New Business Model Design

New business model design is the work that begins once it is settled that the current model has to change: specifying the new one down to who participates, what each participant contributes and receives, who pays on what basis, what the model consumes in cost and capital, and what compounds as it scales. It sits inside our platforms and ecosystems practice because most new models now depend on participants the company does not own. Vivaldi has worked on growth and model questions since 1999, and the published work tagged to this page is our patient ecosystem model for Takeda.

• Since 1999demand-led growth and business model work
• 200+published case studies
• 10 officeson four continents
• 5xWirtschaftsWoche Best of Consulting, Strategy and Innovation
• Ecosystem emphasismodels built around participants you do not own

Before you read further, one routing note, because two pages on this site cover this subject and they do different jobs. If the open question is still whether the business model is what is holding growth back, and which direction a different model should take, that is a diagnosis and it belongs on business model innovation. This page is the design and build side: the model has been accepted as the constraint, and what is needed now is a specific new one, drawn, costed and testable.

When companies bring us in

• The decision to change the model has been taken, and the next meeting has nothing concrete to argue about
• A platform or ecosystem investment exists and nobody has settled how the company earns from a system it partly does not own
• A candidate model looks good on a revenue line and no one has priced the capital it consumes
• Growth has flattened while the operation runs well, and the diagnosis is already done
• Two or three model options are circulating internally and the argument between them has no shared basis for resolution

Why a model designed in a workshop usually fails on the economics

The reasonable version of model design is a two day session. Map the current model, generate alternatives, pick one, write a plan. It is fast, it involves the right people, and it produces something that looks decisive. It also fails in a predictable way, and the failure is rarely the idea.

A business model is a set of claims about money. Most designs specify only one of them. The revenue mechanism gets written down in detail because it is the interesting part, and the cost structure, the working capital and the capital intensity are asserted in a sentence each. A model that grows revenue while consuming more capital than it returns is worse than the one it replaced, and that result does not show up in a workshop because nobody modeled it.

Two further things go unspecified. The first is permission: customers and partners have a view about what your company is allowed to become, and a model change they do not believe is a repositioning that fails regardless of how well the economics work. The second is compounding. If the hundredth participant makes the model no more valuable than the tenth, what has been designed is a new offer with a new price, not a new business model.

Underneath all of it sits the reason models go stale at all. A business model encodes assumptions about what is expensive. When those costs move, models that were optimal become overbuilt and models that were impossible become viable. Coordination, personalization, distribution of expertise and the cost of iterating are all moving at once, which is the argument behind designing a platform business and, in its sharpest form, the inverted firm, where value is created by participants outside the company rather than inside it.

What our new business model design services include

1. The assumption audit

Every model encodes a view of what is expensive, and that view is almost never written down. The audit writes it down and then tests whether it still holds.

• What the current model assumes is costly, stated explicitly rather than inherited
• Which of those costs have moved, by how much, and what that makes newly possible or newly redundant
• Which customer needs you decline to serve because serving them is uneconomic, and whether that is still true
• Where an entrant with no legacy cost structure would attack, which is the question worth asking out loud at board level

2. The model itself: participants, exchange and revenue mechanism

This is the deliverable. Not a canvas, a specification.

• The demand space the model serves, established from evidence rather than asserted
• Every participant named, with what each one contributes and what each one receives, including participants outside the company
• The revenue mechanism: who pays, for what unit, on what basis, and what makes them keep paying
• What compounds as the model scales, and through which interaction, stated precisely enough to be wrong
• The governance questions the model creates, because a model with outside participants is a set of terms as much as a set of flows

3. The economic case in economic profit terms

We model the candidate on the same basis we use across our growth work: the demand space, the right to win, the effect on price, volume and capital intensity, then the spread between return on invested capital and the cost of that capital. A model that looks attractive on revenue and negative on that spread gets rejected here rather than two years into the transition.

4. Permission: what customers will let you become

A model change is also a repositioning, whether or not it is managed as one. We test permission during design rather than discovering it at launch: what customers and partners currently believe the company is for, which adjacent roles they would accept it in, and which ones they would not. Where permission is the binding constraint rather than the economics, the work shifts toward ecosystem branding.

5. Testing and the transition plan

• The riskiest assumption identified and tested first, rather than the easiest one
• Concepts built far enough to put in front of real customers and real partners
• A kill criterion agreed before the test, so the answer is not decided by whoever has most invested in it
• A transition plan naming the quarters that carry the gap between the old model declining and the new one paying, and who defends that gap when the first one arrives

How a new business model design engagement works

1. Audit. The assumptions encoded in the current model, written down and tested against what costs now actually are. The output is a short list of assumptions that have stopped being true and are therefore worth designing around.
2. Design. One or more candidate models specified in full: participants, exchange, revenue mechanism, cost structure, capital intensity, and the interaction that compounds. Options stay plural deliberately until the economics separate them.
3. Price. Each candidate modeled in economic profit terms and tested for permission with real customers and partners. This is where candidates are rejected, which is the point of running more than one.
4. Prove and plan. The riskiest assumption tested against a kill criterion set in advance, then a transition plan that names the funding gap by quarter rather than leaving it to implementation.

Why companies choose Vivaldi for new business model design

We start from demand rather than from the existing cost structure, and we judge a model on economic profit rather than on a revenue line. That combination is the reason options get killed here that would survive elsewhere, and it is the reason the design work is worth separating from the decision to change at all.

The ecosystem emphasis is not a preference, it is where the models now are. Designing a model whose participants sit outside the company means settling the value exchange and the governance before the revenue mechanism, which is a different sequence from the one a single firm model requires.

The published work tagged to this page is upstream of a model rather than a model redesign, and it is worth being precise about that. For Takeda we built the patient ecosystem model and the category narrative that sat on top of it, working through three phases from cultural trends and existing consumer research to a prioritized set of six opportunity areas where the company could play a role in patients’ future lives. What that work settled was the structure of the ecosystem and where Takeda had a right to participate in it, which is the input a commercial model design starts from. Read the full story: Pioneering patient-centric healthcare solutions.

How to evaluate new business model consultants

Worth asking of any firm on your shortlist, including us.

• Ask what the new model consumes, not only what it earns. Cost to serve, working capital and capital intensity decide whether a model creates economic profit. A proposal that models only revenue is half a proposal.
• Ask how they test permission. Customers decide what your company is allowed to become. A firm with no method for establishing that is designing in a vacuum.
• Ask what compounds, and through which interaction. If the answer is general, there is nothing to build toward.
• Ask what they will kill and when. A firm that cannot name a kill criterion before the test will find reasons to continue after it.
• Ask who funds the transition. The gap between the old model declining and the new one paying ends most model changes, and it belongs in the design rather than in somebody else’s implementation plan.

Model design firm vs innovation consultancy vs product agency?

Related work

This page is deliberately narrow, and several neighboring questions are answered better elsewhere.

• Business model innovation is where to go if the question is still whether the model is the constraint, what the range of alternatives looks like, and how to build the capability to keep asking. Anyone searching for business model innovation consulting should start there rather than here.
• Platform strategy if the model under consideration is specifically a platform and the live decisions are what it opens, to whom, and on what terms.
• Digital ecosystem design if the participants and the value exchange between them are not yet settled. Settle the exchange there, then design the revenue mechanism here.
• Interaction Field Modelling if the prior question is what shared interest holds a set of participants together at all.
• Ecosystem branding if permission rather than economics is the binding constraint, meaning customers and partners do not yet believe the company can be this.
• Global digital programs if a designed model now has to be run across markets and the question is operating rhythm rather than design.
• Business experimentation and experimentation and ventures if the need is a standing testing capability or a venture built outside the core, rather than one model designed and proved.

This work sits inside our digital platforms and ecosystems strategy practice, part of the wider business strategy and transformation argument at Vivaldi, the firm behind the Demand Landscape and the Interaction Field. Related reading: the platform ecosystem business model and business model transformation.

New business model design in the US and worldwide

We work on model design from 10 offices on four continents, most often with US and European headquarters whose growth question has become structural. The design is usually done with a small group, the CEO or business unit lead, the CFO or finance lead who will price the capital, and the people who will run the first version. Where a model spans markets, the cross-border work is less about translation and more about which parts of the exchange have to be identical for the economics to hold and which can vary.

If the model has to change and nobody has yet drawn the one that replaces it, that is the conversation to have.