The value of using the business model design process

A lot has been written about the empowering components of designing and testing a digital driven business model, this is a brief story of how its used helped us test a business concept in less than 8 weeks.

This is the story of mycafecito — a coffee subscription service to link coffee growers directly with consumers. Providing consumers with a unique curated coffee experience created from a selection of specialty coffee beans harvested by small family growers.

By reviewing this project, we are looking to share a real life example of the value of utilizing such methodology.

Welcome the story of mycafecito

The hypothesis:

Delivering new coffee experiences to consumers by linking small coffee growers directly to consumers.

The market opportunity:

US Consumers spend $48B dollars on coffee per year, specialty coffee represent $26B or 55% of the market. We believed that there is an opportunity to enter the market by simplifying the acquisition and distribution process from grower to roaster, therefore creating new products tailored to an educated consumer.

Our value hypothesis:

Achieving supply chain improvement and consumer selection, should provide greater economic benefit to the grower, while increasing the selection at lower cost to the consumer, driving higher consumption for specialized beans, which in turn provides additional growth and economic stability for the grower.

Who are the customers:

We went through an extensive market segmentation exercise of the stakeholders in the process, from the coffee buyer to the coffee grower. The following are some examples of the results of the market segmentation and persona definition.

Consumer — target customer is represented by Felix — he is a 25 year old coffee drinker that does not go to starbucks, but enjoys the coffee experience of shop right next to his work, where he is a graphics designer and is all connected via snapchat, instagram and slack for work — he enjoys the coffee experience and wants to do good for the world, willing to pay a higher price for the coffee cup as he likes to know where the product comes from, who are the roasters, what are their farming methods and sustainability program.

Roaster- our secondary customers but start as suppliers are the roasters — Maria is a local rooster in Brooklyn where she mixes green coffee from multiple suppliers that she meets on her travels once every six months. She enjoys the experience of coffee and wants to provide an artisan experience to her customers — she knows the suppliers by name and establish a relationship with them so she can get the best possible beans, which she is willing to pay a little bit of a higher price — she is technology aware, but detest to use it, as it takes away from her craft.

Grower — our indirect customer is the grower — Pedro has small family farm in Nicaragua, where he has been growing coffee for generations, but is afraid that he may be the last person to do it for his family — his coffee is of exceptional quality but he sells it via the cooperative or on the open market, where he is only getting between $1-$1.5 per pound for his great beans, which is below his operational cost — his children would like to expand the farm but do have the ability to do it as they are barely making money to make ends meet- they know there is large market and they should be able to get a little bit more for their coffee but do not know how to reach it.

Where does the customer buy:

Once we knew the customers and their personas, we focused on understanding the competition, the customer buying patterns and the platforms that they utilize to learn about coffee products and services.

The following is a brief analysis of the web traffic and activity of the multiple competitors & customer platforms. This helped us identify the targeted advertising platforms and possible methods to reach the consumer.

Key learnings: Visual representation of the product is very important and it helped us identify the top three platforms were the consumer was actively in their quest for coffee products and services: Reddit — Facebook and Youtube.

Once we had identified the platforms, we focused on performing surveys to verify the idea and as a key go/no milestone. We were trying to gather some early understanding to the willingness of the market to purchase the coffee. Based on some positive results from the surveys, we decided to move forward with a proof of concept.

Proof of concept

After some early positive indications based on consumer surveys, we started to prepare for a proof of concept to validate the defined business model and focusing on the identified market segmentation, customer persona and value hypothesis.

Mapping the ecosystem

In our next session, we focused on identifying the key partners within the ecosystem for us to be able to provide the service, we identified each value flow to ensure that we had a balanced relationship between all stakeholders and we understood the economic relationship between them .

The following represents the mapping of our partner ecosystem and identifying the value relationships, between the organizations.:

Key learnings;

We identified the following items in our critical path for adoption:

End user shipping cost the product was going to be an issue as it created a level of friction that was difficult to overcome, as it was higher than budget it and represented a high percentage of the product sale.

The relationship with roasters was adding complexity to the project and new players that we had to recruit for the project, adding to our onboarding cost.

We identified that there were multiple avenues to interact with the consumer. Our early customer acquisition was going to be around a multichannel strategy adding complexity and cost.

Once we had mapped the stakeholders (fyi-we also did it for the sales process) each partner and the function that they would play; we focused on the tools that would be necessary for us to run a proof of concept, at a low cost to validate the market feedback in a real life environment.

The proof of concept would require us to operationalize the business (at a minimum level) so we could perform end to end testing of the complete business model.

In an effort to do achieve this objective at the lowest possible cost, while meeting the desired customer experience, we focused on leveraging and integrating current commercial digital platforms.

The following is a list of the tools that we decided to use for the proof of concept:

For the proof of concept to be succesful, we defined a budget and timeline, with key performance indicators that we would track and help us make a go/no go decision.

On the financial side, we allocated $5,000 to cover the expenses, inventory and advertising. On the timeline, we used the sales process map to define a minimum time allocation and the key performance indicators to evaluate progress and make adjustments.

Our performance:

Early on, we started to see that we were falling behind on our (key performance indicators) KPI and assumptions, specially around the revenue and cost of customer acquisition.

Decision

After making some changes and adjustments, we were faced with a decision.

Shelving it — it was early on that we determined that the subscription model for speciality coffee was not working — our conversion rates were not there and the cost of customer acquisition continue to increase and was higher than budgeted — the market segmentation and persona that we had defined was not proving to be correct and even changing the model to a transactional event, we could not envision a path to sustainable growth without large investment in infrastructure, marketing and sales.

Based on the results we decided to cancel the project, as we could not prove the hypothesis — our mission was correct, our messaging was wrong and our market was ill defined.

We could not identify a financial model that was sustainable based on our resources and therefore we could not see a path to deliver the expected returns.

The project had too much investment risk and we realized that we had not been able to define the proper model. We knew we had to go back to the drawing board to improve it and redesign it.

Our final investment in testing the market was less than $2,000 (we had some early revenues to offset expenses), including some limited product inventory (which we were able to repurpose and sell at wholesale) and the length of the test was less than 8 weeks.

We hope that by sharing the story, others will learn of the value to achieve business model clarity, perform early testing and learning from it.

We could have continue to iterate, increased our advertising budget to impact our traction and market numbers, but at the end, we realized that the investment required for achieving traction and a sustainable revenue model, was going to be greater than our budgeted expectations.

Summary:

Use the business model design process to help you gain clarity on your ideas and the market that you are looking to serve.

Use the tools to not only define the business model, but a proof of concept approach and what is success.

Leverage current platforms to test the market

Test early and often to validate the hypothesis that is on paper

Market feedback is invaluable

Design the product / service around the customer

Understand the many stakeholders and the acquisition cost of such relationship

Map the sales process and value transactions.

Understand the timelines

Understand your core value proposition and validate it