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Design thinking and business model innovation.

Peter Froberg — Fri, 20 Aug 2010 16:36:57 +0000

Can we create an even better business model innovation by adopting even more design thinking?

I have been working with methods based on Discovery Driven Planning. It is essentially a framework for adapting plans according to what you discover in the real world. Methods like the business model canvas are deeply rooted in design thinking, but how do we add additional tools to create true business model design.

About design
Design thinking is about using the designer’s approach to solving problems and developing new design. A ‘Great Design’ is characterized by a deep understanding of the user, creative resolution of tensions, collaborative prototyping, and continuous modification and enhancement of ideas and solutions.

Within the last few years, business thinking and tools have been affected by design thinking. A great example of this is the business model canvas. I have to admit I am a great fan of this. It is based on a paradigm with focus on a collaborative and iterative style of work; it is a very visual and hands on tool.

Problem
It is beneficial to use even more design thinking in business model innovation. Traditional business strategy is rooted in deductive thinking, selecting among predetermined alternatives. Yet with the surroundings changing faster than we anticipate, there is a growing need for methods that can generate new alternatives instead of just choosing between options. Just think of the way the internet is challenging a range of business models. Take the example of Skype, which became highly profitable using a business model that most traditional business people did not believe in. This model did not evolve from a careful analysis of existing options, but was entirely designed as new.

There is a growing need for solutions like this, and adopting even more ‘design thinking’ might help us do just that

Roger Martin from the Rotman School of Management is one of the pioneers in this field. In his book, the design of business, he describes design thinking for business as consisting of three parts

1. Deep and holistic user understanding
2. Visualization of new possibilities, prototyping and refining
3. The creation of new activity system to bring the nascent idea to reality and profitable operation.

The Business model canvas works with part 2 – Visualization of new possibilities, prototyping and refining the possibilities. As I see it, there is a need for more methods and tools for part 3 and part 1. Working with clients on business model innovation, I have felt this need, especially for bringing the new models effectively into the world.

Solution
As an answer to this need, I have started using Discovery Driven Planning for the implementation and I am currently looking into finding good methods for creating deep and holistic understanding.

Discovery Driven Planning
Randy Komisar is a partner in the venture capital firm Kleiner Perkins Caufield & Byers and co-author of the book ‘Getting to plan B. In a talk with a group of the early stage start ups they had backed, he asked how many had abandoned their original business model for another, the answer was two thirds! These were initial plans that were good enough for them to get funding from the VC

This goes to show that the initial plan rarely works out, or as Field Marshall Helmuth Carl Bernard von Moltke said “No battle plan ever survives contact with the enemy”

The book “Getting to Plan B”, as well as the underlying framework, discovery driven planning, is a way to create a plan that changes according to discoveries of the real world.

The concept was originally put forth by Rita Gunther McGrath in her 1995 Harvard Business Review article “Discovery Driven Planning”

Personally I am currently experimenting with different ways of implementing this idea. based on inspiration from places such as “Getting to Plan B” and “Discovery Driven Growth” by Rita.
I am working towards developing one or more templates in the style of The Grove.

Deep user understanding
In design, it is common to use ethnographic research to create deep and holistic user understanding. When designing business models, the understanding must go beyond the user, to having a deep and holistic understanding of all the elements of the business model.

Creating the foundation for business design through qualitative ethnographic research is being used in places such as The Rotman School of Management. I am currently looking for tools and best practices to best adapt this to business model design.

I firmly believe that deep personal understanding can help create better business models. How do we best create this understanding or surface what is already there?
Do you have any best practices for creating this understanding?

What do you think?
What do you think; do you see a similar need? And, what have you done to meet it?

Skype

Peter Froberg — Fri, 30 Jul 2010 13:21:47 +0000

Skype the very popular VoIP service lets people make phone calls over the internet. Calls between two computers is free while calls to regular phones and other valued added services are charged to the user.

Skype is one of the poster boys for the freemium business model. It is a great way of showing how freemium can be used to successfully build a business.

Free
The ability to call for free between two computers

Premium
Calling landlines or mobile phones world wide (at a price that is much lower than normal phone charges)
Other value added services like Voicemail and Call Forwarding

Bookmooch

Peter Froberg — Fri, 30 Jul 2010 13:21:11 +0000

While Bookmooch is not a publishing house in the conventional sense of the word they are an example of an interesting business model in the book world.

They facilitate free exchange of books between people. This is done free of charge and they generate revenue by referring people to amazon.

Free
Facilitation of private book exchange

Premium
Books purchased through amazon if you cannot find them on Bookmooch

More
Behind this fantastic idea is John Buckman, who is also the man behind Magnatune

Text free

Peter Froberg — Thu, 29 Jul 2010 12:23:55 +0000

An application that lets you send text messages on the iPhone or iPod touch. They follow a model that is very normal for iPhone applications. The lite version of the application is free and the advanced version is offered for a price.

In the case of text free, the lite version lets you send 15text messages a day, something that should satisfy most users however, for $6 you get the premium version of the application and free texting for one full year.

Why is it interesting?

Free:
The Lite version that enables you to send 15 text messages a day free

Premium:
The full premium application that allows you to send unlimited text messages for one year

More:
It has been noted that about 18% of the free users end up buying the premium application.

This is a prime example of freemium differentiated by an amount. Up to 15 messages a day is free and above that you pay. The most striking feature of this product is that the number of free messages offered per day is more than what people expect. The number of free messages is enough to draw in a large group. Other successful Freemiums in this area include the ‘Mailchimp’ and ‘dropbox’

The Keynote speaker

Peter Froberg — Thu, 29 Jul 2010 12:22:03 +0000

Many non-profit organizations have their founder or CEOs give inspirational speeches on achievements in their chosen fields or areas of specialization. This is a good way of generating income while spreading the word.

Free
The work being done by the non-profit organization

Premium
The CEO/Founder giving an inspirational speech

The business book

Peter Froberg — Thu, 29 Jul 2010 12:21:04 +0000

The mechanism behind the idea of freemium is stable in many non-fiction areas. This is particularly true in the case of business books. While a great number of books are freely available the authors generate significant amounts of money from speaking and consulting assignments.

It is no surprise that many authors have taken cognizance of this and provided free copies of their books in an effort to garner more speaking and consulting assignments.

Free:
The book

Premium:
Speaking and consulting in the areas of expertise

More:
Examples of this business model include “The Virtual Handshake” by the linguist Steve Kaufmann, “Free” by Chris Anderson, “Go it alone” by Bruce Judson”, and “Happy hour is 9 to 4” by Alexander Kjerulf.

Actually the books are often offered for a small price. However, the revenue generated is so little that it might as well be offered or considered free

O’Reilly Publishing

Peter Froberg — Thu, 29 Jul 2010 12:20:10 +0000

O’Reilly is a publisher of technical books. They are amongst the first publishers that allowed the free downloads of some of their books online

Free:
Books in digital form

Premium:
The book in premium digital format or in physical forms. Besides this they are very good at monetizing the content of books in many different ways. Watch the video to get a fair idea

More:

Tim O’Reilly makes the argument for Open Publishing @ TOC 2009 from Open Publishing Lab @ RIT on Vimeo.

Poetry speaks

Peter Froberg — Thu, 29 Jul 2010 12:12:59 +0000

Poetry speaks supplies poetry online. Readers can read the poem or hear the author recite it online for free. If you want it downloaded in the MP3 format or want a printed version then you have to pay for it.

Free:
Ability to read it online or hear the author read it for free

Premium:
MP3 downloads or printed texts

More:
Poetry speaks started as books with CDs where you could hear the poet read. The great success of these books led to this new innovative platform.

Law firm (online term sheet generator)

Peter Froberg — Thu, 29 Jul 2010 12:08:24 +0000

What did they do?
Wilson, Sonsini, Goodrich, and Rosati one of silicon valley’s dominant law fims have created a free term sheet generator.
It is a modified version of the tool they use internally. Based on your input it generates a document similar to the one you would normally pay for.

Free:
The ability to generate term sheets

Premium:
Other services of the law firm

See more on their webpage
http://www.wsgr.com/wsgr/Display.aspx?SectionName=practice/termsheet.htm

http://www.startupcompanylawyer.com/2009/04/22/wsgr-online-venture-financing-term-sheet-generator/

The scholarly lawyer

Peter Froberg — Thu, 29 Jul 2010 12:07:12 +0000

The example used by Yohai Benkler in his great book “The wealth of Network”.
Scholarly lawyers have for long been writing articles for little or no money in order to get consultancy business from firms and individuals in their area of specialization.

This is perhaps the archetypical case showing that such models work has been around for a while even before the advent of the internet.

Free:
A scholarly article in a specialized area of law e.g. Criminal law, constitutional law or Tax law

Premium:
Services offered to clients in specific areas of law

More:
See more about Yohai Benklers great book on this page.
I especially recommend the second chapter: Some Basic Economics of Information Production and Innovation