So, I heard you had a brainwave

Going around the loop a couple of times, one learns a few things. Here are my notes on transforming ideas humming in the back of the mind into viable businesses.

It’s worth mentioning that these are heavily influenced by Tony Hulme’s “Visualise Your Business Model In 15 Minutes Flat” HackFWD talk [1]. With that out of the way, let’s get started.

Starting out, it is of utmost importance to visualise one’s business model. There are other forms of business which are fuelled by speculation of their potential worth, think MySpace. In those cases it is often considered that the best approach is to “just build something cool and worry about business later.” However, building successful companies of that ilk is still a black art, and beyond my ken.

Even if your goal is to build one of those companies, it is a worthwhile exercise to visualize your business model. “Why?”, you might ask. “Why should I bother visualizing my business model? Even when I don’t know what the business might be?”

There are a few reasons. An oft overlooked incentive is that it helps to communicate goals as it helps one’s ability to articulate them. Visualizing one’s business model lends itself to being able to reference different parts and communicate beyond a superficial layer with other people. It also helps you to be reasonably circumspect in the pursuit of objectives as a nascent company. Visualising provides some structure with which to be be creative, and ultimately a single focused understanding which helps the founders and potential partners to be on the same page.

Visualising your business model

Innovation is always associated with chaos” - Alex Osterwalder [2]

Ideas get shot down pretty quickly. Sketching out business models and prototyping before going forward to implement provides a set of tools for communicating ideas effectively. Thinking about new business models is easier to do when you can visualize them.

To get started, the following are of utmost importance.

The value proposition: what value are you offering and who is going to benefit from it? What is the benefit to the consumer and how is it going to help them fulfil their goals? Rather than focus on what your product does or how it does it. Try to articulate this in a way that the consumer would be able to understand it. It’s much easier to communicate your value proposition to a skeptical audience by showing how they would benefit from it. “You have this problem. This makes it go away.”

Subsequently, one moves on to the market segments. You need to figure out who would pay for it. The people who realize the value. One might segment based on criteria such as age, lifestyle, social class, opinion, activities, interests, attitudes and beliefs in the case of a business-to-consumer venture. In the case of a business-to-business venture; types of industries, number of employees, annual sales volume, location and company stability are similar segmentation strategies.

Once you know the customers, how are you going to reach them? Now that we know the value we create, and we know for whom we are doing it, we need to examine the channels for delivering value to the market segments; the distribution channel and the marketing channels for communicating it to the market. There is a plethora of ways to structure your pricing model in a technology business these days. Consequently, you will be better served by reading an article focused on pricing strategies than this document. However, we’ll return to this subject a bit later on.

All the above make up the consumer-facing business model. Clarifying these should cover your most important business goals.


Following on from these aspects, one has to consider the parts that the consumer doesn’t necessarily care about. It is important to consider aspects such as competitiveness, value creation, team/capability building and partnering. At each step of the way, ponder the strategic importance of such things to avoid wasted effort. What are the resources required? What are the activities that you need to perform? Think about the key partners.

These parts add up to the costs involved in providing the service. They are also opportunities for creativity. Perhaps there is way of converting sections of the process involved in offering your core business as a service to other companies. An obvious example of this is Amazon Web Services, but you probably already know that one. Sometimes the company even evolves into a business aimed at providing those services (SimpleGeo). A more recent case might be the newly announced HortonWorks spin-off from Yahoo! (Am I the only one who obsessively spells that with the exclamation mark?) A company that seems headed for the technology morgue in the long term spinning off a vibrant new business aimed at the emerging markets (big data). An examination of your business process will often reveal surprising opportunities.

Step 3: Profit???!

It is obvious that profitability is hinged on the trade-offs between the pricing model and costs to deliver value.

“Profitability = Pricing model - Costs”

It’s really that simple. Thus, one ought to at least consider the pricing model in some form or the other. Readers who are building “Twitter 4.0” might want to ignore this and read up on the thoughts of experts on such matters. However, the core idea is to price to the value rather than the costs. It is too easy to wonder how much people are willing to pay for a service that might seem trivial without taking into account all the work that has gone into bringing it to the market. However, but if you are providing value, it is a disservice to one’s self if pricing is not based on value created. This is your revenue stream. The sage advice on this matter is to “maximize the value created while minimizing the costs.”


We need to take time to think through all the options and pick one - the best. Make models, sketches, study-models of different scales and style. We need to think of business models this way and approach the process systematically, like an architect. We design a new model, test it, learn from our experiences and design a new model. Repeat this cycle and only invest in the large when you’ve nailed it. Test hypotheses with customers before you build your organization.

Here is Joe Stump’s take on the process to building a successful startup [3]

*# Focus on a single use case that address the problem *# Start with a minimal set of features *# Release and listen to your users *# Question your initial assumptions based on feedback *# Rinse and repeat

Looking forward

With all these covered, one has the beginning of a real business. However, one must remember that no market is completely static. Especially in the technology industry where the flux is increasing, consider scenarios in the future. Porter’s framework for business strategy is worth taking a look at [4]. In essence, he outlines the following factors that one needs to take into consideration:

*# The threat of the entry of new competitors *# The threat of substitute products or services *# The bargaining power of customers (buyers) *# The bargaining power of suppliers *# The intensity of competitive rivalry

As much as one might ignore it, there’s still the “sixth force”, the government or the public [5]. Some thought should be given to how these factors come into play in one’s business strategy.

If one can conceive the directions in which the business might go in the future, one can get a head start in getting prepared for the future. This is the point of it all, isn’t it? The Future.



[1] Hulme T.(2010), Visualise Your Business Model In 15 Minutes Flat

[2] Osterwalder A. (2008), Disruptive Models

[3] Stump J. (2011), Starting your Startup

[4] Porter, M.E. (1979), How Competitive Forces Shape Strategy, Harvard business Review, March/April 1979.

[5] Coyne, K.P. and Sujit Balakrishnan (1996),Bringing discipline to strategy, The McKinsey Quarterly, No.4.