Much has been written about desirability, how it is important to learn about how your customer views the world and design solutions that really fit their needs. Eric Reis and Steve Blank introduced good frameworks for prototype and testing in their lean startup model, helping to determine feasibility of the solution.
For viability, we have the business model canvas. Which is a great way to capture one snapshot of your business model, something that most startups do when they launch their company. However your business model needs to evolve along with your innovation. And when more established companies explore new business ideas, they should not be afraid to expand to new business models.
A Missed Innovation Opportunity
I remember the first time I realized my business model should be part of my innovation. We had designed a great experience for our customer and had a first operational prototype that provide a unique way of delivering the experience. But trying to fit that solution into our existing business model would break the experience.
Ours was a box business – we sold physical products. Sure, we also sold services, and sometimes we would bundle them together and call it a “solution”. But they were separate from each other and truth be told, anyone could deliver the service; there was nothing unique we were doing that distinguished our experience from anyone else.
For our new innovation, the service was the solution, integrating in the product components that were needed to deliver the experience. We built an operating model that would be tough to match, one that we were uniquely positioned to deliver. But the existing business model that started with selling a product and then adding on services would break our solution apart, making it easy for others to replicate. If we stuck with the old business model, our solution would not be unique, no longer an innovation.
This is a classic example of how organizational norms can kill innovation. There is a misnomer that an innovation is just the idea, a new product or technology. To deliver the innovation, the business just needs to get it in the hands of the user, right? Perhaps that worked 100 years ago but today, customers are looking for a total experience and it takes innovating the business’ operating model to deliver it. This may sound hard and overwhelming but its really not as long as 1) you build from your current operating strengths (part of your test for feasibility) and 2) you make iterating your business model part of your innovation learning loop.
Business Model is a part of Innovation Strategy
My colleagues at Innovation Catalyst Group introduced me to the practice of decision making using strategy tables, and I found it worked really well for iteratively building your business model and testing for viability. A strategy table takes one element of your business model and explores different ways to structure the business.
Take pricing for example. For our solution, we could sell a list of products separately (the IKEA model), we could integrate them together and sell them bundled with a separate monthly service fee (the Maytag service model) or we could just charge a monthly service fee that also included a leasing fee for the products (the BMW leasing model).
To use strategy tables for developing your business model, create a separate list of choice points for each element of the business model canvas – key activities, resources, channels, partners, etc. Spend time brainstorming each separately to break out of the mold of what you currently do to explore different ways you could deliver the experience to the customer. If there are other key choice points to make for your business, for example how the new solution fits with your existing product line, create a strategy table for this component of your business operations.
Once you have a strategy table for each area of the business model, brainstorm a list of different market positions you could take. For example, do you deliver the lowest cost, the highest value, the best ecosystem, etc. Take into account your current brand and how you are currently positioned in the market. Ideally one of positions is very consistent with your brand but you also want to explore ways this innovation could grow your brand.
Now take the list of market positions one by one and carry it through the choice points in your business model. If you deliver the lowest cost, what choice would you make for key activities, resources, channels, etc.? Each of these represents a different business model for your solution; often we discover a hybrid model that represents a mixture of a couple different market positions works best for the customer experience we want to deliver.
Don’t try to analyze your choices too much; go with your instincts. If you feel like you have 2 competing business models, see if you can get some feedback from your customers. How would they feel about you delivering your innovation one way vs another? And be sure to keep all the work you did for this round because you will want to iterate on your business model in your next innovation learning loop.