Business Model Ideation (Strategyn way)
The 1 Line Description
When to use it
This articles presents a quick summary / set of extracts from this longer blog post, by Tony Ulwick
New-platform innovation requires the creation of a new value delivery platform (product/service), but the need for creativity does not stop there. After a company formulates a clever concept for a value delivery platform, it tyically hits the pause button.
Before it commits to spending the resources necessary to flesh out the concept with a complete set of product or service features and building a comprehensive business case, management typically wants to know, “Can the concept make money?” To ensure that it can, the concept must be supported, at this stage of the idea generation process, by a basic business model.
A basic business model is defined as the method by which a company will generate revenue from its offering and control costs through its operations. The model demonstrates how the concept can be implemented profitably.
Management does not yet need to know exactly how much the product will cost or how profitable it will be; that calculation can only be made after pricing information and decisions regarding the supply chain, distribution, marketing, and sales have been transacted and the business case is completed. Consequently, it is important to distinguish a basic business model from both the comprehensive business model and the revenue model.
A comprehensive business model factors in considerations related to pricing, distribution, marketing, sales, and advertising. In contrast, the basic business model is only focused on product cost and revenue generation opportunities that relate directly to the product and on the contributors to the cost of production.
Conversely, the revenue model, on the other hand, is not only concerned with the cost and revenue generation opportunities, but also with the issues that affect cash flow; it must explain how and when revenues are collected. In effect, the basic business model is a subset of the revenue model, and both are subsets of the comprehensive business model.
As one would expect, the revenue and comprehensive business models are formulated after the product has entered the product development process. Considering the basic business model at this point in the process has the effect of drastically reducing R&D costs by assuring that only valued and profitable ideas are considered for further work.
The basic-business-model creativity triggers listed in Table 2 will help innovation teams create an inventive cost and revenue equation. To achieve optimal results:
- First identify the biggest contributors to variable cost and use the variable-cost-reduction triggers to devise ways of reducing those costs.
- Then use the revenue generation triggers to devise ways of increasing revenue.
- Finally, use the fixed-cost-reduction triggers to minimize fixed costs associated with production.
The resulting equation defines the basic business model.
These triggers are equally useful whether the company is creating an altogether new business model, as is the case when developing a new value delivery platform, or when it is improving an existing business model.