Chapter 17: Introduction to Business Models
There are a few books that you might want to consider getting for reference. The first three are from a series from a company called Strategyzer:
- Business Model Generation by Alexander Osterwalder and Yves Pigneur. This colorfully-designed book describes what is called the “business model canvas” and defines each part of it. However, a large percentage of the book applies those definitions to a variety of businesses, most of which are irrelevant to what you need to know. There is, however, a lot of material online, especially videos on YouTube, that cover the same ground without a purchase. I recommend that you go to YouTube and do a search on “Business Model Canvas” rather than buying the book (although it is reasonably priced).
- Value Proposition Design by Alexander Osterwalder, Yves Pigneur, Greg Bernarda, and Alan Smith. This book and the one that follows are volumes you should probably own for reference if you decide to go forward. The subtitle of this book says it all: “How to create products and services customers want.” I’ll explain this more thoroughly in succeeding chapters, but this book is well worth the reasonable cover price.
- Testing Business Ideas by David J. Bland and Alex Osterwalder. This book describes “experiments” that you can run to make sure that there is a “fit” between what you want to do and the audience you want to do it for. It describes a variety of low cost ways to test out whether your idea has possibilities for sustainability, and describes how to tweak your ideas to strengthen your chances. (You might also want to get a copy of Steve Blank’s classic Start-Up Owner’s Manual upon which Testing Business Ideas is built.)
- Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant by W. Chan Kim and Renee Mauborgne. This book you probably don’t have to own, but just need to read the first two chapters to understand the crucial idea. Like every other business idea, there are videos online that explain the basics with more or less clarity.
- All the Lights On: Reimagining Theater with Ten Thousand Things by Michelle Hensley. This is a book you’ll want to read cover to cover, and multiple times, just to be inspired. But it also is very useful as an illustration of how conscious decisions about every aspect of a theater company help lead to social and artistic success, and economic sustainability. While Hensley, who founded Ten Thousand Things, doesn’t use the Business Model Canvas terminology, much of the book can be mapped onto the BMC and serve as an excellent case study. I will frequently refer to Ten Thousand Things as I proceed.
Enjoyable or not, these ideas are very, very important because to create an ongoing company that can sustain you and your colleagues, the central issue is how your company is going to make and spend money. And that’s what a lot of theater people prefer not to think about. We just get excited about doing a show and believe that, if the show is just good enough, well, people will flock to it and we’ll make money. (It’s the flip side of the magical thinking that talent, hard work, and desire will eventually lead to success.) “If you build it, they will come,” which is so often the mantra for theater people, is “really just a prayer,” according to Steve Blank. And he’s right.
No, if you’re going to invest time and money in trying to create an ongoing company that will allow you to focus as much of your life as possible on doing creative work that’s fulfilling, then before you even start thinking about plays and rehearsals, you need to be doing a LOT of planning. Not brainstorming, which is just dreaming with post-it notes; planning. And that means learning a new vocabulary. Once you learn this new vocabulary, you’ll start to have very exciting conversations about strategies and productions and tactics and audiences and… But it won’t just be pie-in-the-sky stuff—it will have a chance of actually succeeding.
The way I will teach you to plan is through the use of a tool called the Business Model Canvas. Created by Alexander Osterwald and Yves Pigneur (see above) and “470 practitioners from 45 countries” (i.e., it was developed through crowdsourcing), the business model canvas breaks down into nine boxes the important topics that need to be addressed to create a sustainable business model. This is what a business model canvas looks like:
Let me paint in very broad strokes. There are nine boxes on a business model canvas, and each has its own areas of focus. But they can be grouped into the following categories:
- WHAT products or services will you be providing? This is where theater artists are most comfortable. “Well,” they say, “we produce plays! Done and done!” But there are so many more things to consider. What kind of plays? Musicals? Classics? New plays? Broadway plays of the past 75 years? All of the above? How will these productions be made available to the spectators? Will they come to you? Will you take the production to the spectators? Will they be live-streamed online? Will they be recorded and made available on demand through a website? Will they be delivered at the tradition times, during the day, at midnight, after the bars close? All of these questions and many more should be considered, and they are intrinsically connected to the next category.
- WHO are the people who are going to buy these products or services? Specifically. What kind of person would want what you are offering? Theater artists tend to be very vague about this: “We’ll perform for anyone! We just need butts in seats!” Then they’re shocked when the only people in the audience are friends and family, and a few hardcore theater aficionados. The days of the “general audience” are long gone, if they ever existed. We are now in a world of niches, and to fill a niche you have to understand who your ideal audience is. In the introduction to this book, I described the ideal reader for this book, and I shaped this book according to that image. What if I wrote the book “for myself” and people like me? Well, I’d be writing for an academic publisher who would sell high-priced hardcover copies primarily to university libraries. That’s not who I wrote this book for. I am writing it for theater artists who are considering taking a “road less traveled.” Paint a picture of your spectator, but be careful—you’re going to have to go out and find people like that in the future!
- HOW are you going to communicate with these people and what is the nature of your relationship? Here is where theater people tend to lose their imagination. One thing they love to do is design and print posters. Why? Well, first of all because they like to have something to put on their bedroom wall when the show is over. But does anyone have any idea who is likely to see the poster? Is that coffee shop really where your ideal spectator is going to be found? And if so, how are they going to take action? Write down the phone number printed in a small font at the bottom of the poster? Or the ridiculously-long URL? Maybe they’ll tear off (badly) one of the fringe pieces at the bottom, or take a picture with their phone. More likely, however, they’ll walk out the door and forget about your show until it is too late. Oh! We’ll do a Facebook Event! That’s free! Great—now your friends and family all know, but can you survive only on their patronage? We’ll sponsor an advertisement on the local public radio station! Are NPR listeners your demographic? “Well, no, but sponsoring ads are in our price range.” You’re looking for your keys where the light is best, not where you are likely to find them! Unless you have a clear idea of your Customer Segment you’re just wasting money trying to reach them.
- HOW MUCH money are you going to need, and how are you going to get it? And this is where reality really sets in, because every choice you make about your show (rental costs for rehearsals and performance, number of sets and cost of making them, number of costumes and cost of making them, rental of lighting equipment, cost to build and host a website, royalties, and so forth) will increase either the number of people who need to buy tickets, or the cost of those tickets.
Here's a video by Steve Blank that does a great job of explaining the business model canvas. My recommendation is that you watch this 10-minute video now.
The next chapter will start with “customer segments.”
