Business models are easy as long as you stick to your current one. But the nature of the future is we will see major industry disruptions. Driven by digitalization and datafication waves hitting markets. This create new challenges for you as a leader to transform your business model. From a clear and well known model into one with more uncertainties and a many iterations before it is solid. Here we will explore the thought processes and tools available to address these challenges?
The transition to a digital/datafication driven business, is often based on disruptive innovations. The innovators are
start-ups or dedicated units within a larger corporations. Both facing the same challenge, i.e. finding the new business model. Classic business plan approaches worked well when you operated in a world with few uncertainties. But the secret sauce in disruptive innovation world often lies in the new business model. Besides finding a model it is about to find it in a lean and efficient way. Lean start-up approaches, to limit the burn-rate in exploratory stages of a new business.
We used to create extensive business plans and detailed business case calculations. The result was often too rigid for most new businesses. It is more valuable if we could articulate the business model on one page. And then fine tune it weekly or monthly as we learn more with our customers how it should work.
The Business Canvas developed by Alexander Osterwalder et al. is a great tool to summarize your business model for a new opportunity. The model allows you to summarize all fundamental ideas on one page, called the business canvas. The model covers 9 different areas of your new business model:
The essence built around the Value Proposition. The forward looking parts covering a) Customer segmentation b) Customer relationships c) Channels and d) Revenue streams. The backward looking parts addressing a) Key activities b) Key resources c) Key partners and d) Cost Structure. Execution of a business modeling project could looks as follows:
Gather all stakeholders for a brainstorming session around a business canvas printed on a large paper. A critical resource is you the moderator, asking the question to the team to advance the articulation of insights. Walk through all 9 sections of the business canvas. Expect gaps in the initial iterations.
Put down creative ideas in the tablet app so you get visibility over the project. Circulate the output to all stakeholders.
Strive to tie each Value Proposition statements to a specific figure. Quantification of the value delivered is a key outcome of the modeling work. Make a high level sizing of the market segments you have picked.
Define the cost and revenue elements. First a hypothesis on if the model would be linear, i.e. same model for costs and revenue. The alternative is to articulate a transformative model, e.g. Fixed cost in, variable price. Iterate with your lead customers until the result is satisfactory. Expect this loop to reach into double digits for most projects.
The biggest benefit with this model is the ability to tie together business ideas and the business cases in the same tool. Before we laid out the business idea in slides and created the business case in a spreadsheet. Now we have one tool for both. We get an overview of the opportunity in one single page. Last but not least we can fine-tune the business model and immediately see the quantitative impact.
Good questions to ask you, when going after a new opportunity, are:
- Can my current business model be used to pursue the new business at hand? – If not you have a larger challenge
- Can we expect competitors to launch disruptive business models for this opportunity? – You should always consider the option someone would consider to do it.
- Which questions should I be able to ask to drive generation of powerful new business canvases? – You will have to be the master of getting the best out of your team.
For additional insights on business model generation I suggest
- Why the lean start-up changes everything [BLOG and PDF] – by Steve Blank (@sgblank)
- Business Model Generation [BOOK and TABLET APP]– by Alexander Osterwalder et al. (@AlexOsterwalder)
- The Business Model Innovation factory, how to stay relevant when the market changes [BOOK] – by Saul Kaplan (@skap5)
- The lean start-up [BOOK] – by Eric Ries (@EricReis)