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Business Modelling Skills - Ideation and Refinement

Business Modelling Skills - Ideation and Refinement

Business Modelling Skills

There are two fundamental skills you need to improve a business model.
They work a bit like the muscles that move your arm - biceps close and triceps open, and you want them to be equal in their strength.
If one is much stronger than the other, your arms look misshapen and you’re likely to hurt yourself.
Fortunately, they can be trained and strengthened.
The same is true with these two skills: Ideation and Refinement.

Ideation is the skill of seeing new possibilities, a mixture of imagination and rapid planning.
It’s the ability to hear a few words that spark a thought, then run with them to see what it could become.
This requires you to suspend judgement until the very end, so that you don’t accidentally kill off brilliant ideas too early.

Deciding Where To Go On Holiday

Here’s a fun non-business example: Where do you want to go for your next holiday?
You probably have an answer that springs to mind.
But what if we think through some other alternatives:
You could go to North America in the summer and hike through stunning national parks.
You could go to Queenstown and go rafting/bungee jumping.
You could swim in the Great Barrier Reef before it disappears.
You could go to the winter markets in Germany.
You could go on a retreat in Thailand, detoxing your body and turning off your phone.
You could go skiing in the Swiss Alps, then drink brandy in front of an open fire.
You could explore the Galapagos in South America.
You could follow your favourite artist on tour across your home country.
You could go on Safari in Africa, getting up close to the animals.

Within those options, there are a few variants:
You could go alone.
You could go with your partner.
You could go with your close family.
You could go with your extended family.
You could go with close friends.
You could go with a big group of friends.
You could go alongside a work conference.
You could take your whole work team.

You could do it on a tiny budget.
You could do some parts on a budget, with a few luxuries.
You could do it all at a moderate standard.
You could go all-out luxury.
…or you could move to a new country.

The point is this: Good ideas survive competition.
Maybe your initial idea is still the winner.
By quickly thinking through the other options, you’re more convinced that it’s the right way to go, and perhaps you’ve clearer as to why.
But there’s also a good chance that a new competitor has become your favourite.
Either way, you’re better for having gone through the process.

It’s the same with your business – by putting each element of your idea up on a fair trial, you’ll see the strongest concepts survive, and better options rising to the top.

I bet there are at least five different customer segments who would love what you sell.
I bet there are several compelling Value Propositions that you’re not highlighting.
I bet there are multiple price points that would raise your revenues and margins.
I bet there are new partners who could do a better, cheaper job that what you do today.
I bet there are 4-5 expenses that could be cut today that you’d never miss.
I bet there are new channels that could more effectively connect you to new customers.
I bet there are tricks that could increase your customer retention and build loyalty.

Most importantly, I bet that by looking at each component with objectivity and imagination, you’ll start to see exciting new possibilities that will improve your business.

Business Model Refinement

Once you’ve built a long list of possibilities, you need the second skill: Refinement.
Refinement is about making accurate comparisons and clever tradeoffs.
You’ll need to be able to see things dispassionately, and have a clear idea of what is most important to you now as well as in the future.

For example, you probably can afford to do one of those holiday, but not all of them.
In fact, one of them might cost the same as two others combined.
It also depends on how much you want to spend: taking the whole family interstate costs as much as taking yourself overseas.
Then there are the external considerations – what time of year you’re travelling, how much time you have, and what other options do you have for your money?
It might be a wiser move to go for a cheap holiday and change your job – it could make you much happier.
Or it might be better to delay the trip six months so that you have more cash or more freedom.

Refinement is the skill of measuring various elements of each idea, then shortening the list of contenders.
I find this is helpful when picking what to eat: get one person to narrow the options down to three, and then have a different person choose out of those last contenders.
Each part of the job is easier than picking an outright winner, and both people got to control the outcome (to some extent).
Similarly, you can’t target eight new customer segments simultaneously, but you can probably narrow it down to two or three that go through the testing process.

These skills work in tandem:
Ideation without refinement creates a mess of options that will never be completed, or the dreaded “analysis paralysis”.
Refinement without ideation creates a culture of pessimism and a shortage of candidates, leading to your project stalling or settling for the “least-worst” option.

Business Model Traps

There are three traps that get in the way, and we can see how each can be avoided.
Trap #1: Obsessions
This is where a person becomes overly attached to an idea that has shifted, but is unwilling to relinquish what the idea could have become.
For example, it might be falling in love with a product, even after market testing proves that it is guaranteed to lose money.
It can also be an obsession with a single element or feature, like a brand name, brand ambassador, building or partnership.
A bit like buying a new TV because you like the remote control.

The best way to un-stick an obsession is to name it.
By putting it on the table, it tends to become apparent to everyone, especially the person with the obsession (although they probably won’t like to admit it straight away).
By gently identifying the real issue, you can either find a substitute elsewhere in the business, or make the tough decision to change the idea.

Trap #2: Blinkers
Blinkers are what keep racehorses from becoming spooked by their rivals – they can only see the track ahead of them.
Many entrepreneurs go “blinkers-on” so that they can focus on building their business, without any interference or distractions.
In these moments, they just want to execute the idea, without judgement or analysis.
As noble as this is, it’s been my experience that blinkers are often in place to block out an annoying voice – the nagging doubt in the entrepreneur’s head.

Blinkers are there to preserve sunk costs –to quit now would feel like a huge loss.
Unfortunately, this logic is not a good reason to persevere with a flawed business model.
I find that by asking questions that remove the blinkers (usually ones around ideation and alternatives, or around financial viability), entrepreneurs actually feel relieved to hear someone else raise the doubts that have been plaguing their thoughts.
By re-examining the model in an objective light, they can identify and address the issues they were previously trying to block out.

Trap #3: Trying To Have It All
A lot of people find it easy to eliminate bad ideas.
That’s not the skill of strategic thinking.
It’s about saying no to good ideas, in order to say yes to the best ideas.
It’s tough to hold your nerve and cut an 8/10 business model, but that’s what it takes to succeed.

Steve Jobs understood this – famously making his team write up their top ten priorities, he then grabbed a marker and crossed out the bottom seven.
He knew the company could have no more than three targets, if not just a single top priority.
If you’re serious about growth and sustainability, you’ll know that you need to cut out all of the B+ and A- options, in order to have enough energy to pursue the A+’s.
With a business, that means picking the most pivotal or most lucrative options, and then saying “no” to all the other good ideas.

Strengthening Your Business Model

The tool and processes we use to strengthen business models are designed to work both “muscles” at once.
Tools like the Value Proposition Canvas help understand our customer and what they’re looking for, which allows us to explore other segments with slightly different interests.
It also allows us to rank the most compelling value propositions, and identify the most valuable customer segments.

The Business Model Canvas is a brilliant way to sketch out new concepts at zero cost, meaning you can knock out 3-4 new ideas in an hour without any commitment or obligation.
Once you’ve drawn them out, you can assess each of them with your team/advisors, noting their comparative strengths and singling out those with the most potential.

The customer testing process lets us see how customers interact with what we’re selling. This sparks new ideas, as well as dispelling our faulty assumptions about how people will behave.
Testing shouldn’t be scary, it’s the cheapest and least embarrassing way of spotting issues and golden opportunities in advance.

Good ideas survive competition.
If you’re not willing to throw up a few quick competitors, what’s really going on?
Do you suspect that your current idea isn’t the best?
If so, why would you not want a better idea to win?

If you’ve got too many good ideas, why are you afraid of eliminating the worst options?
Is it not enough to have a winning idea?
What’s driving your indecision?
Is it fear or greed?

Like training your muscles, this process might feel painful or exhausting, but it will make your business model much stronger.

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