Designing better businesses requires an idea and a process. In this post, I’ve distilled a huge amount of my knowledge on the practical stuff of how to design better businesses.
A business is not something that happens or is copied, it is something that is designed so that it can do the job better than anyone else.
Anyone can make a great product. Creating a powerful value proposition is fairly simple as well. Don’t get me wrong – both require a lot of effort and thousands of hours of work. The process to do it is fairly well known and repeatable. To get ahead now you need to wrap the value proposition in a powerful business model that accelerates growth and disrupts your competition and the market. In this article, I’m going to distil everything I’ve learned about creating powerful business models.
I’ve learned this through practice – running my own and other people’s startups, mentoring some of the brightest entrepreneurs in the world, and by thinking constantly about business models on my daily runs through the wilderness.
As this is a work in progress the page is a little rough at the moment but will be updated each week so that it will be the ultimate guide to creating powerful business models and helping you create the world that your customers need.
Why do you need to do business model innovation
You do business model innovation because your industry is being disrupted, by competitors or environmental changes, or because you want to disrupt an industry, catching the big wave of a new technology being adopted.
Business model innovation is all about designing your business model to have the biggest impact on the market. I’ve put together a list of definitions as to what business model innovation is – some are a bit wordy…
My definition is
Business model innovation is the deliberate process of changing your business model to deliver more customer value and disrupting markets to reduce competition.
Denis Oakley
The reason you do business model innovation is that you want to change the world... the status quo isn’t good enough for you. It’s not easy and your organisation needs to be ready for it as well as having the need.
That said you may be sceptical about the need for strategy and prefer to just get shit done. If you are gung ho, it is worth pausing and thinking about why entrepreneurs need business models. In a word, it’s because business models have the ability to create massive customer value, and then shareholder value.
How to Do Business Model Inovation
Normally we start with the business model canvas, here’s a quick introduction, or if you prefer a small video-based course.
The business model canvas is a simple A4 sheet where you can sketch the core aspects of your business. It’s like a map – we cut out a lot of detail. At the same time, it shows you what makes you competitive in the market.
The canvas is composed of 9 sections.
You have a problem that you create a value proposition to solve for customers. You reach the customers through marketing and distribution channels and look after them with customer service. In return, they give you money. To do this you need key resources and undertake key activities. You might own or do these yourself, or get them from partners. In either case, they cost you money.
This can be a bit heady, so have a look at all these examples of technology company business models – where you have the business model canvas, a video and a written description.
To Develop a Business Model
It’s good to have a process as often business model design can miss a lot of great options. I’ve sketched out a five-step innovation process and written a short E-book that you can download.
To develop a great business model a great value proposition is important and these questions will help you develop one, but you need to find a worthwhile opportunity to pursue.
At later stages of the business model design process, I do a lot of scenario modelling, some of it quantitative using decision-making tools.
As we develop business models we care about what works, not about what people believe. Marketing may be critically important, or not. There is no dogma. The process is ruled by evidence and inspiration.
The only concrete rule is that we must delight the customer and give them something better than they ever imagined.
Doing it yourself
A good place to start is by trying to sketch out business models yourself and learning how to draw your first business model canvas. You will need to find the right level of detail to make it work. You may want to check out this post on how to create your first business model canvas
You’ll undoubtedly face problems as you develop your canvas, especially as you try to ensure that you create one that is desirable, viable (or feasible) and profitable. It can be easy to think too small as you develop your models. There are many mistakes along the way, which is why a robust process is critical.
What we are looking for are step changes in performance and explosive growth.
Once you’ve completed the business model and mapped it out on the business model canvas. It’s tempting to throw it in a drawer. In reality, it provides an amazing way to develop KPI’s and performance dashboards.
Moving from a Business Model to a Great Business Model
Success is profoundly influenced by the competitive environment, and that, in turn, is heavily influenced by competitors business models.
Technology and Transformation
Legacy businesses have the choice of being digitised or digitalized but business model transformation is often better, if scarier. Product development often seems a safer play and you must always be wary of those who prefer the status quo.
A safe place to start is by looking at current performance seen through the light of the business model canvas. Alternatively, a strategy workshop that you can run yourself may help you move forward.
Entrepreneurs and business model innovation.
There are some mistakes specific to entrepreneurs. In some cases that is due to their readiness or the reasons that they want to start a business. Whatever the reason, business models are critical to their success and avoiding the Wave. I offer plenty of advice on how you can avoid failure based on almost 20 years of mostly dodging that bullet.
