The advent of unprofitable businesses
The last decade has seen the rise of many internet companies which were able to build products and services (feasible) that people want (desirable), but missed a crucial aspect: how to generate more revenues than costs over time (viable).
This is true for many failed startups but also for some of the most “successful” ones.
In fact, despite their apparent success, huge valuations or recent IPO filings, companies such as Uber, Lyft, Airbnb or Pinterest are yet to prove their business model is able to generate more revenues than costs.
In spite of the arguments that support these aggressive growth strategies, we can certainly agree that these companies are exceptions, not the rule.
For most businesses, simply creating products and services that are desirable and feasible will not guarantee profits.
In order to thrive in today’s fast-changing environment, businesses need sustainable business models that are thought of and incorporated into the product from the start.
They need alignment between business strategy and product development. They need the principles of Business Design.
Principle number 1: Support Action over Analysis
Have you ever heard about “analysis paralysis”?
Analysis paralysis happens when an individual or group is unable to move forward with a decision as a result of overanalyzing (overthinking) data.
When companies and teams are constantly flooded with information and don’t have a clear view on the problem to solve, it is easy to fall in the analysis paralysis trap and lose sight of your goal - to build a profitable business.
The secret to get ahead is to get started. Don’t. Overthink. Stuff. Instead, decide on your next action.
- Focus on the top jobs, pains and gains your solution is solving for the customer - those typically represent the biggest (most profitable) market opportunities.
- Focus on the fit between the problem you identified and your proposed solution (problem solution fit) - to make sure your product is solving the biggest problems.
- Create a blueprint of the business solution - “How does plan A look like?”
- Ask yourself: What is critical and uncertain? How can I get a better view on those issues? - moving forward means learning and getting uncertainty out of the way.
Principle number 2: Experiment driven Design
Most companies spend too much time conceiving products and business models in theoretical scenarios which don’t really match reality.
This type of working attitude not only protects wrong assumptions (as they are not confronted with reality) but actually prevents businesses to get a true understanding of what the customers’ pains are, or how much they would actually be willing to pay for a product/service.
The best way to learn what works and what doesn’t is to go ahead and try it, out there, in the real world! And the good news is that it has never been easier and cheaper to do so.
Get rid of your assumptions, embrace experimentation as “the” means to learn:
- Create a best-fit model of reality
- Design experiments that validate/invalidate your model
- List all questions and assumptions
- Formulate a hypothesis around a part of your business
- Define what you would expect to see happening
- Make a prototype and collect data (pricing data, sales channel, ads, landing pages,..)
- Feedback the info into your model
- Rinse and repeat
Principle number 3: Deal with incomplete data
“The world” never offers you with complete information. In fact, the more information there is about a subject or problem, the less flexibility you have to make decisions.
This may sound counter intuitive but the reasoning behind is quite simple. When a problem is well understood, most players will converge into similar products and business models. If everybody is doing the same thing, it’s difficult to differentiate, to generate more revenues.
On the other hand, when you are working with incomplete information, it means you can arrive at solutions before your competitors, you can get a competitive advantage.
To get insights faster than others, the best you can do is to experiment and iterate.
- When solving for X - think in iterations, rather than absolutes.
- Start with a “best-guess”
- Create many potential solutions
- Think about how that work and look like
- Does it match your best guess?
- Iterate until it works ;-)
If you found these principles useful, you might want to try out our business design course and start exploring some of the methodologies business designers are using to solve business problems.
Get free access to the business design course here.
Photo by Hal Gatewood on Unsplash
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