How To Be In Business Forever: Week Four

This is the final post for my Skillshare class on Sustainability.

I will not do office hours this evening but I will do one final office hours next Monday, Oct 29th, from 6pm to 6:30pm. The link to attend that office hours is here.

For this final post, I want to focus on the Business Model Canvas and how to think about sustainability in the context of creating your business model. In order to talk about that, I went ahead and created a Business Model Canvas of my own using

My Business Model Canvas is for a Bitcoin Bank.

If you think about banks in the real world, they are high cost affairs, with huge fixed costs including large branch networks. I am always shocked by how many bank branches I pass in a five to six block walk in NYC. The way these banks sustain these high costs is with large fees for depositors and high spreads between their cost of funds and the interest rates they charge borrowers.

So in thinking about how to create a sustainable Bitcoin Bank, I focused on a few key things:

1) keep the operating costs super low except in areas where there is a unique and important consumer value proposition

2) make it easy to access the bank and your balances within the context of low operating costs

3) keep the fees charged to customers as low as possible

4) allow third parties to build busineses on top of our business

The result is a super simple business model. My Bitcoin Bank would charge a very low monthly fee per Bitcoin deposited and nothing else other than pass alongs for any costs incurred in moving bitcoins in and out of the bank on behalf of our customers. We would not have any branches. We would operate via simple, easy to use mobile and web interfaces. We would keep our operating costs super low with the exception of one area where we would make a large and ongoing investment – in hiring and retaining a top notch and super experienced security team. We would allow third parties to create related businesses on top of our API. Services like lending, investing, etc would not be provided by our bank but by third parties who access our customers via our API.

I believe this business would be highly sustainable because it would focus on one very simple value proposition – security. And in return it would charge the lowest fees possible in order to make and sustain a profit. It would make it very difficult for others to price lower fees for storage and security. And it would benefit from the ecosystem of third party value added service providers operating on top of its API.

Here are some decisions I made in order to increase the sustainability of the business:

1) A focus on very low fees to our customers so that it will be difficult for competitors to undercut our offering.

2) A decision to focus on only one thing, security, and allow others to build additional services for our customers. This allows us to be best in class at the one thing we choose to do and it means our customers can choose to pay for additional services or not, and always on their own terms.

3) A cost model that keeps operating costs as low as possible in all areas other than security, which is our key consumer value proposition.

So when you are finalizing your Business Model Canvas for your final project for this course, think about what your key value proposition is and who is your primary customer and focus on that. And think about what you can do in your revenue model to make it so that it will be hard for others to come in and undercut you. And think about your cost model and how to keep it as low as possible while allowing your company to be best in class at what it does.

Please submit your final Business Model Canvas project here by Thursday, Oct 25th, 11pm EDT. I will pick out a bunch that I like and review them next week on office hours.

That will be the final event in this course. I hope you have enjoyed this class/series. I think sustainability is an important and overlooked aspect of business and it needs to built more tightly into business thinking.

#MBA Mondays

Comments (Archived):

  1. jason wright

    I wonder what percentage of retail online banking customers have ever suffered a security breach?

    1. fredwilson

      a much lower percentage than bitcoin service customers!

      1. jason wright

        now I see your purposebitcoin badness in need of a hack

  2. Carl Rahn Griffith

    Are there such things as ‘barriers to entry’ nowadays, Fred?

    1. fredwilson

      yes, but they aren’t high

      1. Carl Rahn Griffith

        Aye, my thinking, also. Very interesting (profound, in fact) implications in the competitive landscape – will try and blog about it this week, been mulling it over a while…

        1. awaldstein

          blog url please.hopefully your have email signup alerts.

          1. pointsnfigures

            I’d say that depends. Depends a lot on regulation. Suspect in the long run, there would be a lot of regulatory issues with the bank.

          2. Carl Rahn Griffith

            Hi Arnold – hope you are well – great to see LocalSip gaining momentum!I started blogging – better late than never! – a few weeks ago (my past blogs were really just news items being aggregated via my ensembli startup) – I am now blogging personally (ie for ‘real’ good or bad, lol) – blog is here:http://carl-rahn-griffith.t

          3. Mark Essel

            pocketed (handy offline reading app)

    2. William Mougayar

      Execution is the barrier of entry I think. Similar ideas are all over. Execution is always unique and different.

      1. Carl Rahn Griffith

        Very true.

      2. jason wright

        and to the door marked ‘exit’

    3. ShanaC

      yes. government regulation of sorts.

  3. jason wright

    I’ve heard of the… Spanish Inquisition

  4. John Best

    BMfiddle looks very useful, bookmarked. Thanks for running through the example, too. It’s a good indication of the mental process that you’d go through with an eye on sustainability.At the very least focusing closely here on the one aspect, and allowing the networking of other functions to make the business sustainable leaves room for future expansion into those functions yourself as desired.

  5. Dave W Baldwin

    Off topic, but I wanted to share this link showcasing a few innovators who don’t get a lot of attention from the press. Quite a few of these movers are female.…The Bitcoin could really be useful in the rise of mobile swiping couldn’t it?

  6. awaldstein

    Been absent on this discussion.Need to build a bix model canvass for a few of my projects. Looking hard for new ways to look at myself and my clients work from another perspective.

    1. panterosa,

      Arnold, you are on the topic I have been musing on all last week – It’s not what you see, but how you see it. Perspective, lens, angle, focal point. Perhaps the advantage of being an artist, and designer, in a business world is this way of seeing as my default changing angles and perspective.Many people wonder how they see same thing and arrive at different conclusions – it’s that the picture/vision they painted was different than the others there.My feeling in your case is that good consultants bring you their vision, their angle, lens. So really what is your core unique value proposition to your clients? What is the Arnold-ness you bring that others need and can’t find elsewhere?

      1. awaldstein

        i hopeful that my “Arnold-ness” is not in question!

        1. panterosa,

          Your Arnold-ness is certainly not in question, just looking for precise definition!

          1. awaldstein


          2. panterosa,

            @awaldstein:disqus I saw your reply via disqus email, but it didn’t come out in the thread. What happened?

          3. awaldstein

            I’ll check.Since I wrote this offline I probably have the comment in a sticky somewhere.

    2. leigh

      are you talking about this?http://www.businessmodelgen…i’ve never tried using it but heard it’s pretty good…..

    3. leigh

      oh ps. if it’s a strategy question (vs. biz model one) we find the mcluhan tetrads a great way to f*ck with your heads and look at things differently. 🙂

  7. Rich Edwards

    Isn’t there a secondary set of customers/revenue streams from the 3rd party service providers (i.e. lenders, credit card processors, etc.). As essentially building a banking platform, isn’t this more of a multi-sided platform where you connecting payers/payees or lenders/borrowers? If that’s the case would the 3rd party then become a more interesting revenue stream producers and you provide access to the market, maybe so much so that deposit side of the business might be a free offering?

    1. fredwilson

      that’s a really good discussion.would it be more sustainable to provide a free service to consumers and make money via the API?it may well bebut you have to fund losses to the point where the API fees can cover the billsgreat point. i wish this was a live class. we could really learn something by discussing this very point.

      1. Elia Freedman

        This brings up a good question. Are sustainability projects fundable from angels and VCs or are they typically funded out of pocket? Since the goal is to sustain the project and VCs/angels want a return, they seem at ends with each other. If this is the case, then doing what makes money now versus what makes more money later is a catch-22 situation, highly reliant on the amount of personal funding you are willing to dump into the project.

        1. panterosa,

          I would be very eager to hear the answer to this great question Elia. I am wanting to stay out of pocket to not have to spend time serving the return side for investors. That said I need a certain amount of capital at some point. Being a revenue based model, I am not sure the exact moment when I’ll need bigger money to scale than my revenue is providing.

      2. LE

        “i wish this was a live class.”A live class though doesn’t allow you to do any research on a point you might want to make, or to research a point someone else makes in order to give a rebuttal if you feel it is not correct. That’s one of the advantages of this format.

        1. ShanaC

          That is what homework is for.

      3. leigh

        Never have understood once companies get mass scale why they don’t charge API fee — they could always grandfather early developers and create programs for newer companies/players. Instead many seem to want to perpetuate an old advertising model through eyeballs and forcing UX decisions that go against sharedl value creation.

    2. ShanaC

      isn’t this the model for a traditional bank?

      1. Rich Edwards

        I think that would be the natural extension for either the “bitcoin bank” i.e. being a secure place for depositors, to work with partners to provide value add (via an API as Fred suggested) all the other banking services, lending, investing, vendor merchant (like credit card processing) would seem to be the most promising/lucrative. My suggestion was those opportunities could be a secondary revenue stream (at more lucrative rates). The deposit side of the house could operate at break even/loss leader with the profits primarily coming from access to partners/3rd parties -> think pricing for eBay or the advertiser revenue Google takes for access to it’s market in search. This would be charging (a premium?) for access to the bitcoin depositors who sustain the business and are attracted by low/no cost.

        1. ShanaC

          that still sounds to me like a normal bank, except for a bitcoin part

          1. Rich Edwards

            Sure, but in this case it’s not the bank making doing the value added services, it’s a 3rd party, and maybe that’s like how specialty products like mortgages have worked until recently. So maybe this is the banking business model 50 years ago.

  8. Tom Labus

    How do you control/manage the the lenders/credit card fees?

    1. fredwilson

      are you speaking of the third party services that are built on the API?

      1. Tom Labus

        Yes. Those cos could charge whatever interest rates they wanted even if the “bank’s’ policy was to not do high fees..

  9. JimHirshfield

    The Jets yesterday…oh so close. Sorry dude.

    1. andyswan

      How they haven’t given Tebow the ball and said “the next three games are yours” is beyond me. It’s gotten to the point of stubborn lunacy!

      1. kidmercury

        sanchez is a problem, but tebow would be worse in my opinion. i don’t understand why they got him in the first place.

        1. andyswan

          Because he wins a lot

          1. kidmercury

            tebow is 8 and 6 as a starter in the NFL…., not sure if i’d call that a lot, but it is admittedly slightly better than sanchez’s percentage who is 30 and 24. i think defenses will catch on to tebow very quickly, though. plus he’s got a sub-50% completion percentage…..

          2. andyswan

            Jets 2012 vs Broncos 2011 too many similarities in the way the season is going to dismiss the guy IMO.There is something about him that makes his teams better. It’s intangible and contagious. Plus, it puts asses in the seats and $100 jerseys on their backs.Plus I’d just love watching the NY media be forced to deal with it. LOL

          3. John Rorick

            “Wins” against the likes of the Bears last year where the RB decides to stay in-bounds, two completed passes in total against the Chiefs, and a victory over the Jets where the Jets should have been up by at least 14 in the 4th and he was god awful except for last wildcat drive means Tim Tebow is in my opinion, no better than, and maybe worse, than the 2008-2009 version of Ronnie Brown and his Wildcat Dolphins. But I think he throws worse than Brown :). I am not so sure he makes an NFL team better – 60+ yard field goals to win games make teams “better”. Tebow had nothing to do with that except not being able to move the football, and having a horseshoe up his but much of the year. The Jets should have never gotten him. They are naturally a circus, and adding him some exaggerated it. I would welcome a trade to the Jaguars, give him the starting job without any conflicts, have him flame out and be done with this once and for all…The NY media by the way would love for him to start. They drool over tabloid fodder like this…

          4. thinkdisruptive

            There are lots of reasons why people should lose in sports, and in business. Winners win, and make others around them better, no matter what the reasons they should lose are. There was another Jets QB, if I recall, that everyone said should lose (or, they laughed when he said he would win). Broadway Joe made the AFL real.

          5. pointsnfigures

            Tebow isn’t as good as Joe Willie-but I agree-he motivates the people around him. Might be a good CEO-but QB is the most important position in football and you have to be able to throw. Can’t outsource that.

          6. John Rorick

            He is a lifetime 8-6 in the pros…and the Broncos had a lot of good fortune last year. I am not a Jets fan in the least, but Tebow would not have prevented any of the losses the Jets have had this year. He would be a phenomenal H-back/Gronk/Wildcat hybrid, but he is not a ft NFL QB. As for making others around him better, I think the Broncos WR’s would much rather have Manning throwing the rock than Tebow from a statistical standpoint. Just my two cents. I am sure just as many teammates would find his rah rah annoying as would find it inspiring. These players are paid to play. Different dynamic than college (well, most colleges). Ship him off to the Jaguars, they fill the stands, and he eventually flames out.

          7. thinkdisruptive

            Most teams would rather have Manning than any other QB except his brother. Not a valid comparison. No one said he was the best. But you don’t have to be the best to win. You do have to be allowed to play though.

    2. takingpitches

      Woody Johnson sat next to me recently at a Mexican place near us on the UWS.I froze as I couldn’t decide whether to Tebow or exhort – “let’s go eat a goddamn snack.”

      1. pointsnfigures

        That’s patented now. You owe Tebow royalties.

    3. fredwilson

      new AVC rule: there will be no mention of the NY Jets on this blog

      1. JimHirshfield

        Rules? There are rules?Seriously, though, didn’t think this would touch off much of a thread.

        1. fredwilson

          that was a joke. anything is cool here other than hating and being a jerk.

          1. pointsnfigures

            Is Tebow patenting his “kneel” sustainable?

          2. ShanaC

            good, because I roll my eyes at sports talk in general 😀

  10. andyswan

    The timeliness of this is amazing.

    1. fredwilson


  11. Steven Kane

    Tangential but — I was an investor in and longtime Director of a succesful nationally-chartered community bank ( and I can tell you, branches are a very important component of a typical bank’s success, and investing in branches is essential for same. to wit, a very very large percentage of a bank’s customers either want to do business in person (and they love and reward personal attention) or, even if they don’t need to come in, love to see their bank as having a physical presence in the community. from a business plan perspective its all about location, location, location — is the area underserved or overserved by bank branches? can a new bank branch offer something novel or noticable (free checking, higher interest rates on deposits, special childrens passbook programs, simpler mortgage and home equity approval turnaround times.) heck, just having a huge storefront with bright bold signage is worth a lot. i dont know manhattan but in metro boston it costs somewhere between $150K and $300K to lease and build out a bank branch. plus maybe $1MM year in salaries (a manager, some tellers and loan sales people.) how many mortgages and deposits have to be originated to cover that? depends on the local market of course. but if it was so difficult, you wouldnt see all those branches. also, from an M&A p[erspective, branch networks are a key thing acquirers consider. sorry for the digression – i now return control of your set to you…

  12. thinkdisruptive

    I think there is a fundamental flaw in your assumptions which defeats the business model + therefore sustainability. Charging for funds on deposit will reduce the funds on deposit, which reduces the funds available to make money and opens the door to a competitor who offers free storage. Just because something has a cost in your business doesn’t mean that you can or should directly charge fees for it. People see value in processing transactions, not in holding their cash.

    1. fredwilson

      great point.

  13. LE

    “A focus on very low fees to our customers so that it will be difficult for competitors to undercut our offering.”Another benefit of starting off with low fees is that it is discouraging to potentialcompetitors. I’ve seen many business price their offerings high to begin with. Then someone looks at those prices and rightly or wrongly (doing napkin math) concludes they can do the same cheaper and they become a competitor. If your prices are low initially, as low as possible, potential competitors are less likely to smell blood in the water concluding that the business isn’t profitable and may very well decide not to even enter the market.(Look at what happened with clones and the IBM PC and how they were immediately undercut on pricing because there wasn’t as large of a barrier to entering the market as there was selling big iron. )

  14. LE

    I believe this business would be highly sustainable because it would focus on one very simple value proposition – security. And in return it would charge the lowest fees possible in order to make and sustain a profit….A cost model that keeps operating costs as low as possible in all areas other than security, which is our key consumer value proposition.Maybe I am missing the point of this post/exercise, but obviously security is not a value proposition large enough to sustain and differentiate a bank. Regardless of whether someone has been personally affected or not, I think security is taken for granted,[1] similar to food safety in restaurants, airline safety, or the locks on the door of your hotel. The only variation to food safety I can think of in retail might be Whole Foods. And I think they owe a much larger percentage of their success to the shopping experience which they cloak in sustainability along with being able to hide higher margins on many things they sell because of the healthy patina on their offerings. So it’s hard to tell you are overpaying. And to repeat, the shopping experience. The stores are nice, no fluorescent lights, the employees are a cut above what you get in a typical supermarket.That said security as a value proposition to an airbnb like offering, car sharing service, or kickstarter esq. would go quite far in bringing people off the sidelines to try those businesses that are afraid to do so.[1] If you have ever seen the distribution of passwords that customers choose when signing up for online services you will get a feel of how seriously they take security.

  15. LE

    I am always shocked by how many bank branches I pass in a five to six block walk in NYC. The way these banks sustain these high costs is with large fees for depositors and high spreads between their cost of funds and the interest rates they charge borrowers.In theory bank branches are a marketing expense similar to how any retail location is marketing and not rent (although accounting wise it is probably categorized as rent).Looking at the traditional model of banking (where you would get gifts for opening accounts) the purpose of attracting deposits is directly related to ratios which allow the bank to borrow fed money and leverage that to make loans on which they make their profit. Lest anyone think that you can take in money by paying .5% interest, loan it at 3.5% on a home equity loan and actually make a profit.Also by having a retail location you are able to get first dibs on making more money on loans simply because people will stop in and ask first at their local bank before seeking out competitive offerings.In retail out of site is out of mind. That is why major chains that I have observed who have the money always end up with the good locations (even within the shopping center [1]) and even with their economic power still pay more for those locations. A store on a major road with a hundred thousand cars passing by per day is worth much more than a store on a road with 5000 cars a day and it doesn’t cost 20 times more per month either.When I had a retail location many years ago while we didn’t have the best location in town, we quickly surpassed an established operation 3 blocks up which had better quality work and cheaper prices and had been in business for perhaps 40 years. Simply because many people walked in our door and didn’t know the other business even existed. And our rent wasn’t that much more I’m sure than what the competitor was paying.Lastly many businesses that establish themselves as “we are lean and keep our prices low” are really just chipping away at a niche market and leveraging a concept that resonates in customers heads or perhaps even disguising a less desirable reason for why their price is lower than the competitors.[1] I know there are reasons this is also good for the landlord as well.

  16. kathychang

    I like the Bitcoin idea! An interesting example of a related case of disruption in the banking sector comes from a very old “bank” – Charles Schwab. They’ve decided to not build any branches but instead allow their customers to take money out for free, worldwide (i.e. they reimburse you for whatever ATM fees you get charged, anywhere). I think it’s great business model as it naturally appeals to worldwide travelers, i.e. affluent people, who are likely to bring other services such as investments to Schwab, they’ve effectively passed on the fixed cost of building branches onto their competitors in exchange for a variable cost of ATM fees, and they improve the customers’ user experience.

  17. takingpitches

    “Large fees for depositors”Sigh – I remember as a kid that banks actually wanted customers and would welcome the few bucks that my parents gave me to open an account.Today it wouldn’t cover the monthly fees on low asset accounts.Simpler times.

    1. ShanaC

      what happened?

      1. PhilipSugar

        Prime Interest rate went from over 10% from 1978 through 1985 down to historically manipulated lows by the Fed.

  18. Richard

    EVERYTHING about the banking business is antiquated and the banks are sure making it easy to disrupt them with up to 2800 basis points spreads!!! Yes, it seems like it is taking a long time, but now that data centers are so easy to build and scale, taking on and disrupting this monster is only a matter of time. Expect a radically different business model. My guess is that AMAZON will eventually lead this space.

  19. Brian Armstrong

    Enjoyed the post as we are working on a similar idea (as you know) with!We did a post on one aspect of the security piece a few week ago:…I hadn’t considered making security the primary benefit and source of revenue (we’re targeting a fee during the exchange part), but there is probably a business in there just on security.

    1. fredwilson

      i think security might be more valuable in the bitcoin world than moving funds in and out of bitcoin

      1. John Revay

        Agree – security being valuable……I started signing up for a Dwolla account earlier this year w/ you announced the USV investment.I got cold feat when signing up…and in the account sign up process – it started asking me about all of those security items, soc #, mother maiden name, etc……I started asking myself how well do I know these guys (and I am a USV fan), I recall reading about some regional credit union that did their processing…..I ended up not signing up.

      2. thinkdisruptive

        It might be in the early days to get people over the hump, but security is a hygiene factor in the long term. The need for security is a reason not to go with a new airy-fairy system, not something people are willing to pay for as a cost of entry. Security is expected, not optional, and it isn’t where the value in creating a new pseudo-currency bank is.

  20. Matt A. Myers

    The dinosaurs will fall.

  21. Dan McReavy

    Is a 2-25 cent ACH fee a lot? The issue with bank expenses is loss provisioning. Loss from fraud and loss from bad bets ( loans and proprietary trading).Proprietary trading was a non issue until the Gramm Leach Bliley act was passed in 1999. That opened the door for deposit institutions to bet on whatever.Loss from bad loans also wasn’t a huge problem until the Federal Reserve encouraged no income, no job, no asset “NINJA” loans to put a support on the deflationary economy triggered by consumer debt saturation as well as productivity gains from technology that made many careers obsolete.The problem with a bad debt for a bank, is that the banks aren’t lending money they have and are always structurally leveraged. We call it fractional reserve lending, but it’s charging real money to real producers for money that doesn’t exist.Bitcoin is unleverage and has a known finite scarcity that generates its value. The problem is that since you can’t pay taxes with it, it will always be limited to a very small slice of fringe speculating – real commerce is not even viable.

  22. panterosa,

    @fredwilson:disqus Very helpful to see your Business Model Canvas for Bitcoin.Though during, and after, digesting your model, I am struck by how anti-intuitive Bus Model Canvas’ layout is.Am I the only one wondering why it starts right and moves left in progression of items up and down, with no real sense as to why you must go in this non-sequitur line? Even the video for the model on their site is confusing.I was pointed to this model to put my bus model on, and if I do, I will have to redesign it because I find its layout progression competes with the actual information I would present. Form not following function. You get crapped on in design school for presenting layouts like this – anything which distracts the viewer from the message is considered a flaw.

  23. leigh

    I must update my ‘ start up school 101’ slideshare (… with the line:4) allow third parties to build businesses on top of our businessIts a great one and one that even start-ups start to fail on once they become big brands

  24. Gavi Wolf

    I am always surprised by how high fees are on credit cards. What is the real cost of a credit card transaction and why is there such a high fee on debit cards. I am always surprised that one of the big banks does not create a low fee credit card and then partner with some big chains to get them to reduce the price if you use that credit card. I imagine this would create a serious competitive advantage.Zipmark is actually a company that is addressing this company in one area. But still not solving the problem from the consumer side.

  25. Korf

    Great post Fred. Really appreciate your efforts wading in and creating a business model of your own that looks out at the ocean of the present and jumps on a breaking wave of current technology/disruption to build a long term business of the future.

  26. dainik bhasker

    There is something about him that makes his teams better. It’s intangible and contagious.lolll

  27. DigitalAndroid

    This is a good business model for two reasons:1) There will be a market for bitcoin e-wallets in the event of wider bitcoin adoption for the same reason there is a market for web-based email storage: because people want an ‘always-on’ wallet they can access from any device.2) Bitcoin e-wallets have among the highest security requirements of any class of web service, because a successful breach of security is instantly profitable for the attacker, giving tremendous incentives to potential attackers to find an exploit, while being devastating for the e-wallet operator, providing no margin for security breaches.A e-wallet service that specializes in security therefore has a good value proposition.The value-proposition for third party value added service providers might not exist though, since a breach of the third party’s security would be equally devastating whether they store an API key that they use to access bitcoins stored with My Bitcoin Bank on their server, or they store the bitcoins on their server. Either way, a successful attacker could access all of their bitcoins.