Prototyping business models to drive innovation
Prototyping and business models
Products fail! They fail at different stages and for different reasons. The “fail fast, succeed sooner” motto has become popular across industries because we understand that some failures are just part of the process of learning.
To minimize the risk and fail faster to succeed sooner, we conduct user research, ensure that we’re developing products that address the jobs-to-be-done of the user, develop prototypes to test the solutions and use many other tools and techniques. We do it in many different ways, starting with lo-fi paper prototypes, testing them, iterating and creating more lifelike prototypes until we reach our MVP. We then build a business model around the product and release it to the market.
The fact is that there are numerous examples of how changes in the business model, while not changing the product, can shift an entire industry. Gillette changed the industry by providing cheap razor handles and charging for the blades. That may now be disrupted again by making the whole razor cheap – like the Dollar Shave Club. You can observe this in many other disruptive products and services. The traditional example of how Apple has created an ecosystem between the iPod and iTunes, disrupting the music industry. Spotify and Netflix changed the distribution platform and introduced the subscription model. Many other companies provided similar products or services, but most failed or re-launched.
Product and business model are all part of the solution to the problem
These examples point to one thing. More than testing products or services, we should be testing entire business models whenever possible, as business models can also be prototyped and tested in the market. The product you’ve developed to solve a problem is as important as your channels, your revenue model or the potential partnerships you may require.
Business Model Canvas and Ten Types of Innovation
Business Model Canvas
It’s fair to say that the Business Model Canvas has become a key tool for many people. Initially created by Alex Osterwalder and Yves Pigeneur at Strategyzer, this tool has become ubiquitous with start-ups, scale-ups and large enterprises. It has the ability to change the way many people work as we see companies shift their focus into delivering products rather than projects. It’s a great tool to communicate around and to quickly mock-up a business model. The business model synthesizes into one page, the main aspects that constitute a business model, removing many of the barriers to starting to build and discuss business models that existed before.
Learn more about the Business Model Canvas and how to use it here.
The Business Model Canvas is a great tool to support ideation. When it comes to ideating using the business model and powerful questions, magic happens when you combine them with the Ten Types of Innovation.
Ten Types of Innovation
The Ten Types of Innovation is the result of research that analyzed how successful companies innovated and which aspects made them successful. Through that research, it was found that companies were creating competitive advantage through 10 different ways. According to the Ten Types theory, there are basically 10 different areas where a company can act, to innovate, with each area being composed of dozens of different tactics. One other finding: companies that innovated in more than one area were more successful than companies that only innovated in one area.
Examples of innovations in each of the 10 types of innovation
Profit Model – The way in which you make money,e.g., how Netflix turned the video rental industry on its head by implementing a subscription model
Network – Connections with others to create value, e.g., how Target works with renowned external designers to differentiate itself
Structure – Alignment of your talent and assets, e.g., how Whole Foods has built a robust feedback system for internal teams
Process – Signature or superior methods for doing your work, e.g., how Zara’s ‘fast fashion’ strategy moves its clothing from sketch to shelf in record time
Product Performance – Distinguishing features and functionality, e.g., how OXO Good Grips cost a premium but its ‘universal design’ has a loyal following
Product System – Complementary products and services, e.g., how Nike+ parlayed shoes, sensors, apps and devices into a sports lifestyle suite
Service – Support and enhancements that surround your offerings, e.g., how “Deliver WOW through service” is Zappos’ #1 internal core value
Channel – How your offerings are delivered to customers and users, e.g., how Nespresso locks in customers with its useful members only club
Brand – Representation of your offerings and business, e.g., how Virgin extends its brand into sectors ranging from soft drinks to space travel
Customer Engagement – Distinctive interactions you foster, e.g., how Wii’s experience draws more from the interactions in the room than on-screen – Learn more about this example with Strategyzer.
The Ten Types of Innovation tactics
Bringing together the Business Model Canvas and the Ten Types of Innovation
What we see, when we overlap the two models, is a close-to-perfect match between the Business Model Canvas and the Ten Types of Innovation, as presented in the drawing below.
Combining the two offers a lot of potential uses. From quickly developing business models, uncovering alternatives to the current business approaches, or a brainstorming and ideation tool. But more importantly, what it shows us is that innovative and successful products should be viewed more broadly than they are today. Innovation occurs all across the business model and we should approach all components of the business model as part of the actual product or service.
Prototyping business models and driving innovation
We talked a lot about powerful questions. We explored how by removing the status quo, you are forced to think about different ways to serve your customers and how to innovate.
You can use these questions to get familiar with prototyping business models. As a quick exercise, try to use the Ten Types of Innovation tactics and the Business Model canvas to answer the following question: “What if Facebook can’t generate revenue from advertising?”– Read this blog post to learn more about powerful questions and how you can use them
Alternatively, to familiarize yourself with using both tools, you can start using them to challenge the business models you develop for your products, existing and new. Don’t just build one! How many business models can you prototype and in how many different ways can you make it work?
As with most things, it’s not until you put it to the test with real customers, that you will know what actually works. It is not always possible to test business models in the market but, if you can, make sure you spend some time thinking about how you would test your different business model prototypes.