Capability: 53
Path: Capabilities: Team: Leadership: Business Model
Saturday, 09 September 2017
Business Model
9 Processes For Organizing Your Business Model
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Alex Osterwalder’s Business Model Canvas began a technological approach to what had previously been a financial topic. Osterwalder revealed the design dimensions involved in conceiving of, thinking through, testing and iterating on business models.
Intellectual achievements like this rarely penetrate actual business operations. The translation is difficult, not because the concepts are difficult, but because actually applying the concepts involves so much work — work executives don’t have time for. So, at best, they absorb a gestalt, internalize some principles, and apply it intuitively.
But what if all businesses, everywhere, could take advantage of such a systematic approach? Invisible Technologies like this make a strategic difference, and when the processes are handled for them, leaders are elevated to pure thinking and decision-making.
1. Alignment
If your team isn’t aligned with the company’s vision, mission and other Narratives, your company’s Strategy, or other key Decisions — your business model will break. Although these factors are not financial, they are essential.
Your S.I. will help you surface alignment problems in your business model, by asking you questions about incentives. “Why does someone join your company? Why does someone stay? What motivates them? What should they expect in terms of hard incentives like cash and equity, both now and in the future? How important are soft incentives like Training and Culture? Why does someone join your company in a year, or in two years — how are there incentives different? How do you identify misaligned thinking and behavior?”
Confidence in alignment underlies all other confidence. As you do more Research and collect more Feedback, your S.I. will return to questions like these — because they are foundational.
2. Value Propositions
Your S.I. will ask you, “What are the essential Value Propositions of your company — what value do you bring to the world that no other company brings?” For each of your Product Lines (below), your S.I. will ask you more detailed questions about the Value Propositions of that product line.
Your responses will be saved in your digital brain, collated with your team members’ responses, and networked with other data.
3. Product Lines
Your S.I. will ask you, “How many products or product lines do you have?” Then it will ask you to briefly describe each one. Once you’ve covered that, your S.I. will ask you other questions about your Product Lines, such as the Value Proposition question (above), or the Pricing and Customer Segments questions (below).
If you’ve already laid this information out clearly — on a company document or website, for example — your S.I. will use that data to populate responses, so that it is saved in a structured format in your digital brain.
4. Pricing Structure
Your S.I. will ask questions like, “How are you pricing this product?” for each of your products. Given this, your S.I. will begin to build a model for you.
5. Cost Structure
Questions like, “What are your fixed costs?” and “What are your variable costs?” will go into your model as well.
Again, if you already have this information, for example, in a spreadsheet, your S.I. will use this to begin to construct its own model. Eventually, you won’t have to worry about maintaining these models directly— you’ll just provide new inputs to your S.I.
6. Unit Economics
“How much does it cost you to acquire a customer?”, “What is the lifetime value of your average customer?”, and “What are your gross margins on this product?” are basic unit economics questions that your S.I. will ask.
If you don’t know the answers to any of these questions, that’s fine. Your S.I. will ask you follow up questions like, “What would it take to get you this information?” and help you devise a plan to fill out the missing inputs in your model.
7. Distribution Channels
“How do you distribute this product to your customers?”, “How do you market this product to new customers?” — these are standard distribution channel questions, and your S.I. will use these to populate your model.
8. Customer Segments
Customer segmentation questions like “Who buys this?”, “Describe them?”, “Why do they buy this?”, “Who else buys this?” also build your model.
9. Advanced
Using the Business Model Canvas and other models, there’s no limit to how advanced your business model processes can become.
You can layer in projections and timelines pulled from your Strategy, you can analyze the business model impact of your Decisions, you can make sure your Research backs up your assumptions.
You can list your assumptions. You can analyze manufacturing, logistics, operations, design, R&D and other supply-side factors. You can do a SWOT analysis. You can do any analysis!
The only limit to the qualitative and quantitative power of your business model processes is your own creativity. Your S.I. will do the legwork.
As with all of the Leadership capabilities, you get as much out of your Model as you put into it — Invisible’s processes just provide leverage. It just wouldn’t be possible for you to systematically build and maintain a robust business model. So it is normally an exercise that leaders do once a year, at best, and once every three to five years, normally. This isn’t because the thinking itself is so time consuming, but because there has never before been an entity capable of managing the processes end-to-end, at all times, so efficiently.
