This is part 2 of my “Business Thinking for UX & UI Designers” series. If you’re interested, check out part 1 right here.

‍

Quick Recap

In the last article, we went over the basics of business thinking and two important concepts: industry and competitive analysis.

In this article, we’ll dive into the company level and talk about:

1. Business models
2. Business strategies
3. Company health

Let’s get started.

‍

Key concepts

Company-level

Topic 3: Business Models

According to Investopedia, a business model refers to a company’s plan for making a profit.

Or, in other words, to make money.

At its core, a business model explains four things:

1. What product or service a company will sell.
2. How it intends to market that product or service.
3. What kind of expenses it will face.
4. How it expects to turn a profit.

With these in mind, let’s go over the different types of business models.

Freemium

Giving a product or service away for free. Then charging later when customers need more features or services to get the most use out of the product.

Example(s): Spotify, LinkedIn, Skype, and Mailchimp.

Marketplace

A platform where a fee or percentage of a sale is taken in without managing the inventory being exchanged in the sale.

Example(s): Airbnb and Etsy.

Subscription

In exchange for a regular fee, customers have ongoing access to a product or service. This applies to both traditional brick-and-mortar businesses and online businesses alike.

Example(s): Netflix, Hulu, and Disney+.

Disintermediation

Selling directly to customers by forgoing retail partners. This allows a manufacturer to lower costs and own the full relationship with the customer.

Example(s): Casper, Warby Parker, and Dell.

Franchising

A company licenses the use of its business model, brand, and the rights to sell its products or services.

Example(s): Starbucks, McDonald's, Allstate, and H&R Block.

Low Touch

Selling products and services with minimal interaction between the company and the customer.

Example(s): IKEA, EasyJet, and SurveyMonkey.

Razor Blade

A low profit-margin product that requires high-cost or high-regularity companion products.

Example(s): Xbox, printer, and ink companies.

Reverse Razor Blade

A high profit-margin product that comes with low-cost companions product.

Example(s): Apple.

Bundling

Selling two or more products together as a single unit, often for a lower price than they would charge selling the products separately.

Example(s): AT&T, Adobe Creative Suite, and Burger King.

Now, let’s go over how to understand and design business models. There are two diagrams you can use:

1. Business Model Innovation Framework
2. Ecosystem Map

Business Model Innovation Framework

This diagram helps you answer four basic questions

1. Who - Who are the target customers of your company?
2. What - What does your company offer of value to those customers? (delivering value)
3. How - How does your company produce the offer? (creating value)
4. Why - Why does that offer generate value for the company? (capturing value)

Ecosystem Map

This consists of four building blocks

1. Actors - Who is involved in creating, delivering, and capturing value?
2. The flow of information - How is information flowing among actors?
3. The flow of goods - How is a product or service flowing from a provider to a customer?
4. The flow of money - Who pays whom? How does money travel?

Topic 4: Business Strategies

While a business model describes how an organization creates and captures value, business strategies are how an organization aims to do those better than competitors.

‍

In general, the business strategy explains how a company tries to beat the competition.

‍

In the article “7 Things Every Designer Should Know About Business”, Alen Faljic goes over what is and what isn’t a strategy.

A strategy isn’t:

• a goal (goal only talks about the why; a strategy also explains how)
• using best practices (design thinking, etc because any competitors can use them)
• merely a plan (strategy needs to lead to competitive advantage)

A strategy is:

• choosing what to do and what not to do
• a series of trade-off decisions
• a quest for competitive advantage
• about being different (not just better)
• focusing a company’s resources on the most critical issues

To gain a competitive advantage, there are three generic strategies companies use:

1. Become a cost leader
2. Create differentiation
3. Target a niche customer base

It’s important to note that these three business strategies explain how you compete in an existing market.

But, a Blue Ocean Strategy explains how you escape competition by creating new markets by combining cost-leadership and differentiation.

Some prime examples are Airbnb, Skype, Zappos, and Salesforce.

Topic 5: Company Health

To evaluate the health of a company, here are four basic perspectives:

Financial

Traditional and cumulative view of company success. It looks at the monetary results of past decisions.

Customer

Focuses on the people who buy a company’s products and the value provided to them.

Operational

Efficiency is the focus here as well as how smoothly processes and teams are running.

Learning & growth

This is all about employees. What are the key skills to be developed, the core processes needed to create products and services, and the cultural environment needed for success?

‍

Conclusion

And that’s a wrap for part 2 of the series “Business Thinking for UX & UI Designers”!

In the next and final article, we’ll go over topics such as prototyping with numbers, design metrics, and more!

‍

And that’s a wrap!

Thank you for being awesome and reading this far! :)

If you have any questions, feel free to reach out on LinkedIn, Twitter, or by email. Will love to set up a casual call and chat!

‍