To start with it’s important to understand that a the only reason you need a design studio business model is because it shows a better way than your existing approach. It does this by showing the unique aspects of your business, making your studio different from your competitors.
Now it is even more important to show how you are unique.
Consider that in early 2014 the Australian dollar was buying 90c US. By February 2015 it was buying 78c US. For your clients who are exporters this is good news, for your clients who are importers it's bad news. Preparing a design business model will force you to ask the questions:
How are they coping with this?
Have I changed my approach with them because of these shifts?
What about your tourism clients? The drop in the dollar has made travel to Australia much cheaper. How are your clients responding? How are you going to change your approach to help them take advantage of the increasing number of travellers?
What about your clients in property development? The drop in interest rates has meant getting a loan is easier. How will this change the property market? Have you prepared a plan that will help you gain more work with property developers?
And all that doesn’t take the political situation into account and way that it is changing the confidence that the buying public has.
So how can a business model help, and anyway, what is a business model?
Business models are, at heart, stories—stories that explain how your studio work. It defines: Who is client? What does your client value? It also gets down to the question every studio owner must ask: How do we make money in this design business? What is it that we offer that can deliver value to our clients at an appropriate cost?
Creating a design business model is a lot like writing a new story for your studio. It’s true that all new stories are just variations on old ones. In the same way all new business models are modifications of the generic value chain that underpin all businesses. As with most businesses the value chain in a design studio has two parts. The first stage includes all the activities associated with designing and producing a solution for the client. The second stage includes all the activities associated with selling design: finding and reaching clients, getting a commitment, delivering the service. A new design studio business model may be built on meeting an unmet need in existing or new clients. Or it may be built on an innovation, a better way of packaging design with strategy.
Design business modeling is both creative and scientific - creative because you can prepare it in an illustrated form - scientific in that you start with a hypothesis, which you then test in action and revise when necessary.
You test the hypothesis by getting out and talking to clients and pitching the new model for your studio.
If your business models doesn’t work, it’s because it failed either the narrative test (the story doesn’t gell with clients) or the numbers test (the revenue and profit don’t add up).
The story may be a good one and it may be the way you are pitching it or you pitched it to the wrong client. Continual pivoting and reworking the story will sort this out.
Similarly, the numbers are easy to test. Every part of the model is tested and related back to results such as increased revenue and profit. Profit is important because it tells you whether your model is working. If you don’t achieve revenue and profit predictions you re-examine your model.
But it's not all about revenue and profit. A design business model’s great strength as a planning tool is that it looks at all the elements of your design business and delivers a holistic approach.
The design business model canvas is a derivation of the business model canvas developed by Alexander Osterwalder. He devised this model to be used by entrepreneurs particularly in the tech industry.
See more about the business model canvas here...
The design business model canvas takes the Osterwalder model one step further and adds competitors to the mix. This is what turns it into a competitive strategy tool for design studios.
A competitive strategy shows how you will design and solve problems better than other studios. And this means being different. Design studios gain competitive advantage when they are unique, when they do things no other studio does in ways that no other studio can duplicate.
When you cut away the jargon, that’s what strategy is all about—how you are going to be a better design business by being different.
Here’s the logic: When all studios offer the same services to the same clients by doing the same tasks (design, artwork, project management), no studio will prosper. Clients will benefit while head-to-head competition drives prices down to a point where returns are inadequate. Michael Porter the strategy guru defined this as ‘destructive competition’. We see this in the Australian design industry with too many start-up studios rushing into the market with identical business models and no strategies to differentiate themselves.
The issue here is that they have not sat down and worked out a business model that suits their talents, their location and the clients that they can readily access.
Want to learn how to develop a unique business model for your studio? Read about the Building a business model for your studio workshop that I am running in Perth, Adelaide, Melbourne, Canberra, Sydney and Brisbane.
Greg’s passion is the research and development of methods that improve design management and the role of design in business.
Greg has developed a series of business tools to help designers manage their business better along with a series of workshops that show designers how to use these tools.