39. Alexander Osterwalder - The Era Business Model Innovation

Dr. Alexander Osterwalder is one of the world's most influential thinkers in strategy and innovation. A Swiss entrepreneur, author, and speaker, he is best known as the co-creator of the Business Model Canvas — a deceptively simple one-page tool that has been adopted by millions of practitioners across the globe, from early-stage startups to Fortune 500 companies including Mastercard, Nestlé, Coca-Cola, and Microsoft. Ranked consistently in the top 10 of the Thinkers50 list of management thinkers worldwide, Alex holds the Thinkers50 Strategy Award and the European Union's inaugural Innovation Luminary Award.

He is the founder and CEO of Strategyzer, a platform that provides organisations with the tools, courses, and frameworks to systematically build new growth engines and more powerful business models. His books — including Business Model Generation, Value Proposition Design, Testing Business Ideas, and The Invincible Company — have collectively sold millions of copies in nearly 40 languages.

Alex's mission is to make innovation more scientific and less random, helping leaders move beyond collecting ideas to actually measuring and delivering innovation value at scale.

Transcript

unknown 0:00

What's up, Barthes? Uh-uh. Uh-uh. Uh-uh.

Speaker 0:05

What's up, Barth?

unknown 0:07

Uh-uh.

Speaker 0:08

Uh-uh.

Simon 0:10

Welcome everybody to season four of the Total Innovation Podcast. As always, I am your host, Simon Hill, and I'm excited to be back behind the mic and recording this brand new season of the podcast. Over the last three seasons, we've explored innovation as a discipline, a mindset, and a system. We've spoken to incredible leaders, founders, and practitioners shaping the future of how organizations adapt, compete, and grow. This season we sharpened that focus even more. Season four is about value, about how value is created, how it is captured, and how it is scaled. We're going to explore the business models, the tools, the frameworks, the technologies, and the execution choices that turn innovation from activity into impact. In a world of accelerating change and infinite possibility, innovation without value is theatre. This season is about moving beyond experimentation for its own sake and into innovation that delivers real outcomes for organizations, customers, and society. I'm incredibly excited about the conversations ahead. The caliber of guests this season builds on everything we've explored so far and takes us further, faster towards meaningful value creation. For a long time, business models were relatively static. Companies innovated around the edges, new products, better processes, incremental technology shifts. But the underlying logic of how value was created and captured stayed largely unchanged, I believe, for decades. Disruption existed, but it was often less systemic. You could respond to it, optimize your way through it, and keep the core model fundamentally intact. I believe that era is coming to an end. Today the business model itself is no longer a fixed asset. It's variable. The most agile organizations are constantly testing, refining, and reinventing how they create and capture value, sometimes making meaningful changes year on year. This isn't though just faster change. I believe it's a new paradigm, one defined by unprecedented opportunity and perhaps unprecedented threat. In this world, the same forces that allow organizations to scale faster than ever can also cause a business model to expire faster than leaders expect. And adaptability has become a core capability, not a side project. And few people have done more to help leaders understand the shift than today's guest. His work has fundamentally changed how organizations describe, design, and challenge their business models. His frameworks are taught in universities, used in boardrooms, and applied by organizations ranging from early stage startups to global institutions. But perhaps more importantly, he's been one of the clearest voices warning that success today can become the biggest barrier to survival tomorrow. If business models are treated as fixed truths rather than evolving hypotheses. And with that, it's a real pleasure to say welcome to the podcast, Alexander Osterwelder. Welcome. Thanks for having me, Simon. Real pleasure to be here. Yeah, I'm looking forward to this one, right? I as I said, I think you know there's a lot of change happening out there, and there's a lot for me and you to chew through today. So let's let's kick off with this. That your your work to date, I think, has helped millions of people see their businesses differently, me included, right? And thank you for that, right? Some really, really important, profoundly important thinking and work has gone on to that and into that. What's what's front of mind today, though, right? So within the context I just said, business models becoming dynamic, perhaps more fragile, increasingly, increasingly decisive in future success. What's what's preoccupying that great mind of yours at the moment?

Alexander 4:01

So we've been working on this topic for a while, you know, with uh my company strategizer, with my co-author and friend Yves Pignier. And I think what's top of mind is how can we get more leaders to explicitly embrace the topic? It's not that they're not aware, but I don't think it's an explicit and conscious choice yet to start exploring um new business models or at the very least, renovating the existing one. So that is absolutely top of mind. And uh it's been surprising, you know, some of the some of the leaders that we were able to talk to over the last couple of years and and how, you know, what actually made them change. So interesting topic, very, very interesting topic.

Simon 4:43

What what what is it that you think is the barrier? Is it you know, I think that you've said this, I believe it to be true that business model innovation is the hardest topic, right? It's a systemic level change, it touches all these other aspects of the things I mentioned in that introduction. You think it's a just a is it a discomfort? Is it the fact that it's so big and complex that people don't want to touch it? Is it that leaders aren't really taught this stuff?

Alexander 5:07

Like what is what is the barrier here? I think the the barrier is simply that when you have a company that's running, um, it's very hard to even consider change beyond maybe new products, new markets, um, new technologies. Because when we say change and innovation, people immediately think, oh, you know, technology, AI, whatever's, you know, at top of mind at the moment. But actually, those are just means to an end. What you really need to think of is the business model. And that is not something people consciously think of. Because if you're running a company, it's like you have a mental model in your mind. This is how you know our industry works, this is how businesses work in the financial sector, and you might change and tweak a little bit, but you don't ask, what could be? You know, what designers always ask, what could be? What is the right business model for our financial institution in retail banking, investment banking, whatever you're in, or in pharmaceuticals? So challenging the existing model is not something leaders really do. Now, there are two types of leaders, if I can simplify. There's managerial leaders who run companies, and that's really important. And you can never neglect that. But then there's there's entrepreneurial leaders who also, you know, invent the future while not neglecting the existing. Because there's entrepreneurs who, you know, they start from scratch, which is easier and harder at the same time. Easier because you don't have something, you know, you need to manage at the same time. You're just going for a new thing. You need to find a customer, value proposition, all that. But when you're a leader who is running a company, you need to do two things really well. Continue to run the company and start new stuff. And that is always a conflict, right? So academics have been talking about this for a while, the ambidextrous organization, but that theory is really hard to implement. Why? Because your existing business, when it's running, unless it's really in crisis, and even then it's hard, kills everything that looks differently. So, as a leader, as a CEO, you need to actively create that second culture of exploration. And it needs to be sufficiently integrated with the existing company, otherwise, you know, you're a startup in chains. So that, you know, conscious choice to say, I am not just in quotes going to run the company, you know, in a world-class way. I'm also going to actively explore the future with my organization. That's not a deliberate choice that a lot of meet leaders make because they're not even, you know, trained to do this. Or even, you know, when they're picked by their board, they're rarely picked to invent the future. They're often picked to run the existing company. So it's it's a very difficult topic. And I've seen a lot of leaders when we start to talk to them and show, you know, what are the first steps you can take? They immediately embrace them. So it's a it's a bit of a lack of awareness challenge, and just, you know, I have a job to do, which is to run my company, which is all already all consuming. It's very hard to run, you know, medium-sized company or multi-billion dollar company. It's very, very hard to do just in quotes that. And then you you're asking me to reinvent the future. That's another whole job that's difficult. So leaders who embrace that, there's still very few, but some do. And those that do this actively, actually, there's a there's a strong reward in terms of uh longevity of the organization, resilience, and ultimately also if you're a listed company, you know, stock market return.

Simon 8:43

You mentioned you mentioned in there some of the I guess easy steps or first steps. I don't know if you said easy, I'm maybe misquoting you. I heard easy.

Alexander 8:51

There are some easy steps, but overall it's hard, right?

Simon 8:54

What else what are some of those um, you know, to try and get tangible sort of examples? Because people sit there, I think, listening, going, yeah, we we agree with with Alex, right? We understand that that there are two things there. We we recognize that that challenge of the the day and sort of near-term performance versus the cliff that may be coming eventually but isn't quite visible yet, and and finding the time to get to it. So, what are some of those those things within the realms of ambidexterity, which I kind of like and kind of don't like as a metaphor, right? Um, from from that from that perspective, um, is the the the leaders could be thinking of taking.

Alexander 9:31

Yeah. So look, the first thing I I talk about is this dual mindset. As a leader, you need to understand how these two worlds are different. And every presentation I do these days, I start with something very simple. I show that when you start a company, uh when you're starting an innovation project, you know, you have an idea, which could be a technology, could be a patent, could be a customer need, whatever, right? And then it's a search to figure out the right value proposition, the right business model. And that's a messy process. And then once you have that, you scale and then you manage this new thing, this new entity. Now, here's the thing: managing something existing and inventing the future are fundamentally different. So the first thing, just for leaders to understand, is how are they different? So intuitively, then oh, oh, well, I'm creating something new, an innovation project is different. But now they still apply the rules of the existing. Show me the spreadsheet, you know, show me the business plan, show me the five-year projections. That makes no sense in a world where you're searching for the right solution. So when you're running a company, I call this exploit. When you're running a company, number one, you know that uncertainty is not crazy, you know, big. You know the customer, you know the value propositions, you know the supply chain. Still COVID, there's still the White House. So there's some level of unpredictability, but you know, more or less predictable. You can make spreadsheets and predictions. That's the way you invest. You analyze a challenge, a new business, expansion, and you invest the big bucks so you can scale. So it's really, you know, on time, on budget. That's the traditional management kind of way of working, bring in that agility, of course, but that's exploit. Now, here's the thing: the key performance indicators running a company don't apply to inventing the future. So, now how is the future different? And this is what I show leaders, and they say, Oh, wow, okay, that's very clear. Let's take these three variables that I said uncertainty, level of uncertainty. How do I invest? And how do I behave as a leader? Okay, first one, I'm inventing the future. Uncertainty is very high. New customer, new value proposition, maybe new revenue streams. I need to admit there's no way I can know if this is going to work or not. And thinking hard about, you know, is this a good idea? I can think for three months, I still haven't de-risked. So, how do you actually de-risk a new idea with extremely high uncertainty? You go and run experiments very quickly. Okay, first thing we know we can't invest the big bucks, long-term projects. No, we start small, we iterate, and then we invest if we see there's traction. Okay, now that means, well, how do we invest then? It means that we make small investments in a large amount of projects and we kill those that have no traction after a couple of weeks, after three months. And we only invest in those that show first traction. Oh, I I've proven that customers have the problem. Okay, now I invest more. Now they can make a prototype. Oh, I've proven that they want my solution. Okay, now I invest more. So it's a gradual investment, not based on a fantasy spreadsheet. It's based on entrepreneurial evidence of the team continuing to explore. Okay, well, that means that me as a leader, I need to actually not just invest differently, I need to ask different questions. So rather than asking, am I on plan, on budget for this fantasy we're trying to put in place? I need to ask, okay, from these five projects, what did we learn? Which one should we kill? Which one should we invest in? Which one do we need to change? And here's the big thing most companies don't kill projects, which means there's bad resource allocation. So just starting to understand, okay, how is the level of uncertainty different in exploit and explore? What does that mean for the way I allocate resources, invest in explore and exploit? And what does that mean for me as a leader, as a CEO with my sales team, you know, and in a predictable market where I know the products, I know the customers, I can ask for a spreadsheet with predictability. As soon as I talk to my product team about a new product that we're putting in place, it's not about predictability, it's about what did we learn? Do customers care? Is it getting some traction? Should we kill the project? So once leaders understand those two differences, the first thing, the very easy step is okay, I understand how it's different. Now let me behave differently as a leader. I will start to make explicit the exploit context. We're running the company and the explore context, where we're creating a space where people can experiment and they can actually fail. But we do this in a very regulated way with different processes. And me as a CEO, top down, I'm supporting that. But bottom up, I'm enabling people to explore new ideas. That first step, you can do that with three projects. And then once you started, you learn what's hard, and then you do it with 300 projects. Because if you're, you know, a Nestle or a Novartis or whatever else, you know, it won't cut it to invest in five projects. You need to, you know, resemble Amazon a bit more, where you have hundred exploration projects money running per month. So the first steps are relatively easy. And once the CEO embraces that way of working, then everything else kind of falls in place because we know how to do that. It's not going to be easy, but the steps are pretty, pretty well known.

Simon 14:55

Can we can we wind back a little bit and just because I think it would be good to you've used two terms quite consistently. I know you've written books on these as well of business model and value proposition. Can we just talk about those, like just really set out the stall of like what they are? Um, and again, we introduced this with the idea of not just sort of disruption at the value prop level, I think, you know, with product service, uh, et cetera, et cetera level, but really at the business model level, right? And like and that that level of disruption, speed of change, agility of business model being quite important. Can you just define for the for the listeners and maybe for me as well, like what is the business model, what is the value prop, and how do they interplay with each other in this context of change disruption innovation?

Alexander 15:44

So we came up with a couple of tools. Like the first one that you know had a lot of traction with millions of business people around the world is the business small canvas. And you know, it it should every business has nine building blocks. Who's the customer? How are we creating value for the customer? How are we reaching them? What kind of relationship are we establishing? How are we making revenues? Okay, that's the front stage. Now, the backstage, what do I need to do? That I need key resources, I need key activities, I'm gonna work with partners, gives me the cost structure. So by simply mapping out today, what's my business model? How am I you know creating, delivering, and capturing value? So you make that big picture explicit. Now, here's the thing where again, when you have a business model, that business model is humming and you're optimizing it, and it's gonna kill anything that looks differently. So, first thing, now imagine a team that's gonna come with a new idea and say, Well, you know, we're we actually can create recurring revenue. So rather than just selling, we're starting to sell subscription, subscriptions. And then maybe they even prove that, right? So they say, wow, this is very, very cool, you know, recurring revenue, they grow exponentially. So everything's on green from an idea point of view. We even tested it with customers, they're willing to pay. But here's the thing that is so fundamentally different. How you sell that, even the ERP system, you know, the enterprise resource planning you need to put in place to manage that system. That means that if you do not actively try to put that in place, create the management systems to support scaling that, protecting that little plan, it's going to get killed by the core because everybody's, you know, in in run, we're running the business. Hey, I have a marketing plan to meet, and this the sales force doesn't care about something new because they need to meet their quota so they don't get fired and they get their bonus and all that. So the machine that's humming doesn't want anything that disturbs it. So, you know, leaders need to actively create that space for that new idea to take grip. Okay, so that's the really hard part to do. Now, why is there disruption? Because a startup outside has nothing that prevents them of going really fast and starting to scale. And, you know, when you're a startup and you have traction, it's relatively straightforward to find money. I'm not saying it's easy to find investments, but great entrepreneurs, they'll always find the resources. All the stories of those, you know, Airbnb, nobody wanted to invest with them, but into them, but then they found traction and they started to get investors. They are not in chains, like your corporate startup, which is a startup in chains. So disruption happens naturally because we have hundreds, thousands, if not 10,000 of entrepreneurs who are trying to find new stuff. And the you know, venture capital ecosystem gives money and fuel to those that actually create traction, with some exceptions, some get overfunded and you know, all of that. But the system works. So this disruption is getting stronger and stronger because with the technology possibilities. Today, as a startup entrepreneur, I can get access to world-class AI capabilities. It's actually easier for me in a startup to use those than in a corporate context. So, guess what? Disruption is gonna go up simply by the law of large numbers. So, now what does that mean for me inside the company? I need to start to protect those little plants with new business models, because it's very likely that just a product innovation is not gonna cut it. So you have all these examples, right? If you take, let's take Apple, you know, like we'll see where they go now. But if you look at the history of how they have grown, it wasn't just product innovations. It was actively investing in business model innovations. If we start, I would start with the iPod, one of the big business model, you know, disruptions internally. They started to buy music licenses from the major record companies so that people could put music into iTunes onto their iPod. Guess what happened? They locked customers in and people would come back. So it was a recurring revenue without a subscription. And that started to build the iPhone empire, which you know is an ecosystem around the app's ecosystem. So those are business model innovations. Very few companies are able to embrace that. So that's why today I believe the real price is in business model innovation. Does that mean we should stop product innovation and new value propositions? Absolutely not. We need the whole portfolio. But the best companies they improve their existing process innovation, they explore new value propositions, new ways of creating value for the customer, but they go all the way to inventing new business models because business models these days are vulnerable. And it's not even clear yet how AI is going to disrupt the big beauty companies or the big food companies or the big pharma companies. That is just you know at the beginning of happening. So it's going to be an interesting kind of period of disruption ahead of us.

Simon 20:58

Yeah. So do you agree that with that opening premise then that we are potentially entering or that we are entering the you know the biggest period of business model disruption since probably the early days of the industrial revolution in many ways, right? Like we've had a reasonably static run of this, even with the advent of internet and SaaS, right? Like my argument would be that we've created some good early businesses, but actually the global value piece of all of that is somewhat from a business model perspective. Like big companies have been quite slow to adopt. The mid-market hasn't really adopted it at all. It's still very analog. And a lot of traditional has kind of kept them okay. Like, yeah, some have come, some have gone, et cetera, et cetera. And it's really that mid market piece, you know, the big technology hyperscalers have got all the money and the freedom and the data and the knowledge to keep pushing boundaries, right? And the small companies, as we've said, have the luxury of freedom of non incumbency and non legacy debt and debt, technical debts and other things to keep innovating. Edge is, but most of the world works in that that middle piece, right? Which is still relatively analog, relatively old school in its way, and now I think faces that wave of disruption, right? But maybe you disagree with that. And if so, where is the business model? Like there's a I spoke to um to uh a friend of ours, Stephen Shapiro, about his recent book, and he talks about the planted foot versus the agile foot using a basketball method method um analogy, right? And the I was like, where's the planted foot in the start? What's what's more stable and what's not changing? Because the idea that the the whole business model needs to shift in all those different segments of the canvas at the same time is terrifying, I think, to an incumbent, you know, large organization, mid-market organization. Do we think that's really true? Like do you buy the hypothesis that's changing? And if so, what's really changing for many organizations, and maybe that varies by sector, and how do people find their way through this complex maze of without just being terrified, right? And then freezing on the paralysis?

Alexander 23:02

So two things. The first thing is I think, of course, it's going to be different for every company. So I, you know, one of the things we've done with a big uh beauty company and big food companies, we did a business model risk assessment, you know, AI disruption risk. And if you start doing that, you can start to see which companies are more vulnerable and which companies are less vulnerable to disruption by AI. Now, let's say you're in beauty products, you know, personalized uh skincare. Well, it's very likely that if you don't have access to personal health data, um, you don't have that data, not just of you know, consumer behavior, which all these big beauty companies have, but really personal health data. You know, what is what is the kind of you know skincare that I need for my particular body with my particular DNA? If you don't have access to that data, you might get shut out, you know, because maybe uh OpenAI is gonna do a collaboration with one of the big beauty companies, and then all of a sudden you have an enormous disruption happening. So just like meta with uh you know the the i brand working together, they have a pro a close partnership. That's an interesting thing to observe. Now you're gonna see some of these companies being disrupted, and some, you know, take I did this just for fun, you know, we're working with some food companies, and but I the public one I often use is just showing Nestle, you know, are they you know prone to disruption or not? If you do a risk assessment, it's very unlikely that they're gonna get shut out by AI because people are still gonna go and buy food in the supermarket, despite all the you know online buying you know that's going on. They have a very strong foothold in distribution around the world. That's not gonna get disrupted by AI easily. So you start to look at companies, you'll see not everybody is you know uh prone to disruption in the same way. The big tech companies are most at risk. So they're investing most, but they're also most at risk. Take the big food companies, they're actually a little bit less at risk, which is really interesting. The old world is less at risk to disruption than the new world. So that's one part. Now, will we see a big wave of disruption? It's always hard to predict, but let's just think of this logically. So Tim Berners-Lee invented the web browser, so you know, he's started this movement of making the web more accessible. So that's when the commercial web started. So all of a sudden, you have millions of you know startups exploring something new. So just by the law of large numbers, there was more disruption when people, you know, were able to create internet companies. But here's the thing back then you still had to buy servers, and it was a hard thing to do. You needed to be really good at technology. Okay, then comes Amazon and launches Amazon Web Services. Well, guess what just happened? You didn't need to have servers in your basement anymore. As a programmer, you could just buy with your credit card access to the world's best IT infrastructure. So, next wave of startups, you know, larger numbers of internet companies because they could get access to the world's best infrastructure without having to buy the and manage the servers. Okay, what just happened when OpenAI, you know, started this wave of making AI, which is not new at the time, more accessible. Well, more startups could, you know, the numbers are increasing and increasing. We today have, you know, um um AI capabilities at our fingertips without knowing anything about the technological aspects, we can plug into the world's best infrastructure around AI. So just by the law of large numbers, now there's more entrepreneurs that aren't just in the internet space, but now they're in the AI space. So just by the law of large numbers, disruption is going to go up, up, up, up, up. And Steve Blank, you know, one of our joint friends, he likes to say startups used to be ankle biters to large corporations. Now they're pit bulls, right? Because it's so much easier to build a brand. It's so much easier to have access to world-class technology, so much easier to get access to customers. Well, guess what? A lot of entrepreneurially minded people are going to take advantage of that. And now that means just by pure deduction, disruption is going to increase. How is it going to look? Nobody knows. But if I was a you know, large established company, I'd really be obsessed by getting ready for this wave. Because in any case, it doesn't happen, you're a more resilient company, right? So it's just, and then if you're a publicly listed company, you actually should be obliged to do that. So last piece here is that today, one of the reasons why disruption is not happening, in you know, self-disruption and improvement of our business models, why it's not happening is because board of directors are not putting in place the right types of CEOs, entrepreneurial CEOs. Doesn't have to be, you know, a former Jeb Bezos or Steve Jobs who were entrepreneurs, but entrepreneurial CEOs who understand what it means to invent the future. So I remember Logitech had Bracken Darrell, he then moved on to a different company. But when he was at Logitech and he turned the company around, he infused the entrepreneurial mindset again. We don't have enough CEOs in place in companies that have that entrepreneurial mindset, in addition to the managerial capabilities. And that is the responsibility of boards. So they actually should hire the right CEOs. It's not happening. So I don't think companies, a large number of companies is going to be ready because they don't necessarily have the right leaders. But some of the leaders they actually want to change, they just don't know what the steps are today.

Simon 28:56

There's a lot to unpick there. And yeah, you know, you've mentioned this sort of exponential spike of entrepreneurs. And I think, you know, there's over a million new startups a day being coined around the world, right? And you know, not many of them don't succeed, but that's a lot, right? I mean, to kind of keep your head around and everything else. I kind of want to take this conversation two ways. Maybe I'll pick one and we can come back to the other. Because this concept of hiring the right leaders is really, really related. And maybe that maybe these two points are synonymous. Because as you're talking, I was thinking about large organizations and maybe even sort of upper mid-market organizations can MA their way through product and service disruption, right? A company comes up. Can you MA your way through business model disruption in the same way? Or is it a different construct and skill set that needs to be brought into the business? And does that align to that CEO point that you were just making?

Alexander 29:48

Yeah. So MA is is one of the tools that you can use for growth and fending off disruption. Um now we need to be a little bit more so, and I think it's a very valuable tool. I think it's a very fair tool to use, it's but it's one among many. And you need to understand the different types of MA. So I remember that maybe three years ago we worked, we started, you know, talking to a large uh corporation, and they were saying, Well, we're using MA to you know fend off disruption. And I said, Well, what kind of companies are you buying? Aren't those companies that you're buying also prone to disruption? Because they're already pretty ripe and they're not, you know, entrepreneurial. And then they said, Oh, wow, okay, you're absolutely right. So we're not actually fighting disruption, we're just plugging some holes, but we're still very prone to disruption. So that's the first thing is MA. Um, if you really want to do it right to fight off disruption, you know, Meta has been pretty good at that when they acquired like WhatsApp and Instagram and so that that was those were really disruption risk um acquisitions. Most acquisitions that I see today are not to fend off disruption, they're just to plug a hole and nothing against them. Um, but that's one space. Now, just two weeks ago, um we were running a workshop and we had the CEO come in. This is like a company with about 100,000 people, and we were training the uh green belts, innovation green belts who are there to help the company, you know, do business model innovation, do new value propositions and offering management. And one of the things he said is, well, you know, acquisitions, we're gonna get better at them if we learn first. And he was uh I was very happy, you know, with the message he was sending to these people because he's saying, if we just acquire it, there's a big risk that we acquire the wrong kinds of companies because we don't understand the market well enough. If we run our in you know, experiments ourselves first, we experiment in the market to go fast. We might not want to build it internally organically, we might acquire. But if we've learned first, we will make better acquisitions because we will understand what resonates with customers, which value propositions could work, and we understand the culture that we need to acquire as well. So, you know, some CEOs are getting more sophisticated in the way they're thinking about MA. And I think that's really needed. I think it's still a great tool, but it's one. And you know, this message of if I experiment first, I understand much better and make better acquisitions. That's a hugely strong message because not everything has to be organically. Some companies will go more for organic growth, some will do more MA, but it doesn't mean you shouldn't be experimenting because that will allow you to do faster MA. But it is still a very valuable tool, but it's just one. And guess what? You know, MA is getting more and more expensive, and it's still very hard to pull off when we're talking about big MA. You can also talk about small MA, where you just plug a skills or technology gap within something that you're growing um organically.

Simon 33:02

So I want to pull back on that leadership piece a little bit, and then maybe this comes into hiring the right types of people and perhaps come and level down from some of the large tech organizations that have this ability and the balance sheet to be able to look both in the rear view mirror and the for the front the front windscreen at the same time and do some phenomenal things, right? You can think of all these acquisitions, and there's probably a thousand more that we can't name that happened, right? They're buying so many businesses and placing so many bets all of the time that mean that their foresight teams and their strategy teams are just, you know, they understand the direction of travel, a level down for that, right? Like these you've got these businesses, they're running on thinner margins, tighter balance sheets. Like value is created and lost in those parts of the marketplace, right? Kind of we go into those businesses. What are we what are we looking for in terms of the type of leadership? Because there is a real struggle of just running a business at that level, right? And coming in with this whole incumbency. And how do they think about any of the types of people you're trying to bring in that don't just break it or the the business doesn't break them either, right? That's the other side of it. You bring in these entrepreneurial people, they last six months because they just can't they can't find a way to get there. And then so if you're sitting with a leadership team of one of those organizations, what's what's that conversation you're having with them?

Alexander 34:23

So the the first message, I think, is that the fundamental principles, if you you know are a large Nestle or you're a small, medium-sized company wherever wherever in the world or in Europe, you know, the principles are actually the same. And I I believe it's easier in smaller organizations than in big ones from experience. Why? Because it's actually very hard to turn an oil tanker, it's much easier when you're smaller. And now people say, oh, but we don't have the time, energy, and resources. Well, you might be mistaking RD, research and development and technology as innovation. Innovation is very simply creating value for customers in new ways and creating value for your business in new ways, and hopefully also for the planet. But so it may or may not require technology and RD. And now, number one, technology is available off your fingertips, you know, for very cheap money. That's the first uh thing. And you don't need RD. You know, great companies sometimes actually innovate with inferior technology because they understand what customers really need. So that's the first thing. Innovation is not expensive. RD can be expensive, and innovation only gets a bit more costly when you start to scale. But then you've already proven that it's working. So now, in smaller companies, thinner margins or not, it is actually easier because you can get things going. If you're the leader and you know you have a hundred people or a thousand people, it's much easier to get that boat to change. It's much easier when as a leader you do the right thing, everybody can see it. If you're in a hundred thousand-person company, you know, you don't see the CEO all the time, and and and and you have to kind of it's much harder. So that's the first message. Now, what do you need to do? It's the same thing. You need to start to build this exploration engine, which doesn't need to be expensive at all. It's more creating that space for exploration. And you start with smaller things that have immediate returns. You do not have to start with the crazy big parts of business small innovation. I'll I'll give you something that one of our coaches, Michael Wilkins, has come up. Very easy thing to do, works really well for small and medium-sized companies. He said, think of your revenues. What type of revenues do you have? Variable revenues at the beginning of the year, you don't know you're gonna make them. Okay, that's very uncertain. Then you have predictable revenues at the beginning of the year with maybe 80% certainty, you're you know you're gonna make that money. Okay, that's predictable. And then you have fixed revenues at the beginning of the year with 99% certainty. You already know you're gonna make that money. Well, guess what? Very few companies actively ask can we shift some of the unpredictable revenue, the variable revenue, to more predictable revenue. And that could be a two-year agreement with one of your customers. You give them something and they will sign a two-year or three-year or five-year contract. Wow, you can do that within a year. That's already business model innovation because business model innovation sounds scary, but it's it's not actually. It's just changing some aspects of your business model. So now you got your customers to pay, maybe even upfront, for you know, a longer period of time. You just made your business more resilient. Now, here's the other interesting part. You actually just made your business more valuable because variable revenues are worth maybe three to five times EBITA. And fixed revenues, the best type of revenue, is worth 20 times EBITA. So if you can shift those revenues without growth, you've just made your business more valuable and you made it more resilient. Those things are at the fingertips of every single leader. You know, business model innovation sounds like building a rocket ship. It's not, it can be, but it doesn't have to be. It's just simply asking how we could fundamentally improve our business model? Shifting from unpredictable revenues to more predictable revenues is a business model improvement. Is it gonna fend off every type of disruption? No. Is it improvement in the right direction? Yes. And now you start to actually, maybe because you're more valuable, it's easier. You have more predictable revenues, easier to get a loan from the bank. Okay, now you just have money to start to invest in new projects. So you need to be very entrepreneurial to start to explore these things. And again, people who started from scratch are often much better at this because they intuitively do this. People who've been running companies or they they went through the ranks and they're really good managers, they don't intuitively have this entrepreneurial mindset. And this is, you were asking, what never changes? What never changes is you need to create value for the customer, you need to create value propositions that resonate with them, they need to be willing to pay for that, and you need a business model that can survive long term. That never changes. And the way we explore these things doesn't change either. So the fundamentals of business are exactly the same. The challenge is that once you become a manager or you are a manager and you never learned the entrepreneurial way of thinking, you probably don't question those fundamentals. So going back to the fundamentals is a fascinatingly strong thing to do. And we undervalue those. I'm seeing this from small companies and startups to the largest companies, the business fundamentals are not truly mastered.

Simon 39:56

Yeah, I think it's a great point. I guess on the flip side of that, I was thinking as you speak, as you know, the CEO of a scale-up company, that you can feel that the disruption in some of those examples is starting to happen the other way around, right? Because there is such a pace of change, as we alluded to earlier, you know, a million new startups a day, AI moving so quickly that truth yesterday is fiction today, and new truths emerge, that customers are, um, and we are the same, right? Like I would rather pay a slight premium to have a monthly rolling opportunity because the best tool this month might not be the best tool next month, right? And there's a lot of less customer loyalty as a consequence of that because you know the barriers have come right down, which means that you may have created that value, but unreciprocally, that value can be quickly eroded, right? And I'm seeing a shift from customers who are willing to sign long-term contracts and pay up front for those to the opposites being true, right? We're going to move to monthly payments, we're going to want longer to shorter term commitments, not because we love you any less, but to a degree because we're not sure what's coming around the corner, right? And whether we need all this software, whether we need all this current hardware, or it's too legacy for what's going to happen next. And there, I guess conversely, at the same time, there's quite a lot of capex investment happening. And so that is long-term commitments in certain areas. But if you're in that gray zone and it's quite a big gray zone, it's why I wanted to have this discussion with you, really, is that piece of it, really, is like there's a lot of potential erosion happening at the moment, and therefore, how do companies ride that slope in the right way? Because there's still huge amounts of value, right? But it's different.

Alexander 41:33

Yeah, and it never stops, right? So that's the point. Like you can have a crazy strong business model, you know, you always there's always a likeliness that you'll get disrupted. And you know, you can love Jeb Bezos or hate Jeb Bezos, but one of the things that made Amazon so strong is because he was obsessed by Amazon dying. So he'd say, you know, while Amazon was at the very top, he'd say, We're gonna die as a company. So guess what? There was an obsession of constantly reinventing yourself and just accepting the world is changing. We need to, you know, reinvent ourselves every single day while being world class at running the company. And that's what really is in their DNA is reinvention is part. So it's they they have this ambidextrous, is explore, exploit, is in their DNA. So of course, you know, some of the variables are changing and we need to get flexible again. There's no business model, there's no blueprint that lasts forever. That's the unfortunate part, you know. But as an entrepreneur, you know, what do you try to do? You go from zero to something, then you try to protect your business. Some entrepreneurs they like the chaos, so they don't actually like going towards processes. That's one journey. But once you're in the in the world of processes in a stable company, you need to reinvent and actually start to create that second space. So you need a clean space where you have processes to run the company. That's the startup entrepreneur journey. Coming from the other end, when you're established company, you need to actually open up those other processes to start to reinvent again. So once you have these two worlds, you start to become resilient because no business model lasts forever. Every business model is going to die. So it's this dual mindset to be able, as a leader, to create these two different worlds in your in your head and knowing when am I an exploit, when am I an explorer, and how do I translate that into a corporate environment where all of my people, you know, can start to explore as well without jeopardizing running the company. Because again, like the number one, you do need to run your company, otherwise, you're gonna die.

Simon 43:36

Yeah.

Alexander 43:37

Blank likes to call is that you know, the the core engine pays the salaries, but those who are inventing the future pay the pension. And they need to collaborate, they need to be friends. And in many companies, innovators still call themselves pirates, which I hate because you know, historically we kill pirates. You need to really create this dual ecosystem where both worlds Collaborate. And I think it's actually easier again to do in smaller companies than in bigger ones, but it requires an understanding of what innovation is. Business model innovation doesn't need to be crazy, like rocket science is actually just constantly improving your business model.

Simon 44:16

Do you think, I don't know, and then we're running, we're running towards the end of this discussion. It's been great. Thanks, Alex. Do you think that there's this idea? I'm sort of positing this really, that if business models are no longer static, and you've got this idea of exploring and exploiting business models rather than rather than necessarily processes or products or services at the sort of deeper level, systemic level, the believers need to be thinking about managing a portfolio of business models rather than a single future trying to place a series of debts on them. And if so, how do we how do we get the evidence learning and confidence? How do we measure this? How do you think about measurement? Right, it's obviously an area that I'm quite obsessed about with expected value and other things as well. Like, how do you think about evidence learning and value estimation and confidence?

Alexander 45:05

Portfolio management is a huge topic. And people then, when I, you know, I like to use Clay Christensen's um definition, something like, you know, there's there's a uh sustaining, there's a there's a you know process innovation, innovating the core, there's sustaining innovation maybe around new products, et cetera, new markets, and then there's there's more transformative innovation. Take these three broad categories, and people name them in different ways, right? Some say H1, H1, H2, H3 from McKinsey, whatever your language is, they're different types of innovation. And people always ask, well, Alex, what's the right distribution? Do I put 20% here, 30% here, 50% here? Well, that's a strategic choice. Depending on where you are, you might not need any innovation. You just improve your business model, and that's fine. That's a strategic choice. Or you know that the world is fundamentally changing, you want to put quite a few resources into new transformative innovations. But that needs to be a strategic choice, and it rarely is. So, what does that mean? First and foremost, leadership needs to explicitly manage that portfolio from efficiency innovation all the way to transformative innovation and understand you know the bets that they're making. That's number one. Make that portfolio transparent. And that's not the case, right? We have thousands of projects throughout a corporation, and most of them are probably in process innovation, anyways, because we fear failure. So there's very few that we put into business small innovation, which is already wrong, should be the other way around. Should have many small projects that could be business small innovators, and the big ones will emerge. But so actively managing that portfolio is number one. So we need to, and we've got brought in to train quite you know a lot of offering managers. So we're working with one company, they have you know near close to a thousand offering managers. We're training them to think all types of innovation, and we're getting them to understand how do I measure these things, if they're on the way to success or not. So you ask the measurement question. Well, when it's about new stuff, the only way to measure if we're on track to success is evidence, is not analyzing the spreadsheet because the spreadsheet is fantasy. Like, okay, well, I said I'm gonna make, you know, uh 10 million, 100 million, a billion within a year or two or three or four or five. Well, that's a fantasy. But now, if you can show me, I talk to the 10 biggest customers and I have willingness to pay evidence. They already are paying for similar solutions, but they don't, you know, they like this that value proposition that we have. You're now starting to show evidence. And teams are not very good at showing evidence in a structured way. So we'll have offering managers, they'll say, Oh, strongly validated, we did a VOC. VOC, uh voice of customer. And say, like, okay, who did you talk to? Oh, you know, the users of the solution. Are those the decision makers? Oh, no, no, no. So, like VOC means nothing. So, what you want these offering managers to be able to do is get more granular in the type of evidence they have to support a project. And you invest in the projects that had the right evidence at the right moment in time. So you make evidence-based decisions. So, if you train the teams and the leaders to make evidence-based decisions, you're actually gonna have really strong resource allocation only into projects that are proving that they're good projects. So we started to build this kind of evidence-based system where you have different levels of evidence. And you can look at a project, you can score the evidence, and you know, are they closer or not so close to success? That is the best way to do risk management and to build a portfolio. And then you become a little bit more like a venture capitalist and do very explicit resource allocation into projects that have traction based on evidence. So these are things that we now know how to do, but it does require that we're very explicit around portfolio management, we're very explicit around the evidence for each project, and we need to be very explicit that the leaders don't invest in pet projects, but into the evidence. So you need to really train the system to do this the right way from bottom up and from top down. But once you do this, wow, it's like magic happening, right? So I think this is um, you know, now we know how to replicate this. This is just now a task that leaders need to take on.

Simon 49:40

Sounds like, and I'm gonna wind us towards a close now. It sounds like there's a there's a real upskilling gap here, right? For potentially for leaders, but predominantly for doers in science. It's both organizations. It's actually both. Yeah, but maybe that's a way of maybe that's a better way of thinking about it. How do we how do we best bridge that gap from a from an upskilling perspective? I'm gonna ask you this sort of you know, from a perspective of the work you're doing, the the broader ecosystem, and perhaps a piece of literature as well, a book or something that might that you might recommend people pick up to start doing this. Because I think we've got to get more people upskilled, right? Not just leaders, leaders and yeah.

Alexander 50:19

So so I'll give you one example that we can publicly talk about, which worked really well, is um at Honeywell, um, you know, a big corporation, over 100,000 people. We started to put in place in a very practical way evidence-based investments. So, how do we do that? Is it because it sounds like, oh, I need to track train thousands of people. Well, we started in a very practical way. We helped them manage last year their growth symposium. So they have four growth symposiums across the world. And um, you know, teams come together and they present their projects to leadership. So, what we helped the teams that came to the to the growth symposiums, one in China, one in India, one in Europe, one in the US, we helped them simply, you know, present their ideas. These were ongoing projects in a specific way with evidence that supports the idea. So we got the teams to do that, a little bit of preparation, and then in a one-day workshop. And then we got the leaders to listen to the evidence and then make evidence-based decisions. So, simply by doing that at a very visible event with very visible leadership support, we actually started to transform the organization. So, starting from there, we could then start to create some training initiatives throughout the organization. But if you start with a very visible event, um, you already have something going. And that could be, you know, an executive offsite. But in this case, what was really good is we had the bottom-up teams and we had the top-down leadership. So we created this symbol. Is that enough to scale this kind of way of working? No. So you need a bit more. Now you're asking about the books for this specific topic. There are not that many books on this specific topic. So what we try to do now at Strategize is rather than write books, we created, you know, a playbook system on our platform that makes this way of thinking and working accessible to anybody. For $300 a year per person, you get access to this world-class thing. So that's for this specific topic. Um, yeah, there's there's this is very state-of-the-art and is really more about doing than reading books, to be honest.

Simon 52:36

And I think, yeah, we can share some links to some of those resources afterwards as well. Let's end though with that bigger question of then what's Alex's go-to book, outside of the wonderful books you've written yourself.

Alexander 52:46

Um yeah, so um I'm right now, you know, really more inspired by books about becoming a better human being. So they're, you know, it's hard to pin down to to uh one author, but there are three authors that right now influence me most. Um, I'll start chronologically. So Alain de Bouton with the school of life and the books he wrote in school of life really are about just becoming a better human being in a very practical way, not like, oh, I'm better. You know, it's just like, okay, how do I, you know, have better relationships, all that stuff. That um Alain de Bouton, wonderful author, that makes it very practical. Then, you know, I really love young Pueblo because he goes right in down to that path as well. But then the person who's inspiring me most is um, you know, he wrote a couple of books. I I read them all, but now I get almost like a little bit addicted to those things. I'm listening to Eckhart Tolle. You know, a lot of people know Eckhart Tolle. I just discovered him recently. I listen to his podcast, and I think it's just very, very good stuff um for you as a human being to start taking yourself less seriously and the your work less seriously. And at the end of the day, you know, we're just here for a while and we need to, you know, we don't need to become monks or whatever to be better people, but we should maybe just uh chill a bit more and uh have fun doing what we're doing, but without it getting addicted to the fun. And and he has this a very down-to-earth way of making this way of thinking accessible without becoming, you know, a Buddhist monk. You can actually, you know, go in that direction. So he inspires me probably most at the moment.

Simon 54:28

Thank you, Alex. I knew you'd give me you'd give me a deep, thoughtful answer to that question. So thank you. Thank you very much. Like this has been a wonderful discussion. I think you've said before that business models don't fail loudly, they expire quietly. I think maybe in this discussion, some of the things we've said is that maybe some will fail more loudly and less quietly over this period of more intense disruption. That doesn't have to be terrifying, but it does have to be a strategic decision for the right businesses. For some, disruption may not be such a big reality, but for more and more it is. And it's more, it's more profound and probably more significantly relevant at this point in time. So thank you very much for for the deep, thoughtful, example-based and value-based discussion today. I've really enjoyed it. Thank you very much.

Alexander 55:17

I thank you, Simon, for the interaction and the conversation. So really, it's been a pleasure.

Simon 55:22

Well, share links to the work you're doing. You guys are doing some phenomenally important work as well. And uh I look forward to seeing you know what the reaction to this podcast is. For everyone listening, if you've enjoyed this conversation, please connect with Alex. He's very, very, very prominent on LinkedIn. You can find him in a variety of different places. Um, and he's always very open to discussion. I encourage you to check out Strategizer's work and books as well. For everybody, make sure you subscribe to the podcast so you don't miss future episodes. As I've laid out before, this is one great season building on the foundations of many before. We've got many deep conversations coming with leaders, thinkers, and practitioners who are shaping how organizations create value in a rapidly changing world. Thank you for everybody for listening. Thank you once again, Alex, and see you next time.

Speaker 56:13

Uh uh, uh uh.