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Agile business model innovation in the age of risks and uncertainties


Wichtigkeit des Innovationsmanagement

Picture: The question "What is your business model?" still frequently leads to uncomfortable situations in innovation.


Innovation is exposed to risks and numerous unknown factors, ranging from problem identification to solution and business model development. Therefore, it is crucial for companies to maintain a certain humility and admit that, from the outset, they cannot know everything, and much about the business model is still based on hypotheses. Instead, they should view this as an ongoing learning process to implement innovations in the form of a validated business model. In the context of business model innovation, agile methods play a crucial role. They enable companies not only to start methodically and goal-oriented (typical for startups) but also foster continuous development, which is particularly important when it comes to transformation processes.


What is agile business model innovation?

Agile business model innovation goes beyond simple product or process innovation. It encompasses the fundamental blueprint for how a company not only creates and delivers value but also absorbs and distributes it. Successful business model innovation allows companies not only to establish themselves (typical for startups) but also to adapt to changing market conditions (during transformation processes) and methodically capitalize on new opportunities.


The business model is your plan to generate profit with your innovation, told as a story.

Agile methods in the business model context

Agile methods, when applied in the context of business models, provide companies with the flexibility and adaptability crucial in an unknown or constantly changing business environment. A particularly effective framework for agile working methods is Scrum, based on clear values, principles, and artifacts.

Scrum places a strong emphasis on transparency, inspection, and adaptation to ensure teams can rapidly respond to new insights or changes. The five Scrum values - courage, commitment, focus, openness, and respect - form the foundation for a successful implementation of agile methods. This applies not only to classical software development but can also be applied in the context of business model development.


Scrum Principles: Guidelines for Agile Collaboration

Scrum defines clear principles that create the foundation for agile collaboration. These include a focus on diversified team collaboration, emphasizing results over tasks, adaptability to insights or changes, and the inclusion of customer feedback in the innovation process. These principles enable companies to react quickly and continuously develop or transform their business models.


Diversified team collaboration: Promotes an integrative approach where each team member actively contributes to the project's success. Emphasizing results over tasks focuses on achieving specific checkpoints, enhancing effectiveness.


Adaptability to changes: A central principle of Scrum that enables companies to flexibly respond to user feedback. Involving customer feedback is crucial to ensuring that developed products, services, value propositions, distribution channels, marketing and sales measures, pricing models, etc., meet customers' relevant needs and avoid "Happy Engineering." A continuous feedback process ensures that the end product meets user expectations, providing value that is paid for and, consequently, creating value for the offering company in the form of a business model to generate and distribute margins.


Overall, these principles of Scrum create a dynamic and flexible environment for innovation, enabling companies to quickly adapt to unknown requirements and strengthen their innovation capabilities.


Scrum Artifacts in the Context of Business Model Innovation


1. Backlog:

The backlog is a dynamic list of requirements prioritized by the team during business model validation. It serves as a central point for all elements on the way to a marketable business model (desirability, feasibility, viability). Through continuous maintenance and prioritization, companies can flexibly define, test, and adjust business models as hypotheses to react to real-world acceptance.


2. Sprint:

A sprint is a defined timeframe within which a team works on specific tasks from the innovation backlog, creating an innovation increment. Sprints are usually kept short, e.g., two weeks, to allow for quick adaptation to changing requirements.


3. Increment:

The innovation increment is the result of a sprint. It is a measurable progress piece representing real value for validating the business model. This approach allows companies to formulate initial hypotheses about the business model, rapidly respond to user feedback, and continuously improve the business model from a problem/solution-fit to a product/market-fit and eventually to a business-model-fit.


Startups don't fail because they lack a product; they fail because they lack customers and a profitable business model.

Steve Blank


Implementation in practice


Value Creation


Ecosystem/Suppliers:

Companies should not be considered in isolation. A successful ecosystem includes partnerships, collaborations, and interactions with other companies to create synergies and achieve competitive advantages. Finding and establishing partnerships on an equal footing is crucial and requires considerable time. The goal is a close and dynamic collaboration towards a common end-to-end service design. This helps especially startups and SMEs to compete against larger players.

Agility and business model innovation should also be extended to classical supplier-customer relationships. Close relationships with suppliers, including feedback loops and suggestions for improvement,

enable faster responses to changes in market demand and enhance innovation capabilities.


IT:

An agile IT infrastructure is crucial. Start with open-source solutions instead of developing from scratch to save time and resources. Utilize existing hardware platforms to expedite implementation. Explore trial offers and leverage startup discounts for a cost-effective and flexible start. It is also advisable to check if ecosystem partners can provide IT resources before making your own investments, especially if the business model still needs validation. Implement agile development practices to quickly deploy new features and services.


Processes:

Business processes should be established only to the extent necessary to enable business model development, e.g., with proof-of-concept projects, and provide customers with good quality. The relevant information on how the final minimal process should look like emerges from interactions with customers, determining what should be considered in a backlog for later optimizations.


People/Organization:

The minimum required skills and experiences must be available. If not, the ecosystem can step in, or temporary resources can be added to the projects. In today's world, many freelancers offer their labor temporarily. The question is also whether a person can be fully utilized or whether it makes more sense for existing employees to take on these tasks or to collaborate with flexible employees until they can. An agile organization promotes collaboration and allows teams to act more autonomously. Flat hierarchies and flexible organizational structures are crucial.


Value delivery


Distribution channels:

Explore new distribution channels and sales channels. Often, it makes sense initially to eliminate all intermediaries and get direct feedback from end-users. Indirect distribution channels should only be considered after success. However, this also requires providing the necessary resources for iterations with users. Direct contact with users and agility allow for quick response to user feedback in determining the distribution path.


Marketing:

Find and adapt your marketing strategy to respond more agilely to your future users. Use a combination of analog and digital marketing tools to comprehensively reach your target audience. Analog tools such as printed promotional materials, events, or direct marketing can help build a personal connection. Simultaneously, use digital marketing tools like landing pages, social media campaigns, email marketing, or search engine optimization to respond quickly to user feedback and be present online. Always conduct small test campaigns with A/B tests to understand how target users gather information and make purchases. Analyze the effectiveness of different marketing channels to make informed decisions and use resources efficiently. This iterative approach allows you to continuously optimize your marketing strategy and better respond to your target audience's information needs.


We exclusively distribute our B2B products through our platform. However, we have since found that our customers want to interact with a salesperson, which, in turn, questions our entire margin model.

Interview with a LegalTech Startup


Sales:

Agility in the sales process enables faster capture and adaptation to customer needs. Train your sales team to integrate it into the innovation process. Sellers should be actively deployed to quickly and directly receive feedback on business model hypotheses. This includes understanding customer information behavior, especially in the context of marketing campaigns. On-site, sellers can also capture user motives, needs, jobs-to-be-done, willingness to pay, price thresholds, alternatives, decision-making processes, decision networks, and other information.


Value capture


Pricing model:

Agility allows companies to test the acceptance of pricing models. This could involve a test palette of various models based on user behavior, instead of relying, as most do, on a subscription model.

"We offer our service as a subscription model. However, a significant portion of prospects are very conservative and do not want that." - Interview with an EduTech Startup


Cost model:

Review your cost structures and identify areas where efficiency gains or even novel models (barter, equity, revenue-sharing, margin-sharing, etc.) are possible, whether in personnel costs, cost of goods sold, or inventory. Agility also allows for an adaptive cost strategy to enter the market quickly and lean without making significant investments upfront.


Conclusion: The significance of business model innovation and agility for success

In an innovation world characterized by initial high risks and uncertainties, methodical business model innovation and agile work are more than just buzzwords. They are essential elements that companies need to establish and thrive without operating on a cash burn.

The successful implementation of these concepts requires not only a restructuring of innovation processes but also a change in the innovation culture. Companies must establish autonomous innovation teams, promote a willingness to take risks, and enable open communication. Because every "innovation" is only as good as the impact of the business model behind it.


Yetvart Artinyan

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