Developing a digital business model: Simply explained for product managers!

What are business models - and how they affect companies

Before we dive into the development of new business models, we should first define what we mean by this.

Business model development means understanding and continuously testing the different facets of a business model with the aim of establishing a new business model on the market.

A business model describes how a company can deliver added value to its customers and at the same time retain some of this value for itself in order to be profitable in the long term. An effective value proposition is crucial as it is closely linked to customer needs. Tools such as the value proposition canvas support the analysis of the customer segment in order to gain a deep insight into customer needs and align these with the products or services offered.

If you develop a new digital business model, it should not only improve the existing model, but also:

• Bringing in innovations
• Solving customer problems even better
• Reduce costs
• Increase revenue in the long term

There are typically two different starting situations in which new business models are developed, which we would like to look at here:

Initial situation 1: Startups

For start-ups, it is essential to think innovatively from the outset and to develop a business model that can survive in the long term. Unlike established companies, there is no fixed organization, which makes the start-up team fast and flexible.

The goal here is clear: to transform the business idea into a viable business model as quickly as possible in order to ensure long-term success.

Since start-ups have few resources, it is important to review the most important aspects of the idea as quickly as possible.

Therefore, startups should focus on the critical part of the business model and show that their product is the solution to a specific customer problem and that customers are willing to pay. The customer perspective is crucial in order to understand the customer's needs and develop a suitable value proposition. Three aspects are important here: Does the expected customer segment exist? Is the solution really relevant for the customer and does it represent an improvement? Are the customers willing to pay for the solution?

Initial situation 2: Developing a business model in established companies

Adaptability and further development are just as important for established companies as they are for start-ups. Digital transformation enables companies to adapt to market changes and tap into new business opportunities. In the process, a new business model may become necessary.

Established companies can use agile methods within an iterative process to achieve this. By continuously adapting and improving various approaches, even large corporations can succeed in developing a new, innovative business model.

Existing companies are not as flexible and fast as start-ups. However, they have another advantage: they have more resources and existing customers. If a new business model works for them, it can also be scaled up quickly.

Excursus: Business Model Canvas according to Alexander Osterwalder

The Business Model Canvas by Alexander Osterwalder and Yves Pigneur is a useful resource for developing digital business models. With the help of nine building blocks - from problem analysis to business model implementation - it helps start-ups to outline their business ideas.

The development of a business model is a structured process that iteratively tests the various aspects of the business model.

The business model canvas virtually replaces the business plan and has many advantages: It visualizes the business idea in a simple way. It is also lighter and quicker to change than a business plan. And it reflects the current status of the team and its assumptions. Thanks to its high degree of flexibility, the canvas is perfect for companies in the start-up phase.

The 3 most important steps in business model development

Step 1: Understanding customers. What is the goal?

The customer is at the center of every successful business model. It is essential to understand the situation and the goal of our customers in order to develop a successful product. That is why it is important:

• Understanding the job to be done, i.e. the goal of our customers. What do our customers really want to achieve at the end of the day? There are functional, emotional and social aspects to consider.
• How do our customers solve the problem today or achieve their goal? We can clarify this with a market analysis or in discussions with potential target customers.

This step is essential and can also be found in the design thinking process and other business model development processes. A good understanding of customers and problems is the basis for subsequent business success.

2. test solution idea

The development and adaptation of solutions should be iterative. This means that a product idea is outlined on the basis of step 1, which is tested with the potential target customers. This solution is then improved based on customer feedback. The key elements here are

• Iterative development: Use agile methods to be able to react flexibly and quickly to new feedback.
• Innovative approach: Promote a culture of innovation and experimentation in your team. This is the only way to come up with truly new and creative solutions. A key element of this is the involvement of the entire software development team. Design and engineering contribute important aspects to the solution design.
• Flexibility and agility: Ensure that your company or team is able to react quickly to changes and new findings.

3. test channel/distribution channel

At the end of the day, functioning sales channels are crucial to the success of a business model. The question is: can we acquire a sufficient number of customers willing to pay with correspondingly low costs?

To this end, we generally test the various distribution channels in advance and try to obtain the customer's consent to purchase the product. In this way, we ensure the subsequent success of the idea.

Target product-market fit

A crucial aspect in the development of a new business model is achieving product-market fit. This means that your product or service is precisely tailored to the needs of the market and customers and that the aspects just discussed have been tested.

Validating the product-market fit ensures that your product or service offers a real solution to the problems of your target customers and that they are willing to pay for it.

After achieving product-market fit comes the scaling phase. Once you have achieved product-market fit, you can focus your efforts on scaling and expanding the business model.

The most important facts in brief

The digital world is constantly evolving. Companies need to create, deliver and capture value in order to be successful. So your digital business model needs to stay up to date too - whether you're a startup or a large corporation.

Developing new business models is a continuous process that requires both creativity and strategic thinking. Whether you are a startup or an established company, the principles of customer centricity, flexible solution creation and optimized sales channels are critical to success. With open communication and a supportive company culture, you can ensure that your team is motivated and able to overcome the challenges of business model development.

We hope that this guide provides you with helpful insights and suggestions. If you have any questions or require further support, we will be happy to assist you. Good luck with the development of your business model!

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