
customer? What?

Value
Proposition

How is How is the value

Who?
revenue proposition
created? Revenue Value created?
Model Chain

Value? How?
Who is your target
customer (segment)?

Gassmann O., Frankenberger K., Csik M. "The Business Model

Navigator: 55 Models That Will Revolutionise Your Business"
Canvas business model

Ignatii I. Telekhov
PhD, Head of Economics and Finance Programs,
ANO «Rosatom Corporate Academy»
Canvas business model

Canvas Business Model is a way

to visualize business models
of organization that was proposed
by Alexander Osterwalder and Yves Pigneur.
9 blocks of Canvas
Business Model:

1 Customer Segments (CS)

2 Value Propositions (VP)

3 Channels (CH)

4 Customer Relationships (CR)

5 Revenue Streams (R$)

6 Key Resources (KR)

7 Key Activities (KA)

8 Key Partnerships (KP)

9 Cost Structure (C$)

Canvas Business Model

Customer Segments
Value Propositions
Canvas Business Model

Customer Segments
Value Propositions
Canvas Business Model

Channels

Customer Segments
Canvas Business Model

Customer Segments
Customer

Value Propositions
Relationships

Channels
Canvas Business Model

Customer Segments
Customer

Value Propositions
Relationships

Channels

Revenue Streams
Canvas Business Model

Customer Segments
Customer

Value Propositions
Relationships

Key
Channels
Resources

Revenue Streams
Canvas Business Model

Customer Segments
Key Customer

Value Propositions
Activities Relationships

Key
Channels
Resources

Revenue Streams
Canvas Business Model

Customer Segments
Key Customer

Value Propositions
Key Partnerships

Activities Relationships

Key
Channels
Resources

Revenue Streams
Canvas Business Model

Customer Segments
Key Customer

Value Propositions
Key Partnerships

Activities Relationships

Key
Channels
Resources

Cost Structure Revenue Streams

Why startups need
business models?

Ignatii I. Telekhov
PhD, Head of Economics and Finance Programs,
ANO «Rosatom Corporate Academy»
Business model

›› The business model is used to

describe the basic principles of
creating, developing, and successful
operation of an organization
Canvas Business Model

Customer Segments
Key Customer

Value Propositions
Key Partnerships

Activities Relationships

Key
Channels
Resources

Cost Structure Revenue Streams

Apple iPod/iTunes business model

•• Lovemark
•• Hardware design
•• Switching costs
•• Marketing

•• Record •• Seamless •• Mass

companies •• People music market
•• experience
OEMs •• Apple brand
•• Retail stores
•• iPod hardware
•• Apple stores
•• iTunes software
•• apple.com
•• Content & agreements

•• People •• iTunes store

•• Manufacturing •• Large hardware revenues
•• Marketing & Sales •• Some music revenues

Alexander Osterwalder & Yves Pigneur “Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers”
Examples of some
widely used business
model types
•• Auction
•• Franchising
•• Freemium
•• Razor and blade
•• Long tail
•• Two-sided market
•• Crowdsourcing
•• Trash in cash
•• Pay per use
•• Digitization
•• Supermarket
•• Self service
•• …
Long tail business
models and multi-sided
platforms

Ignatii I. Telekhov
PhD, Head of Economics and Finance Programs,
ANO «Rosatom Corporate Academy»
Long tail
business model

Long tail business model offers

a large number of niche products
that fit tastes of a specific and rather
small group of consumers
Book publishing industry: old model

Content
acquisition
–
Publishing

Sales Broad content Broad

–
(ideally «hits») audience
Publishing
knowledge
Retail network
Content

Publishing / marketing Wholesale revenues

Alexander Osterwalder & Yves Pigneur “Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers”
Book publishing industry: new model by Lulu.com

Platform Communities
development of interest
Self-publishing Niche
Logistics services Online profile authors
–
Marketplace for Niche
Platform niche content audiences
LULU.COM
Print-on-demand
infrastructure

Sales commissions (low)

Platform management & development
Publishing service fees

Alexander Osterwalder & Yves Pigneur “Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers”
Multi-sided platforms

›› Multi-sided platforms connect

two or more groups of customers,
and members of one group enter
platform only if the members
of other groups are present.
›› Platform creates value by facilitating
interaction between groups, and this
value increases as long as platform
attracts more users (network effect).
Network effects

Success of a platform is based

on its efficient use of network effects.

Direct Indirect

same-side cross-side
network effect network effect
Biggest platform by capitalization
Platforms vs. Dealers

buyers buyers

buyers fee
retail price for platform
access

retail price
dealer platform operator

sellers fee
wholesale
for platform
price
access

sellers sellers
PSP/Xbox console business model

Hardcore
КA High performance CR
gamers
console
КP

Game
Console audience
developers
КR CH

Hardware sales
C$ at a loss Royalties

Alexander Osterwalder & Yves Pigneur “Business Model Generation:

A Handbook for Visionaries, Game Changers, and Challengers”
Nintendo Wii console business model

“Family» console Casual

KA CR
gamers
KP

Access to console Game

users & cheap game developers
KR development costs CH

Profitable
C$ hardware sales Royalties

Alexander Osterwalder & Yves Pigneur “Business Model Generation:

A Handbook for Visionaries, Game Changers, and Challengers”
Freemium
and “Razor & blade”
business models

Ignatii I. Telekhov
PhD, Head of Economics and Finance Programs,
ANO «Rosatom Corporate Academy»
Freemium
business model
Freemium, or free business model
›› At least one of the consumer
segments receives a product
or service for free on a regular basis.
Metro newspaper business model

Write & produce

Acquisition
a daily paper
Ad space in high Retention
Distribution Distribution circulation free
agreements with Advertisers
paper
public transport
networks Commuters
Brand Free city-wide Ad sales force
commuter paper
Distribution network Public transport, train
& logistics stations, bus stops

Content, design & print of a daily paper Free newspaper

Distribution Fees for ad space in paper

Alexander Osterwalder & Yves Pigneur “Business Model Generation:

A Handbook for Visionaries, Game Changers, and Challengers”
Razor & blade

Razor & blade (bait & hook)

business model
•• Main product is sold at a low price
to encourage purchase.
•• Components and spare parts needed to
use the product are sold at high prices.
•• Main product should be compatible
only with original components and
spare parts.
Open business model.
Crowdsourcing

Ignatii I. Telekhov
PhD, Head of Economics and Finance Programs,
ANO «Rosatom Corporate Academy»
Open source
business model

›› Сan be used by companies to create

and capture value by systematically
collaborating with outside partners.

This may happen:

•• from the “outside-in” by exploiting
external ideas within the firm, or
•• from the “inside-out” by providing
external parties with ideas or assets
lying idle within the firm

Alexander Osterwalder & Yves Pigneur

“Business Model Generation”
Crowdsourcing

Term Crowdsourcing
comes from English words
“crowd” — gathering of many people, and
“outsourcing” — employ another company
to do some work instead of using if using
organizations own employees.
•• Crowdsourcing business model is based
on attracting a wide range of people
to perform a task.
•• Crowdsourcing allows to get ideas,
services, funding, and other benefits
from a large number of people who
are not startups’ employees.
Business modeling
in startups. Business
model development tools

Ignatii I. Telekhov
PhD, Head of Economics and Finance Programs,
ANO «Rosatom Corporate Academy»
Three problems
of creating innovation
business models

1 Thinking outside of one’s own dominant

industry logic is no simple matter.

2 The difficulty of thinking in terms

of business models rather than
of technologies and products.

3 The lack of systematic tools.

Gassmann O., Frankenberger K., Csik M. "The Business Model

Navigator: 55 Models That Will Revolutionise Your Business"
Business model
development tools

•• Transfer

•• Combination

•• Customer's advice

•• Visualization

•• Prototyping

•• Storytelling

•• The construction of scenarios

Business model idea
generation process

1 Team composition

Key question: Is our team

sufficiently diverse to generate
fresh business model ideas?

Alexander Osterwalder & Yves Pigneur “Business Model Generation:

A Handbook for Visionaries, Game Changers, and Challengers”
Business model idea
generation process

1 Team composition

2 Immersion

Key question: Which elements

must we study before generating
business model ideas?

Alexander Osterwalder & Yves Pigneur “Business Model Generation:

A Handbook for Visionaries, Game Changers, and Challengers”
Business model idea
generation process

1 Team composition

2 Immersion

3 Expanding

Key question: What innovations

can we imagine for each business
model building block?

Alexander Osterwalder & Yves Pigneur “Business Model Generation:

A Handbook for Visionaries, Game Changers, and Challengers”
Business model idea
generation process

1 Team composition

2 Immersion

3 Expanding

4 Criteria selection

Key question: What are the most

important criteria for prioritizing
our business model ideas?

Alexander Osterwalder & Yves Pigneur “Business Model Generation:

A Handbook for Visionaries, Game Changers, and Challengers”
Business model idea
generation process

1 Team composition

2 Immersion

3 Expanding

4 Criteria selection

5 “Prototyping”

Key question: What does the complete

business model for each shortlisted
idea look like?

Alexander Osterwalder & Yves Pigneur “Business Model Generation:

A Handbook for Visionaries, Game Changers, and Challengers”
Lean and agile startup

Ignatii I. Telekhov
PhD, Head of Economics and Finance Programs,
ANO «Rosatom Corporate Academy»
Difficulties in applying
Canvas business model
in startups

It may be difficult to describe in detail

all 9 elements of a business model
for a business that does not exists.

Problem

•• how to concentrate on the most

important things without trying to
invent elements of a business model,
about which we don’t know anything
yet and most likely will change our
understanding of them in the future?
Canvas Business Model

Customer Segments
Key Customer

Value Propositions
Key Partnerships

Activities Relationships

Key
Channels
Resources

Cost Structure Revenue Streams

Canvas Business Model

Customer Segments
Unfair

Value Propositions
Solution
Advantage
Problem

Key metrics Channels

Cost Structure Revenue Streams

Problem

›› We start by formulating
the problem that a startup
intends to solves.
Solution

›› Then in the next block we

specify the solution to
the identified problem.
Key metrics

The degree of success of a startup

is difficult to assess using traditional
financial indicators such as profit.

Therefore, it is important to initially

determine indicators which can clearly
demonstrate, that startup develops
in the right direction.
Unfair Advantage

•• Reflects those specific features

of a startup that makes it different
from other companies and at the same
time can be attractive to customers.
•• It can be also called
a competitive advantage.
Build-Measure-Learn feedback loop
Ideas

Learn Build

Data Product

Measure

Minimize TOTAL time through the loop

Eric Ries "The Lean Startup: How Today's Entrepreneurs Use

Continuous Innovation to Create Radically Successful Businesses"
Minimal viable product

Minimal viable product (MVP)

is a product that has enough features
to satisfy first customers (early
followers) and provide feedback
for further product development.
Agile methodologies

›› Were proposed by software developers.

Main goal:
•• successfully manage non-standard
projects, in which one can get
understanding of the final results
and the set of methods to achieve
them, only through the process
of making the project.
Four main ideas
of Agile Manifesto

1 Individuals and interactions

over processes and tools

2 Working software over

comprehensive documentation

3 Customer collaboration
over contract negotiation

4 Responding to change over

following a plan

https://agilemanifesto.org/
Agile is based
on the following ideas

•• Work is done by self-organizing

cross-functional teams.
•• Teams work in time-limited iterations
(sprints).
•• At the beginning of each sprint teams
define a list of tasks they plan to do.
•• At the end of each sprint teams
analyze the results and list tasks
for the next sprint.
•• During the sprints teams are developing
a minimal viable product (MVP).
Scrum methodology: main elements
1 Roles
•• Product Owner

•• Scrum Master

•• Delivery Team
Scrum methodology: main elements
1 Roles
•• Product Owner

•• Scrum Master

•• Delivery Team

2 Practices
•• Daily Scrum Meeting

•• Sprint Review Meeting

•• Sprint Abnormal Termination

Scrum methodology: main elements
1 Roles
•• Product Owner

•• Scrum Master

•• Delivery Team

2 Practices
•• Daily Scrum Meeting

•• Sprint Review Meeting

•• Sprint Abnormal Termination

3 Artifacts (documents)
•• Product Backlog

•• Sprint Backlog

•• Burndown Chart
Customer
development model

•• Customer discovery

•• Customer validation

•• Customer creation

•• Company building
Customer development model

Customer Customer Customer Company

discovery validation creation building

PIVOT

SEARCH EXECUTION

Steve Blank & Bob Dorf “The Startup Owner’s Manual Strategy Guide:
The Step-by-Step Guide for Building a Great Company”, 2012.
The 9 Deadly Sins of the New Product
1 Assuming “I Know What the Customer Wants”

2 The “I Know What Features to Build” Flaw

3 Focus on Launch Date

4 Emphasis on Execution Instead of Hypotheses,

Testing, Learning, and Iteration

5 Traditional Business Plans Presume No Trial and No Errors

6 Confusing Traditional Job Titles with What a Startup Needs

to Accomplish

7 Sales and Marketing Execute to a Plan

8 Presumption of Success Leads to Premature Scaling

9 Management by Crisis Leads to a Death Spiral

Steve Blank & Bob Dorf “The Startup Owner’s Manual Strategy Guide:
The Step-by-Step Guide for Building a Great Company”, 2012.
Bootstrapping

Ignatii I. Telekhov
PhD, Head of Economics and Finance Programs,
ANO «Rosatom Corporate Academy»
Bootstrapping

Bootstrapping is a strategy of starting

a company without using external funding.
Founders use only their own money and
operating revenues to build their startup.
Why start a startup?

“ We make a living by what we get,

but we make a life by what we give».

Winston Churchill
Bootstrapping
›› Bootstrapping may come as an inevitable
strategy in situations when founders can’t
get external investments.
›› But one can look on bootstrapping
as a philosophy of building a startup
based on one’s own strengths.

Bootstrapping implies:
•• moving at a speed that is comfortable
for the founders
•• finding alternative ways to make things

•• preserving full control over the company

•• saving time and resources usually spent

on preparing funding applications
Skills for a successful
bootstrapping

•• Guerrilla marketing

•• Budgeting

•• Time management

•• Hiring

•• Growth hacking

Alejandro Cremades “The Art of Startup Fundraising”

Resources
1. Blank S., Dorf B. “The Startup Owner’s Manual Strategy Guide: The Step-by-Step Guide for Building a Great Company”, 20

2. Thiel P., Masters B. "Zero to One: Notes on Startups, or How to Build the Future", Crown Publishing Group, 2014.

3. Osterwalder A., Pigneur Y. “Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers”, John
Wiley & Sons, Inc., 2010.

4. Gassmann O., Frankenberger K., Csik M. "The Business Model Navigator: 55 Models That Will Revolutionise Your Business", FT
Press, 2015.

5. Ries E. "The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses",
Crown Business, 2011.

6. Chesbrough, H. “Open Business Models. How to Thrive in the New Innovation Landscape”, Harvard Business School Press, 2006.

7. Cremades A. “The Art of Startup Fundraising: Pitching Investors, Negotiating the Deal, and Everything Else Entrepreneurs Need to
Know”, Wiley, 2016.

8. Snowden D.J., Boone M.E. "A Leader's Framework for Decision Making” // Harvard Business Review, November 2007, р. 69–76

9. https://agilemanifesto.org/