Business Basics for Designers Part 1: Business Model Analysis
As technology advances, entirely new industries are emerging and old ones are crumbling. How do you imagine your organisation’s business model might look two, five or ten years from now? Now is time to learn how to methodically question and challenge existing ways of doing business and reimagine new possibilities of creating value.
At a certain point in your career as a designer (especially if you are a Service Designer), you’ll need to understand how business works. Or at least a bit of their lingo. In this series, I’ll give you a high-level introduction to everything you need to know about business. Let’s get started!
Business Models
A business model is the mechanism behind a business. If you want to understand how a business makes money, you need to understand its components. Luckily there is an easy & visual tool to help you do that. It’s called the Business Model Canvas and was created by Alex Osterwalder and Strategyzer. You can use it for describing, creating and analyzing business models. In fact, it’s the best way to understand how any business works on a strategic level.
Let’s take a closer look at the different blocks that make up the business model canvas. Not surprisingly it starts with customer segments.
Customer Segments. Identify the different groups of people that the business serves. At this level, you should only consider segments as different from one another if their needs require a different value proposition or if the business reachs them through very different channels. In other words, you should only make a distinction here if it’s relevant to the business model. Common mistake: Don’t try to identify too many customer segments when in reality, they are all being offered the same thing, the same ways.
Main Questions:
- Who does the business create value for?
- Who are the most important clients?
Value Proposition. This block is for describing what the business offers each of its customer segments. Every business is solving some kind of customer problem. In business, this is called a value proposition. You could approach it many ways, for example: Describe the product or service that is offered: “home cleaning services”. Describe the value or benefits: “flexibility and ease of contracting home cleaning services”, “trust and security in a cleaning service provider” or you could describe what makes the business different “immediate
booking”, “guarantee on X”
Main Questions:
- What does the business offer their clients?
- What problem(s) does it solve for them?
- What products or services are we offering each customer segment?
- What are the points of differentiation?
Channels have a range of different purposes, and we use them to help us understand how the business reaches their customers, encourages them, sells to them, delivers products and services to them. Channels can be direct like websites, apps, stores, etc. or they can be indirect, i.e. franchises, other brands’ websites, Amazon, multi-brand stores, etc.
We also distinguish between:
- Communication channels: e-mail, social media, call centers, appointments, calls, etc.
- Marketing channels: Facebook Ads, Google Ads, TV, traditional advertising, etc.
- Distribution channels: in-store, consultations, home delivery, mail, downloadable products, etc.
Main Questions:
- How do is the value delivered and communicated to the customers?
- How are customers attracted to the business?
Customer Relationships is a more complicated and nuanced block. To keep it simple, you should describe the type of relationships the business has (or wants to have) with their clients. Make sure you’re also thinking about the quality or characteristics of the relationship. The relationship might be super personal in-store or even at home. Or it might be more digital & automated such as social media and other online channels. You might also want to think about the aspect of time: does the business have short & frequent touchpoints or are they less frequent but may be longer in duration?
Main Questions:
- What type of relationships does the business have with their clients?
- What are the describing characteristics of the users experience?
- What’s the frequency of contact?
- What’s the duration of contact?
Revenue Streams describe the different sources of income a company might have. Here you should analyze how the model generates revenue per customer segment. Make sure you’re thinking about the nuances. What are the characteristics of the payment? How? When? How often? Average size? Is there a model like subscription, renting, transaction fees? Is the revenue stable & predictable or rather seasonal? Who sets the price? The business? The market? The clients?
Main Questions:
- Why do clients pay? For what? How often?
- Is the revenue predictable?
The key resources block is used to identify and describe the most important assets needed to make a business model work. There are many types of key resources. For example: physical, knowledge-based, social network, financial, brand, technology, data. It’s also worth mentioning that resources can be owned, rented, lent, or provided by third parties in other ways.
Main Questions:
- What is needed in order for the business to offer value?
- What do they need to be especially good at?
Key Activities describe what a business needs to focus on in order to offer and deliver value to their clients. This depends heavily on the specific business, but here are a few examples: design, account management, production, research & development, content creation, branding & marketing. These can be endless, so it’s important that you make the distinction between KEY activities for the business and all other routine activities.
Main Question: What are the most important activities we need to execute on for our model to work?
The Key Partnerships block can also be quite abstract and it is tricky to know from an outside perspective. There are many types of partnerships, so think about each block and ask yourself — who does the business rely on to make each block happen?
Main Questions:
- Who helps the business get its key resources?
- Who helps them do their key activities?
- Who do they rely on to distribute their value?
- Who are the most important suppliers?
Putting a business model into action will generate costs. Once you’ve identified the Key Activities and Key Resources, you should be able to easily guess the main cost structures. Identify the most expensive costs and their recurrence. When it comes to costs, you should be aware of the different types of costs fixed and variable costs as well as direct and indirect costs.
Main Questions:
- What are your principal costs?
- Which of your activities or resources cost you the most?
There you have it. Now you should be able to visualize and describe any business out there. You understand the basic lingo. You might even want to try to find new ways of doing business in order to future proof your own organisation.
Coming soon: I’ll share what you need to look out for when assessing a company.
In the meantime, I’m eager to get your feedback. So gimme a clap if you liked this quick introduction or write me how I can improve.
