Design Thinking for the Business Case
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The document discusses how design thinking can help build the business case for new ventures. It outlines a 5-step process for developing the business case that incorporates design thinking principles. The steps include formulating the value proposition and assumptions, defining future success with an income statement, spelling out key assumptions, testing assumptions through thought experiments and in-market experiments, and refining based on the test results. It provides examples of how companies like Brivo have used this approach to test assumptions and either validate or pivot their ideas.
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Design Thinking for the Business Case
- 1. DESIGN THINKING FOR THE BUSINESS CASE December 2012
- 2. Meeting logistics > 45 minute presentation > 15 minutes for Q&A > Submit questions through QA widget at anytime– some answered during webinar and some post-webinar Slides and replay of event available after webinar About today’s webinar
- 3. 1 Today’s Presenter Tim Ogilvie is co-founder of Peer Insight. He is keen on helping large organizations create new experiences, services, and business models. Tim is co-author of Designing for Growth but spends most of his time practicing in the field, not writing or teaching. Tim is passionate about entrepreneurship and placing small bets fast. About today’s webinar
- 4. 2 Place small bets fast The meaning of ‘free’ Please share your feedback: togilvie@peerinsight.com
- 5. 3 Take a step back to 1999...
- 6. 4 Cool idea … But is it a good business? . . .
- 8. 6 Design thinking is often treated as a mystery Image: Designing For Growth: a design thinking tool kit for managers Asked to describe design, Tim Brennan of Apple’s Creative Services drew the following picture:
- 9. 7 What is? What if? What wows? What works?? $ our process: four questions framing interviewing observing analyzing exploring brainstorming creating building refining evaluating experimenting testing implementing We see design thinking as a problem-solving process
- 10. 8 Design thinking is obsessed with users Customer desirability Do users want it?
- 11. 9 … But it solves for users along three dimensions Customer desirability Do users want it? economic viability Does it scale profitably? technical feasibility Can we deliver it reliably?
- 12. 10 1. Empathize 2. Visualize 3. Co-create 4. Iterate Here’s what sets design thinking apart
- 13. 11 Empathize visualize co–creATE ITERATE
- 14. 12 250 days100 days30 days Empathize visualize co–creATE ITERATE
- 15. 13 Empathize visualize co–creATE ITERATE
- 16. 14 Q: When do we iterate? The entrepreneurship process is a series of learning loops A: At each new milestone of learning Empathize visualize co–creATE ITERATE
- 17. 15 1. Formulate a novel value proposition 2. Define future success as an income statement* 3. Spell out the assumptions What would have to be true? 4. Test the make-or-break assumptions Thought experiments In-market experiments 5. Based on test results, refine the model, refine the value proposition, or re-assess the investment potential of this opportunity Our business case method follows 5 steps: * Adapted from Rita McGrath, “Discovery-driven Planning”
- 18. 16 EMPATHIZE + VISUALIZE VISUALIZE VISUALIZE VISUALIZE + CO–CREATE ITERATE 1. Formulate a novel value proposition 2. Define future success as an income statement* 3. Spell out the assumptions What would have to be true? 4. Test the make-or-break assumptions Thought experiments In-market experiments 5. Based on test results, refine the model, refine the value proposition, or re-assess the investment potential of this opportunity design thinking is embedded in the steps * Adapted from Rita McGrath, “Discovery-driven Planning”
- 19. 17 step 1 2 provide the framing questions value proposition assumptions What would have to be true? Revenues...... Costs.............. Profits............ For Who want We will That provides Uniquely year X income statement* * Adapted from Rita McGrath, “Discovery-driven Planning” minus equals
- 20. 18 here’s how brivo answered these q’S Revenues...250M Costs..........200M Profits..........50M minus equals value proposition assumptions year 4 income statement* What would have to be true?
- 21. 19 “I think you should be more explicit here in step two.” Value proposition Year x Income Statement
- 22. 20 OUR BOOK, D4G, PROVIDES FOUR GENERIC ASSUMPTIONS ANY CONCEPT MUST ADDRESS value proposition For Who want We will That provides Uniquely assumptions year X income statement* Revenues...... Costs.............. Profits............ minus equals Value assumption: Customers will buy it–at a price that works Execution assumption: Your firm can create and deliver it–at a cost that works Scalability assumption: You can build a volume that makes it worthwhile Defensibility assumption: Competitors can’t easily copy it
- 23. 21 value proposition assumptions year X income statement* E. Cost model and unit cost assumptions Business Case Template/ Reverse Income Statement* A. Value network and go–to–market strategy B. Addressable market assumptions C. Adoption rate assumptions D. Revenue model and unit revenue assumptions For Who want We will That provides Uniquely Revenues...... Costs.............. Profits............ minus equals * Adapted from Rita McGrath, “Discovery-driven Planning”
- 24. 22 These questions will help identify the assumptions A. Value network and go-to-market assumptions Is our firm capable of executing the value proposition? Do we need strategic partners? What control points will we use to protect our role? B. Addressable market assumptions How large is the addressable market? Do the network partners above maximize the opportunity? C. Adoption rate assumptions Is our solution superior to existing offerings? How will we provide an on-ramp for customers to try it out? How many potential customers will adopt our solution? D. Revenue model and unit revenue assumptions Who will pay for the solution? How much? How will they justify paying that price? E. Cost model and unit cost assumptions What will it cost to acquire customers? What will it cost to deliver the offering? Will revenues exceed costs at scale?
- 25. 23 brivo set out to test 5 make–or–break assumptions Brivo make-or-break assumptions 1. Branded 3rd party will manufacture SmartBox 2. All carriers will deliver to SmartBox from Day 1 3. Consumers w/ 6+ transactions/month will adopt it 4. Subscription price $15/month 5. Unit cost at scale will be $400 E. Cost model and unit cost assumptions A. Value network and go–to–market strategy B. Addressable market assumptions C. Adoption rate assumptions D. Revenue model and unit revenue assumptions
- 26. 24 there are Two ways to test assumptions Thought Experiments Hypothetical experiments that use logic and existing data. Envisioned experiences, require imagination Set in the future 2D and 3D In–Market Experiments Experiments conducted in the marketplace with actual partners and customers. Live experiences, meant to feel real (even if some elements are faked) Set in the present 4D; persist over time (even if brief)
- 27. 25 confirming E-commerce is expected to grow 10X in next 5 years (1999 to 2004) Carriers make 2.2 attempts per every successful residential delivery disconfirming Carriers have not been supportive in the past of non-proprietary solutions HERE’S WHY BRIVO EXPECTED CARRIER ENTHUSIASM Assumptions being tested 2. All carriers will deliver to SmartBox from Day 1 thought experiment
- 28. 26 Will it conform to their policies? Will they use it versus other work-arounds? Will they require any training to use it? Will they require integration with their tablet? Do they LIKE using it? confirming Any “yes” answers below disconfirming Any “no” answers below 2. All carriers will deliver to SmartBox from Day 1 Assumptions being tested Brivo tested its carrier assumption with a single smartbox in–market experiment
- 29. 27 Maytag Whirlpool Brivo Assumptions being tested 1. Branded 3rd party will manufacture SmartBox 5. Unit cost at scale $400 ConfiRming A deal with Maytag or Whirlpool disConfiRming No deal finding a manufacturer was key thought experiment
- 30. 28 When make–or–break assumptions change, everything changes
- 31. 29 Brivo took a hard look at step 5 1. Formulate a novel value proposition 2. Define future success as an income statement 3. Spell out the assumptions What would have to be true? 4. Test the make-or-break assumptions Thought experiments In-market experiments 5. Based on test results, refine the model, refine the value proposition, or re-assess the investment potential of this opportunity * “The Lean Startup,” by Eric Ries Persevere? – or – Pivot?*
- 32. 30 From B2C... to B2B in 30 days Brivo’s search for a new value proposition access control multi-unit lockers critical parts logistics
- 33. 31 The surprise winner? access control! access control multi-unit lockers critical parts logistics From B2C... to B2B in 30 days
- 34. 32 Is design thinking for the business case just for startups?
- 35. 33 Case: healthcare service platform Partners can help co–create the revenue model Assumptions being tested 1. Customers will be acquired through third parties Visualize the solution in 2D, including the revenue model alternatives Meet with a candidate partner to co–create customer aquisition and revenue sharing Revise solution based on feedback Repeat with a second candidate partner
- 36. 34 Business model co-creation panel What are your current costs? Which are you most certain can be reduced? Which ones do you already have third party services to reduce? Assumptions being tested 1. Customers will pay us to change driver behavior and reduce costs 2. There are multiple cost categories we can affect case: Fleet telematics b2b customers can help co–create your pricing
- 37. 35 Assumptions being tested 1. We can acquire customers affordably employer–sponsored retail pharmacies direct online case: smoking cessation It pays to experiment with multiple options (simultaneously)
- 38. 36 Common errors Instead of perfection... make progress Trying to define every assumption High-precision thought experiments (complex models) Making prototypes perfect Seeking “validation” Testing only the alternative we prefer Focus only on metrics that look positive Success of concept also serves as an evaluation of the team’s competence Only a few matter Simple math only (no spreadsheets) Speed is more important “Exploring,” not “proving” Test multiple alternatives Focus instead on make–or–break assumptions, provide 100% transparency Focus instead on team learning
- 39. 37 Our next webinar This web seminar is a follow-on to “Design Thinking for the Business Case.” During this 50-minute interactive session we will share the principles and methods for conducting affordable in-market experiments—in days or weeks, not months. Using simple templates and real-world case examples, you will be able to: Understand the role of an Alpha test Understand the Affordable Loss Principle Design split-tests Understand entrepreneurial methods applied in a large organization Establish control points and IP protection Identify and test different revenue models Register early! http://ow.ly/fZaSb IN-MARKET EXPERIMENTS: THE SCIENCE OF PLACING SMALL BETS FAST January 29, 2013, 2:00PM – 3:00PM EST
- 40. 38 Recall the myth of design as mystery?
- 41. 39 value proposition thought experiments in–market experiments assumptions year X income statement E. Cost model and unit cost assumptions A. Value network and go–to–market strategy B. Addressable market assumptions C. Adoption rate assumptions D. Revenue model and unit revenue assumptions For Who want We will That provides Uniquely Revenues...... Costs.............. Profits............ minus equals Empathize visualize co–creATE ITERATE Here’S a better way to look at it
- 42. Thank you! Tim Ogilvie togilvie@peerinsight.com 703 314 3123 check out our blog peerinsight.com/musings follow us on twitter @peerinsight