I now believe that entrepreneurship can be best understood as two seperate but interrelated processes:
- Design Thinking
- Business Model
Design Thinking, popularized by the Stanford University Design School, provides a systematic and collaborative approach to understand the customer at the emotional level as the basis to formulate a wide ranging problem statement and proposed solution which is then refined through several processes to be ready for market testing. The result of design thinking is the value proposition, which I define as:
"The unique [competitive] combination of emotional and economic benefits for which a customer will enter into an exchange [sale]."
Business Model is the process to commercialize the value proposition or "product", which provides additional opportunity to create value for the customer. Business model considers requirements such as revenue stream, selling method, distribution, partners and cost structure. There are many ways to think about business model, including Alexander Osterwalder's "Business Model Canvas", BCG's approach and my book on the subject--"Billion Dollar Company". Each of the approaches has a slightly different slant, but what they share in common is that the "product" is typically separated from the commercialization strategy. The value proposition is developed independent from the "go to market" strategy. Such a separation allows each of the two processes to be developed in a less constrained environment which generally leads to better thinking about each of the outcomes--value proposition and commercialization strategy.
Incrementalism, the addition of small changes or features [of little value], is common in business. It generally appears in businesses when revenue growth does not meet expectations or forecast. Incrementalism frequently is triggered by the realization that there is a lack of product-market fit, the inability to find a customer segment for the "product". Incrementalism also appears under pressure from the mantra--"constant innovation"--and small changes to the product are an easy fix.
To combat incrementalism and produce large changes valued by customers, I recommend:
- Focus on the value proposition and not simply the product or service. Focusing on the value proposition should led to revisiting the emotional needs of the customer, wherein lies the understanding that produces the large opportunities. Also, customer needs are constantly changing, but emotional needs are usually more important than factors such as technology (as evidenced by the small percentage of customers that only buy the newest tablets with the fastest processor) or price.
- Focus equal time and energy on business model changes. Value is a perception of the customer that extends well beyond the physical product characteristics or software features. Simple changes such as changing payment terms or using local distributors to improve customer service may unlock a segment of the market that is holding back on purchasing.
- Systematically review value proposition and business model rather than waiting for the crisis of a missed revenue forecast. Calm, deliberate thought allows for a better understanding of the customer environment, better framing of the "problem" and more innovative solutions that avoid the trap of incrementalism.
Design thinking can also be applied as a method to develop meaningful changes in business model, but I will save that post for the future.
This post on value proposition from Fast Company provides a useful supplement to today's post.