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DESIGN THINKING FOR THEBUSINESS CASE
December 2012
Meeting logistics
> 45 minute presentation
> 15 minutes for Q&A
> Submit questions through Q&A widget at anytime– some answered during webinar and some post-webinar
> Slides and replay of event available after webinar
About todAy’s webinAr
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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
3
tAke A steP bAck to 1999...
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cool ideA … but is it A good business?
. . .
cAn design thinking helP?
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:
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What is? What if? What wows? What works? ? $
our process: four questions
framinginterviewingobservinganalyzing
exploring brainstormingcreating
building refining evaluating
experimenting testingimplementing
we see design thinking As A Problem-solving Process
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design thinking is obsessed with users
customer desirAbilityDo users want it?
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… but it solves for users Along three dimensions
customer desirAbilityDo users want it?
economic viAbilityDoes it scale profitably?
technicAlfeAsibilityCan we deliver it
reliably?
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1. emPAthize
2. visuAlize 3. co-creAte
4. iterAte
here’s whAt sets design thinking APArt
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emPAthize visualize co–creATe ITERATE
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250 dAys100 dAys30 dAys
EmpathizE visuAlize co–creATe ITERATE
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EmpathizE visualize co–creAte ITERATE
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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
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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”
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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”
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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
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here’s how brivo Answered these q’s
Revenues...250M
Costs..........200M
Profits..........50M
minus
equals
value proposition assumptionsyear 4 income
statement*
What would have to be true?
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“I think you should be more explicit here in step two.”
vAlue ProPosition
yeAr x incomestAtement
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our book, d4g, Provides four generic AssumPtions Any concePt must Addressvalue 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
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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”
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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?
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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 <$400E. 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
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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)
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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 enthusiAsmassumptions Being tested2. All carriers will deliver to SmartBox from Day 1
THOUgHT ExPERIMEnT
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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 1assumptions Being tested
brivo tested its cArrier AssumPtion with A single smArtbox
In–MARkET ExPERIMEnT
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MaytagWhirlpool
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 keyTHOUgHT ExPERIMEnT
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when mAke–or–breAk AssumPtions chAnge, everything chAnges
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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?*
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From B2C... to B2B in 30 days
brivo’s seArch for A new vAlue ProPosition
access control
multi-unit lockers
critical parts logistics
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the surPrise winner? Access control!
access control
multi-unit lockers
critical parts logistics
From B2C... to B2B in 30 days
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is design thinking for the business cAse just for stArtuPs?
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CASE: HEALTHCARE SERVICE PLATFORMPArtners 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
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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
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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)
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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
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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 PLACINGSMALL BETS FASTJAnUARy 29, 2013, 2:00PM – 3:00PM EST
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recAll the myth of design As mystery?
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vAlue ProPosition
thought exPerimentsin–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
thAnk you!
TIM OgILVIE [email protected] 703 314 3123
check out our Blog
peerinsight.com/musingsfollow us on twitter
@peerinsight
