Business Design - case study

Using a Design-doing approach to solve Business Problems

In today's fast-paced business landscape, more than traditional design thinking is required. To stay ahead, we must adopt a design-doing approach combining creativity and analytical thinking. In the following article, I will dive deep into design-doing, with an example of a startup called BusiLink, which can transform chaotic ideas into a streamlined plan, driving revenue growth.

The Design-Doing Approach

The design-doing approach consists of four stages:

1. What is: Identify and understand the industry through research methodologies.
2. What if: Argue and deter initial ideas, value propositions, and underlying assumptions by mapping user empathy and market needs.
3. What wows: Converge on two options and focus on building an implementation plan.
4. What works: Build an implementation plan and drive revenue growth.

By adopting this design-doing approach, businesses can turn chaos into revenue and stay ahead in today's competitive market.

Introduction:

Starting a new business is challenging, especially in pre-startup or idea phases. Many start-ups emerge from personal experiences and a need for a solution. However, without market validation, survival is difficult. BusiLink's founder created a conceptual start-up to address small business challenges after experiencing them personally.

Initially, BusiLink aimed to be an online platform connecting businesses with automated resources, helping them operationalize and overcome launch or growth obstacles. The platform uses an AI-based algorithm to match customer needs with vendors, charging a subscription fee to customers instead of vendors. BusiLink offers project management services to meet time and budget constraints, providing a multi-tiered value proposition.

The initial goal was to create a go-to-market strategy, but preliminary meetings revealed a need for more market research and understanding. Thus, the business design methodology was applied, transforming the concept into a viable business model through design-doing.

Stage 1: What is

In the "What is (are) stage," the team conducted a thorough study to understand the needs of users and the market. We conducted extensive primary and secondary research to identify the specific requirements and potential market for BusiLink. The secondary research involved analyzing information from various databases, market reports, and industry reports to support the primary research. The following are examples of the sources used for secondary research:

• IBIS World
• US Small Business Administration
• Harvard Business School Publications
• Forbes, eMarketer, CB Insights, and The Kauffman Index

We gathered insights into BusiLink’s potential market during the primary research by conducting targeted surveys and extensive interviews with various small business professionals. We used custom-designed surveys to collect information about potential customers' profiles, including business demographics (such as industry, revenue, and number of employees), the frequency of outsourcing, and general satisfaction with current market offerings. We engaged Qualtrics, a leading research software company, to distribute the survey nationwide to ensure a reasonable response rate. Over 250 qualified small business owners or decision-makers completed the survey, including approximately 70 potential vendors and 190 potential customers.

We conducted over 25 interviews to gather qualitative information about potential users' habits, attitudes, and behaviors. The interview pool included a mix of vendors, customers, or both. We focused on identifying needs, wants, current practices, perceived value, and participation thresholds. We used various analytical frameworks to organize and gain insights from the research.

Size and Trend Analysis

Competitor Profile

Customer Empathy Map

Results of Primary and Secondary Research:

The research identified the industry as a Crowdsourcing Service Provider (CSP). Although BusiLink is entering a competitive landscape, the CSP industry is experiencing high growth. New competitors continue to emerge, and differentiation will be crucial for BusiLink. The industry has seen rapid growth since the early 2000s, with 37.1% annual growth in the U.S. since 2012, generating revenues of $1.4 billion.

Industry growth has been fuelled by:

• The ubiquity of the internet
• Increasing mobile internet connectivity
• The increasing use of e-commerce
• A rise in outsourced services among businesses.

The crowdsourcing service provider industry is benefiting from favorable macroeconomic conditions. Factors such as government subsidies, flexible contract terms, a growing millennial workforce, and increased reliance on e-commerce drive more individuals and companies to participate in this industry.

The industry's competition is intense, with many competitors vying for market share. They differentiate themselves based on vendor and consumer costs and service offerings. However, due to fierce competition, the industry's high growth comes with investment and growth costs.

BusiLink's proposed positioning sets it apart from the competition by not charging vendors a fee. Most competitors charge vendors a high price for their platforms, but BusiLink's unique business model aims to generate revenue growth within the industry without charging vendors.

Independent work and business process outsourcing are on the rise. The survey sample is geographically representative of the U.S. small business market and diverse in terms of industries and the age of business operations, as depicted in the figures below.

The next figure shows the geographic distribution of the survey respondents.

The survey data indicates a growing trend of independent work, with many freelancers in the market. Potential vendors use competitors and substitutes to reach customers, while potential customers prefer substitutes such as search engines, social media, and personal referrals. Both potential customers and vendors value direct communication and personal connections. Vendors are willing to pay to participate in a platform to connect with customers. It is recommended that BusiLink adjust its value proposition to emphasize the social components of the platform to appeal to both customer and vendor preferences.

Stage 2: What If

The "What if" stage involves using divergent thinking to generate innovative ideas based on the results of the first stage. After analyzing the primary and secondary research mentioned above, it was determined that the initial value proposition, which included tiered services and end-to-end project management, gained little traction in the survey and interviews. The design-thinking technique of divergence generated multiple ideas by drawing inspiration from various business models in different industries. These ideas were thoroughly discussed and debated with BusiLink. Out of all the brainstormed concepts, two potential practical options for developing BusiLink's go-to-market strategy are as follows:

1. Affinity Networks: With this strategy, BusiLink would create a socially oriented platform where users can view direct connections and referrals. BusiLink would provide in-network recommendations and act as a social marketplace for connecting vendors and customers.

2. Consider exploring underserved niche opportunities: within the online crowdsourcing platform, such as specializing in commonly needed services not served by other platforms or targeting specific customer segments like start-ups or non-profits. Additionally, focus only on customers in high-growth service areas like technology, internet services, or media/entertainment.

Stage 3: What Wows

When considering new business ideas, BusiLink will focus on its internal strengths and capabilities and feedback and discussions to develop a business model for the first year of operations. The company will prioritize the concept of Affinity Networks (Option 1) due to its strong connections with business professionals and the limited competition in the market.

BusiLink's new value proposition is an online platform designed to help small business owners with tech-based solutions. This platform will automate connecting businesses with resources, helping them overcome practical obstacles when starting or growing a business. The platform will also facilitate connections between vendors and customers, focusing on reliability and trust. Additionally, it will offer various features such as integrated social media, vendor search, matching, discounts for affinity projects, and ratings/reviews, all aimed at enhancing user experience. Ultimately, BusiLink seeks to harness the power of online word-of-mouth.

The Building Blocks of a Business Model

A few essential blocks of the business model are described below.

1)?? Value Proposition: A New Recipe for the Secret Sauce

BusiLink's primary market segments are small business owners/start-ups seeking professional services online and freelancers/BPO firms providing professional services. Vendors and customers can switch roles based on platform usage. The value propositions are:

1. Vendor: BusiLink offers access to networks that build customer trust at a low cost.
2. Customer: BusiLink provides access to reliable, professional services trusted by the network.

For vendors, the focus on affinity networks provides access to potential customers, addressing the issue of finding work. As a market-entry strategy, BusiLink offers a lower-cost alternative to other platforms. The customer value proposition emphasizes vendor reliability and trust, addressing the importance of transparency and quality.

2)?? Customer Relationships: Forge Relationships and Partnerships to Launch & Grow

Acquiring and keeping customers relies on building and maintaining relationships. BusiLink can use various methods to attract new customers, such as incentivized referrals and a sliding scale commission model that reduces fees as platform usage increases. However, BusiLink's interaction with users should go beyond just connecting small business owners/start-ups with vendors. It can also involve sharing information and providing support. Typically, similar service providers create an FAQ section and a 'Contact Us' page on their website. In addition to this, BusiLink can add community features for its users. The website can include a section where users can access resources like white papers and tutorial videos and a forum for users to connect. These community features will help engage users and increase platform activity. Research shows that users appreciate transparent transactions (clear fee structure) and social media integration, further strengthening BusiLink's relationship with its users.

3)?? Commit to Key Resources & Activities

Tech-based platforms must perform three main activities: development and maintenance, service provisioning, and platform promotion. The development of the BusiLink platform will require a source code repository, matching algorithm, website host, server, content management system, membership system, and payment processor, all of which will also require ongoing maintenance. Service provisioning includes delivering the services on the platform, customer acquisition, and customer support. Platform promotion is another significant activity performed by the sales and marketing team.

4)?? Revenue Streams: Primary Revenue Streams Based on Vendor Subscriptions and Commissions

The research indicates that BusiLink has several potential revenue streams. These revenue streams include:

• Vendor subscriptions
• Transaction commissions
• Preferred vendor (vendor advertising)
• Affinity organisation subscriptions
• Advertisement revenue
• Sale of data
• Freemium subscription for customers

The business will initially focus on vendor subscriptions and transaction commissions as key revenue sources. However, it should monitor the market to adapt and capitalize on additional revenue sources or pivot from its existing business model. For example, Thumbtack, one of our competitors, changed its revenue model thrice to achieve greater success.

Stage 4: What Works

The "What works" stage helps the firm set realistic goals for the identified concepts by creating a detailed, actionable plan. Based on the business model, the proposed financial models, implementation strategy, and product innovation strategy were developed.

Financial Model

The revenue streams for BusiLink include vendor subscriptions and transaction commissions. Two financial models are forecasted:

• A lean approach with minimal expenditures
• An aspirational approach with higher initial spending

Both models show profitability before year five, but the aspirational approach requires higher investment and expenditures to better position BusiLink for long-term sustainability. Both models are based on essential assumptions from research findings and survey results.

The following are the assumptions for the lean or “bootstrapping” model:

• Exponential vendor sign-up with a retention rate of 70%
• Six-month free trial; $20 per month subscription afterward for vendors
• A vendor-to-project ratio of 60%
• An increase in average project price from $400 to $600 over the five years
• Customers sign up at 3x the number of vendors
• Transaction commission is 10%

The lean approach requires minimal resources and expenses. The founder will be responsible for most of the work, especially during the first year of operations. This approach assumes that vendors will sign up for the platform at an increasing rate, starting with 30 per month and growing to 10,000 by the end of the fifth year.

Expenses, including marketing and salaries, will be relatively low. The initial platform development cost will be around $125,000, with additional maintenance costs in subsequent years. Rental and miscellaneous expenses will be around $10,000 in the first year, with incremental increases in subsequent years. Administrative expenses and average credit card processing fees of 2.75% of total revenue are also included.

Using the lean approach, BusiLink will become profitable in four years, and the profit in year four will be minimal. By the end of year five (2022), BusiLink can expect to generate about $750,000 in revenue. The lean approach offers high projected year-over-year revenue growth but minimal bottom-line income projections, making competing with established industry players difficult.

The aspirational approach aims to reach 275,000 vendors (0.5% of market share) within five years and assumes substantially increased expenses to recruit critical roles/resources.

• Exponential vendor sign-up with a retention rate of 70%
• Free subscriptions for vendors for the first two years; $20 per month afterward
• A vendor-to-project ratio of 80%
• An increase in average project price from $400 to $600 over the five years
• Customers sign up at 3x the number of vendors
• Transaction commission declines from 10% to 7.5% from year three onward

The aspirational approach involves higher expenditures on salaries, marketing, and development costs, aiming to attract more vendors to the platform. This approach assumes an exponential increase in vendor sign-ups and an extended two-year "free" period for vendors. The financial summary is in Table 3, with a detailed financial model in Appendix C.

As shown above, profitability will take three years to reach. In the third year, profits will be more than $800,000. By the end of the fifth year (2022), revenues are projected to be higher than $20 million, with a net income of more than $6.7 million. Compared to the lean approach, the capital needed for investment and overall expenditures are significantly higher, with a corresponding increase in revenues and profits.

The aspirational approach involves higher expenditures on salaries, marketing, and development costs, aiming to attract more vendors to the platform. This approach assumes an exponential increase in vendor sign-ups and an extended two-year "free" period for vendors. The financial summary is in Table 3, with a detailed financial model in Appendix C.

Implementation Strategy: The Evolution of BusiLink

To achieve success in the market, BusiLink's implementation plan can be divided into a series of mini-hypotheses to assess market desirability and business viability. Each hypothesis indicates the level of market desirability for the product and the viability of the business. BusiLink can validate its assumptions at critical points. If a hypothesis proves successful at the end of a particular phase, BusiLink can proceed to test the following hypothesis along the same path. If the market refutes the hypothesis, BusiLink can consider adapting and moving forward or contemplate an exit strategy. The following are the mini-hypotheses or phases that BusiLink can utilize.

• Pilot – First six months

After launching the MVP, BusiLink will focus on partnering with local affinity organizations to drive rapid growth and high retention. The goal is to sign up at least 6,000 vendors and three times as many customers.

• Alpha – Months 6 - 12

BusiLink will expand its sales efforts to an extended geographic region, seeking referrals from existing users and aiming for 12,600 subscribed vendors, 38,600 customers, and 10,080 facilitated projects.

• Beta – Year 2

BusiLink plans to use previous marketing channels and launch a full-scale email marketing campaign targeting the entire U.S. market. The end goal is to have 34,020 subscribed vendors, 105,000 customers, and 27,220 projects facilitated through the platform.

• Version 1.0 – Year 3

BusiLink plans to invest heavily in marketing tactics like search engine optimization and Google AdWords. Vendor subscriptions and transaction commissions will support the increased investment. The goal is to reach 74,210 subscribed vendors, 225,000 customers, and 59,380 projects through the platform.

• Version 1.1 – Year 4

BusiLink will continue to expand its marketing efforts with digital ads. The end goal of this phase is for BusiLink to have 157,000 subscribed vendors and 450,000 customers and to have facilitated 125,600 projects through the platform.

• Version 1.2 – Year 5

BusiLink will continue to expand its marketing efforts with print ads. The end goal of this phase is for BusiLink to have 277,800 subscribed vendors, 840,000 customers, and 222,300 projects facilitated.

Product Innovation Strategy

To expedite its launch, BusiLink will implement a phased deployment approach. This strategy will enable BusiLink to gather market feedback after each phase and determine which features to add, remove, or enhance in the next release. For the pilot phase, BusiLink will release the minimum viable product. The primary platform will include the vendor and customer matching algorithm, website, social media integration, affinity networks, and an informational blog. Additional features can be added in subsequent releases using a phased approach.

• Alpha: Add mobile application and extensive customer support.
• Beta: Add preferred vendor advertisements and white paper/industry research.
• Version 1.0: Add affinity network level 2 freemium model for customers.

The importance of innovation in the CSP industry cannot be overstated, as it is a crucial factor in achieving future business success. BusiLink can utilize the flowchart below to visualize and develop a systematic approach to continuous feedback and decision-making related to product innovation.

Organizational Structure

Research suggests that inverted organizational structures are most suitable for tech-based start-ups. In this model, end-user-facing employees are positioned at the top of the organizational pyramid, empowering them to make decisions based on their experience and user feedback. This approach supports product innovation by allowing those closest to the users to interpret feedback and make decisions, leading to faster and more effective adaptation. Influential leaders trust subordinates and rely on their ability to achieve organizational goals.

Next Steps:

The exploration and plan outlined above look promising for BusiLink. The journey for BusiLink started with conceptualizing startup ideas based on our pain points and developing an implementation plan. In other words, we moved from chaos to revenue streams. To prove the series of hypotheses, the immediate next steps recommended for BusiLink to pursue are:

• Establish proof of concept
• Obtain financing
• Plan and implement the pilot launch

To establish the proof of concept, BusiLink should contact at least 94 professional organizations to confirm interest and value in partnering. This figure represents five percent of the 1,881 organizations in the region (local to the founder's area). The proof of concept is critical as it will demonstrate value when seeking financing. A solid proof of concept shows potential investors that BusiLink is scalable, has strong market potential, and the opportunity for long-term financial success. Launching the alpha phase will help generate revenue and prove the hypothesis.

In case you are interested in reading the entire paper that was published in the DMI Journal, please use the link here