The following is the process for Business Model Innovation (BMi).

1 – Market Research

It starts with fact-finding into everything to do with the market, including:

  • customer research
  • competitor research
  • market size and growth projections
  • data points about specific categories and segments (niches)

BMi requires diligent research and time to uncover deep insights that can help push the project to the next level.

Basic market research reports with high-level views on market growth and competitive analysis offer very little insight to inform new models, as the companies ‘inside the ropes’ of the market will have a much more sophisticated view.

Even one deep insight can be enough to spark a whole new business model, with the potential to dominate specific niches and eventually categories if executed on.

2 – Conversational Analysis

Even with research, facts, data, and other pieces of information, most ideas for new businesses are grounded in a vision, a vision towards the future.

There will always be some form of tug of war between the visionary elements of the future and the data points of today.

This is because every market will have an inflection point, and those inflection points are almost impossible to predict.

Thus, after there is some research, facts, and data to ground the conversation, there will be some back and forth conversations to discuss the:

  • opportunity in the market
  • feasibility of attacking that opportunity (competition, funding needed, etc.)
  • how lucrative the opportunity is or isn’t (margins, CAC, etc.)
  • long-term goals with the project

Typically, there is a balance between visions for the future and where things are at today. This is where concepts such as the S Curve, Product Market Fit (PMF) and other strategy-based frameworks can act as useful mental models.

For example, any new business that has no track record or established trust with a certain segment in the market will be disadvantaged compared to those who are.

No matter how innovative or ingenious a business may seem on paper, there are always a certain number of touchpoints required to turn believers in a concept into paying customers.

Through the conversations, a consensus emerges on the right shape of the vision, and from there it can be mapped into a more concrete model.

3 – Value Prop & Business Model

Use the Value Proposition Canvas to ensure ‘the offer’ to would-be customers – in any market, segment, or niche – is valid.

Use the Business Model Canvas to ensure a valid business model is being crafted, one that would be set to become profitable after a certain period of time.

Part of the Business Model is ‘Key Capabilities’ (Key Resources, Key Activities), so the analysis needs to be grounded in the resources and internal capabilities the business has today, versus what is required for the future model.

There may be some cursory financial analysis required, or the seeds of a Startup Financial Model, but a financial model is typically used for raising investment and has multiple assumptions that are yet to be tested in the market.

Once these components are in place, the goal is to begin validating.

4 – Model Validation and Testing

There are many ways to begin testing a new Value Proposition in the market, including:

  • speaking with existing customers
  • opening conversations with potentially new customers
  • launching a website and testing the value prop online in certain communities

The Customer Development Framework offers an approach with several steps towards achieving validation of both the Value Proposition and Business Model.

There is an element of both sales and marketing to this, but ultimately it needs to be grounded in both the vision and the business model.

There are several different ways that the strategy of validation can occur. This is where reference models or proxies within various markets can be useful. Examples include:

  • Looking at creative Go-To-Market strategies of successful companies in the same space
  • Looking at innovative ways to reach customers by other founders in adjacent spaces
  • Tapping into internal models that have worked in the past previously with established companies

Ultimately, a lot of the goal in this phase is conversations. The framing is important because often customers either:

  • a) have difficulty describing what they want, or
  • b) will provide a laundry list of desired features

Neither are particularly useful, so that’s why visual prototypes are typically best. Seeing is believing, and it also helps establish a feel for the proposed product or service without investing tons of resources into building it before it is validated.

We see this approach a lot in crowdfunding campaigns, where entrepreneurs and designers sell ‘the vision’ and product idea before the product itself is finished. These types of channels offer insights into ways to explore PMF (Product Market Fit) without

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Structure – Business Model Design

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