Guide to Business Model Design Process
In this article, we look at the 1) business model design process, the 3) starting point for business model design innovation, 3) the phases, and the 4) design attitude.
BUSINESS MODEL DESIGN PROCESS
All business model design projects are unique and present a challenge to the participants because there is no one formula or prediction for how they will evolve.
The process consists of five phases; mobilize, understand, design, implement, and manage. This process provides a framework which all businesses regardless of their industry or context can apply to themselves.
Objectives of business model innovation
Innovations and new iterations of business models are usually made with one of the following purposes;
- To fulfill a current need in the market which no other product or company are meeting.
- Be first in market with an idea, technology or product.
- Be a change agent in the industry by introducing a new business model. This can be done out of a desire to bring innovation, create an evolution in the market or simply to change things up and breathe new life into the industry.
- Target and give birth to a whole new market.
Motivations of business model innovation
When an already established business is exploring the possibility of innovating in its business model, it is usually with the following motives;
- An emergency or perceived near disaster due to the current business model,
- Ensuring that the current business model is flexible enough to meet and withstand possible changes in the business and industry,
- Being first in market with a revolutionary product, technology or idea,
- Fostering a spirit of flexibility and experimentation by testing new business models which may define the future sustainability of the business.
STARTING POINT FOR BUSINESS MODEL DESIGN INNOVATION
The impetus for creating or innovating in existing business model is driven by a number of factors. Each of these factors represents contextual elements that have their relevant set of challenges that come with them.
- The company wants to answer an unmet need and, therefore, satisfy the market. One example of such an organization is Grameen Bank. Grameen Bank is based out of Bangladesh and has a unique and a first of its kind business model. Grameen Bank extends micro-credit to people who other banks have traditionally ignored because they aren’t economically viable as loan candidates. The first of its kind, Grameen Bank operates on a relationship of trust and faith with its borrowers and does not take any assets as collateral or ask family members to pay off loans in the event of the loan candidate’s death. The model, though seemingly improbable to most banks, has been wildly successful and resulted in pushing Grameen Bank to the current standard for all Microfinance banks in the world.
- The company wants to bring either an entirely fresh product or service to its customer segment or take advantage of existing intellectual property to do so.
- Bring positive innovation or simply change an existing market.
- Provide the genesis for a new market.
The challenges faced by new organizations when introducing a new business model in the market are;
- Discovering and selecting a model that fits your requirements,
- Experimenting with the model to discover any limitations or glitches before actually launching it,
- Creating buy-in in the industry so more people will adapt to the model,
- Tweaking the model as and when needed due to feedback,
- Handling the ambiguity.
In this phase, the entrepreneur takes steps to be ready for implementing a new business model successfully. The purpose of the team working on the change is to ensure that everything is in place for the business model to be implemented. This requires ensuring that all the elements of the 9 building blocks of Business Model Canvas are available.
The following four activities form the crux of this stage;
- Be ready for a successful business model design project;
- Gather all the necessary requirements for the project;
- Make people cognizant of why a new business model is required;
- Elaborate on the motive for creating a new model as well as formalize a common lingo for design and analysis purposes.
Framing the objectives is heavily dependent on the project parameters but some steps are common across projects. These include defining the scope of the project, creating a narrative for why the project is necessary and what the deliverables of the project will be. When deciding the project scope, it is essential to plan for at least the first three steps of the process i.e. Mobilize, understand and design. The final two phases are a product of the former three and can therefore not be planned in advance.
Pulling together the right team for the project is another key activity which will define the success or failure of your project. It may be difficult to find a pre-trained team for the project, especially for truly entrepreneurial venture. However, the safest option is to pull together an eclectic mix of people with diverse backgrounds and experiences, so your project is overseen by people with an extensive combined pool of knowledge. Since entrepreneurial ventures thrive on ideas and innovations, such a team will help boost creativity and produce unique solutions to customer pains. This is the phase when the team needs to establish the use of the Business Model Canvas as the common medium to record the evolution of the business model.
The mobilization phase can be dangerous because it causes people box themselves in with the idea on the table without challenging or exploring it. Their initial buy-in with the idea means that they commit to it completely. One way to avoid this is by engaging the team in an activity called kill/ thrill. This is a two portion activity which asks the entire team to list reasons why the project may end in failure (kill) and then list reasons why the project will be a raging success (thrill). This causes the team members to address the business model from all aspects and fully explore its efficacy.
This is the immersion stage of the project and is signified by resources deployed to thoroughly analyze the proposed business model design efforts to ensure it is sound. This involves the core team immersing themselves into the customers, technology and environment of the business.
The following four activities form the crux of this stage;
- Conduct research and analysis on the requirements of the business model design process.
- The team should be deeply informed of the different aspect impacting the business model design whether they are internal such as the customers and technology or external like the market and environment.
- Create a data bank of information by getting in touch with other experts related to the business.
- Observe target customers to gain insight into their needs and what kind of jobs need to be done in their life.
Some of the activities involved are interviewing both experts and customers to collect ideas, inputs and needs. Another great source of information is to study past cases where other companies have tried to provide similar solutions and identify the reasons they failed to do so. Essentially this phase aims to understand the environment in which the business model will be expected to flourish and grow.
The key success factors for this phase are a deep understanding of the potential target market as well as observing target markets from fresh perspectives rather than being boxed in by traditional market boundaries.
The business model ‘design space’ has to be understood thoroughly for this stage to be a success so an environmental scan is a must. This includes market research, studying and involving customers, interviewing domain experts and observing the business models of potential customers. However, a surplus of research may leave your team paralyzed and unable to push through to the next stage. One way to avoid this eventuality is to start the prototyping phase in parallel with the understanding phase. This will help test out different hypotheses gleaned from the research.
Though it may seem obvious, customers are an extremely important source of information at this stage, yet they are often ignored, especially by entrepreneurs who still aren’t sure who their main target segment are. The customer empathy map can be a huge help if this is the case.
In the previous stage, we understand customers and prototype models as a result of this understanding. When we share these models with potential players and adapt them in accordance with their responses, we have officially entered the design phase.
Various iterations of many different models need to be tested out during this phase before the team settles on one which will form the backbone of the future business. Hence, this stage is often referred to as the inquiry phase.
The following three activities lie at the crux of this phase;
- Come up with a number of relevant business model options and test them against your business to find a suitable match or number of matches;
- Come up with a business model prototype based on the results of Phase 2;
- This phase must be focused on arriving at one final iteration which is a perfectly tailored business model for the organization.
The critical success factors in this stage are to include as many people from the organization as possible in the creation process; the participants must possess the train of exploration, so they look beyond the way things are currently being done; and there must be plenty of time so all the business model ideas can be thoroughly explored.
There is always an imminent danger of the participants getting too attached to their business idea. All the iteration possible in the nine building blocks of the business model canvas should be thoroughly weighed for their probability of success.
This is the execution phase of the entire process. Now that you are armed with the perfect business model, it is time to start the groundwork on the company itself and take it from a concept to reality. As the name suggests, this phase is focused on implementing the business model of choice. This is the one activity which forms the crux of this fourth phase in the process.
The critical to success factors in this phase are the use of the best project management techniques and tactics; flexibility in adapting the business model quickly when and if the need arises; create synergy between the traditional business model and the new one.
Now that you have the final iteration of the business model, you will begin as with any other project; defining timelines and mapping milestones for the implementation process. Throughout this process, there will be continuous risk and reward calculation taking place to ensure that the reality and the expected results still coincide.
In this stage, the evolution of the company is the focus through improving and changing the business model as a result of the intelligence received about market reaction to its various aspects. This will happen through a team of managers who are hired with the responsibility of molding and managing this evolution.
The key activities which form the crux of this stage are;
- Change and improve the business model design based on market reaction;
- Establish a management structure which will take on the responsibility of nurturing the evolution of the business model based on intelligence they receive from the market and the environment.
The critical to success factors in this phase are obviously the ability of the management to view the business from a strategic and long-term perspective; be proactive and manage the day to day running of and adherence to the business model itself.
Most start-ups will probably be too small to have an entire team managing it. Instead, luckily for them, every employee will have a stake in the management of the business model and will constantly be alert to how changes in the environment may require realignment in the business model.
For most organizations it is a major challenge to create and sustain a Design Attitude which is defined as the knowledge and willingness to invest time in thinking up a multitude of ideas with the knowledge that most of them will be discarded. Most managers may consider this a waste of time because they are inculcated with a decision attitude which gives precedence to the speed of the decision rather than coming up with a number of excellent alternatives and then selecting the best amongst them.
Since most managers possess the time is money attitude, they often fall into the trap of undervaluing the efficacy of the time spent in the business model design process because to them, the more time being used up in this process, the longer it takes to make money from the business. For new companies, this may be even more of an issue since many industry experts, venture capitalists and other investors, as well as the entrepreneurs own wallet may demand cutting short the time it takes to complete the process. However, it is fundamental, at this stage to remember, that you may make money sooner by doing away with the business model design process but that influx of money will not last long if you end up picking the wrong business model in your hurry to jumpstart the business.
Welcome to the 22nd episode of our podcast with John Lee Dumas from EOFire! You can download the …