In many medium-sized companies, innovation workshops are not very targeted to develop digital business models, e.g. in the form of design thinking workshops or design sprints. There are many good reasons for using these same methods, but as methods from user-centered design they are only conditionally suitable for developing and reviewing business ideas. So how can you proceed, on the one hand, to collect the learning experiences (e.g. with design thinking) and at the same time to develop a concept for a business model in a short time?
From our project experience in the development of digital business models, start-ups and corporate ventures, we have compiled our experience and bundled it into a process of 8 steps.
First of all: research or not - in the end it depends on your business model working on the market. To find out, the only thing that helps is developing a first marketable prototype in order to receive real market feedback.
Step 1: understand early adopters
When looking for digital business models, start with a clearly defined customer segment that you want to address with your business idea. In doing so, focus on the target group that, in your current assessment, has the greatest need for a solution (= early adopter). A clear focus on the target group helps your team not to get lost in the multitude of possible details. In practice, teams are often faced with the challenge that the business idea is for “everyone”. A solution for everyone is a solution for no one. You can avoid this if you are as specific as possible with your target group.
Do you have a solution? But be careful: not every solution has a problem, but every problem has a solution. A solution for everyone is a solution for no one.
But be careful: not every solution has a problem, but every problem has a solution. So find out which problems in your target group are big enough to solve. Behind this problem there is usually a willingness to buy. You cannot identify them from your desk - talk to your customers! Does that sound like design thinking to you?
Step 2: quantify the customer problem
As soon as you have been able to sharpen the problem qualitatively, numbers will help you estimate the size of the problem.
Negative example: Companies spend a lot of time procuring goods for production
Positive example: On average, medium-sized companies need 10 hours per purchased product. If you now take into account that an average of 750 different goods are purchased and assuming a salary of € 25 / hour, the procurement of goods costs € 187,500.
Quantify the problem from the customer's perspective - never from your company's perspective. Why? It's not yet about how big your market potential is or what sales you could generate. Quantifying the problem will help you better understand the size of the problem identified and how it will affect your potential customers. By collecting quantitative characteristics of the problem, you also make the problem more tangible for your manager or sponsor.
Step 3: generate even more ideas
You probably didn't come out of the blue with the project, but started the project with an initial business idea. Now that you have not only better understood, but also quantified your customers' challenges through qualitative and quantitative tests, you can ensure that your solution is a perfect fit.
Don't just brainstorm the whole idea. Also brainstorm how you can improve individual steps in the customer journey.
So before you start making the idea concrete, brainstorm again with your team. This will give you new, better ideas and improve the quality of your business idea. Also take a look at the details. It sounds cheesy, but in reality the “big picture” is successful when the sum of all the details is successful. So not only brainstorm the overall idea, but also how you can improve individual steps in the customer journey.
Step 4: conduct a competitive analysis
It is a wrong assumption by innovation teams that there are no competitors for their business idea. This assumption has never been confirmed in reality. Research how your target group is currently solving the problem and which solutions from direct competitors are in use. For many companies, Excel, Powerpoint and co. the most important software for your business processes.
Understand exactly what software your target group is currently using, what works well with this software and what doesn't. In many cases, Google is a good first port of call for this research. The well-known settings that Google offers for searches help here. Alternatives are platforms (e.g. producthunt) or databases (e.g. crunchbase). In order to quickly expose the competitors who are actually in use by potential customers, you can already consider these questions in step 1.
It is a wrong assumption by innovation teams that there are no competitors for their business idea. This assumption has never been confirmed in reality.
Step 5: Formulate the value proposition
As soon as you work on an exciting project, your colleagues and managers will certainly ask more often what exactly you are working on. A good approach to this explanation is the elevator pitch. In an elevator pitch you present a business idea in a nutshell in one sentence:
For (target customers) who are dissatisfied with (the current market alternative), our product is a (new product category) that offers (important problem-solving ability). In contrast to (the product alternative), our product (describe the most important product features).
For buyers in procurement who are dissatisfied with VBA-based spreadsheet tools, our product is a way to reduce procurement costs, as the procurement time per product is reduced and automated. In contrast to VBA-based spreadsheet tools, our product supports everything from identification to transferring the goods.
The positive side effect of elevator pitches is that you have to agree on the essential product core of your solution as a team and identify the Unique Selling Proposition (USP). This is a good remedy for feature creep in your products.
Step 6: develop a digital prototype
When you have reached this step, you will have understood and quantified the customer problem and developed ideas for your value proposition to the user. In the next step you check whether your value proposition solves the problems of the users. You can use prototyping for this.
Prototyping helps your team to make the business idea even more concrete and to make it communicable for users. It is a format that is also often used in the course of design thinking or lean startups. There are many different types of prototyping. When interacting with potential customers, a digital prototype, e.g. in the form of a click dummy, a good way to test.
The following applies here: Don't get lost in the details. Make it as specific as possible, but also only as specific as necessary. There are many free tools for digital prototyping, one of which is Figma. However, it is not enough just to develop the prototype. Go out to your target audience and test. The motto of this step is: test, iterate, test, iterate.
Step 7: determine the addressable market
A good solution is not the only thing that counts for the success of your project. A business plan will help you understand whether your product will ultimately work economically. Since at the beginning this often consists more of assumptions than of valid parameters, at this point in time you only go as far in depth as it makes sense.
While it is often still possible on the expenditure side to have a good overview of the most important cost drivers, this is not always so easy on the market side. One solution for calculating revenue streams are rough estimates in the first step (also called ball parking):
Potential sales = buyer of the product * user * frequency * market share * price
Sounds complicated, here's an example:
10,000 companies could benefit from the fictitious procurement software.
It would be used there by an average of 7 buyers (billed monthly)
Target market share is 10%
The price per license is € 10
This results in a potential annual turnover of € 840,000.
A tried and tested approach in working with teams is an individual estimate and the subsequent sharing of the results in the team. In this way, a targeted discussion can be held about whether the team has a similar assessment of the market size or potential sales. The goal of rough estimates is not to accurately predict market size.
It's about the statement whether the market is more like € 100,000, € 1,000,000 or € 1,000,000,000. The same applies to the expenditure side. If you get a promising result here, a business plan can still be developed.
Step 8: go into implementation
Working out the last 7 steps takes some time. In the end, however, there is always a digital prototype and the question of whether all of this really works on the market. Of course, qualitative and quantitative tests, such as the use of landing pages, help to check initial assumptions at an early stage. You have already been able to answer many questions. At the end of the day, you're still holding a landing page and not a digital product. So if you and your team have a good feeling, it's best to start implementing it quickly.
Despite a click dummy, the greatest learning effects are still ahead of you. Only with a functioning MVP can you get real and unfiltered feedback from the market.
The days of product development in waterfall logic are over. A good way to get a first feel for the market is to develop a Minimum Viable Product (MVP). We have launched many exciting ventures in the past and have had to learn the hard way over time what matters. We also know from experience that with the MVP and the mandatory “all in” for the business idea, the journey really starts. So the greatest learning effects are still ahead of you. Nevertheless, we recommend that you start with an MVP as soon as possible. This is the only way to get real and unfiltered feedback.