When it comes to business model innovation, following a systematic and structured process is essential. This disciplined approach ensures real progress and significantly increases the chances of discovering a winning and distinctive business model. In this article, we’ll explore the design cycle for business models, breaking down the 4 iterative steps involved in the Business Model Hacking-method. We will also show with an example how the 4 design cycles work.

What is the design cycle for business models?

The design cycle for business models is a structured, iterative process used to innovate and refine business models. It involves four key stages: The now, where the current business model is analyzed; Brainstorming where new ideas and models are generated; Businessmodelling, where these ideas are consolidated and refined; and Testing & execution where the chosen model is tested and brought to life. This cycle ensures systematic progress, helping businesses develop, evaluate, and execute innovative models that are both viable and competitive in the market. Let’s dive into the 4 design cycles.

Design cycle step 1: The now

The first step in the design cycle for business models is about gaining insight into the current business model, (hidden) customer needs, the competition and trends in the market. Here, you critically analyze your current business model with an investor’s mindset. Here you can use various useful Design Thinking tools such as the Context Canvas, the Vision Canvas and the Business Model Canvas. You use the Business Model Canvas here at a detailed level to gain the right insights.

Critical success factors

• Deep understanding of potential target markets
• Understanding the environment
• Looking beyond the traditional boundaries of an industry

Key pitfalls

• Excessive research
• Decoupling research from objectives

Design cycle step 2: Brainstorming

The second step in the design cycle for business models is about getting new business model ideas. This creative process begins with divergence, where the goal is to generate as many options as possible, followed by convergence, where you start narrowing down the most promising ideas. In this step you use the +200 different business model hacks to come up with new surprising ideas. Challenge yourself to be open to exploring the very different Business Model Hacks in addition to the obvious options.

Critical success factors

• Co-creation
• Using multiple viewpoints
• Breaking the status quo
• Generating volume (+500 ideas)

Key pitfalls

• Watering down or dismissing bold ideas
• Becoming too attached to an idea too quickly

Design cycle step 3: Businessmodelling

In this step, you start bringing together the different ideas and options into a coherent whole. Here you use the Business Model Canvas again, but now at napkin level. You do not immediately dive into the depth and refinement, but really try to compare a wide variety of promising business model options before going into detail. This step also includes evaluation of the formed business model options critically, scoring them on various criteria, and selecting the most promising one for further exploration.

Critical success factors

• Thinking in business models
• Making business models practical for your company
• Quantifying market opportunities
• Applying evaluation criteria
• Business model roadmap

Key pitfalls

• Not following a structured process
• Insufficiently concretizing selected business models
• Excluding radical innovations too quickly

Design cycle step 4: Testing & execution

The final step in the design cycle is about testing riskiest assumptions, refining and step-by-step implementation of the business model. You conduct various experiments to peel away risks and gain insight into which parts of the intended business model work and which do not (yet). Here you can use the Lean Startup approach to learn quickly and small. The core of the Lean Startup approach is to launch a pilot project quickly, measure results, and iterate based on data rather than intuition. The faster you cycle through validated learning, the better your chances of success.

Critical success factors

• Identifying and validating the riskiest assumptions
• Iterating based on findings
• Shared responsibility
• Discipline to seriously explore new paths

Key pitfalls

• Making decisions based on assumptions
• Lack of commitment
• Failing to take action due to fear of failure and cannibalization of current business

Where is the design cycle based on?

The design cycle for business models is based on various methodologies that have proven to be successful in innovation processes. Methodologies of which elements are integrated are:

• Design Thinking
• Lean Startup
• Recombinant Innovation
• Rapid prototyping

& more…

Design cycle example: Clothing retailer

To clarify how the design cycle for business models works, an example has been developed for a clothing retailer.

Step 1: The now

A clothing retail company faces declining in-store sales. They analyze their current model, noting a shift to online shopping.

Step 2: Brainstorming

The company needs new ways to reach customers and meet their needs and shopping preferences. They use the Business Model Hacks for ideating. They got new business model ideas like:

• An e-commerce site
• Subscription boxes
• A shopping app
• A digital avatar visualizer
• Try on clothes with Augmented Reality

After creating +500 business model ideas the team moved to the next step.

Step 3: Businessmodelling

They prototype multiple business model options with the Business Model Canvas. After having multiple options, the team systematically evaluates the different models. At the end of this step, a Business Model option has been chosen that the team wants to test.

Step 4: Testing & execution

They choose to launch an online store specialized in Festival clothes. And do the folowing steps

• Identifying the riskiest assumptions.
• Setting up experiments to validate the assumptions. An example of what the rough experiment plan could look like.
  • Problem interviews aimed at understanding the pains & gains in their current journey. Followed with feedback on a storyboard with the key components of the concept.
  • Creating a digital prototype with wireframes about how the offering is performed. Combined with a ”Tinder-swiping”preference test with pictures of potental items.
  • Create a simple store in Shopify with the highest ranked items.
  • Running an advertising campaign on Facebook
  • A try-out campaign with a small influencer who is important to the target group.

After multi design cycles the team figured out what to built and why. They iterate from plan A to a plan that works and after a pilot-phase with their Shopify MVP-store they decide to allocate budget to the project for a next phase with the aimto fully integrating it into their business.

Other great inspiration on business model design cycles?

Would you like to learn more about applying a systematic approach to designing and implementing business models? The following articles are interesting to read:

• Ramon Casadesus-Masanell and Joan E. Ricart – How to design winning businessmodels
• Ronald C. Beckett, John Dalrymple – Business Model Architecture by Design

Are you ready to design & implement winning business models?

Are you ready to discover new business model options that will propel your company forward? By following the 4 design cycles you increases your chances of finding a winning model that sets your business apart in the market. Do you need help to boost your business model? Consider our Business Growth Consulting services.