Part Two: Business Model Design, Implementation, & Scaling
This piece is a follow on to Part One, which focused on applying a responsible innovation lens to the research, ideation, and concept selection phases of the design process. Here, I’ll focus on responsible innovation in the context of designing a business model, building a roadmap, and scaling.
Designing the business model
Whether you’re building a venture from the ground up or creating a new product/service within an existing company, you’ll need to consider its underlying business model.
A business model is inherently a system — a group of component parts that fit together to create, deliver, and capture value. It is also, as a result, a system of choices. Choices about dimensions such as who to serve, who to partner with, what your value proposition is, what to charge, and so on.
As a business designer or strategist, I often think about a business model as three core components:
- Creating value
- Delivering value
- Capturing value
Thoughtfully designing the underlying business of a new product, service or venture necessitates the integration of business design throughout the design process and often includes activities such as conducting landscape analyses, testing willingness to pay, estimating market size, crafting value propositions, designing and prototyping revenue models, and mapping out key costs and capabilities required for your idea.
However, we have a collective responsibility to push beyond these basic business viability questions. Today, tech giants continue to grow their monopolistic reach, data operates as its own currency, and our pace of collective consumption continues to mount. As such, it’s more important than ever to consider the ethical implications of the extractive business models that underlie our technologies, experiences, and interactions. Business models aren’t extractive (of our data, attention, and environmental resources) by default. They too are designed.
Zebras Unite states it best in their Zebras Fix What Unicorns Break — “A company’s business model is the first domino in a long chain of consequences. In short: “The business model is the message.” From that business model flows company culture and beliefs, strategies for success, end-user experiences, and, ultimately, the very shape of society.”
Applying a responsible innovation lens to business design requires intentionally examining core components of a business model — aka the the system that underlies your offer.
Consider the following questions as you design and prototype how your offering will create, deliver, and capture value:
Creating Value: (e.g., your promise and the underlying inputs, costs, capabilities, and partners required to fulfill it)
- Does our promise or value proposition create realistic expectations and transparency? (e.g., can we substantially back up claims made about privacy, sustainability, or other ethical considerations? Is product positioning potentially misleading to certain consumers?)
- [If partnering to bring a product or service to market], are users clear on the terms of the partnership? (e.g., how their data is shared, if costs are being subsidized, if there’s a referral agreement in place)
- What types of resources and materials will be required to produce our product? What regions and communities are they sourced from? What are the labor practices? What are the externalities?
- Who bears the cost and responsibility of proper disposal or recycling of our product?
Delivering Value: (e.g., target user and their experience)
- Who are we seeking to serve and why? What social or economic inequalities might our business model exacerbate?
- How can we be more inclusive in who we serve or how people can access our products / services?
- Does our revenue model drive unhealthy or unethical usage of our product or service? (as is often seen in ad-revenue driven social media sites, or increasingly, in over-prescriptions by DTC tele-health startups)
- Are we providing convenience at the expense of environmental sustainability?
Capturing Value: (e.g., pricing, revenue model)
- Is the price we charge a consumer predicated upon selling a user’s data to a third party?
- Do free or freemium models obscure what value or resource (typically data) that a consumer is actually exchanging for a given product or service?
- Can we rethink what has become the “new normal” in our given industry (e.g., free services subsidized by ad-based revenue or one-off, linear purchases) for value-based or circular business models?
Whether you’re working within an existing organization or building from scratch, there’s an opportunity to go beyond a harm reduction or “fixing from within” approach and also build new business models and systems that share power and profits. Governance and ownership models that benefit communities — and not just shareholders — are evolving and spreading, from Benefit Corporations, to cooperatives, neighborhood REITs, and more.
For more on these emergent approaches, check out Zebras Unite’s Pivot to People: It’s Time to Build the New Economy.
As with other phases in the design process, responsible innovation within business model design can be generative, not just a way to assess and mitigate potential harms. Integrating considerations around dimensions including equity, inclusion, sustainability, and transparency within your business model can also help give your product, service, or venture a competitive advantage.
Here are some examples of how responsible innovation can drive design decisions that move beyond a reactivity (to legislation, public backlash, etc.) and instead provide a first-mover or competitive advantage:
The challenges of the 21st century data economy, coupled with the climate crisis, are starting to drive a counter-reaction to extractive, linear business models. We are at the brink of a new wave of business model innovation that prioritizes principles including equity, shared ownership, transparency, circularity, and regeneration.
Designers, builders, and investors have the power to accelerate innovation by creating products, services, and businesses that prioritize socioeconomic inclusion and environmental sustainability through — rather than in spite of — their underlying business model.
For additional resources on responsible business model innovation, check out:
Mapping out implementation
At this stage, you’ve explored and prototyped different business models and waded through lots of ambiguity, co-creation, and iteration to refine your offering. The next step is bringing your vision to life by crafting the implementation roadmap and scaling strategy. Responsible innovation can show up in this phase to inform how teams prioritize, measure success, and fundraise in order to scale.
To move beyond idea and into implementation, the traditional design thinking process involves mapping out your path to minimum viable product (MVP), outlining critical assumptions and associated tests, and identifying key stakeholders and resources required. To integrate a responsibility lens into your implementation roadmap, also consider building in stage gates, tests, and approvals throughout the build process in order to safeguard dimensions such as safety, privacy, and sustainability as the fidelity and scale of your offering grows.
Incorporating responsible innovation into a product roadmap can be complex. It requires alignment across a number of teams and functions, new KPIs, and a new lens to feature prioritization. While best practices and tools remain nascent, McKinsey’s Responsible product management: The critical tech challenge suggests defining “responsible” product success metrics and including responsibility as a criterion in prioritization matrices as a few meaningful ways organizations can help product managers drive responsible innovation.
As you and your team build your own responsible innovation muscle, consider what tools, education, and resources team members may need in order to more confidently and reliably incorporate and prioritize responsibility dimensions into new products and ventures.
Funding & scaling-up
Finally, bringing your roadmap to life, getting your offer to market, and scaling it will require capital. However, the financing model — and associated corporate ownership structure — of your venture can heavily shape the underlying growth expectations.
As Omidyar Network states in their Vision for A Responsible Tech Future, “our current dominant new tech financing model and culture creates a premium for exponential growth at all costs, irrespective of societal consequences, which VCs have no incentive to consider.”
Whether you’re building a product within a large company or designing a new venture in need of funding, consider the growth expectations associated with potential funding models and what’s being incentivized by your metrics and measurement systems:
- Do expectations around speed to market require shortcuts that could undercut important factors such as user safety, product accessibility, or ethical sourcing & labor practices?
- Are losses being subsidized in a way that distorts the landscape and/or stifles competition?
- Do our KPIs incentivize unhealthy behaviors or usage of our platform / service?
- Does achieving the outlined KPIs require compromises on values or ethics?
Weighing these questions can help you and your team to incorporate a responsibility lens into the development of roadmaps and measurement systems. They can also help support candid conversations with funders about expectations and tradeoffs — whether its internal stakeholders, external VCs, or other investors.
Responsible innovation can also be enabled — and even reinforced, in the right circumstances — through new funding models. A number of alternative paths to VC fundraising are emerging that empower companies to not only grow at a more sustainable pace, reinforce value creation (rather than market distortion through subsidization), and also tap into the power of community.
A few of these options include:
- Revenue-based financing, which offers repayment options aligned to monthly net revenue (currently offered by 1863 Fund and others)
- Shared Earnings Agreements, which seeks to align investors’ and founders’ interests and maintain founder control and optionality (currently being pioneered by The Calm Fund)
- Small business bonds, which enable businesses to borrow from a community of everyday investors (a bond marketplace is being developed by The SMBX)
- Community-based crowdfunding, which includes options such as equity (offered by platforms like Republic & Wefunder), membership (as seen with Patreon), and pre-purchase of products (on platforms like Kickstarter and Indiegogo)
These funding mechanisms are just a few amongst a breadth of emergent models (such as Exit to Community) that are helping support a more measured, inclusive approach to building and scaling products and companies.