How To Design Your Own Business Model So You Can Do Business Things
You might’ve heard the words ‘business model’ a couple of times, especially if you have a friend who’s developing the Uber for [insert pretty much anything]. And in a climate where startups and being your own boss are reaching fever pitch, the term ‘business model’ gets thrown around a lot. But what does it really mean? And how the hell can you design a good one?
A business model is an explanation for how value is created, delivered, and captured. When people talk about creating the “Uber for cat biscuits” they really mean they’re using some resources to create a platform that connects cat biscuits with cats, via some sort of feline application, and make some money by taking a % of each biscuit transaction.
Whether you’re starting your own business, working for someone else’s, freelancing, or just interested in how the world makes its money, business model design is a skill that you might like to learn.
Everything in business comes down to one question:
Where is value created?
It’s a seemingly simple enough question, but the simplest questions are often the most difficult to answer. No sooner will you have started thinking about that, before you think, ‘but what is value?’
We spend our time (and money) on the things we value in life. The best way to think about this value is to think about the things that help you get stuff done. Laptops, for example, are super valuable for a lot of people – not because they’re artfully complex combos of gold, silicon and machined aluminium – but because they can be used to read, write, watch movies, make movies, make budgets, spend money, make money, talk to friends, connect to the rest of the world, run a business, store photos etc.
Whenever the word #innovation comes up in conversation, or if we start thinking about our new business venture, we tend to lock on – almost instantly – to new technology, or new products or even new channels (DRONE DELIVERY!). This is a red herring. Value has got nothing to do with how new, or fast, or cheap something is, and everything to do with how you help people get stuff done/save them time/provide convenience and ease.
Clayton M. Christensen (Professor of Business Administration at Harvard Business School) made a pretty good point when he said that “we don’t buy products and services, we hire products and services to do jobs for us.” Need them Friday feelz? (an emotional job) – hire yourself a nightclub! (the cost comes down when about 5000 other people go with you). Need to sleep somewhere safe and not be exposed to the rabid Melbourne winter overnight? (a functional job) – hire yourself an apartment!
To really understand how to create value, you have to understand people. That’s where ‘design’ comes in.
How to design a killer business model
Step One: Understand the people you want to create value for (your customers)
You should know these people better than they know themselves. That is the mark of a true entrepreneur.
The foundations of ‘design thinking’ are set in empathy. This means spending some time better understanding the people that a problem affects and figuring out if that problem is actually what the person needs solved, or if it is just something standing between them and what they really need to do.
Before you even start designing a business model, start by unpacking what it is you’re really trying to do for a person. You can use our tools to help you with this.
Step two: develop a Value Proposition
Er, what is a value proposition?
The value proposition is both what you sell as a business, and why a customer needs it. In other words, it’s the plan at the core of a good business model.
Your value proposition should also unpack how your products and services overcome any problems or pain points, and articulate how you plan to maximise the benefits or outcomes to your customer from getting the job done with you.
Change your thinking: When we start to think about how to get the job done – instead of some product of technology that we’re interested in – our options suddenly explode. You can hang a picture with a hammer and nail, or a 3M sticky hook, or you could hire someone to do it for you. These are three different product categories (adhesives, hardware, and trades), yet they all get the same job done.
This is the trick to being a good innovator; understanding what people need to do in life (and how that might be changing) then coming up with lots of different options – also known as prototyping – and testing which of those options work (and if anyone would actually pay for them). ]
Now we’re ready for the business model part.
Step three: design that business model
As you work through the business model canvas, you’ll need to bring across the work you’ve just completed on your value proposition, and consider a few more things like:
#1 How do we want to deliver these products and services? How will our customers find us, engage with us, and relate to us?
#2 What sort of relationship do we want to develop with our customers?
#3 What are the most important activities we need to perform to engage our customers and run our business?
#4 What equipment or resources will we need to do this?
#5 Can we partner with anyone to provide resources we don’t have (or can’t afford right now)?
#6 How much will this cost us to make or do?
#7 What is getting this job done, or solving this problem worth to our customers? How much will they pay, and when? How often would they buy from our business?
Try to think about the business model canvas as a system diagram where everything is connected – it’s not a checklist.
Once you’ve completed a business model, don’t forget to test it! Constant feedback, validation and prototyping new options is what you need to succeed above almost anything else.
Innovation is a really hot topic at the moment, and you’d be forgiven for thinking it was just about robots, electric cars, apps and startups. Just remember that whenever you want to think about innovation and new business ideas, take a step back and think about who you’re trying to help and how you’re going to create, deliver and capture value.
Ben works at the intersection of culture, technology, design and strategy. He is a Strategy Designer at Business Models Inc where he helps organisations better understand how they create, deliver and capture value through Business Models Generation & Value Proposition Design. Catch him on Twitter @benhamley.