Business Model Design applied to blockchain technologies: explaining the fundamentals.
I would like to continue this series of articles with a detailed explanation of the basic frameworks I’m using for this research. All those readers already used to design methodologies will find the material covered in this article familiar. However, I believe that it is important to clearly define the basics, so everybody (and not just professional design thinkers) can easily follow the overall explanation.
For that purpose, I will cover some of the basic principles and processes for any design process, pointing to the particular elements we need to consider in order to adapt the methodology to the very particular technology we are working with. All of that will be the basic reference for us.
The double diamond process.
Every design process is guided by a clearly defined framework. There are several ones out there, all of them sharing the same principles. Anyway, we really like the double diamond approach, as described by the British Design Council.
The double diamond is an abstract representation of the creative process followed by many designers in several fields. It is divided into several parts, and it’s never a straightforward process, but an iterative one. Potential solutions are tested many times, discarding those not really addressing the defined brief and focusing on the feasible alternatives until we get the desired result. It’s also a process where we need to apply both divergent and convergent thinking, moving from the brief to the solution back and forward many times. We can even go back to the problem definition at the very beginning if needed.
Why do we need a framework for that? It’s quite simple. Innovation is about focusing on creativity and dealing with uncertainty. The double diamond allows us to understand how it might work, and the different steps we should take if we want to get the best result from the process.
I like to see this framework as a guide to move from the unknown to the known, dealing with the big amounts of uncertainty that people will find while designing something somehow new. The image below summarizes perfectly my point.
However, this framework it's a guide, but not a manual for everything. It won’t replace creativity or idea-sparking. It depends on the lead designer how to apply it, making the right questions to get the right answers, and sparking creativity, and flow.
The design process applied to blockchain-based business models design.
As an abstract guide, the double diamond should always be adapted to the particular elements addressed at every design process. Usually, we need to understand where the bottlenecks could be, as well as the potential hurdles faced by people throughout all the design journey.
Where should we pay more attention throughout this process when designing blockchain solutions and business models? My experience is that we need to be especially careful in two phases:
- Defining the final brief after the first diamond (usually called the How Might We question). Once we have all the info we need about the client/customers, as well as about the business ecosystem and particularities, we need to focus on something in particular. During the design process, this point is particularly important, because a poorly defined brief will surely have a huge negative impact on the final outcome. Working on blockchain technologies, we need to understand whether the technology is really required or not for a particular situation, as well as its feasibility. To assess this particular element we have created a set of tool to help people make the right choices.
- Finding the right value proposition using blockchain technologies. At the beginning of the second diamond, we start creating as many business ideas as we want, during a process called ideation. The purpose of this brainstorming is to unleash our creativity, putting on the table as many possibilities as we can. The problem we have found, speaking about blockchain solutions, is that we don’t know (for most of the industries) how to create value for customers using decentralized technologies. Most of the blockchain developers out there believe that the features or advantages of the technology are the real value for customers, but they aren’t. Value (speaking about products and services) is always contextual and linked to people’s needs and preferences, so we need to explore every case and try to understand how decentralized technologies can really change the life of our users. For that purpose, we have created an “analogy game” that helps to understand the technology and its different applications, as well as to spark the ideation process.
In the end, during this process, we will try to solve two problems. The first one will be designing the right thing, we need to focus on what really matters and it is technologically feasible. The second one is designing things right, finding the right approach to develop meaningful value propositions and business models. Blockchain, as a completely new technology, requires some specific tools to solve both.
The Business Model Canvas
When designing a business, we need also a framework to understand what we need to design. What are the most important elements of any business to bear in mind? Which elements do we need to design in order to build a feasible business? I find the Business Model Canvas a really nice framework for that.
The Business Model Canvas is a very common tool for designers. Basically, it allows to graphically represent all those basic elements for any business model. Those readers not used to the Business Canvas can read a nice description of it in Osterwalder’s (one of its creators) website. I won’t add anything else to that. However, I would like to point to some facts related to the place of the blockchain technologies within this framework.
Ideally, blockchain technology fits into the resources and activities parts. Maybe, we can also have some tech partners to help us implement and run a blockchain solution. For instance, we can have a tailored blockchain protocol in a sub chain, with its own smart contracts as a Key Resource. To run and maintain this protocol we can run an IT department, as part of our main activities. Or maybe we can run an Open Source project to help us maintain and improve that protocol. Finally, that protocol could be based in one of the main networks our there, like BitCoin, Ethereum or EOS; the main developers or the community running those projects should be our partners.
At the same time, the way value is created directly affects the relationship with customers. Hence, using a particular blockchain solution might affect the value delivered, as well as the relationship with the customers and the revenue model. For instance, tokens issued in the blockchain, together with the programmatic options embedded in them, unleash many new possibilities in terms of building customer relationships and revenue streams. At the same time, blockchain protocols are great tools to build network effects, with some new possibilities, directly affecting the way we build new channels with our customers.
As readers might understand from the previous words, a business model is not a static list of fields to be filled in with a bunch of post-it. It is a living machine, built by the relationships between their parts. Therefore, understanding those relationships is as important as figuring out the different elements. Designing a proper business model should be also about that.
Where should we start?
It always depends on the project we are dealing with! It could be a brief from scratch, or maybe we are talking about changing the current business model using blockchain technology.
Our experience is that we can design the whole business model canvas using the design methodology explained in the Double Diamond. It could be quite complicated, but with the proper guide it could bring good results, and help companies and entrepreneurs save a lot of time and money in underdeveloped business models, doomed to fail from the very beginning. For already established companies it could be a good idea to embed this process within a lean/agile project management, in order to get the best results.
Ok, you buy everything. But where do we start? The first answer is plain simple: with your customers. As a customer-based methodology (or human-centered), you should always start by finding out as much as you can about your potential customers. After that, you can build and test a value proposition to serve those customers. That will be the core of your business, around that you can design the rest of the business model, including channels, relationships, revenues, as well as infrastructures and costs.
However, is not that simple. We should apply some design principles to get the best results from it. Is not as simple as asking your customers. There is something more. I will discuss that, pointing to some particular obstacles, in the next article.
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