Business Model Innovation

22 May

Note: This article was originally posted here, on InnovationExcellence. I thought I would repost it here.

Nine out of ten business start-ups, and one in six business transformations will confirm it. If you want to be part of the one in ten who succeeds, you’ll need to search for the answers first. By innovating our business model before we start executing, we can improve our chances of success and reduce the high risk and high cost of failure in an uncertain environment.

Separating Search and Execution

 A start-up is a temporary organisation designed to search for a repeatable and scalable business model (Steve Blank)

This useful definition tells us two things. First, the primary function of a start-up is to discover what customers want and not to start producing what it thinks they want. Second, it tells us that once the business model has been validated, the business is formed and can get on with executing its strategy. These two activities are very different, as shown below:

A Discovery Based Approach

Business planning involves a high degree of risk and uncertainty. By introducing a period of discovery and correction before the plan is executed, this risk and uncertainty can be reduced. This discovery based approach is illustrated below:

Once the initial concept has been formed, it is vital for a period of discovery to validate the concept, and adjust the plan until it is believed to be robust enough to execute. Execution can then focus on delivery, with a period of establishment built in to ensure that business benefits are sustainable.

Discovery (and Business Model Innovation)

The purpose of discovery is to find a repeatable and scalable business model ready for execution. This can be done with the Business Model Canvas, a highly effective tool for visualising the business model and uncovering the assumptions to be validated:

Using the Business Model Canvas, the business model is defined across 9 key areas. With a central focus on the value proposition facilitated groups are able to quickly capture (i) how the business will actually create the product, (ii) how customers will access the product, and (iii) how the business will monetise the transaction.

Understanding the business model in this way enables discovery teams to iteratively develop a very clear view of what the business model is, and whether or not it will scale. Key assumptions can be tested through activities such as product prototyping, customer observation and analysis of sales results.

Business plans are full of risk and uncertainty. If you want assurance that they will work, you’ll need to validate your assumptions first. This is done by building in a period of discovery before you start executing.

To Be Continued…

In the third and final part to this series, I’ll look at the mindset that is needed for the discovery phase to work.


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4 Responses to “Business Model Innovation”

  1. Tim Rueb May 23, 2012 at 1:05 am #

    I’ve read your two posts on this thread now and don’t see the same problem. What I see is typically the problem of not executing anything or anything well because of risk aversion. This leaves a project team with two opportunities:

    1) Churn in the Analysis phase until you reduce the project to it’s lowest risk form, thus gaining needed leadership approval, and bleed away the benefits of taking risks.

    2) Push a project through as fast as possible, even if the data isn’t perfect, to get your funding, and then convince the sponsors that the sunk cost is too great to kill the project so it must move forward.

    I am a large proponent of KAIZEN or Continuous Improvements or Incremental Innovation Models. Since I work mostly in the internet space, I like to use FIRE, FIRE, FIRE, READY, AIM model as my example. Execution is the discovery phase, I just push my teams to be as bold as the risk-adverse leadership is willing to tolerate But this requires a leadership that is willing to take on that risk of missing the target several times until we hit the mark. Then we pour it on until we are ready to do it over again.

    Most companies operate in the READY, AIM, AIM, AIM, AIM, READY, AIM, AIM FIRE! This is why I don’t see a lot of guessing going on, mostly risk adverse Analysis-Paralysis. (Your business model would help with this also.)

    But there are times when the incremental model doesn’t work (i.e. Stopping half way across a creek to discover how much it will take to jump all the way across.)

    Thought provoking post. Thanks for sharing.

    • fivewhys May 23, 2012 at 7:11 am #

      Great feedback, I really like the FIRE FIRE FIRE READY AIM approach. The more discovery the better

Trackbacks/Pingbacks

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