Designing the business model
After creating a solution and testing its feasibility, the Innovation Process’s next step focuses on Designing the Business Model. The results from the previous steps, a precise understanding of the problem(s) and the solution(s), provide the foundation for the business model.
Core Elements of the Business Model
The objective of this phase is to create a validated version of the business model. The innovator needs to address a variety of different topics.
- Definition of use cases for the solution or idea
- Clearly defined value
- Proposition (derived from the solution)
- Market analysis (customers and competition)
- Pricing model
- Evaluation of risk and opportunity
- Information on ...
- Implementation cost and timeframe
- Required skills and technology
- Organization and processes
- Financial projections (revenues and cost)
- Go to market plan (marketing and sales)
- Required funding
It does not matter if the solution is part of establishing a new business or dedicated to process improvement or focuses on a new scientific approach for a sustainable energy source. The Business Model Design covers the same topics, independent from the solution itself, but with different priorities.
Market Analysis and Kicking off the Customer Development
The first step to design the business model is to formulate a precise Value Proposition. The market analysis is a crucial activity for the subsequent phases of the Innovation Process, e. g. the Market Testing. It needs to lay out the fundamental aspects of the market (market type, customers, users, etc.) for potential investors, founders, or other potential stakeholders. The Customer Discovery, the first stage of the Customer Development Process Model (developed by Steve Blank), is supposed to deepen the understanding of the rightful place of the developed solution(s) and to initiate and to extend the contact to the outside world. Gathering data from the usage of specific technologies or by conducting interviews provides required feedback. The Customer Discovery tests two hypotheses, evaluating if the developed value proposition can solve the particular problem and how it helps achieve the defined objectives. The innovator has to verify if the assumptions about how the solution is accepted or perceived by the target group are correct. If the data or feedback validate the assumptions, it helps to underline the validity of the solution. It is crucial to identify asymmetries between premises and feedback as early as possible. Early Identification helps avoid spending more time and money on the subsequent steps only to discover that the solution does not adequately address the specific problem. In this case, it might be necessary to return either to the ideation or even to the problem framing phase.
This stage’s result is a verified business model required for the financing process of a start-up, for management approval for a pilot in a corporate, or for cost approval of a new science project. Thus, this step is relevant for both entrepreneurs and intrapreneurs.