Business Design: from business ideas to business models

The business world is changing rapidly. Only 14% of the leading companies recognized by Fortune 500 in its first publication in 1955 are still in existence. On the other hand, just 10 years ago some of the companies leading a great part of the financial markets such as Uber, Pinterest and Slack were born. What is the key to their permanence?

We could think that both the companies that have remained in force and the startups that managed to represent that 10% owe their success to their brilliant ideas and the correct adoption of technology. Although these reasons probably played a major role, the key to staying relevant was creating distinctive business models.

What happened to those companies that failed to do so? Traditionally, the main objective of most businesses has been to achieve profitability; despite the fact that every business pursues profitability, the problem is that many have taken it as an organizational purpose without being able to solve a relevant problem for people. Today, technological complexity, sophistication in market demand and a changing competitive environment challenge the usual way of thinking about business. These circumstances shorten the time in which old business models can remain viable. It is no longer enough to conceive a business for the sake of the business itself; it is necessary that the value propositions that are designed are meaningful to people and respond to the new variables at play in the business context.

“Design leads to innovation and innovation demands design”.
Indra Nooyi — CEO PepsiCo

A few months ago Coursera published a report that exposes Design Thinking as the #1 skill of the future. In the past, I have worked with many companies that have sought to innovate and ask new questions by utilizing this methodology. However, it is common to see how these efforts are isolated initiatives that remain far from the reality of the organization. In part this is due to high barriers such as resistance to change, disconnection between different areas and the lack of experience to lead organizational transformation. But I personally believe that it is due to the absence of one fundamental factor: systemic thinking. Due to a lack of clarity in their long-term evolution, I have seen ideas remain at the ideation stage; at the same time, I have also experienced the implementation of isolated ideas, lacking an integrated implementation strategy.

For an idea to evolve successfully, it is necessary to have an understanding of its entire ecosystem of relationships. Although not all ideas evolve into a business model, they must all respond to one. It is essential to question first and foremost which customer segments respond to the value proposition and how the model can be scalable and sustainable in the long term. It is not only the ideas or concepts that we must strive to design, their complete univers must also be designed to understand.

“Good Design is Good Business”.
Thomas J. Watson — CEO IBM 1973

Pushing organizations to take ideation into the next level, to design an innovative business, is not an easy task. While there is no single definition, Business Design could be understood
as the discipline that applies people-centered design methodologies to create greater value and competitive advantage for the business. For seeking to identify new opportunities both to better respond to existing markets and to discover emerging ones, Business Design functions as a vehicle for a company to innovate. Through experimental and abductive work, Business Design creates financial prototypes to help discover the best solution to a business problem, allowing a company to open up new opportunities.

Although Business Design shares many of the stages of the Design Thinking work process, its strength lies mainly in its systemic, realistic and analytical-creative nature:

• Systemic: Gives meaning to the value proposition by optimizing the relationships of each of the components of a business model. It allows the design to be approached in an integrated
manner, in the complex interdependence of its parts. Changes in any element affect the others.

• Realistic: Helps to understand the business from the inside out and how it creates, delivers and captures value. It gives realism to ideas, allowing to visualize the impact they will have on current systems and processes, on areas, policies and even on an organization’s employees.

• Analytical-creative: Transfers business language to the design process and vice-versa. Through the application of People-Centered Design principles, Business Design pushes stakeholders to creatively transform their business and at the same time requires designers to bring their analytical skills into play, seeking profitability in the solutions they design.

“To change something, build a new model that makes the existing model obsolete”.
Buckminster Fuller — American architect & inventor

In 2010, four friends from the Wharton School of the University of Pennsylvania created Warby Parker in response to the monopolic eyewear manufacturing industry in the United States. While eyeglasses prices were absurdly high – and therefore inaccessible for many people – brands were making a margin of 10 to 12 times the manufacturing cost.
Consequently, these students had the idea to offer access to a quality pair of glasses at a revolutionary price. The result was a socially conscious business model design in which when a pair of glasses is sold, another pair is donated to VisionSpring, a social enterprise that distributes the glasses to entrepreneurs to sell to their low-income neighbors.

Why does it work? Apart from the brilliant idea, these students thought about the entire ecosystem of the enterprise. First, Warby Parker thinks about its customers as followers, testing every new move of the business with them. Initially they started selling online but they found that people really needed to try on the lenses. Second, they took advantage of traditional channels with customers. Instead of opening brick-and-mortar stores, they implemented a delivery service where they could send a customer up to five pairs of glasses free of charge to try them on. Third, they have a direct-sales model and the design of the glasses is made in-house.

This vertical integration makes the business a profitable one while the founders have as much control as possible over the product, the customer and the employee experience as well, designing each stage of the service. Warby Parker’s founders discovered a latent need in the marketplace and created a business model tailored to that need and its purpose. What started as an idea in a classroom is today a company valued at $1.7 billion.

“The best businesses solve real problems. We’ve created an example of a business that can scale, be profitable, and do good in the world without charging a premium for it.” Neil Blumenthal – Warby Parker Co-founder Fortune Magazine – June 2019

Los fundadores de Warby Parker descubrieron una necesidad latente en el mercado y crearon un modelo de negocio adaptado a esa necesidad y su propósito. Lo que surgió como una idea en una clase es hoy una compañía valuada en 1.7 mil millones de dólares.


“What is good for our customers is also in the long run good for us”.
Ingvar Kamprad — Ikea Founder

This case is extremely interesting because of the systemic vision that its founder Ingvar Kamprad has given to the business since its inception in 1943. Kamprad marked a before and after by starting to offer design and quality furniture at affordable prices at a time when these objects were intended to be purchased once in a lifetime and passed from generation to generation.

As in the case of Warby Parker, Ikea’s business model is effective thanks to its vertical integration that allows it to influence every step of the logistics, from design to production,
distribution to the direct sale of its products. Its model is based on the premise of using the minimum resources and consequently lowering costs as much as possible. Thus, high volumes of the same models are produced on a global scale, ready-to-assemble furniture is designed to avoid incurring assembly or packaging costs, and finally, packs are easy to store and transport. On the other hand, stores are located far away from urban centers and are used to their maximum with the installation of its stores, restaurants and cafeterias.

In any case, their business model would not be such without its “co-creation” vision. Ingvar Kamprad considered employees as colleagues and customers as partners and looked to their problems as an inspiration for its furniture design and the business model evolution. In fact, the major hallmark we all know today of Ikea came about through the initiative of a customer who was willing to assemble his furniture in exchange for paying a lower price.

This vision remains to this day, being transferred also in the acquisition of companies and the development of new ventures. In September 2018 Ikea acquired Task Rabbit, a platform that allows them to match their time-starved customers with different suppliers to help them with household tasks, such as assembling Ikea furniture. On the other hand, and true to its purpose of driving sustainability in everything the company does, Ikea launched in April this year a small system that makes it easier for people to grow lettuce in an urban environment.

How far will we see this brand that once sold pens and nylon stockings evolve?

It is the advance of new companies, rapidly changing markets and developing technological possibilities that make it even more important to create innovative business models and rethink traditional ones. The systemic thinking offered by Business Design allows us to go a step further to give business sense to new value propositions. Design is presented in companies to break with traditional structures and business models that have worked for decades; bringing these ideas to reality requires courage to face the status-quo, embrace uncertainty and above all failure. Developing this ability is critical to meet the challenges of today’s world.

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