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- Herausgeber: Packt Publishing
- Kategorie: Fachliteratur
- Sprache: Englisch
Globally, 275,000 new business ventures get launched every single day, and ninety percent of them fail. One of the most fundamental reasons for that is that they don’t solve a real market problem that a real market population has, in a way that resonates with that market and sells their solution. Consequently, they struggle to gain traction and attain scale.
In this book, you’ll learn what business models are. Additionally, you’ll find out what business model innovation is and, ultimately, how to use Design Thinking to identify not just a winning value proposition but also bring that value proposition to the market in a way that resonates with customers. In doing so, you’ll be able to unlock maximum value for your business, allowing it to attain maximum scale through growing waves of adopters.
By the end of this book, you’ll understand what you need to do to uncover your target markets’ ‘reason to buy’, as well as how to wrap a winning business model around that reason so that your business can gain traction and achieve scale.
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Seitenzahl: 1100
Veröffentlichungsjahr: 2024
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Designing the Human Business
Leveraging Design Thinking to craft powerful and innovative business models
Anthony Mills
Designing the Human Business
Copyright © 2024 Anthony Mills and Packt Publishing
All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, without the prior written permission of the publisher, except in the case of brief quotations embedded in critical articles or reviews.
Every effort has been made in the preparation of this book to ensure the accuracy of the information presented. However, the information contained in this book is sold without warranty, either express or implied. Neither the author, nor Packt Publishing or its dealers and distributors, will be held liable for any damages caused or alleged to have been caused directly or indirectly by this book.
Packt Publishing has endeavored to provide trademark information about all of the companies and products mentioned in this book by the appropriate use of capitals. However, Packt Publishing cannot guarantee the accuracy of this information.
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First published: October 2024
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Published by Packt Publishing Ltd.
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ISBN 978-1-83508-494-6
www.packtpub.com
This book I dedicate to my lifelong partner, Susan Mills – my wife and confidante – without whose support I would not be where I am today nor have accomplished all that I have. She has given me a lifetime of encouragement and support, and for that, I am eternally grateful.
Contributors
About the author
Anthony Mills is a leading global authority on strategic business innovation. He spent over 30 years working in industry, where he led innovation efforts for a broad range of organizations, spanning the Fortune 100 to the entrepreneurial. For the past decade, he has consulted all over the world on strategic innovation, while also serving as the executive director of Global Innovation Institute, the world’s leading professional certification, business accreditation, and membership organization in the field of innovation. He previously authored or co-authored five other books on innovation. He also serves as an advisor to start-up accelerators in both Europe and the Middle East. Learn more about Anthony at www.anthonymills.com.
In writing this book, I had the wonderful privilege of interviewing a cohort of incredibly insightful business leaders – each of whom I wish to acknowledge here. They are as follows:
Dev Patnaik, CEO, Jump AssociatesMarc Payne, Co-Founder and CEO, Electric InnovationBob Moesta, President and CEO, The ReWired GroupErica Eden, Founder and CEO, Citizen CollabLisa Rose, Principle in CX Strategy, City InnovationsLarry Faragalli, Co-Founder and CEO, BrightlyShawn Crowley, Co-CEO, Atomic ObjectKevin Budelmann, President, PeopledesignKerry Bodine, CEO, Group of HumansVijay Kumar, Charles Owen Endowed Chair in Design, IIT Institute of DesignCara Antoine, Executive Vice-President and CTO, CapgeminiDr. Marc Sniukas, Strategy Advisor + Facilitator, Executive Coach, and Keynote SpeakerAnn Asensio, Vice-President of Design Experience, Dassault SystemesRyan Anderson, Vice-President of Global Research and Planning, MillerKnollMohammad Musleh, Zone Digital Services and Solutions Leader, GE HealthcareKen Milman, Senior Consultant in Digital Transformation, Marriot InternationalDavid Dombrowski, Head of R&D Packaging Open Innovation, HaleonAbout the reviewers
Mike Pinder is a cross-industry sustainable business and innovation consultant, trainer, thought leader, author, lecturer, and international keynote speaker with over 15+ years of experience. He’s driven by using innovation to leave the world a better place than we found it. He is the founder of consultancy Explorer Labs, co-founder of research center Wicked Acceleration Labs, Honorary Practice Fellow at Imperial College Business School, Member of the Board of Advisors at Global Innovation Institute (GInI), and Exec-Ed course author at Open University. He consults and leads at Fortune 500 organizations using approaches such as Design Thinking, Wicked Problems, Systems Thinking, Lean Start-up, and Business Model Innovation in both B2B and B2C contexts and has trained over 4,500+ executives globally.
Lisa M. Rose, MPA, seamlessly blends classical anthropology with cutting-edge technology, creating innovative solutions across various industries. With a career spanning over two decades, she has made significant contributions as a strategic leader from start-ups to large enterprises, addressing complex challenges in economic, environmental, and social domains. As a respected alumna-in-residence at Grand Valley State University, Lisa has shared her extensive knowledge of public administration and nonprofit management, enriching the academic community. Her work in Design Thinking and customer experience further showcases her versatile skill set, positioning her as a true polymath who bridges diverse fields to promote a deeper understanding of our world and drive progress toward a sustainable future.
Finbar OHanlon is an Imagineer, Inventor, Entrepreneur, and Coach with over 25 years of experience in creating and commercializing innovations in the technology, media, and arts sector. Finbar led one of his inventions all the way from idea to IPO on the Australian Stock Exchange. He has lived and worked in 5 countries, been granted 16 Patents in relation to cutting-edge technologies covering the Music, Video, Blockchain, Cybersecurity, and AI areas. He is a subject matter expert on the Australian Human Capability standards and is a Certified Innovation Professional and Chief Innovation Officer from GInI (Global Innovation Institute), USA.
Table of Contents
Preface
Part 1 – The World of Business Model Innovation
1
The Value Machine – What a Business Model Is
What is the purpose of a business?
What is a business model?
What makes for a viable business model?
Why is getting our business model right so important?
How does a business model get used?
Our case study – Intensifi
Summary
Further reading
2
Cogs in the Machine – What Makes Up a Business Model
Understanding the structure of a business model
Introducing the Future Lens Business Model Framework
Framing out the key anchor points of our business model
Breaking our business model down into its constituent parts
Understanding the points of differentiation
Applying our points of differentiation
Understanding the interchangeability of the parts and ensuring the congruity of the whole
Interchangeability of the parts
Congruity of the whole
Examples of novel business models using this interchangeability and congruity
Recognizing and applying standardized business model typologies
Back to Intensifi – What about its business model?
Summary
Further reading
3
Going a New Route – What Business Model Innovation Is
Doing business in a new way
What is innovation?
What is business model innovation?
What makes a business model truly innovative?
Appreciating the history of business model innovation
Recognizing the roots of a movement
What’s changed now?
Why has this changed?
Why does business model innovation matter so much today?
The fading allure of product, service, and experience innovation in isolation
Society’s growing comfort with – and expectation of – new business models
The pace and scale of technological transformation
The implications for business organizations
Embracing technology as a key enabler
Using digital technology as the key enabler for a business model
Addressing the evolving UX situation around us
Ensuring the ongoing scalability of our business
Never lose sight of the human experience – it’s what makes or breaks the technology
Back to Intensifi – what are they talking about now?
Summary
Further reading
4
A Matter of Reason – When, Where, and Why Business Model Innovation Is Needed
Anchoring our setting – the two key scenarios
Scenario one – countering an imminent threat – the defensive action
Scenario two – capturing a new opportunity – the offensive action
Visualizing these scenarios
On disruption – a new breed of disruption powered by business model innovation
On strategy – the relationship between strategy and business model
Unlocking greater value – the Business Model Meta Formula
Why – and for who’s sake – do we leverage business model innovation?
The elements of value
Defining our meta formula – the seven functions of a business model
Unlocking value – a better business model
Back to Intensifi – what’s happening over there now?
Summary
Further reading
5
The Master Designer – How to Dissect Business Models and Develop New and Better Ones
Understanding the process workflow
Defining our goal – our starting point
Exploring our surrogates to create a baseline
Is our goal aspirational enough?
Optional – but not really
Moving on
Moving forward
Dissecting, deconstructing, and critiquing our surrogates
The trick – two different, yet complimentary, perspectives… structural and functional
Our goal – to understand and critique what has been done before
The inter-dynamics – our great effort yields truly powerful new insights
Abandoning the past – reframing our situation and reimagining a better future!
Starting over – reconstructing a far better business model
Step 1 (our starting point) – first principles and trends
Step 2 – building out our new business model options
The “secret formula” that we must always keep in mind
The tools – using them
Stress testing our options
Developing our customer scenarios
Running our (simulated) stress tests
What we’re looking for
Rinse and repeat
Finished – at least for the moment
What really matters
What if this doesn’t work and we don’t find a winner?
Executing our business model
Facing the music
How to – corporates and start-ups
Understanding our business model versus having a business plan
Back to Intensifi – where are they now (given all of this)?
Summary
6
The Business Model Toolbox – An Evolution of Tools for Business Model Innovation
The Business Model Wheel – 2005
The Innovation Radar – 2006
The Business Model Canvas – 2010
Take 1 – the Business Model Canvas
Take 2 – the Value Proposition Canvas
Lean Canvas – 2010
Tool 1 – the Lean Canvas
Tool 2 – the Experiment Canvas
Business Model Innovation Factory – 2012
The Peter Thomson Value Proposition Canvas – 2013
The Ten Types of Innovation – 2013
The Future Lens Business Model Framework – 2015
The Business Model Meta Formula Canvas – 2015
The GInI Business Model Canvas – 2016
A comparison of tools
Our takeaway
Back to Intensifi – where are they at this point?
Summary
Further reading
Part 2 – The World of Design Thinking
7
Thinking Like a Designer
Design Thinking defined – key insights and why they’re important
Defining Design Thinking
The trouble with traditional innovation practices
Our Problem Space always precedes our Solution Space
One historical meaning – design “thinking” versus design “doing”
Yet another meaning – “thinking like a Designer”
Human-centered design – the philosophical foundation
Design Thinking’s superpower – reframing problems
Understanding and achieving our intermediate goal – empathy and the empathic understanding
Pursuing our intermediate goal – human empathy
Achieving our intermediate goal – empathic understanding
Understanding and achieving our ultimate goal – a reframed problem
Reframing – seeking a more fundamental level of outcome need
Our momentary win – the reframed problem
The takeaway – what Design Thinking means to us
Some important sidenotes on Design Thinking
A bit of history on Design Thinking
Documented successes of Design Thinking
Applying Design Thinking properly – with no suppositions about the solution
The criticisms of Design Thinking
A broader conceptualization – Humanity-Centered Design
Back to Intensifi – where are they now in all this?
Summary
Further reading
8
Thinking Like a Scientist – Centering Our Design around Humans
Becoming a Design Thinking Behavioral Scientist
Our task as Design Thinking Behavioral Scientists
Turning Behavioral Science into our secret weapon
Dealing with human irrationality
The Human-Centered Design Hierarchy – Understanding Human Needs
Psychological insights – the science of human motivation
Applying the HCD hierarchy
The final caveat
Understanding the real outcome – the job to be done
Outcome-Driven Innovation® and Jobs-to-Be-Done
The Job Story
Demographics versus psychographics – the roles they play (and don’t play)
Supply side versus demand side innovation – an interview with Bob Moesta
Breaking down jobs – functional / emotional / social / transformational
Principle one – outcomes are the only thing that matters to our customer
Principle two – there are four types of jobs we have to satisfy
Principle three – each job plays a specific role and has a particular significance
User benefits versus product attributes
Becoming the hero of our own story – an interview with Lisa Rose
The Transformation Economy
Our takeaway
Meanwhile, back at Intensifi…
Summary
Further reading
9
Acting Like a Designer – The Design Thinking Process in Application
The Design Thinking process – stages, steps, and micro-learning cycles
Exploring and understanding the five stages of Design Thinking
The five discovery skills
From process to methods
The Design Methods – powerful ways to observe, study, and understand
Categorizing the Design Methods
Sequencing the Design Methods
Applying the Design Methods
A deeper look at the Observe Methods
A deeper look at the Question Methods
A deeper look at the Experiment Methods
A deeper look at the Study Methods
Embracing the value Design Methods offer
Knowing how to select the right Design Methods to use
Creating our Insights Plan
Prototyping in Design Thinking – a critical element in the process
Making prototyping inherent to how we operate in Design Thinking
Understanding the different purposes of prototyping
Two important considerations about prototyping
Understanding the different types of prototypes
Prototype application and fidelity
When in doubt, prototype and test – the undeniable power of prototyping
A little help – how Generative AI can help us
As a resource for more comprehensive insights
As a stimulus for enhanced imagination
Not as a direct resource for novel ideation
AI hypothesis testing – a new era for lean startups
The long-term risks of using AI in our innovation work
The near-term and long-term ethical risks of using AI
Back to Intensifi
Summary
Further reading
10
Working the Problem Space – Up and Down the Mountain
Divergence – hypotheses formation – or what could the need be?
Appreciating Intensifi’s goal at this point
Revisiting who Intensifi’s subject is
Intensifi’s learning plan – 8 Design Methods
Their results – the official hypotheses
Business experimentation – deciding and planning how to test our hypotheses
Understanding Intensifi’s goal at this point
Intensifi’s test plan – 16 Design Methods
Convergence – hypothesis testing – determining the real need
Understanding Intensifi’s goal at this point
Intensifi’s testing work – the 16 Design Methods
The result – Intensifi’s new insights
Summary
Further reading
11
Intermission
Our Point of View on the problem
Taking stock of where we are now
Understanding the Point of View – what it is
The Point of View must remain fluid (for now)
Using Design Methods to define our Point of View
The outcome – Intensifi’s final, formal Point of View
Confident… but still aware
Our Design Principles for the solution
Taking stock of where we are now
Understanding Design Principles – what they are
Defining the Design Principles
Confident but still open-minded
Is this still a problem worth solving?
Going forward
Summary
12
Working the Solution Space – Up and Down the Next Mountain
Divergence – solution ideation – what could be the best solution
Appreciating Intensifi’s goal at this point
Recalling the need to begin unbounded – with no presuppositions
Intensifi’s ideation plan – 12 Design Methods
The final outcome at this point – the new solution concepts
Validation – deciding and planning how to test our options
Convergence – solution testing – finding the best solution
Appreciating Intensifi’s goal at this point
Intensifi’s validation plan – seven Design Methods
Taking stock of the situation
Hitting a roadblock – their unexpected result and a major U-turn
Accepting iteration – a normal part of Design Thinking
Seeing the new factors they missed before
The detour – going back to the Define step – their new testing plan
The result – Intensifi’s new insights
Back to the Problem-Solution Interface stage… again
And now back to the Ideate step – their new ideation plan
Defining their new concepts
Finally, back to the Test step again – their new validation plan
The outcome – Intensifi’s winning solution
Summary
13
Design Thinking’s Final Act (So Far) – Our New Solution
All Done (For Now) – Here’s Our Solution
Recalling Intensifi’s solution
A solution versus a business – appreciating the difference
Envisioning Intensifi’s value proposition – the Value Proposition Canvas
On to the Unique Value Proposition
The final outcome – a Unique Value Proposition plus a winning solution to back it up
Where do we go from here?
A quick peak in on Intensifi
Summary
Part 3 – The Worlds Merged
14
Back to Business Model Innovation – à la Design Thinking
We have a solution… now what?
Back to Design Thinking – once again
Design Thinking the rest of our business model
Our new Problem Space – what business model does our market need?
Exploring Intensifi’s Market Connection Model
Exploring Intensifi’s Sustainable Competitive Advantage
Exploring Intensifi’s Sales Model
Exploring Intensifi’s Profit Model
Exploring Intensifi’s Business Innovation Model
Exploring Intensifi’s Risk Mitigation Model
The combined Design Principles and answers to our remaining structural questions
Achieving an internally congruent business model
Our new solution space – the one best business model
Step 1 – Using this process to ideate
Step 2 – Using this process to test
Leveraging the Lean Canvas
The outcome – a new business model that delivers
Defining the Unique Value Proposition
Defining the Market Connection Model
Defining the Sustainable Competitive Advantage
Defining the Sales Model
Defining the Profit Model
Defining the Business Innovation Model
Defining the Risk Mitigation Model
Completing the structural business model
Understanding the role of metrics
Is this the right business model?
Are we done now?
Summary
15
Execution – Bringing Our Business Model to Life
Preparation – preparing to execute our new business model
Starting out (together)
Defining the basics
Defining our initial go-to-market strategy
Developing our venture’s primary solution
Seeding our venture’s new ecosystem
Securing the necessary funding
Going to market – executing our new business model
Where our real learning begins
The Lean Start-up transition
Following through – tracking and adjusting our business model
Common measures of business model performance
Converging on a final business model
Intensifi’s path to market
The solution
The go-to-market strategy
The ecosystem
Their big dilemma
Intensifi’s Expert Advisor Marketplace
The resultant symbiotic business model
Intensifi Academy – one last twist
Intensifi’s Day 1 – the launch
Intensifi’s Day 2 – the evolution
Intensifi’s Day 3 – the future
Summary
Further reading
16
The Final Outcome – Consistent Ongoing Success
Appreciating the final and repeatable outcome of this process
A broader extension of the Design Thinking process
A very repeatable – and institutionalize-able – process
Making this process happen consistently in your organization
Applying the guiding principles
Undertaking the necessary activities
Applying human-centered business model innovation to digital transformation
Avoiding the big mistake of “digitalizing today”
Starting over – going back to first principles
It’s inherent in Design Thinking
Winning today, tomorrow, and the day after tomorrow
Understanding the respective purposes of foresight and futuring
Merging these with human-centered business model innovation
Reflections – what about the future?
Tenet one – our future is human
Tenet two – humans operate in tribes
Tenet three – technology will increasingly aid us
Tenet four – human-centered business models will become increasingly important
The takeaway – how can, and should, we evolve alongside this?
Intensifi – outstanding results and a very repeatable process
Summary
Further reading
Index
Other Books You May Enjoy
Preface
By now, most have heard of Design Thinking and human-centered design… trying to put one’s human subject at the very center of their design efforts so as to develop empathy for them and their situation, and then develop solutions that meet their true needs. Many have also heard of business model innovation… innovating one’s overall business model so as to unlock massive new value that’s not currently being achieved. However, has anyone ever truly explored how to marry these two together, or how to use them as one practice to create powerful and innovative business models that unleash massive new value by being truly human-centered all around? The answer is “no”… not until now.
This book does precisely that. It first explores the world of business models and business model innovation, so that we have the foundation needed to build on. We come out of this knowing when, where, and (most importantly) how to innovate our business model to unleash massive new value. It then explores the world of Design Thinking – including a deep dive into understanding the human psyche and a step-by-step journey through this process via case study. We come out of this knowing what Design Thinking is and how we can use it to develop empathy for, and an empathic understanding of, our subjects – so that we can then develop solutions that address their true needs and the deeper human aspirations and motivations belying them.
The book then marries these two worlds together. It does this by demonstrating how to use Design Thinking, with its processes and methods, to craft each of the functional elements of our business model so that they are human-centered. This results in a coherent business model whose every attribute is centered on our human subjects and their unique needs. That, in turn, results in the greatest possible chance of success for whatever new business venture we’re using the business model for.
The book also shows us how to institutionalize this holistic process inside of larger organizations – so that we can scale it broadly to all of our new venture creation efforts. It finishes by looking at what our future holds, which is actually more human businesses. We invite you on this journey with us.
Who this book is for
This book is for any business leader who has responsibility, in whatever form, for launching powerful and innovative new business ventures.
This includes the following:
senior executives in corporate settings with responsibility for identifying, developing, launching, and scaling new lines of business for their organization;other leaders and contributors in business environments who share in some way in the responsibility for defining, developing, launching, and scaling these new lines of business;corporate intrapreneurs trying to develop new corporate ventures – including spin-outs and spin-out/spin-ins – on behalf of their organization;entrepreneurs looking to capitalize on new opportunities by launching entirely new business ventures (startups) on their own.Each of these roles can, and will, benefit immensely from the knowledge and insights shared in this book.
What this book covers
This book is divided into three parts with sixteen chapters altogether. They are as follows.
Part 1: The World of Business Model Innovation
Chapter 1, The Value Machine – What a Business Model Is, provides an exploration of what the business model is, and the role it plays in empowering organizations to both deliver and capture value from their activities in various markets.
Chapter 2, Cogs in the Machine – What Makes Up a Business Model, gives a detailed structural breakdown of the business model used to help us understand its respective elements and how they each fit and work together to make the business work the way it does.
Chapter 3, Going a New Route – What Business Model Innovation Is, offers an introduction to business model innovation, including its respective aims and some of its historical uses.
Chapter 4, A Matter of Reason – When, Where, and Why Business Model Innovation Is Needed, takes a look at the situational contexts in which business model innovation is warranted, and what exactly it does for those who pursue it.
Chapter 5, The Master Designer – How to Dissect Business Models and Develop New and Better Ones, provides an introduction to, and exploration of, a specific process for dissecting business models, bit by bit. It also studies their attributes in light of newer goals and objectives, so as to reconstruct a new business model (from the different parts and pieces) that best achieves those newer goals and objectives.
Chapter 6, The Business Model Toolbox – An Evolution of Tools for Business Model Innovation, delves into a historical exploration of the different business model and value proposition tools that have come into play over the past quarter century, including where they each fit into the process and therefore get used.
Part 2: The World of Design Thinking
Chapter 7, Thinking Like a Designer, provides an introduction to the world of Design Thinking and human-centered design, exploring what is at the core of each of these, why so, and how, in general, we are to go about pursuing their aims.
Chapter 8, Thinking Like a Scientist – Centering Our Design around Humans, gives a deep exploration of the human psyche – breaking it down into its respective parts so as to understand what makes humans desire what they do, and why, therefore, they often behave in the ways they do – as well as what that means for us as innovators.
Chapter 9, Acting Like a Designer: The Design Thinking Process in Application, provides a careful explanation of the Design Thinking process, revealing its respective stages and steps, as well as the goals, objectives, and processes associated with each of those stages and steps. It also includes an introduction to the Design Methods used to support the process.
Chapter 10, Working the Problem Space – Up and Down the Mountain, takes a vicarious journey with our case study subjects showing us, in detail, how to undertake the first stages of the Design Thinking process so as to ‘work our Problem Space’ and come away with a properly reframed understanding of our subjects’ outcome needs.
Chapter 11, Intermission, takes another vicarious journey with our case study subjects showing us how, at this intermediate point, to articulate our Point of View and thereafter craft a unique set of Design Principles that we’ll work toward in our new solution.
Chapter 12, Working the Solution Space – Up and Down the Next Mountain, takes a final vicarious journey with our case study subjects showing us, in detail, how to undertake the latter stages of the Design Thinking process so as to ‘work our Solution Space’ and thereby come away with an optimal solution that fully meets our subjects’ outcome needs.
Chapter 13, Design Thinking’s Final Act (So Far) – Our New Solution, provides a closing examination of the resultant solution and the Unique Value Proposition that it supports – including why ensuring that our solution does in fact support a compelling Unique Value Proposition is so important to us.
Part 3: The Worlds Merged
Chapter 14, Back to Business Model Innovation – à la Design Thinking, offers a detailed exploration, via the case study, of how to apply the overall Design Thinking process (and its methods) to our broader business model. It does this by applying it to, in turn, each of the respective functional elements of our business model so that each one is, in fact, human-centered and coherent.
Chapter 15, Execution – Bringing Our Business Model to Life, provides an examination of all the steps we’ll have to take in relation to this process to actually execute our new business model and bring it to life – including the many lessons that the real world will hand us that a conceptual process up to this point couldn’t, and how to agilely adapt to those lessons.
Chapter 16, The Final Outcome – Consistent Ongoing Success, goes into an exploration of how to turn this process into a consistent and repeatable one inside any organization, thereby institutionalizing it as a core competency in that organization – plus a look at what the future has in store for us in this context.
To get the most out of this book
To get the most out of this book, you’ll want to have a strong understanding of business and how businesses operate – including, in general, the value creation and delivery process and the standard workings of revenues, costs, and profits. You’ll also benefit from having at least a rudimentary understanding of innovation practices inside organizations, and where and how those practices fit into the broader strategic aims of the organization.
If you feel deficient in any of these areas, you are encouraged to augment this book with other books on innovation, business models, and Design Thinking, as required.
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Submit your proof of purchaseThat’s it! We’ll send your free PDF and other benefits to your email directlyPart 1 – The World of Business Model Innovation
Part 1 of this book explores business models and business model innovation (BMI). This includes defining what a business model is, and therefore what makes up a business model. It explores in even more detail what BMI is, and the conditions under which BMI is needed.
This part finishes with an explicit process for dissecting existing business models so as to build out even newer and better ones, complemented by an exploration of the different contemporary business model tools and frameworks used to aid in this process.
Collectively, Part 1 gives you all of the background and insights you’ll need to be able to use an approach like Design Thinking to conceive and define an entirely new business model for your particular business aspirations.
This part contains the following six chapters:
Chapter 1, The Value Machine – What a Business Model IsChapter 2, Cogs in the Machine – What Makes Up a Business ModelChapter 3, Going a New Route – What Business Model Innovation IsChapter 4, A Matter of Reason – When, Where, and Why Business Model Innovation Is NeededChapter 5, The Master Designer – How to Dissect Business Models and Develop New and Better OnesChapter 6, The Business Model Toolbox – An Evolution of Tools for Business Model Innovation1
The Value Machine – What a Business Model Is
In your hands, you hold a roadmap – a roadmap that has been designed very carefully to guide you toward using and applying human-centered design in the task of uncovering and deploying the most optimal business model for your situation.
As we will soon see, this will prove crucial to ensuring your new venture – whether in a start-up or an established business – achieves its maximum potential in the crowded marketplace of new offerings around us. Applying what you learn here will ensure your business model delivers exactly what your customers want and need, in a way that yields a maximum return on your investment of time, energy, and resources.
This and the first several chapters of this book lay the foundation for our journey together. In this chapter in particular, we’ll learn what a business model is, why it’s so crucially important for us to get our business model right, and how business models actually get used. These are all points we’ll apply directly in later chapters as we, bit by bit, work through the different layers of business model innovation and design.
Specifically, we examine the following topics:
What is the purpose of a business?: A foundational understanding of why businesses exist.What is a business model?: A foundational understanding of what exactly a business model is.What makes for a viable business model?: Insight into what makes a business model viable, as it relates to producing sustainable profits and positive impacts.Why is getting our business model right so important?: The reasons why every business has to get its business model right if it hopes to succeed.How does a business model get used?: The early prescriptive nature and the later descriptive nature of business models.Our case study – Intensifi: An introduction to our case study subjects and their contextual situation.Don’t worry if any of this feels overwhelming in the beginning. As we work through the book, we’ll be demystifying each part as we go along. In the end, it will all be understandable, manageable, and actionable for you.
What is the purpose of a business?
It is important to start by first laying the groundwork of understanding why one even has a business in the first place – or in other words, “What is the purpose of a business?”
The answer to this is actually quite simple. The purpose of a business is to create value. No business ever lasts that does not create, deliver, and somehow profit from real value. Value here is defined as something that’s important to its recipient because it achieves some specific outcome for them and is therefore desirable to them.
We must also be very clear on whom value is being created for and what their relative priorities are – as this has been a point of serious contention over the past five decades. On September 13, 1970, economist Milton Friedman introduced, via an essay he wrote in the New York Times, the Friedman Doctrine. This doctrine held that the sole purpose of a business is to improve the value of the common stockholder’s equity. From this was born the idea that the sole purpose of a business was to create value only for its shareholders. But over the ensuing 50 years, and with very clear evidence of the degree of harm that so many businesses pursuing that philosophy had caused, sentiments in the business world eventually changed.
This change culminated on August 19, 2019, when a consortium of some of the largest business organizations in the US – under the banner of the Business Roundtable (BRT) – declared publicly that Friedman was wrong… that the purpose of a business is not just to deliver shareholder value but rather to deliver long-term value to all of its stakeholders. This included – in addition to its shareholders – its customers, employees, suppliers, the communities in which it operates, and even the earth and its environment.
We conclude therefore – in agreement with BRT – that you, the reader, must first understand, at the most fundamental level, that the purpose of your business is to create value for its customers, employees, partners, communities, environment, and – yes – its shareholders too. They all matter – and how you choose to prioritize them will in many ways determine how successful and long-lived your business will ultimately be.
What those five decades of experience and wisdom have taught us is that businesses that have focused solely on shareholder value have ended up pursuing extremely short-term (usually quarterly) goals – what has become known as short-termism. This in turn has typically produced very poor long-term value for those very shareholders, such that in the end, some years later, they were actually equity poorer and not equity wealthier.
In contrast, those same five decades have shown us that businesses that have pursued a far more balanced perspective – usually placing customers first, employees second, and shareholders last (as Amazon has), or employees first, customers second, and shareholders last (as Virgin has) – have actually, in the end, produced far greater long-term wealth for their shareholders than any former businesses ever did. This is because customer orientation forces the business to think far more long term – in terms of preserving customer loyalty over the long run for ongoing repeat purchases over those customers’ (and their descendants) lifetimes – thus leading to true long-term wealth creation.
It’s important for us to also understand where this evolution in thinking is headed. To date, it has evolved from shareholders to customers to wider communities. But as we continue to move forward into the future, it’s going to evolve even further – to encompass broader ecosystems at large and, ultimately, the entire planet. The implication of this is that the world we have to design our new business models for is an increasingly complex one, with increasingly complex challenges – ones that demand we think about our new business model from far more perspectives than we ever have before.
You are encouraged, therefore – before doing anything else – to first consider and decide who it is your business will be creating value for and what you believe needs to be their relative prioritization among each other.
Now that we understand the purpose of a business, we’ll turn our attention to the next key question, which is namely, What, exactly, is a business model?
What is a business model?
Quite simply, a business model is the arrangement and use of different mechanisms and activities that we will deploy in our business to determine and act on the following matters:
who we will serve;why we will serve them as such;what we will serve them;how we will serve them that;how we will ultimately capitalize onthis.As such, our business model allows us to do each of the following successfully:
Select our customerDecide and define who we will serve – will it be individuals, families, small businesses, large organizations, governments, or whom? And inside of that, specifically which ones and under what conditions (when and where) will we serve them?Specifically, what markets and market segments do these represent?Define our purposeDecide and define why we intend to serve these parties in the ways we intend to serve them…What is it we are ultimately trying to empower them to do or achieve?Why is that so important to us?Define our value propositionDecide and define how we will serve these customers – through what forms of value…Will it be through products, services, experiences, some combination of those, or via some other form(s) of value?Decide and define – specifically, and on an ongoing basis – exactly what value we will serve our customers (today and in the future) – the specific products, services, experiences, and so on – and in each case, the relevant features, functions, and attributes that define them.Decide and define the specific details behind each of our unique offerings – with respect to their product categories (existing and/or new), the platforms they employ and any product ecosystems that they necessitate, and the specific technologies and service methods they will each use (both now and in the future).Define our brandDecide and define what brand we intend to create – in terms of the specific brand experience we want our customers to have and the unique brand promise (value proposition) we will be making to convey that – as well as what this means to the positioning of our business and its offerings (which in turn infers certain pricing tiers that must equate to the perceived value our customers receive from our offerings).Define our go-to-market (GTM) strategyDecide and define how we will organize our business and its ecosystem to be able to do everything herein.Decide and define the specific channels we will leverage to market to, sell to, distribute to, and otherwise service our chosen customers.Decide and define how we will support our customers, both pre- and post-sales – so as to maintain their ongoing delight and long-term loyalty. This includes how we will find them or they will find us, how we will market to them, how we will sell to them, how we will fulfill their purchases, and how we will otherwise support them throughout and following this process.Operationalize our businessOrganize our business and its ecosystem in the intended ways – so as to achieve everything we’ve decided to do.Utilize specific assets in the conduct of these activities – whether those are our own, those of our ecosystem partners, or some combination of the two.Design, develop, and validate specific forms of value that we’ve decided to provide.Produce and deliver specific forms of value that we’ve decided to provide.Activate and employ specific partners, business ecosystems, and other value networks that we need to use to be able to develop, produce, and deliver these forms of value.Create the brand we intend to become – ensuring we communicate a clear brand message using unequivocal brand language that articulates a unique brand promise to our customers.Deliver on our brand promise – so that our customers actually have our intended brand experience and thereby become loyalists and enthusiasts of our brand.Monetize or otherwise capitalize on the aforementioned activities – to generate revenue in excess of our costs of operations, and thereby produce a profit for the business that we can reinvest back into its ongoing health, growth, and positive impact on the world.That is what a business model is.
Metaphorically, we can think of our business models as a story. Like a good story, a good business model weaves together a narrative about whom we’re serving, why we’re serving them, what we’re serving them, and how we’re serving them – as well as how we hope to prosper ourselves from doing so. And like a good story, it has a great ending with an enlightening win-win outcome for all the “good guys” involved!
As can be appreciated from this explanation, business models can be very complex and involved – and there are certainly a large number of options that we can select from for any one of these areas and activities. Given this, it should be quite clear that in any given business situation, the number of permutations this permits can be astronomical – resulting in what can quickly become a bewildering array of questions to answer.
In most cases, we will already have some general sense of the answers to some of these questions – such as who we intend to serve and why we desire to pursue that particular customer and situation. But many others of these questions may be completely non-obvious to us, leaving us in the dark as to where to turn for optimal answers to them – and thus, the purpose of this book. It’s also helpful to keep in mind that a business model exists to serve some concept… it’s what allows us to bring that concept to life and deliver it in a way that creates new value, but it is not an end in itself, and, therefore, we should never treat it as such.
Now that we understand what a business model is in its basic essence, let us explore the question of what makes for a viablebusiness model.
What makes for a viable business model?
As we look at the set of activities noted earlier that our business model will define, it is the last of these – how we monetize and/or capitalize on the value we deliver (or how we commercialize our offerings) – that is ultimately most important to us.
If we do not have a viable means of converting our capital, energy, and material resources into a real financial stream that exceeds our costs of capital, energy, and resources – so as to produce a profit – then our business model is not viable – and all of its other points are entirely moot and for naught. The same can also be said of its impacts on societal and environmental planetary needs; if it does not produce positive impacts, and in so doing avoid negative impacts (perhaps in keeping with regulatory legislation), then our business model is once again not viable and we need to abandon it for one that is viable.
Ultimately, businesses experience one of two outcomes – either they make a profit or they make a loss – there is no in between (break-even is not considered a robust or reliable state as it will not last forever). If our business makes a loss for long enough, then it will deplete whatever capital reserves it has (which are used to secure its energy and resources). This clearly is unsustainable. If, on the other hand, our business consistently makes a profit, then that profit can be reinvested back into growing our business and its positive impact on the world. The only viable and sustainable option of these two scenarios is to make a profit!
I invite you, if you will, to recall back to the dot-com bubble of 1999. What happened there was that so many investors and entrepreneurs were so utterly enthralled with this new platform called the Internet and the World Wide Web (they were drunk on its technology) that they jumped head-long into new businesses on the platform without ever bothering to try to stop and ask themselves, “Wait… how are we going to make money on this?” They simply assumed that just being on the internet meant that would somehow magically make money and keep going. It wasn’t until after being there for some time that they all started to realize, “Wait… we aren’t making any money at this… that stinks… how are we going to keep going at this if the investors don’t keep propping us up and giving us more runway?” But a runway – even an extended runway – only lasts for so long when one doesn’t have a viable business model. And so, consequently, it all came crashing down in late 1999 when the dot-com bubble burst.
But the internet itself hasn’t been alone in this. There have, in fact, been many other technologies too – cryptocurrency, non-fungible tokens, and many others – that have had parties just jump in without first having a viable business model in hand. The thinking is usually that their need to act fast and be a first-mover outweighs their need to have a worked-out business model… that if they wait until they have a worked-out business model, they’ll miss the first-mover window of opportunity that currently exists and may never have that opportunity again. Sometimes that is, admittedly, true, and sometimes things do, in fact, work out that way, but they are certainly the exception and not the rule (except in very fleeting technologies such as certain electronic hardware).
The problem – and the reality – in these cases is that the markets are just too new and involve too many new unknowns for anyone to really know for sure which business model is going to work best for it. But – as investor Peter Thiel points out repeatedly in his 2014 book Zero To One (paraphrasing) – the business fundamentals still have to be right (inferring that if they’re not, investing in it is a fool’s errand). Nevertheless, in entirely new markets, someone has to be the guinea pig… the pioneer who jumps in first. The problem is that very few of those businesses survive the first few years in these markets; in most cases, others enter later on and supplant them with better business models.
Indeed, in most cases, first-mover advantages tend to be quite short-lived (not least because the first-movers go in with a wrong business model and burn through their capital inefficiently), while second- and third-movers – having sat back and watched the mistakes the first-movers made and learned from them – come in later on with far better and more viable business models and quite often take most or all of the market share away from the first-movers because they have a far better offering, a far better value proposition, and a far better business model. In most cases, and in the long run, it ends up being those who wait, watch, observe, think, and study – and then eventually come to market with a very well-thought-out strategy and business model – who survive, thrive, and in the end win in those markets over the long run.
So, in any event – whether a new market or an existing, established market – the bottom line is this… a business model has to be viable in order for the business to be able to survive and thrive over the long run. If the business model is not viable, then it is only a matter of time before that business runs out of capital reserves and has to cease its operations – as no investors will dump money into a non-viable business forever.
Therefore – as was noted earlier in this chapter – the purpose of a business is to create value for all of its stakeholders. A viable business model lets the principals do just that. A non-viable business model fails to do that, and in almost all cases will prove to be unsustainable over the long run. Adding to this complexity can be activist shareholders – whether they be the shareholders of a publicly traded enterprise or the general partners of a venture capital investment firm – who are not aligned with what makes this business model viable. This is something to be guarded closely against, as it can derail even the best-conceived business venture.
Now that we understand what makes for a viable business model, we can address one of the most critical questions before us – namely, Why is getting our business model right so important?
Why is getting our business model right so important?
Getting our business model right is critically important because it is what will determine, when all is said and done, whether our business ultimately succeeds or fails. Get our business model right, and it succeeds. Get our business model wrong, and it fails. It’s really that simple – as we saw earlier when discussing a viable business model.
Of course, that being said, a business model is just a means to an end, not the end in itself. We use it as the mechanism for value creation and value delivery – creating and delivering something that someone, somewhere needs to address a particular challenge, problem, or other situation. It moves us from a point of lesser value to a point of greater value. The end is actually delivering that value and in doing so, succeeding as a business.
Our business model is thus the magic formula, so to speak, by which we’ll be able to connect all the different dots in our business – those on the demand side in our marketplace, those on the supply side behind the scenes in our industry, and those in between, inside our business (making all the calls and decisions) – to be able to conceive, define, design, develop, produce, deliver, and service the customer value that we offer our customers in a way that remains forever viable and therefore profitable to us and that consequently allows us to continue doing what is we do day in and day out indefinitely.
If we get our business model right, then we get to keep doing this, and we’ll produce value for all (and wealth for some). If we do not get our business model right, then we don’t get to keep doing this; we will have failed at some point to create adequate value for one or more of our stakeholders. Of course, as we’ll see in our next section, “right or wrong” is a moving target that only has meaning at a particular point in time. It actually comes down to us getting our business model right on an ongoing, continual basis – as we constantly explore our way in the dark to learn how our business model has to perpetually change and evolve to remain relevant to the world around us, as well as resilient to changes we’ll inevitably encounter.
This is why, as noted earlier in this chapter, the purpose of a business is to create value for all its stakeholders. A viable business model allows it to do just that. A non-viable business model fails to do that, and in most cases will prove unsustainable over the long run.
It is, therefore, critically important that, above all else – other than perhaps our strategy – we get our business model right if we aspire to survive and thrive in our business over the long run. Our partners, customers, and investors will all thank us for doing so.
Moreover, beyond just getting our business model right, properly documenting that business model will serve to align all of our stakeholders. That documentation would include – in addition to our business model – our vision, our overall strategy, and our operational GTM plan at this point. Communicating these things to ourselves, our investors, our partners, and our customers ensures that they have each been scrutinized, tested, and (eventually) aligned on, and that will help to set the course for the business moving forward.
Now that we understand why getting our business model right is so important, let’s turn our attention to the final critical question, which is, namely, How does a business model get used?
How does a business model get used?
As we’ve seen, one’s business model is how they operate their business so that it is profitable and thus viable over the long run. That is ultimately how one’s business model gets used.
But we must distinguish – especially when starting out – between what we intend our business model to be (and what we thus document on paper) and what our actual business model ends up being after we’ve learned all the realities and details of our market situation. The first is prescriptive in nature… what we intend it to be. This can work in very established and stable business scenarios. The second is descriptive in nature… what actually occurs. In completely new business scenarios, what actually occurs will become far more prevalent for us. This reality reflects the key knowledge gap we have in any new business situation – which is why some amount of iterative business model design and testing effort will almost always be necessary.
In fact, business models and strategies both work in the same way in this regard – in that they are both just plans at their beginning and must typically evolve over time. Or, as the late Dr. Clayton Christensen pointed out in his 2003 book The Innovator’s Solution, the emergent strategy tends to be the cumulative effect of day-to-day prioritization and investment decisions made by middle managers, engineers, salespeople, and financial staff – all of which tends to bubble up from inside the organization.
Consequently, in the real world, especially when we’re facing very new business situations and environments, “almost” no one ever gets their business model dialed in just right from the get-go, coming out of the gate. In almost every situation, the business will begin with a particular business model, and then, after some time, come to the realization that certain aspects of that business model simply aren’t optimal for the situation. All new business scenarios are full of uncertainty, which is why we can never just “execute” our business model and hope that we got everything right or that nothing changes from when we first defined it; inevitably that will not work!
This is particularly true for new start-ups starting from ground zero with no prior basis or context for their business model, especially when they are introducing an entirely new-to-the-world value proposition or product category – something that no one else has ever done before. In those cases, they are the pioneer – the first ones to blaze this path – and so, they must create the path as they walk it, discovering all of its necessary details as they press forward. This has been compared to jumping off a cliff with all the parts to build an airplane (but no airplane quite yet) and having to build that airplane on the way down – in the hope we will get it built and be able to fly before hitting the ground (at which point it’s “game over” and won’t matter anymore).
So, almost no one starts with a perfect business model on Day 1 – a model that lasts forever and in the end looks exactly like the theoretical one they defined on paper and started out with at launch. Or as was so well stated by the 19th-century field marshal and war strategist Helmuth von Moltke (paraphrasing), “No plan ever survives contact with the enemy” – from which a similar euphemism in business has been extracted, namely that “No strategy ever survives first contact with the market” (a statement made popular by start-up expert Steve Blank). The same can usually be said for business models.
Thus, the way the business model gets used in the real world is – yes, to operate the business in the manner noted previously, but also, and just as importantly, to empower our business to be able to iterate and learn as it goes along – tweaking and adjusting each and every element of its business model as it does so – including who it serves, why it serves them, what it serves them, how it serves them, and ultimately how it capitalizes on that. This is very important, given that most truly impactful “innovation” inside businesses actually occurs at the business model level – rather than as truly disruptive product or service innovations, or even core technologies (R&D).
Now that we understand what a business model is, what makes for a viable business model, why getting our business model right is so important, and how our business model actually gets used in practice, let’s introduce ourselves to Ian, Zoe, and Watson – three fictitious entrepreneurs running a fictitious start-up called Intensifi – a business we’ll be following in this book, as they strive to apply the principles of this book to their quest.
Our case study – Intensifi
Let us introduce you to Ian McAllister, Zoe McPherson, and Watson Afrik, three entrepreneurs aspiring to launch an entirely new type of digital-technology-enabled, AI-powered, business called Intensifi.
Their idea behind Intensifi is to sell a service – augmented by whatever technology and tools are needed – that allows both consumers and businesses (large and small) to track their every activity and asset. The service would moreover let these users examine patterns of usage and then compare those to their stated life aspirations (it would do this in a purely data-oriented way via the data from embedded sensor / transmitter devices). This will ultimately allow them (via AI algorithms) to map out specific life and asset choices and plans that will allow them to attain their stated aspirations. Their platform can do this because it knows all (in effect) about all the available options to them and how to access them. It is able to match these to their aspirations, thus opening them up to new choices and options they may never have been aware of before – including stuff such as the following:
What city they live in.What job they do.What company they work for.What home they own or apartment they rent.What vehicle they drive – or public transportation they take.What they wear (and don’t wear).When, where, and what they eat (and don’t eat).When, where, and how they exercise.What hobbies and avocations they pursue.
