Business model design, redesign, and test in a structured way
Welcome to the fourth step of the eight steps framework designed to help you build a robust go-to-market strategy. Today, I am happy to introduce you to the Business Model Design and Test step.
Most entrepreneurs focus hard on launching an innovative product or service but forget that an elegant, cutting technology-based (even AI) solution doesn't automatically turn into a successful venture. Businesses require customer-centric, compelling business models, with the right price, messaging, and delivery channel to the right target customers to drive product growth.
Designing, testing, and implementing the accurate business model requires an actionable approach that is possible with the right skill set in place.
The evaluation of a business model raises several issues, such as:
- how to explain the business model in a structured way,
- how to define a consistent set of changes to test the business model against,
- how to assess the impact of the revisions on business model elements,
- how to use the results of the evaluation to bring more value to the customer with the business model.
Delivering, testing, and designing, the customer-centric business model consists of 4 actions under the 4 Waves Framework:
- Design business model
- Identify and select forces which make the business model vulnerable
- Redesign and validate a business model
- Formulate actions
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Desing business model
The first step is to describe the current business model in a structured way and then start working on the desired one. I believe the company should outline the future business model with customers. The more customers realize their service or product provider listens, embraces, and deliver their specific expectations and requirements, the more they are loyal and want to contribute to the organization's development. How to achieve this level of engagement? In my framework, I suggest to leverage co-creation by mapping:
- Customer jobs - specifies what the customer is trying to conduct to achieve a specific goal.
- Customer pains - it's a list of things that annoy the customer before, during, and after getting the job done.
- Customer gain - describes the outcomes and benefits your customers require, expect, or desire.
Those 3 points help to answer the following questions, which then the well-crafted business absorbs as its components:
a) Who is the customer, and where is the customer segment/niche?
b) What does the customer value?
c) How does the company bring growth by offering?
d) What is the underlying business logic that explains how we can deliver a value proposition to customers at an appropriate cost?
e) What is the value chain the company needs to build and maintain to serve customers (partners, critical resources for organic growth, relationship with customers, customer service strategy)?
A successful business model offers a customer a better way of doing things than the existing options. It may provide more or different value to a customer segment. Alternatively, it may completely replace the old method of doing things and become the standard for the next generation. Eventually, a business model that offers the best way of doing things will win.
Identify and select forces which make the business model vulnerable
Consistent with the 4 Waves Framework, in this step, we consider trends, uncertainties, and outcomes that we cataloged in the Trends Capture and Landscape capture (link to the article).
The validity of this action depends on the quality of the input. A business model test requires a structured and consistent description of the business model and a good collection of trends and landscape x-ray. The business model needs to be enough clear and comprehensive to be suitable for the check. Describing the company business model clearly, and understandably holds value in itself. Moreover, mitigating the model with trends and landscape analyses provides enormous value. Likewise, collecting and selecting relevant trends and uncertainties can be challenging.
Redesign and validate a business model
After analyzing the weaknesses and vulnerabilities of your business model, I recommend, the next step is to define what you will need to redesign. Recommendations are typically made on how to improve weak components or improve value proposition components. It might require coming back to your customers or users and check the pains, gains, and jobs again, prioritize them and change the focus. For this reason, most companies don't redesign their business models. This action is laborious and time-consuming, but it promises to bring unique business models that not many can find because either they don't know how to do it or are not patient enough.
Validation of the value proposition is the process of collecting data and learnings around the business model through experimentation and customer testing. The goal is to eliminate or rebuild the initial hypothesis. But a business model is not only a value proposition, but it is also customers, distribution, pricing (at least), but also a few other elements which depend on the business you run.
Sometimes customers don't appreciate the product as much as they value getting the job done or, in other circumstances, customers are looking for an emotional bond and not just a product or service, or pure outcome as they are not interested in hiring a product or conducting the service.
Here are the critical questions I ask for redesigning the business model:
- Which elements of the value proposition are not the highest priority for customers?
- How would customers prefer to get the job done through product or service?
- What pain points occur when a client uses the product?
- What else besides the product and service has an impact on customer experience?
- What are the company growth ambitions?
Afterward, the experimentation is essential to finally close the loop between the first and redesigned business model. We hire seven different types of experiments to conduct a full business model valuation process:
a) Failure scanning
b) Comprehension test
d) Qualitative interviews and contextual inquiry
e) Explainer video and currency
f) Smoke testing
g) Single feature test
This step is the first one in the Framework, where product or service features appear as the result of co-creation and intensive dialogue with the market.
After the validation, the 4 Waves Framework brings an action plan. It is always divided into at least 3 sections:
a) Business model economics (should we change pricing, make bundles, deliver new features, kill old features, provide a subscription, get membership or licenses oriented actions, provide time-sensitive access)
b) Customer touchpoints redesign (business model redesign usually change most of the touchpoints with the customer, we map them, design them and bring them to life as features or services components)
c) Create and apply network effects to drive value (user-generated content, marketplaces, adaptability, data networks or builders network)
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