Business model innovation basics II
Hey, there this is Ken on from board of innovation, and I'll. Be hosting another webinar on business, model innovation so, if you haven't checked out the first one make, sure to do that we've got some really good feedback in, this, webinar we'll be covering, how to position your business model and how to determine, whether the problem, you're building your business around is actually worth solving so what will you be learning in today's. Webinar, well, there'll, be two main topics that we'll be covering one. Is how, to position, your, business model and two, how, to size, the problem, that you're tackling with, your, business now. We'll go into more detail, about what this actually means. Throughout, the. Webinar so. If you. Are on the. Last webinar, you. Will recognize. This business, model design process, and if this is the first time you see this framework I highly, recommend that you go back and see, part 1 of this, series so. As, you see we have these four. Key stages, discovery. Problem, fit solution. Fit market, fit and. In, today's webinar when we're talking about how to position your business model and how to size the problem, that you're tackling we're. Really focusing, on the, first two stages in this design process, discovery. And, problem. Fit so, let's, get right into it with a discovery, now, in the discovery, phase what, we're really focusing, on is market. Exploration. So what does that mean well. Here, are a few key questions that we'll, cover. Throughout, this process. And discovery, phase and. As I said is really focusing, on. Sizing. The market and understanding. Whether, you. Know this, market, is actually worth, entering. So we'll, be looking at things like how large is this market, how, fast is it growing or, is it even declining, who, are the key players in this market and how. Is this market, evolving. Overall. What are the future trends, that will impact the, evolution, of this.
Market So again the key question, that we're covering in. The discovery, phase is, to what extent is this market, even, worth entering. Now. How far do you go with. This research well. When you're doing, when. You're in the discovery phase and you're doing all this research on the market size and competitors. You. Don't want to spend too, much time you. Know digging into all the details, you, know you, want to just have enough, information to be able to determine whether, this, market, meets your criteria, so. You know don't spend weeks, and months doing desk research. It's, really supposed to be a quick way to get an idea of whether you should even be exploring. A business. In this, market so. What. Does market exploration, actually, entail, well, there are two key components that we, look at in market exploration, and that's the market obviously and the. Players or the, competitors. When. We're talking about the. Market you. Know one, key figure we have to address is the, total, addressable, market and that's Tam now. For those of you who aren't familiar with, what that means well, Tam basically, represents, the total, revenue, potential, of the, entire, market, so, for example if you, are looking at developing, a business, in. The automobile market your, Tam would, be the, global. Car, market, assuming. That you're looking at building a business that. Will tackle the car market globally, then obviously your, Tam would, be you. Know owning, a hundred percent of the car market all over the world. Alternatively. If you, already know that the business that you want to build is a bit more regional. In might, in might focus on a specific country, or a continent, or certain, region then. Your, Tam will, obviously be the total revenue potential of that region so for example if you. Know that you want to get into the fast food market in North, America, and only really stick to North America, then, your Tam is really. The. Amount of revenue you could make if you owned the entire fast. Food market in North America. The, Tam figure. Is usually, a huge, number. You. Know and it should, be in the billions otherwise, if you're targeting a Tam that's, you know only in the millions. Or even the hundreds of millions it's usually not, a big enough market. This. Depends on what your internal benchmarks, are but. In general you know the bigger the Tam the, bigger your ambition, you know it's really a reflection of, how big you want to aim with your business so understanding. How much money is available in, the market can, give you an idea of how. Much potential, revenue you can actually make in this, market. Besides. Tam what we also take. A look at is you know the competition, as I said we have the market and the players now, one, you, know cool. Tool to visualize. The. Competition, is using a competitive landscape maybe, you've already seen some of, these because they're quite well known in the, business world, here. We have an example of Airbnb EES competitive. Landscape as you, can see in a competitive landscape we have two axes, and we usually measure two. Characteristics. And determine. Or let's say group, competitors. In the market that operate, on these characteristics. So we can see here in Airbnb, space, this. Is actually slide from their pitch deck, they. Looked. At the competition, based on price so whether you. Know housing, or let's say accommodation. Was. Affordable, or expensive, and ver. And the other characteristic, they looked at was the type of transaction, whether it was online or offline so. By. Grouping. Competitors. Along, these two axes you can see where. The competition is really focusing on where. Are their potential opportunities, and where there, are actually empty spots a lot. Of people will think that an empty spot in a competitive landscape is actually, really good thing, you. Know it can, be a really good thing because, that means hey maybe nobody has recognized, this opportunity, but, oftentimes. It, actually means that because, it's empty it's not, a profitable, area, so make, sure to not you, know confuse, the two as. We like to say you know if there, is some sort of empty spot either, you, know you figured, out, genius. Opportunity. Or you figured out a really bad opportunity. So there's a fine line between the two a tool. That we like, to use to really bring that all together you, know the market size and the, competitive, landscape is, the market scam tool so, again we have these two axes, where, you can, choose. The characteristics. That you'd like to Mack your competitors, on and in the middle you know we have the. Tam or the market size well, and the, Tam and also the.
CAGR, Which stands for the compounded. Annual, growth rate, now the compounded annual growth rate actually shows you how, this market is projected. To grow in the next few years again. You, can find all this information online, through. Lots of different sources, don't, spend days and weeks you know figuring out what the Tam is don't. Spend days and weeks figuring, out the compounded, annual growth rate, is just, get an idea from different sources so. That you can make you. Know a good enough decision, to understand, is this market you know big enough and how. Is it actually growing because, you obviously don't want to be entering a market that's. Projected to be declining, in the next five years, because, that probably means you know your business won't be around, for, quite, a long time. On. Top, of that you know after figuring out okay what the market size is and, figuring. Out how the competition, is laid out in the market, another. Thing that we like to do in the discovery, phase is do, a pestle, analysis. Now pestle. Is actually an acronym and it, stands for political. Economic. Sociological. Technological. Environmental. And legal now. What. All these, letters. Stand for are for trends so you want to look at political trends, economic trends, technological. Trends you. Know a lot of people maybe. Have heard of PESTEL, analysis, or they've heard of trend analysis. But. They actually don't spend the time doing it and, that's. Quite a big mistake because, again just like looking at the compounded, annual growth rate, you want to understand how, this market, will evolve in. The future so, if you're you know planning, to build. A business in a market that. Will be disrupted. Let's say by artificial. Intelligence in the next five years well. Then, you have to understand that your. Solution if it doesn't incorporate some sort of artificial intelligence your. Solution might probably won't be there for long and your business won't be there for long so really. Don't underestimate the, power of looking. Into these trends, because, again you want to the goal of building a business is to build a sustainable business and so, looking at how the market, is growing and how the market is evolving based on these trends, is extremely. Crucial. So. By the end of the discovery, phase, you. Know you should have an. Idea of what the market how big the market is so the size and how it's growing so again looking at the Tam and the compounded. Annual growth rate, you, should have an idea of the key players in the market through the competitive landscape, and, you. Should have an idea of the key forces that are impacting, the future of this, market through the pestle analysis. Again. The, discovery, phase is not, meant to be a very long phase. In this whole business model design process, it's, really just to give you an idea of, whether. You, know we should even enter this market and again, a lot of people completely.
Ignore The discovery, phase and just. Go straight into problem. Exploration, and building solutions, but. Ultimately, they. Then realize wow that this market isn't even actually that big so, again even. Though this phase is short make, sure you do it because, if you realize that the market, is not worth entering, well then you save yourself a whole lot of time energy and, resources down. The road. So. Now having gone. Through discovery. And having determined that, hey this is a market, that is worth entering, it's, time to go into the problem fit phase. Now. In the. Problem fit phase of the business design process, we. Really want to now look at user problem, exploration, so in the discovery, phase we were looking at market exploration. And the problem. Phase, we're looking at the user problems. Exploration. So, in. The, problem fit phase some. Key questions that we want to cover are which, problems, the users face obviously, but, more importantly, how valuable, are, these problems how much money is being spent on. Solving. These problems how much money is actually, being wasted, as. A result of inefficiencies that, these problems bring along, which. User segments, face these problems and again. How large are, these segments, and. Also, similar, to the. Discovery, phase we want to understand how this. Problem that the user faces, will evolve in, the future because, again you don't want to be. Building a business around. The problem, you know that won't exist in the next five, years so ultimately, the key question, that we'd like to answer, in. The profit phase is which. Problems, and customer. Segments. Should we, focus. On. So. With. That being said how do we analyze or, identify. User problems, in the first place well, again, if you. Come. Back to the business model design process, we have two tracks going at the same time desirability, and viability so, from. The desirability, perspective. You are identifying. User, problems, through, design. Thinking, you. Know doing customer, interviews. Observing. Customer behavior, and really finding out what their pains are from a qualitative, perspective so, on the problem phase from, the desirability, perspective, you're really digging into the. Problems, that the customer, is facing. But. The. Question is what, about the business side behind, this you, know we. Maybe have identified. Problems. That customers, face but is there actually a business to be built around solving these problems and this, is where we come to problem. Sizing, which is a very valuable, technique. That. You. Know can help you determine whether. Which. Problems, to focus on which segments to focus on and to determine, again whether this problem that customers, complain about is actually. Worth solving from a business perspective so. The. Key question we, want to answer with, promis sizing is. Their, business potential in, solving. The problem, because again, a lot, of. Companies, organizations. Startups. They. Really. Focus on identifying. User, problems, and, once they've identified user, problems they go straight away to building, solutions, but. Oftentimes. They don't take that extra step to realize okay, how. Much money is actually being spent on this problem how, much money could we make, by. Solving this problem, which, segments. Actually face this problem, and which, segments should we focus on. It's. Great to focus on the desirability, aspect, cuz you need to find a product market fit but. If you're ultimately. Tackling. A problem that, customers complain about but. They're not willing you, know to spend money on solving that problem or there's. Just not enough people facing. That problem then it's gonna be really hard to build a business so not, only do we want to identify, you. Know pains and problems that customers face but, we also want to identify valuable. Pains and valuable, problems, and also, valuable, customer, segments, so, in, this.
Part We're, now going to step deeper into, the market size and really focusing on the serviceable, attainable. Market, the Sam so, as you can see in this graph in this graphic it's, one step deeper compared. To Tam so, your Sam is the total revenue potential of your. Target, market segment. Again if you. Are focusing. On building, business. In the car market you. Your Tam might have been the global car market and now. You've realized through, problem sizing, hey, there's an opportunity to really focus on the second-hand, car market so your Sam would obviously be the second-hand car market and again, similarly, if. You are focusing, on you, know building a solution, or building a business in the fast food market in the US through. A customer segmentation, and problem sizing, you, may realize they'll actually you, know we really want to focus on the west coast in. The US so, our total revenue potential in the west coast of the US will be our Sam. Figure. What's. Important, when, looking. Into Sam, and looking. Into problem sizing is to understand, that, our solution. Is not for everyone but it, is for someone, this. Means that again in order. To build a. Business, you can't target the entire market, at once you know you have to really identify, which. Segments, are valuable. Which, segments, experience, these pains and which. Segments, is it worth it for us given, our resources. To. Tackle a common, mistake that many startups, companies. And, again it's only startups, or small companies but even large corporates, common, problem that they all make is that. They. Build. A solution. For a problem but, they want to address the entire market, right, so they try to build a solution that incorporates you. Know a bit of this and a bit of that and as a result they, only deliver, 80%, of value to, a hundred percent of the market but, 80 percent of value for a customer, is simply not enough so. The, better approach and the smarter approach is to identify those segments, in instead. Of delivering 80 percent of value to 100 percent of the market deliver. A hundred, percent of value to 80 percent of the market or even, smaller, to 50 percent of the market to 20 percent of the market you know this, is where it's really important, to get into. Customer. Segmentation, and there, are a few techniques that you can use in. Order to segment your market, and to identify, which. Segments, are worth targeting we. Have geographic segmentation, which. Is, probably. The most common, and most basic form you know you can segment. Your market based on cities countries continents you. Can segment based on the regions you can even segment it based on climates. Again. Geographic, segmentation is very, basic. You, just use objective, data, and it's, usually the starting point for segmentation. Because. It leads to very broad, segments. A second. Level of segmentation is looking. At socio. Demographics. So, this is where you look at factors such as age income. If. You're gonna be to be context, you might look at company size you might look at industry. So. You're still looking at objective, data but now it's getting a bit more detailed. And oftentimes. Socio-demographic. Segmentation. Works, hand-in-hand, with. Ethic segmentation, so you, know you might figure. Out a segment, such as, Millennials. In Southeast, Asia, you know Millennials being, the South the socio demographic target. Southeast, Asia being the geographic. Segments. So, oftentimes they. Work hand, in hand now. The last. Segmentation. Technique here psychographic. Segmentation is. The. Richest. And, deepest form a segmentation, because you're, no longer just looking at objective data like. Country's. Income. Levels. Industries. You're really getting, qualitative, data from, users, and customers with, psychographic, so with. Psychographic, segmentation you're. Really looking at users. Behaviors. Their motivations, their. Attitudes. And the. Only way you, can actually get this type of data is by doing interviews. With customers, so it can, do that obviously. Through face-to-face interviews, you can do that through. Surveys, questionnaires. The point is the, key to, successfully. Doing psychographic. Segmentation is. To get that customer, data to get that customer insight, because, once you're able to really understand, what motivates, them with that what values they have you're. Able to really craft, finer. Segments. And as, a result you're really able to build better products, because you know what their underlying, needs are you're, better able to craft your marketing, because you know how, to target these people because you understand, their psychology.
And. Obviously. As. You can see the more data that you have the better you. Can segment so the quality of your segmentation, is really. Reflected, by the quality, of your data as. You can see in this example that we have here let's. Say you know you're targeting the laundry, market you realize hey, that there's a business, opportunity in this market. Which. Segment of this market you know should we target so, you might start off with, some. Socio-demographic. Segmentation. Based on data, that's easily available so. You might look at, income. Classes, and realize okay there's high income. Customers, and low-income customers these are two segments, of the market, and. Then within each you know you have singles. And families. Again. Now we're segmenting. A bit further but still based on you, know socio, demographic data. You. Might even go one step further and. Look at profession, as a filter, for segmentation, so you, know you might realize that there are high-income singles, that, are white-collar, professionals. And you might realize that there are low-income signal, singles, that, are university. Students. So, this. Socio demographic, segmentation. Can only get you so far, you can only segment so far based on these different variables so, if you want to go a level deeper that's, where you start you, know you need to start getting that customer data so, after. You know you identify. Hey white high, income single, white-collar professionals. Might be an interesting market to target you. Realize that there are different personas, within. That market so you might realize. Through, your interviews, and questionnaires, that there are people that are really hyper productive, and for. Them you know doing, laundry it's. Just another task, that they need to do in order to maximize, their time to. Focus, on other high-priority, activity, so they just want to outsource their laundry, you, might realize that there's another group of people in that market that are clean freaks who.
Love, To do their laundry because, they love to keep their house super. Clean. Within. The university, student market you might find, a group of people or find. A persona of lazy. Couch potatoes, so these. Students, who really hate doing their laundry they. Can do it they have maybe washing machines accessible, to them but they're just really lazy so. Again you can only get to this last form of segmentation, once, you figure out what, motivates, these users. What. Values they have what, behaviors, they, exhibit, so the. More data you can collect the, more rich, the data becomes the. More rich your segmentation, also, becomes. Now. A tool that we like to use to help us with, segmenting. The market and, also. Quantifying. The. Segments, is our. Problem sizing, to so, let's, walk through an example to better understand, how we actually use this and how, we quantify these segments and more importantly quantify, the problems. That these segments face so, again relating, back to the previous, example of, laundry market let's, say we identify, that the major, problem that people face is washing, their clothes you, know through our customer interviews we realize that these, users. They. Just hate doing their laundry it's really time-consuming it's. Really hard to plan it in their schedule, through. Our segmentation techniques, we realize, that there are two target. Segments that we would like to focus on one. Being white collar professionals and, the, other being, university. Students, so. Now that we've identified this, from a qualitative, perspective, let's start looking into the numbers, so, if we look at our hypothetical, market. We, realize, that there are 15 million white, collar professionals. We. Look at how. Often do they encounter, this problem of washing your clothes well we, make an assumption that, on average they, do two loads a week so, on a yearly basis, they wash their clothes 104. Times now. The next question is how, much time, or money do they spend each, time they wash a load of laundry well. We make an assumption that, they spend about 50 cents per wash on energy. And detergent. Costs, and we. Make another assumption, that since these are white collar, professionals and, since they have high income we. Assume that they own the washing machine and that they purchase it for about $500.
So, A washing, machine that's purchased for $500. With a 10 year lifespan means. That it costs them $50. A year and if, we do 104 loads per year this comes down to 48. Cents. Per, wash so. Ultimately. It costs, these white-collar professionals. About one, dollar, per. Wash to, be more precise it's 98, cents so, knowing. These figures, we. Can now calculate the size, of the problem, how much does. Washing. Clothes, actually cost this, target, market segment on an annual basis well all we have to do is multiply these, figures 15 million times 100, for loads times, ninety-eight cents and we, see, that, washing. Clothes costs. These, white-collar professionals. About one, and a half billion, dollars, a, year now. Let's compare that to the, University student segment so. We. See that in our hypothetical market. That there are only five, million University. Students so it's a third of the size of the. White-collar, professional, segment, we. Make the assumption that. University. Students also wash their clothes about two times a week so on an, annual basis they do about 104. Loads per year we. Also make the assumption, that they, spend about 50, cents per wash, on the, laundry, detergent and energy costs. However. We. Make, the assumption that they, don't own washing, machines, and instead these university students, have, to use public facilities like, a laundromat so we make the assumption that they spend about four dollars per, wash. Every. Time they go to a laundromat so. If we, now multiply these. Figures to get the problem size for, university students we, see that, the problem size for, this segment is actually. 2.3, billion, dollars, now, this is really interesting because the, university student market is only a third of the, size of the white-collar professional. Market, but, the problem, size is actually. Larger. It's, almost twice as big so well. The point of this problem sizing tool is. To really help us identify which. Segments. Face, a greater, problem from, a monetary perspective, because. We know that both of them hate, washing their clothes and it's, a real problem but. By quantifying. The segments, and quantifying. The, problem, per, segment we, get a better idea of how to prioritize, our solution. So, with this we might actually say. Hey University, students it's a smaller market but you, know the problems much bigger for them so, let that be our first, niche, market, let's target university, students first and so let's build a solution that solves their needs first. Ideally. You want to do this for multiple, segments, right so in this example we have two but. When, you're doing this for your own business, case and thinking. Of your business model you want to do this for as many segments, as possible, so, that you can really understand, you know which segments, which focus on and you can compare them on a quantitive basis, not, only on a qualitative, basis. Well. We also do, with this problem sizing tool is look at the evolution of, the problem, so linking this back to the discovery, phase where we looked at the PESTEL trends we, also want to see how these PESTEL, trends will impact, the, problem. So we, have these evolution, boosters, and evolution setbacks, in the evolution, boosters we, see that the population is, growing. So, this obviously means that more and more people will, need to do their laundry which is great for, building a business in this, market. Also. We, see that there's a rise of fast fashion so, people, are buying more more, and more clothes way more often which means that they have to do their laundry more. Often so these are two trends that are positively, impacting. The. Problem, size. On. The flip side we. Have some setbacks such, as the sharing economy because. Of the rise of sharing economies, people. Might not actually buying their own washing machines, any. Longer and not as much as previously, so, obviously. This. Means that maybe our assumption, when we look back to the white-collar market, our, assumption, that these, white-collar professionals. Actually owned a, washing, machine might be wrong so. By. You, know looking at these evolution. Setbacks. And, also the Boosters we might have to adjust some of these variables, likewise, for the ecological awareness, trend. Because, more people are becoming aware, of, the impact of. Unnecessarily. Using too much electricity on the environment, people, might actually start washing their clothes less in the upcoming years which means that our assumption, that people. Wash their clothes twice, a week so 104 times a year might, actually decrease. In, the upcoming years, so, again the point of these. Two, boosters. And setbacks is to really look at the trends, and critically. Take a look at the. Size of the problem you know, will this one and a half a billion dollar, problem or this 2.3, billion dollar problem actually increase, in the upcoming years or will it decrease what, factors, are going to impact, that.
Problem, And. You. Know as I mentioned before the. Real goal is exercise, is to do this from multiple segments, to, really be able to compare, the. Different segments, and the values, of the, problem per segment, you. Know you might have five. Segments, you might have ten you, might have 99, like, jay-z but. The, real, goal you, know of this exercise is to make you aware that these. Segments, are not all created equal. And maybe, smaller segments, that. Might not look attractive because of their size they, actually might be attractive. Based on the size of the, problem so. It's really important, that you do this for multiple segments, and then compare, them to understand, which ones should we, prioritize. That's. It for this, webinar I hope that you guys really enjoyed it and gained some value out of it in my opinion I think problem, sizing, is one, of the most valuable, techniques. And. Tools, that. Everyone, should, use when crafting. Their business model, unfortunately. Most people ignore this element, of. Business modeling because, they just focus on the desirability, aspect. They, might identify a problem that a user or customer faces. But, then they don't take that extra step to quantify, the problem so what ultimately ends, up happening is they might build a great product that solves, a really. You know painful, problem, but, they don't build a great business because. There is no or. There's not enough value. Behind that problem, so, again when. You're you, know in the, process of designing your business model or in the process of maybe innovating. Your business model by targeting, new segments make, sure to really do that technique. If. You have any. Questions, you, know feel free to reach out to me you can connect with me on LinkedIn you. Can shoot me an email I'd, also love to hear your feedback on, this webinar in. Terms, of board of innovation, you can also follow us on LinkedIn you can check, out our website. We can get some of these tools that, we show it for free, you can check out some other webinars, that we have and more importantly, by staying connected you. Can stay up to date for, the, future webinars that will be coming along in this series so, with that being said thank, you for your time and attention and, I look forward to seeing you on the next webinar.