What if you could deconstruct almost every business model with a simple framework?
It can be challenging to evaluate complex business models and business opportunities. Whether you're an investor trying to get an initial overview or a manager recommending or making investment decisions, understanding a business model as an outsider or at a glance can be difficult.
As a subsidiary manager or someone who needs to make recommendations on an investment situation, this framework helps me to get a better view, whenever I need to get an overview and more than a gut feeling if a new business area might work and I don’t have plenty of insight yet. Most of all, it helps me to ask the right questions.
I find this especially valuable if you are looking at a young business which is still in an experimentation phase to determine if the business model is balanced and has a chance of working. You can also use this framework to evaluate your own business model from a higher flight level to see if all components are in balance.
I learned about the “Diamond Square framework” in the Havard Business School Online course “Launching Tech Ventures”, which I highly recommend. Read more about this here.
This is one of the frameworks I love for its simplicity. It can help you preparing decisions under uncertainty, by getting a clearer perspective and reducing overwhelm.
The Diamond Square Framework
The Diamond Square Framework is a simple and effective tool for breaking down complex business models into manageable components.
It consists of four key elements in the diamond which is the internal operating design of a business and four outside components in the square.
Diamond: Internal Operating Design
- Customer Value Proposition: what is the customer value proposition and how does the business meet the needs of their target customer group? Is it a must-have or a nice to have for them?
- Go-To-Market: how will the products or services of the business reach its target customers?
- Profit Formula: how is the business making money?
- Technology and Operations Management: how is the product or service created and maintained?
These components need to be aligned for a business model to function.
Square: Outside factors
In the outside square you have to evaluate the following four components:
- Founders: who is in the founder team and what are their backgrounds and earned insights? Are they a good fit for the business model they want to pursue?
- Investors: If any, who are the investors and how are they aligned? Any conflicts that could arise from different strategic or financial expectations?
- Team: Who is in the team and what are they covering? Any gaps and how can they be filled?
- Partners: any important partnerships? What is impact of those partners on the business?
Breaking down complexity
Working with the Diamond Square Framework not only provides a structured approach but also helps in reducing the pressure associated with decision-making in uncertain situations.
I appreciate the simplicity of the Diamond Square Framework and utilize it as a quick reference tool for initial assessments.
Divide the evaluation process into smaller, digestible components:
- Focus on one element at a time to avoid feeling overwhelmed. Start with the Customer Value Proposition, then Go to market.
- Gain a deeper understanding of each aspect before moving on to the next.
Decision-Making Under Insecurity:
- Use the framework as a guide to make informed decisions, even when faced with uncertainties.
- Leverage the systematic breakdown to assess risks and mitigations for each component.
Taking Action
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