The Ultimate Guide to Innovative Startup Business Model Design
Have you ever wondered how to generate innovative business ideas and build a very interesting startup? Awesome, because this is all about startup business model design strategies.
I just hope you are not one of those business owners and entrepreneurs who don’t know the winning techniques of startup business model design and believe that running a business is just about analyzing figures and charts and spreadsheets.
But don’t worry, because even if you are one of them This article will help you catapult the way you work to a totally different level.
Have you asked yourself, What’s fun about business if you stuck in figures and jargon!
It’s unfortunate to see that many entrepreneurs fall in to that trap.
The trick is that you can still play and have fun when you’re innovating, or designing innovative business models. Pablo Picasso once said, “I begin with an idea and then it becomes something else.”
I’m sure that by now you should have realized that the Business Model Canvas is just like an artist’s canvas with just one difference, It’s designed for entrepreneurs.
All entrepreneurs, just like any artist, have a vague business idea and are looking for tools to help them turn their business idea to reality.
Top business ideas are nothing more than points of departure. They would evolve when you start experimenting as business ideas placed on the Canvas can trigger new business ideas
The science and art behind startup business model design is so magnificent that every entrepreneur dream to learn.
Because designing a startup business model that is easily understood by others is a tough challenge for entrepreneurs!
Many entrepreneurs literally take hours to explain to their team what their business model is all about, let aside the level of difficulty they go through when they intend to present their business idea to their potential customers, investors, and strangers.
In this article, I will walk you through Three battle tested business model design techniques and tools from the design world to enable you extend your boundaries of thought and produce better business models.
Here is the list of business model design techniques:
- Customer Insights,
- Visual Thinking,
As an entrepreneur you’re dealing with design on a daily basis.
You design product or service, organization structure, theme of work, etc., however, many of these designs are done with the wrong tool.
For instance, many entrepreneurs got it wrong. They analyze and design everything using Microsoft excel where Excel or a spreadsheet, as an analytical tool, is not designed to be a business design tool.
What you need is the right business design tool that complements your business skills.
Technique #1: Business Model Design base on Customer Insights:
“A decent startup business model design helps you prevent one of the biggest mistakes that entrepreneurs make.”
What kind of mistake am I talking about?
If you look the history of failed startups, you can clearly observe certain patterns and trends that differentiate them from the successful businesses.
It’s simple; although they have invested in market research, they undermined the huge impact of customer’s insights. According to researches, that is one of the biggest reasons that startups fail.
The good news is that it can easily be prevented. You just need to see your startup business model through customers’ eyes, that leads to discovering new business opportunities.
A great example of such approach could be Apple’s iPod. Viewing the business model from customer’s perspective helped Apple to figure out their customer’s pain & gain.
No one was really interested in carrying a huge Cassette/CD player, instead, there was a huge interest in a seamless way to search, find, download, and listen to music.
By paying attention to customer insights Apple managed to create iTunes store and allow users to integrate their device, Exactly when pirated music and illegal download was so popular.
Apple created a business model that is still generating tons of revenue for the company and helped Apple to dominate the digital music market.
The point is: If you want your innovative solution or amazing startup idea to go viral and be able to conquer the market, you must include the customer perspective when evaluating your startup business model.
It’s essential to have a deep understanding about your customer’s need, desire, daily routines, challenges, concerns, and aspirations.
You should have heard this quote from Henry Ford: “If I had asked my customers what they wanted, they would have told me ‘a faster horse.’”
Shift your perspective: Don’t focus on your existing customer segment!
I believe you agree with me that a customer segment that has been generating revenue for your business may not necessarily exist in the next few years to contribute to your cash flow.
The challenge is: “To which customers segment we should pay attention to?”
Your startup may enjoy the stability of your cash cow segment, however, it’s inevitable that cash cows convert to Dogs and eventually die.
The trick is that you should be aware that when designing a business model, the future’s growth segments often hide behind the cash cows.
The question is: Why would you risk everything for a segment that is vulnerable to any change in the future.
Shift your perspective
You should outsmart your competitors and shift your mindset from running an organization centric business model to Customer centric business model.
Alright, how can you do that?
When it comes to customer insights, there is an easy-to-use tool that every successful business man use.
It’s called “The Empathy Map”.
Empathy map is very powerful, yet easy to use tool that helps entrepreneurs and their team understand their user’s requirement in a visual manner
Here’s how the empathy map works.
It’s very handy, especially, when you are working on your business model canvas and defining your customer segments.
Among all customer segments that you have identified, you should select 3 characters (preferably promising characters) and begin profiling them using the 6 questions listed below. Don’t forget that Working with your empathy map requires collaboration among your team members.
Give your candidates an imaginary name (Let’s say John or Liz) and match him/her with the other criteria you have defined in your customer segment.
Try to be as precise as possible, you can include demographic characteristics, income, relationship status, age, gender, habit, Interests and so on.
We should not forget to give credit to the XPLANE team who developed the Empathy Map
In “business model generation book”, Alexander call the empathy map a visual thinking tool “really simple customer profiler”.
What does Customer Empathy Map do for your startup?
Lot of market research tools are designed to help you collect demographic data from your customers.
On the other hand, empathy map, takes it to another level as It helps you develop a better understanding about your prospect customer, in terms of environment, behavior, concerns, personality and aspirations.
Tip: The result you should seek from your empathy map exercise should guide you to shape the following building blocks of business model canvas and eventually lead to your defined Minimum Viable Audience.
- Better Value Proposition
- Efficient Customer Relationship Strategy
- Accurate understanding about your customer’s preference and what they are willing to pay for.
- Simplified revenue stream
- Stronger business model
Start with asking these 6 questions when working with your empathy map. The best way to work with empathy map is to print it and place it on the wall. Your focus should be on the following areas:
- What does she “Think and Feel”?
This is where you should try to sketch out whatever you think goes on in your customer’s mind? Here are a few questions to use as a reference:
- What really matters to her? She might not acknowledge it publicly!
- What is she, most of the time, thinking about?
- What Worries her?
- What aspirations does she have?
- How are her emotions? Can you imagine it?
- What can touch her heart?
- What might keep her up at night?
- What makes she say WOW to a service?
- What does she “Hear”? This portion refers to the factors that impacts her thinking, especially when they are mentioned by close friends, family, and other influencers.
- What do her close friends say?
- How about her fiancé, spouse, kids?
- Who are the main influences in her life?
- How do they influence her?
- What external channels such as social media, community, etc. are influential?
- What does she “See”?
It is all about visual factors that impact her decisions.
- Who surrounds her?
- Who are her friends?
- What does her environment look like?
- What things in her environment influence her?
- What services does she see her friends use?
- What competitors does she see around her?
- What types of offers from competitors is she exposed to on a daily basis?
- What problems does she encounter?
- What does she “Say and Do”?
You need to observer her attitude, behavior and manner that leads her to say or act in certain manner.
- What is her attitude towards others?
- What does she do in public?
- How has her behavior changed?
- What is her attitude?
- What could she be sharing with others?
- What are the differences between what she says and what she truly thinks or feel.
- What are her “Pains”?
Her pain has direct relationship to your Value proposition, so try to get them as accurate as possible:
- What fears, frustrations or obstacles is she facing?
- What pain points does she have?
- Which one does she prioritize to overcome?
- What are her needs and desires?
- What obstacles & challenges stand between she and her desires?
- How far is she willing to take risk and what would those risks be?
- What is she looking to “Gain”?
Insights you get from Gains can impact your value proposition, pricing model, and product road-map.
- What is she hoping to achieve?
- What does success mean to her and how does she measure it?
- What does she truly want to achieve?
- What strategies does she use to achieve her goals?
Technique #2: Ideation
Generating new Business Model Ideas: Ideation comes to the picture when we are thinking of designing a new and innovative business model.
One of the most significant factors to design an innovative business model is having a creative process in place.
A creative process not only helps you generate plenty of business model ideas, it also enables you to successfully isolate the best idea.
This creative process in startup business model design is called “ideation”.
Your new business model must be viable. To ensure its viability, you must master the art of ideation.
In the past, many industries were using a similar and dominant business model to compete against each other. However, unlike traditional approach, there are plenty of choices for your business model when you implement creative approaches tools such as ideation.
Ideation is so powerful that, today, businesses in the same niche are using different business models to serve their customers.
But there are always challenges about innovative business models.
At first, we have to come to an understanding about Business model innovation, then we can easily address the challenges.
Business model innovation is neither about past nor about competitors.
When you look back, you rarely get any insights and indication that help you drive your business towards your future business model
Besides, business model innovation isn’t about what your competitors do too.
In fact, if you decide to copy or benchmark against any competitor’s business model, you are not innovating your business model anymore.
Instead, what you need to do is to create a new dynamics and mechanism that add value and derive revenues.
What’s the practical way to do that? Thinking out of the box!
To be able to generate truly new ideas you ought to think out of the box and be able to ignore the status quo and park the concerns about operational issues.
What is Startup business model innovation all about?
Your business model innovation should challenge each and every orthodox you’ve previously used to design the original models.
It should lead you to innovative entrepreneurial ideas and new capabilities to:
- Serve unhappy customers,
- Penetrate new customer segment,
- Address not-yet-discovered customer needs.
Ideation has two main phases:
- “Idea generation”, where quantity if ideas matter,
- “Synthesis”, in which ideas are discussed, combined, and only viable options are selected.
The first phase is crystal clear; you have to generate as many business ideas as possible.
When is come to synthesis phase and you’re trying to narrow down your options, you should bear in mind that selected options do not necessarily have to represent disruptive business models.
It all depends on what you’re trying achieve with different models of innovation. For example, you can focus on innovative business ideas that help you compete better against your direct competitors by stretching the starting points of your current business plan.
Obviously, there are many starting points to generate ideas. The easiest and most efficient practical points are: Epicenters, and “what if” questions.
First let’s have a look at epicenters.
Epicenters in business model innovation:
You can generate top business ideas from each building blocks of your business model canvas. It can be from one epicenter or from multiple epicenters.
In general, there are 4 epicenters of business model innovation:
- Resource-driven epicenter is used when your starting point is your existing partnership or current infrastructure and you wish to leverage on them to innovate in your business model.
- Offer-driven epicenter co-relates with your value proposition and what you offer in your business. It’s all about how much you can mitigate risks, reduce costs or increase productivity.
- Customer-driven epicenter is driven from your effort to address a need of a particular customer segment or industry by providing a service or product that your new customer segment couldn’t previously afford to have.
- Finance-driven epicenter comes to the picture when you create an innovative revenue stream in your industry and manage to generate revenue using a totally different charging/pricing model.
One thing you must not forget is the fact that business model canvas is like a balloon. As soon as you move one element from one building block it can affect the other blocks and the entire business model.
The same principle applies to the business ideas generated from different epicenters. All of the above mentioned epicenters can be a good starting point to initiate change in your business model. Each one of them can have a powerful impact on the other eight building blocks of your business model canvas.
Using “What-if” questions to design innovative business models.
Every entrepreneur I have ever met acknowledged that s/he had difficulty churning out innovative business models.
After probing further and asking them a few tactical questions it was obvious that the biggest challenge that prevented all of them from thinking out of the box was “the status quo”.
Believe me, sticking to “the status quo” kills imagination because it forces you to think about the current operation model, existing revenue stream, etc.
But don’t worry, there is a very powerful way to overcome this challenge and I’m going to walk you through every steps.
The first thing you need to do is to challenge every orthodox, hypothesis, and assumption around your business.
By asking “what if” questions.
As soon as you start asking “what if” questions you’d be able to see that what seems impossible might be just doable.
A great example of what was impossible is an amazing business model that IKEA put together to sell its DIY furniture.
You buy an un-assembled piece of furniture from a pallet in IKEA’s warehouse, bring it home and assemble it yourself using the step by step instructions that comes along side your package. Today it is a common practice, but when IKEA proposed this business model it was pretty weird.
Asking “what if questions” help you expand the limitations of your current business model.
Your “what if questions” MUST:
- Challenge the conventional business models.
- Provoke you and challenge the way you are thinking about running your business.
- Be seen as starting point for business model innovation but not the end result.
- Disturb you with an interesting yet difficult-to-execute proposition.
- Challenge you to discover the business model that could make your suppositions work.
End of the day, there might still be some “what if” questions that remain unanswered because they are too provocative. On the other hand, there are other “what if” questions that just need the right business model to become reality.
Ideation process can take several forms because it is all about innovation and using creative approaches to design a business model.
I suggest you to use the Silly Cow to break the ice and take your team out of their day to day job routine.
The Silly Cow exercise might sound silly. But it’s been tested globally & has been proven to be a great practice to get everyone ready to produce innovative ideas
Here is how silly cow exercise should be done:
- Begin by asking your team to talk about the characteristics of a Cow! It could be a good breaking exercise for opening a session
- Then, ask everyone to sketch 3 different business models using a picture of a cow.
- The goal of this exercise is to use the characteristics of the cow and churn out an innovative business model.
- It should not take long, so make sure the exercise does not exceed 3 minutes.
Once you’re done with your silly cow exercise, you can begin working on the 5 steps of the actual ideation process
Here is the breakdown of all 5 steps of ideation process:
Step #1: Gather the Troops
The first thing you should do is team composition. At this stage just be honest with yourself and answer this key question: Is our team sufficiently diverse to come up with innovative business model ideas?
Don’t be selective and form a team with diversity in terms of seniority, age, experience level, business unit represented, customer knowledge, and professional expertise. You can use these techniques when assembling a diverse team.
- Try to get everyone involved, not only the “creative ones” as they are human and have their blind spots too.
- Don’t forget to invite those who are involved and impacted by all nine blocks of the canvas, whether Distribution Channels, Revenue Streams, or Key Resources to join the brainstorming session.
- Make sure everyone knows what’s active listening. If they don’t, teach them.
- Embrace Ideation as a team exercise, ask for participation and let a neutral party facilitate the process.
- People, often stick to cost reduction strategy or promoting a revenue booster product. These methods have nothing to do with innovation. Encourage your team to suggest ideas from all 9 building blocks.
- Do not outsource or delegate the ideation process to your R&D unit. You can invite them to participate but it should never be in one unit’s hand!
- Make your team as diverse as possible. The diversity will help you generate, discuss, and select new ideas.
Step #2: Immersion
Once you’ve got everyone on-board, you should focus on research and data gathering, and a little bit of analysis.
The key question at this point of time should be around research areas. It’s essential to know which elements you should study before begin generating business model ideas?
Your team and you must ideally go through an immersion phase in which you’d study certain areas of your business. For instance, depending on your business objectives, you might have to look into customer behaviors or how to engage with prospects. You may also consider exploring the impacts of shifting to new technologies, and the limitation of your existing business models, etc.
There is actually no time limit you could force to finish the immersion phase as it might take as long as a few months or could be concluded in a couple of exercises such as Empathy Map.
Step #3: Expanding
The next step is to identify your starting points and learn how to expand from there.
During expansion phase you must concentrate on your starting points to generate business ideas. You must make sure that you’ve overseen all 9 building blocks of your business model canvas.
The key question should be about what business innovations can we imagine for each building block? How innovative can we be in our revenue stream, or customer relationships, etc.!
At this stage, you shouldn’t worry too much about the quality of your business model ideas because what matters now is quantity, not quality. The more business ideas you have the better, so don’t criticize the ideas too early, instead, focus on brainstorming and record all ideas.
Brainstorming is a process where people share their ideas on how to achieve certain goals and objectives. It is imperative that a brainstorming session is well facilitated, otherwise it could be a complete disaster and waste of time.
Here are some great tips to conduct a brainstorming session:
- Start with Problem statement and make it very clear to everyone. The objective of your brainstorming session is to find ideas that can result in addressing the problem statement. In this case where we are looking for ideas for business model innovation, your problem statement should be about addressing customer’s needs and desires.
- Stay Focused! Keep the brainstorming session towards the right direction.
- If the discussion is dragged or strays from its intended direction, you should pause, step back, and bring the team member’s attention to your problem statement.
- Make sure you clarify and enforce the brainstorming rules beforehand. Here are a few general rules you can implement:
- Defer Judgment
- One conventional at a time
- Quantity matters
- Be as visual as possible
- Encourage out of the box ideas
- Always use sticky notes (also known as post-it™ notes) and write or sketch on them. This way you can easily move ideas around or even take the off the canvas, if necessary.
Step #4: Criteria selection
Now that your brainstorming session is over, you should have lots of ideas to refer too. Having lots of ideas might be confusing, that’s why the next step is to prioritize them using critical criteria.
Your primary concern should be about figuring out the most important criteria for prioritizing your business model ideas?
The rule of thumb is defining criteria is to select a few manageable ideas that are related to the context of your business.
Then depending on your objective, you can now consider choosing factors such as execution and delivery time, ROI, and competitive advantages, etc.
It’s absolutely necessary to include factors that might enthuse your customers not to accept your new business model easily.
Step #5: Prototyping
Now that you have shortlisted a few ideas, it’s time to get to the bottom of it.
Since you have defined your criteria in the previous stage, and you have compared the shortlisted business models you can reduce the number of business model ideas to minimum 3 and maximum 5 potential business models.
Prepare the business model for each shortlisted idea and start compering them. You must at least know how do these business models look like. This is where you can choose which business model innovation you should be focusing on.
Technique #3: Visual Thinking
The Value of Visual Thinking
It was Extremely Boring – When I recall my memories that I had to spend lots of time writing a lengthy business model using a corporate template, the only term that comes to my mind is “Boring”. I’m sure you agree with me that the traditional way of writing a business model was not really efficient.
To save time and achieve your results faster, especially when using business model canvas, it is absolutely beneficial to keep it as visual as possible.
To do so, you should use visual thinking techniques that allow you to easily discuss different objectives in a most visual manner.
You know that your business model has more than on aspect to look into and the complexity of a business model and the inter-relationships between 9 building blocks are inevitable.
In fact, lots of entrepreneurs face difficulty seeing the big picture when that work on more than 1 starting point and inter-sections in their business model design. In case you are wondering why, it all goes back to lack of visualization skills.
However, using visual thinking tools such as pictures, sketches, diagrams, and sticky notes can greatly help you develop and design your business model in no time.
Let me walk you through a few absolutely amazing techniques
Visual thinking allows you to co-create your business model, have clearer discussions and make changes as you go.
Using visual thinking techniques work best for you when designing a new business model and making changes to an existing one.
Today, entrepreneurs and business owners rely on tools such as Microsoft Excel and other similar spreadsheet software to discuss their challenges, plans and reports.
It’s funny because visualization tools such as graphs, charts, diagrams, etc. are rarely used to discuss ideas, explore opportunities, and define business issues.
At this point I’m going to take you through the process of defining, discussing, and changing business models & help you understand how visual thinking can transform your business model design.
Visualizing with Sticky Notes.
Since you can’t write on your business model you need a set of idea containers to sketch on and move them around. Sticky notes are the most essential, must-have tools when you work on designing your business model canvas.
Having sticky notes in your business model discussions is absolutely necessary because it rarely happens that everyone immediately agree on one topic.
As you practice using them, sticky papers won’t be just a piece of paper anymore, instead, they represent a business model building block and become a vector for strategic discussion.
Here is a 3 steps guideline to use sticky notes in your exploratory discussions:
- Use thick marking pens as it prevents you from writing details; it also makes it easier for others to read.
- Only write one element per sticky note
- Don’t write an essay; a few words per note would be sufficient to capture the essential point.
Visualizing with Drawings
It’s obvious that drawings are more powerful than words because you can instantly deliver a message with pictures.
One of the reasons that many people waste their time on spreadsheets is the fact that they were not exposed to drawing. You’d be surprised to see that a simple drawing can express ideas that otherwise require many words.
Let me give you a few examples:
- Think of a smiling face, it conveys emotion right?
- A bag of money and Dollar sign can refer to revenue.
- A heart can convey a good relationship with your customers.
- Drawing your customer and her environment to illustrate one of your Customer Segments using emoji help you understand her needs better
You see, that’s much easier that you think but the issue is that we think we can’t draw.
Of course I’m not asking you to replicate Shakespeare’s work, so you shouldn’t be embarrassed if your drawing appear unsophisticated or childish.
But your drawings will likely trigger constructive discussions and help the team to generate more innovative business ideas.
Capturing the big picture through Visual grammar.
If you have ever written a business plan or designed a business model using the traditional methods, you’d agree with me that Business Model Canvas template is more like a conceptual/functional map with corresponding grammar.
It clearly tells you which building block stands for what, and how should you work with it
Image you have a meeting with investors or stakeholders. You want to discuss your new business model ideas. Unlike spreadsheets or lengthy documents, your audience can immediately see the big picture when you’re sketching out all the elements of the Canvas.
Most of executives don’t like to go to certain level of details and would see such discussion as waste of time.
Using visual thinking tools such as sketching enables you to furnish them with just the right amount of information and help them grasp the idea, without presenting too much detail to distract them.
Enhance Dialogue through Collective reference point
It’s a fact that we all feel comfortable presenting an idea using our own jargon because we, like others, have tacit assumptions in our heads.
Sometimes it becomes difficult for the audience to follow what we are talking about. Using sketches and posting an image is an absolutely powerful way to discuss ideas because it helps you convert your implicit assumptions into explicit visual information.
Besides, we can only remember a limited number of ideas in our short memory, let aside the inter-relationships of all 9 building blocks.
Your startup business model design will no longer be a piece of paper with business jargon on it, instead, it becomes a tangible and persistent object that serves as a reference point for your participants to refer to.
Joint understanding: Get everyone on the same page!
One efficient way to achieve joint understanding is using visualization techniques.
Job descriptions, operational procedures, and even part of business plan might be very clear in many divisions of an organization but what’s certainly not clear is a solid grasp of the whole business model.
Involving all experts to jointly draw and design a business model develops a shared understanding among different functions of your organization. It is not limited to the big picture, because all inter-relationships between these building blocks are now visually clear to everyone.
Explore Ideas & Play
The fun part of visualization techniques in business model canvas starts after you put all sticky notes on the canvas and decide to move them from their current building block.
Your discussions are now more meaningful because everyone can clearly see what happens when you remove certain elements or insert new ones to the canvas.
For instance, what if we remove the least profitable Customer Segment? Depending on your business model pattern, should you keep the segment to attract the profitable ones? What happens to your costs and key activities if you eliminate that customer segment?
Only a visual model can help you speed up your process and clearly show you the systemic impact of modifying one element or another.
Telling a Visual Story
Story telling is one of my favorite methods to explain a business model. Although your canvas is a visual tool, presenting a full description may overwhelm an audience.
The best way to present it is to It’s better to introduce your business model piece by piece, whether you use power point or you draw everything on the spot. You can also pre draw everything on a few pieces of papers and place them on your business model as you present.
Here is an effective 4 steps approach to telling a visual story using business model canvas.
- Map your business model
- You can start by putting up a text based version of your business model.
- Write each business model element on different sticky notes.
- You can do this exercise individually or in a group
- Draw each business model elements
- Now it’s time to replace the text based notes with your drawing on the sticky notes
- One at a time, take each sticky note and replace it with a drawing that represents the element.
- Try to keep the images as simple as possible and do not get to the details yet.
- Bear in mind that you are not expected to draw like Picasso, but make sure that your drawing can convey the message.
- Define the story-line
- It is important to decide how to tell your story.
- Plan your presentation ahead and decide which sticky note should go up first and which one should follow.
- Be creative and test it a few time.
- Start from different epicenters and consider these two points
- Which starting point are you more comfortable to begin with; it can be your value proposition, Customer segment, Revenue stream, etc.
- What building block can have the highest positive influence on your audience
- Tell the story
- Rehearse as much as you need and tell your business model story one sticky note at a time
- You can, of course, use a power point or presentation tool, however, it might just lack the intuitive impact of sticky notes.