Business Modelling

Business Modelling is one of the most creative parts of a Business Design project. We start developing a Business Model in the Design Workshop. Learn more about the DNA of your Business Model, how you unveil your magic and which tools help you to do so in this article.
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Bernhard Doll

Business Design Maverick

1. Purpose

Now it is time to translate your insights from the Discover Phase into a solid business model that describes how value is created for both the customers and the company. For this task, it is essential that you have gathered a range of interesting insights you can work with. No creativity technique can replace a robust understanding of your innovation context incl. the world of your customers, technology, competitive landscape etc. The key activities are already outlined in the Design Phase. Here we want to get a bit deeper.

We start designing a business model in the Design Workshop, but this is just the starting point. We usually need more time to think about important details. See below for more information.

In Business Modelling we try to design new business from a holistic point of view considering all relevant building block that are necessary to build a successful business. We basically think about the following elements:

External view:

  • Target groups incl. customers & users

  • Primary customer and user segment

  • "Job(s) to get done" of primary customer

  • Pains and gains

  • Brand & messages

  • Marketing & sales channels

  • Customer relationships

Offerings:

  • Products & services

  • Core value

Internal view:

  • Key resources and processes

  • Partners

  • Partner channels

  • "Unfair advantage" of the organisation

Financials:

  • Charging patterns

  • Revenue streams

  • Operating expenses (OPEX)

  • Capital expenses (CAPEX)

"Magic factors": See below for more information

Keep in mind: A business model is NOT a business case. Forecasting future revenues, expenses, earnings etc. is important but only half of the story. You first need to understand what your business may look like before you start crunching numbers. A business case is "just" the financial projection of a business model.

We use the Business Model template to quickly visualise such models in a Business Design project. However, we usually don't start this way but use a reduced version of that template to create a variety of options that can be discussed, compared and evaluated in a team. Here we focus on the elements from the list above that are written in bold. Use simple "Idea Cards" with these elements. After the selection of one of these options, we extend ideas to a complete business model. For additional inspiration, we sometimes refer to so called business model patterns that highlight certain business model principles that might help a team to spice up their models.

2. Business DNA

A very important aspect of every business model is the so called "Business DNA". It is the essence of your business model. It consists of a "job(s) to get done" statement for a primary target group, "Core value" of the offerings and the "unfair advantage" of the organisation incl. value creation network.

Job(s) to Get Done

The term "job(s) to get done" is the fundamental unit of analysis for customer-centered innovation management to build products, services or even business models that fit to the world of customers. Clay Christensen, a professor at Harvard Business School, who coined the term the first time described it like this:

With few exceptions, every job people need or want to do has a social, a functional, and an emotional dimension. If marketers understand each of these dimensions, then they can design a product that's precisely targeted to the job. In other words, the job, not the customer, is the fundamental unit of analysis for a marketer, who hopes to develop products that customers will buy.

Clay Christensen provides a wonderful explanation of a "job to get done" in this little video. A good "job(s) to get done" statement is usually structured as follows: 

When___, they want to___, so they can___.

Keep in mind that different job(s) need different solutions. Add as many details as possible to the context of your customers’ situation to design offerings that really help them getting their job(s) done. The following picture may illustrate how different levels of details in a "job" statement lead to to different solutions or offerings:

"Job(s) to get done"

→ Offerings

Level 1

"When I am hungry..."

Restaurant with tasty food

Level 2

"When I am in a rush and hungry..."

Fast-food restaurant

Level 3

"When I am in a rush, starving and on the go..."

Fast-food restaurant with drive-through

Level 4

"When I am in a rush, starving, on the go and need something I can eat while driving my car..."

Fast-food restaurant with drive-through and packing that can be handled with one hand

The better you understand the job(s) of your customers the easier it is to design new products, services and even business models. To design more radical innovation, don't use the obvious "job(s) to get done" statement directly related to people's everyday life. Keep asking WHY the "job(s)" is important and relevant to them to get to deeper levels of thinking and tackle these challenges.

Core value

The "core value" always refers to the value offerings create for preferred target groups and answers the following question: What value do you create for customers and users to get their job(s) done after experiencing the benefits of your offerings? Imagine you interview customers after using your offerings for some time. What do they say? Maybe that the offerings have saved time and money, created some kind of convenience, joy or the possibility to grow personally. Good "core value" statements are precise and measurable:

Example:

Our offerings can reduce the lead time of B2B sales processes (for particular customers) by 30%.

Unfair advantage

The "unfair advantage" is the answer to the question: What do you do better than your competitors, or what resources do you have at hand to create specific value, which is hard to copy? The unfair advantage is usually a sort of life insurance for a business model. If everything falls into place as planned and your business model turns into a big market success, others will copy you. The "unfair advantage" may protect your new business since you have something in your organisation that can't be copied that easily. Don't mix up "unfair advantage" with terms such as "unique selling proposition" or "competitive advantage". These terms often refer to the capabilities of a product and not to the organisation creating the product.

What could be an "unfair advantage"? There are many possibilities:

  • Access to customers

  • Brand perception

  • Patents for technology

  • Exclusive partner network

  • Special work culture

  • Financial resources

Sometimes project teams (especially start-ups) find it difficult to come up with a substantial "unfair advantage". Why? Because they are just starting. In this case, imagine what would be an "unfair advantage" in 2-3 years from now and make up your plan how to develop this advantage as quick as possible.

Make sure that the core value fits nicely to the "job(s) to get done" and pain points of your customers and the "unfair advantage" of your organisation. The latter is truly the foundation to create the "core value". If these three elements are an homogeneous unity, the likelihood is high that your business model will be become the success you want.

3. Duration

1,5 weeks (see Design Phase)

4. Key Activities

  • Create variety of ideas: The first step is to turn key insights from the Discover Phase (see Insights Matrix) into a variety of business ideas. Don't ignore your research but really try to find answers to pain points customers have when they are trying to get their job(s) done. Use visual "Ideas Cards" to document ideas and come up with criteria to evaluate your ideas

  • Distill preferred option into a business model: The next task is to extend your preferred business idea to a full-blown business model considering all elements from the list above. Your biggest enemy here is to use abstract and high-level language, since this won't help you carve out the secret sauce of your new business. Try to be as precise as possible. Be a bit extreme the way you describe your business model to convey the key message. Use business model patterns for your inspiration if needed.

  • Visualise for storytelling: Drafting a business model is good, having an (emotional) story to tell is even better. Write down this story that helps you present the business model in a convincing and appealing way. Focus on the “Business DNA” (see above) as the very essence of your business model. The story shouldn't be longer than 60 sec. Think of ways to underpin your story with something visual. This can be a simple movie, sketches, mood boards, a simple landing page etc. Designers and prototypers are the ones who provide the magic business modelling needs at this stage. Learn more about visualising ideas here.

  • Unveil your magic: Every highly successful business model is usually based on a small number of "magic factors" that really make a difference. For instance, the magic of Airbnb.com is to provide an experience to guests of holiday homes that never disappoints. Sounds simple? It's not, since Airbnb deals with over 4 Mio. hosts worldwide with partly no professional background as landlords. Know your magic factors that make a difference and design them in all details. In many cases, the Service Blueprint template is an easy and effective way to visualise your "magic factors".

In many Business Design projects, these "magic factors" are often ignored or neglected. This is not an esoteric discussion. All the important details of designed business models beyond the level of "post-its" are usually shaped after market launch and not in workshops. Let's face the reality! And this is OK except for these "magic factors". We need to design them deliberately, because they will make the difference. And again, these can be simple things such as the way we talk to customers, the way we manage our service center, how we provide customer support in cases of urgency or how customers can order products.