Three Tools to "Design Think" your Business Model
At Peer Insight I get the opportunity to talk to a lot of companies and individuals who are fluent in design thinking — but many are only applying this practice to one side of challenge: the user side. Although there has been much discussion around using design thinking on your business model, it seems that few people are actually integrating it as part of their practice.
How might you begin to fuse design thinking into your business model development process?
Let’s pretend you work for ABC company. You’re doing your core business well, but have customers with unmet needs. To that end, your team is thinking of ideas for new offerings. So, you’ve done research with customers, hosted an ideation session and developed a few VERY ROUGH, high-potential concepts. You've even developed a value proposition, like the template below, for each.
But wait! Before you go further, complete these three activities as a way to start to "design think" the business model for each of your high-potential concepts.
Activity 1: Do a Reverse Income Statement (RIS)
Remember, your ideas are a rough draft that you’ll test through prototypes. You don’t know what the final concept will be — it could be a concierge-style service or maybe a peer-to-peer sharing platform or possibly even a behavior change app — but you do know what ABC leadership expects of this new offering. It might be that this new project needs to make $50M by its second year. Or you may be charged with serving 30K new customers within two years.
Whatever it is, this success metric will be your goalpost. Write that number in the “margin” box you see in the template below. Then, do a back-of-the-envelope estimate of the costs and revenues. While it will feel really awkward to do this exercise so fast, spend no more than two hours working on your reverse income statement. Otherwise, you might start to believe that you’re actually right. Activity benchmark: try to stick to a single Excel tab and one which you can view on the 100% setting without scrolling.
Here's what a marked-up RIS might look like:
Activity 2: Identify Three Key Assumptions and Test Them
Your concept is a hypothesis, based on great guesses. To help get your concept and your business get closer to viable, review both the value proposition and the reverse income statement. Then, identify three assumptions you’re making about your business. Write them down and, for each, brainstorm one way you can test whether that assumption is true or false. For example, an assumption might be: customers will buy this product or service online. To test this assumption, you'll have to find a way to run an experiment (in less that 30 days) to prove that an online sales channel is viable. The experiment for this assumption might be a Google Adwords campaign or possibly a mock landing page. Be creative!
Activity 3: Get out and talk with potential partners
You will likely have a group of folks, both inside and outside of ABC company, who will help you deliver this new offering to your customer. These stakeholders are customers too! So get out in the field and ask them about their unmet needs. Just like you'd interview and observe your end-user, seek to identify pain points and moments of delight. The insights of these stakeholders will be invaluable in helping you design a sustainable business model. They’ll help develop possibilities for your business model that you never saw coming. Try showing them a storyboard or doing a card sort. Both activities are very engaging and I promise even the most serious of business folks will enjoy conversations using stimulus like these.
Questions or comments? Post 'em below or message me: @natalie_s_foley