I hate math. Wait, let me rephrase. I REALLY hate math. There’s nothing about it that I like. I was an English & Social Studies girl, still am. I knew my junior year of high school I’d be a designer. All else became irrelevant. I needed to know how to make things look amazing. So I thought.
Thanks to years of experience in varying industries, and my mentors’ encouragement (thanks Steve!), I realized that learning the basics of business would be valuable. Dialexa is a consultancy and each person on the team is more than their role as a designer, developer, or lead. We help our clients scale their products and increase value for their users.
About a week into my new role at Dialexa, I was looking for resources to help me get my head around business basics. A well-worded Google search led me to the Designer Fund’s Business Essentials for designers.
Designer Fund is a venture partner that invests money into early-stage startups and helps them succeed with design support. The fact that I admired Designer Fund does and that the workshop is for designers, sold me. I submitted my application and boom! They invited to take part.
A few details about the workshop:
- The workshop consists of three sessions of lectures, hands-on activities, and group discussions
- The workshops focused on Business Model Basics, Prototyping with Numbers, and the Business Value of Design
- My cohort included over 110 designers from companies like LinkedIn, Google, Adobe, Dropbox
Session I: Business Model Basics
To kick things off, we set out to answer three questions:
- What is a business model?
- How can I deconstruct the business model of any company?
- How can understanding a company’s business model help me be more strategic?
Defining a business model
So the business model. It’s defined as the way a business creates, delivers, and captures value.
Enter the business model canvas (BMC) 🙌🏾. The BMC is a tool used to map out new or existing business or product. It outlines the value proposition, infrastructure, customer, and financial elements.
How does this overlap with design? Simple. We’ve all seen the three lenses of innovation. It breaks down the intersection of desirability, feasibility, and viability.
- Desirability: Is there value for our customers and users?
- Feasibility: Is it possible to technically possible to build?
- Viability: Is this financially sustainable for the business?
These elements come together to create optimal conditions for innovation. Here’s where I had a mind-blowing moment 🤯. The lenses of innovation overlap with the nine blocks of the innovation canvas.
See what I mean? This gave me a new appreciation for both the lenses of innovation and the business model canvas. I learned that there are other uses for the BMC. Use it for mergers & acquisitions or as a dashboard. It can also support stakeholder alignment, which is one way we use the canvas at Dialexa.
Pro Tip: Want to learn more about the BMC? Check out the book Business Model Generation. A solid reference on the subject. 👌🏾
Talking the talk
Developing a shared vocabulary has benefits. How often are you lost in the conversations your stakeholders are having? You think, ‘I have no clue what the hell they’re talking about…’. Yep, definitely been there. The Designer Fund team demystified basic terms. Now terms like gross margin and net income recurring revenue aren’t so intimidating.
It’s simple. The benefits of a shared business vocabulary are obvious. You’ll be able to communicate and align with stakeholders using a shared vocabulary.
Prioritization and tradeoffs
Everything can’t be important, right? We prioritize things for a reason. A company’s business model determines what they focus on. Here’s an example. We’ll compare the priorities of Dropbox, a SaaS company against Netfilx. Dropbox will likely focus on the average revenue per user, conversion, and churn rates. But, Netflix uses a media subscription model. Netflix will focus on monthly and daily active users, engagement, and click-through rates.
Because these organizations focus on specific areas, there are tradeoffs in others. Tradeoffs allow focus on key factors that impact costs, channels, and revenue streams.
Our facilitators shared a simple definition of strategy. Strategy consists of the goals you choose and the action you take to achieve those goals over time.
When you consider business strategy, there are plenty of areas that call for strategy. For example, product strategy, innovation strategy, sales strategy, business development strategy — the list goes on.
In the beginning, they asked: how understanding my company's business model make me more strategic? I initially had no clue (otherwise, I may not have needed to take the workshop, right?). Here are four stages a company can go through outlined by the facilitators:
- Inception: no current business model and one is newly created
- Transformation: an existing business model is changed into another business model
- Diversification: the current model stays in place and an additional business model is formed
- Acquisition: an additional business model is identified, acquired, and integrated
Netflix is a great example of three of the four stages listed above. Let’s look closer:
Inception: Netflix had a subscription DVD rental model Transformation: They transitioned into subscription streaming Diversification: Original Content
Knowing the business model means you can strategically influence innovation. The BMC can reveal your company’s largest source of revenue or cost. In our case at Dialexa, we can gain insight into our client’s largest source of revenue or biggest expense. How might knowing the largest source of revenue affect our approach as designers? That depends on the model.
Mini Case Study: Spotify
Let's say Spotify is a client or company you work for. You know that they generate revenue from their ad and paid subscribers. Which do you think generates the most revenue? Over 50% of their subscribers have freemium accounts. BUT, 90% of their revenue comes from their premium subscribers. Surprising, isn't it?
How does knowing that influence your design strategy? You might want to focus on converting freemium users to the paid service. You could consider scaling the exclusivity of the premium service.
Let’s explore further. 70% of Spotify's revenue goes to music royalties. How does knowing our “client’s” largest expense affect the product roadmap? If Spotify created a music label, they wouldn't have to pay royalties to a third part. More money for Spotify. 🤑
Next, I’ll recap sessions 2 & 3 of the workshop: prototyping with numbers and the business value of design.