5 x 5 - Business Modeling for New Services, Natalie Foley

Interview with Natalie Foley, VP & COO at Peer Insight

by Thomas Brandenburg

“The business model itself is never seen as an innovation. Many organizations could re-imagine the business model of a service, while keeping the service itself.” —Natalie Foley on innovating business models

1. What language (keywords or phrases) do you like to use to explain business modeling/ business model innovation to an audience who is not familiar with it?

We like to start at a 10,000 foot view. Ultimately, if someone is talking about business modeling or business model innovation they are usually trying to bring a new idea or concept into reality. And doing something new means confronting uncertainty.
Uncertainty is often described as risk.
So ultimately, you’re trying to de-risk your business model, de-risk your hope that your new idea/concept can make money. So language is important -  so the means (business modeling) isn’t confused with the end (revenue from a new service)
And for our not-for-profit and government folks, it’s important to understand that the business model is equally important for them. They just might define the end differently (instead of $30m in revenue, the end goal might be to execute the program under or at the amount that the grant is for).
A business model simply represents an exchange of value. So sometimes, taking the word ‘business’ out entirely helps you focus on the components, rather than the whole.

2. What are some key lessons you learned over the years in business model prototyping?

In the world of service design and design thinking, most attention is paid to methods and tools that uncover the needs of the users. From research techniques, to a variety of ways to prototype and sense-make, the process is accessible and approachable. The “business side” of the service, or exchange of value, is less nurtured. It’s less discussed, less approachable and often seen as requiring a different skill set. When it reality, the same tools and methods that are used to understand user insights and iterate off of them is what is used to explore and prototype the business model, or ways to meet those user needs. It is human-centered design, just different content and in addition to the end user, you look at unmet needs of those who will deliver the service. For example, your research design, discussion guide and ethnographic-based research are conducted on hospital administrators, payors, CEOs and CFOs, just as you would with patients, family members, nurses. And you’d make storyboards and other prototypes to have different types of conversations with these groups as you moved further down the innovation process.

Because user exploration and business exploration are viewed as different processes, they’re often done sequentially rather than simultaneously. Our clients who do it together are those most successful in taking new ideas from consumer insights into reality - into a new service that can meet those unmet needs and one that organization can sustainably deliver.

3. What are some core activities or tools you use to do business modeling? What are the most useful method(s) or framework(s) for capturing the value of a new service to share with the organization?

We think about our tools and methods in two categories.

  1. A design. What we think to be true based off what we know so far. The best examples of this type of tool is the Business Model Canvas or a Business Plan. It’s a great way to stop and say, based off what we know today, what do we think this exchange of value looks like? Meaning, what does a customer want and how does our organization deliver that to them? It’s an assumption, a sketch, a hypothesis, an idea. It is not reality until the first dollar of revenue.
  2. A test. Ways to test our design. We think the exchange of value will work in this way. But will it? Let’s go find out. This is where there are less familiar examples of these tools. But essentially, you run small tests to gather data to prove or disprove the key elements of your service. For example: Moms say they want this new service to make shoe-buying easier on them and their kids, but will they actually sign up? Your test: Create a cheap prototype of your site, run a google or facebook ad campaign, and see if they click on it. Do this for 2 weeks and take it down. Running many tests, or in-market experiments, is critical to de-risking the design and taking the uncertainty out of your business model.

"Designers don’t see themselves as business-savvy, so their talents are realized in this space. Designers are great at business model innovation because they can create a design and create a series of tests for that design."

4. What are some of the main reasons business modeling for new services fail?

5. What are some of the sources skepticism or fears business leaders have when applying design thinking and prototyping new service business models? And how do you address them?

Many business leaders are still absorbing design thinking into their acumen. Because design and design thinking is so often around better understanding the user, business leaders are learning its value through that lens first. Because they are often business-savvy, they often take on the role of determining the business model themselves, rather than with the help of designers.  Also, the processes, particularly decision making processes, in businesses are not set up well to handle iteration and evaluating business models while they are being designed and tested.

To see Natalie Foley or participate in her workshop register here for the SDN US National Conference

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