Traditionally, new products, initiatives and businesses are started using long business plans. The description of a traditional business model is a long narrative text, static and indecipherable to anyone without an MBA.
Within the last 10 years, a new methodology has been established for designing new business models and starting new businesses and projects in general. A very exiting area of thinking, writing and doing has developed. This area is usually called “lean start-up” or “design thinking.”
As with most new ideas, there are many interesting thoughts and directions that overlap with the larger field. In The Lean Startup, Eric Ries describes a start-up as “a human institution designed to create a new product or service under conditions of extreme uncertainty.” I think this is one of the best definitions of the conditions that warrant design thinking/lean start-ups.
Why is this the right approach for freemium?
Freemium has only recently become widely used on a large scale (freemium logic). Because of this, there have not been decades of use to draw from for learning how to use freemium, making the conditions for the creation of every new freemium product or service very uncertain. This makes the creation of new freemium models an ideal candidate for design thinking and lean start-up principles and business model design.
The Design Process
The process for designing business models consists of four stages that are repeated in an iterative process:
While the overall stages are the same in both business design and lean start-ups, the divisions among them and the naming guidelines vary slightly (see “detailed overview over stages in business design” for more details and related links).
As an iterative process, you go through the sequence several times, each stage building on the one before. Both the entire process itself and each iteration can be of varying length, lasting from five minutes to five months.
You’ll usually start by doing a very simple back-of-the-napkin integration. Here you will gain a little bit of insight, generate ideas to put on the back of the napkin and create a small prototype by writing up a simple calculation and testing it by seeing if the person you’re working with thinks it looks OK.
If you are looking for a deeper understanding of the area, look to the pioneers of the field.
He has proven based on rigorous testing that his method can vastly increase a start-up’s chances of success.
Roger Martin is the author of The Design of Business and the former dean of the Rotman School of Management, which has a special focus on business design.
Alexander Osterwalder pioneered the business model canvas and its related methodology. His work is outlined in the book Business Model Generation.