Learning the Essentials of Business — Part II
Prototyping with numbers & the business value of design
Back for more business basics? Good! To be honest, it surprised me how geeked I was learning about business models. 🤓 The crew at Designer Fund made the experience fun and engaging. The Business Essentials for Designers workshop didn’t disappoint.
In part I, I recapped all the gems from my first workshop session. For part two, I’ll cover Prototyping with Numbers and the Business Value of Design.
Session II: Prototyping with Numbers
Going into the second session of the workshop, I felt pretty clueless. Luckily, that feeling didn’t last long! We were introduced to the concept of financial prototyping at three levels:
- Market Level: How might we estimate a potential market size?
- Business Level: How might we estimate profitability?
- Feature Level: How might we estimate ROI?
Market-level prototyping
Prototyping at the market level involves a simple framework around guestimation and TAM. Total addressable market or TAM references the revenue opportunity available for a product or service. A new company would (or should) estimate the market potential for its product or service. It’s one way the company can further validate their value proposition.
How do you determine how large a potential market might be? TAM can be estimated using four different methods:
- Top-down macro view: Start with the total population at the “top”, then apply demographic, geographic, and economic assumptions to eliminate non-relevant segments
- Bottom-Up: Look at subsets of a localized situation, then extrapolate the results to the wider market opportunity
- Third-party research: Draw data and insights from other companies like Forrester
- Value theory: Focuses on the positive value and features derived from an innovative new offering versus incumbent options
Using assumptions and guesstimation, we can surmise the potential for a new product. As designers, we expand, maintain, and capture TAM on behalf of our company or client through the work we do. Now there’s a superpower you didn’t realize you had! Now that you know, leverage it.
Business-level prototyping
Business-level prototyping is about estimating profitability. Sounds like a nightmare, right? Couldn’t agree with you more. But, our facilitators dropped some science on us. Think of it as working from a sketch to a wireframe, and finally a prototype. Look at it as moving from simple equations and progress into complex financials.
How would you get started? You would calculate the company’s profits.
Total revenue — Total Costs=Profit, simple enough.
Total revenue = Units Sold x Price
Total Costs = Fixed Costs + Variable Costs
Knowing a company’s business model makes it possible to dissect their costs and revenue streams. Remember, this is the “sketch” phase of the prototyping process. Simple numbers.
In the workshop, we used a lemonade stand as our “business.” We went from calculating the profits to creating a full-fledged financial model. We were able to work up to this by validating assumptions and using more precise values.
Looking at this financial model for the first time, I wasn’t 100% familiar with the terminology.
Pro tip: the terms can be assorted into three categories — revenue, profit, and costs. So long as you can remember that trick, it simplifies complex terms.
To be honest, this is only the tip of the iceberg. We covered a lot in the second workshop session. In fact, I was overwhelmed. The workshop crew checked in with me privately to figure out how they could help. I appreciated it more than they knew. What helped most were the hands-on activities and group discussions. It didn’t hurt to teach what I learned to my Dialexa crew. Their questions and participation gave me the chance to review everything I learned.
Feature-level prototyping
You: “I think we should redesign the checkout flow, button, and styles.”
PM: “I’m not sold on the idea.”
Sound familiar?
If the design isn’t informed by the business, the consequences of a poorly designed feature mean less power & resources, and conversations like the example above. Good design positively impacts the bottom line, thus giving designers more influence and resources. Your stakeholders want a return on investment (ROI). ROI is a metric of profitability and a simple ratio of gain from an investment relative to its cost.
Calculating ROI, surprisingly, isn't very difficult to calculate.
The benefit of employing this method is a productive conversation with stakeholders:
You: “A small change to the checkout flow could make $300M.” PM: “Seriously? That’s an excellent idea. What do you have in mind?”
Session III: Business Value of Design
And finally, we’ll unpack business value. What do people value? Maslow’s hierarchy of needs says that human needs rely on physiological needs are met first. They are the foundation for everything else.
People value the essentials. But, what do our stakeholders value in the business context? The money. Financial metrics, like costs, profit, and revenue, would top their needs pyramid. Makes sense. The iceberg model reflects a similar structure. These basic needs, if met, drive the finances and business growth in the right direction. ↗️
The Value Mapping Framework allows tracing the benefits of a proposed design effort (i.e. design system, etc.) to the financial tier of the iceberg model.
What does it all mean? Let’s look at a case study to unpack what we see here.
Case Study: Airbnb
Airbnb’s mission is: belonging anywhere. Benjamin Evans, Inclusive Design Lead, and his team focus on how to make traveling with Airbnb more accessible and inclusive for all.
“Initially, hosts couldn’t identify accessibility features in their home & guests couldn’t search for homes having these features,” Evans said. How might we make a business case for investing in inclusive design at Airbnb? He conducted light research and identified these opportunities:
- >1b people with cognitive and/or physical constraints
- Travel segment growing 22% per year, outpacing other segments
- Unhappy guests mean an increase in customer support tickets, churn rate, and negative stories online
Evans mapped these opportunities to the business value:
- Make money by increasing TAM and repeat customers
- Save money by decreasing customer support tickets and increasing retention
- Reduce risks by avoiding pr/brand costs to inaction
Read 💰💵🤑. Remember, this is what stakeholders value. Making and saving the company money is a win/win.
The outcome:
- 2.7 Million searches in the first year of launch
- 40 people across product, design, research, & legal collaborated to build
- More people feel a sense of belonging within the airbnb community
Here’s how things mapped on the value chain:
This case study brings it all together. We know we can use the Business Model Canvas to understand how Airbnb operates. We can determine how design can expand the company’s TAM, plus make & save the company money. And we see how the team’s effort ties into the business goals and the value.
By the way, Designer Fund has a treasure trove of case studies like this you can find here.
Takeaways
So that was a LOT, wasn’t it? I felt that way too, especially during the Prototyping with Numbers session. This workshop stretched me beyond the bounds of design and it felt empowering!
In part I, I mentioned how much I hate math. The thought of learning about business was intimidating. It couldn’t have been more beneficial.
- Speaking the language of business translates into developing empathy for the business
- The business model canvas can inform strategy, tactics, and tradeoffs, influencing business decisions
- Collaborating with your key stakeholders improves with a shared vocabulary, helping create alignment
- Supporting your decisions with data and dollars meaning greater influence on product direction
- Aligning the value of your design work with the business goals drives the
I came away with more than a new set of skills. The workshop and facilitators gave me the confidence I didn’t have coming into the workshop.
I came away with more than a new set of skills. The workshop and facilitators gave me the confidence I didn’t have coming into the workshop.
Resources
Interested in experiencing the workshop first hand? Take a look at what Designer Fund has to offer:
Other resources, workshops, and classes:
- d.MBA: If money and time are no object, take a look at this program.
- Coursera has tons of course and certificate options
- Udemy has a handful of classes that may get the job done
- edEx has a certificate course for business fundamentals
Hope this leaves you feeling inspired to continue learning the ins and outs of business!
