What a phenomenal year we had in 2015. imagine.GO is proud to have worked with some of the biggest names in health care this year – as well as some we believe will be in the not-so-distant future. Look for us to continue to launch innovative solutions into the market as we work with healthcare companies to hone their business models and get to market fast.
We wish you and all of yours a blessed, peaceful, and joyful holiday season.
To your health,
The Team at imagine.GO
It is nice to see McKinsey publish an article on something imagine.GO pioneered in healthcare. The use of business model innovation as a means to drive transformation into new models and new markets – and ultimately disrupt yourself.
“We’re often asked, “Can you keep innovating?” The truth is, I find that the more you innovate, the more you can innovate.” – Adrian Gore is the founder and CEO of Discovery
We pioneered this at GuideWell and since that time, we have worked with many great healthcare companies. We have even had the good fortune to get to work with some of the Discovery team in the U.S. via Humana Vitality.
Our modelH method enables companies, large and small, to quickly generate better business models and communicate them across stakeholders. We apply it to companies that need transformation or want to create new products with real product market fit. We also apply it to start-up concepts to build them into sustainable business models. Here is the article from McKinsey.
You can learn more about our application of business model innovation here.
To your health,
The Team at imagine.GO
We just got back from a week in Boston where we presented at the Health 2.0 and Mad-Pow sponsored HXRefactored Conference. They did a great job with the conference, and we had a good time and met some very cool folks on the cutting edge of health and design. I was honored to be able to present with Matt Holt, Google Ventures, & Henry Ford Innovations at Dollars & Sense: The Business of Healthcare. We each gave perspectives on building healthcare businesses.
My talk focused on three simple rules for building healthcare businesses. In brief, they are:
1. Make sure your business model has applicability to all parts of the healthcare ecosystem. WHY? Building healthcare business models require understanding the dynamics of the ecosystem. It is very hard to disrupt the players. Make sure you know how your stuff helps their stuff.
2. Make sure your business model speaks to all parts of the healthcare canvas. WHY? Building healthcare business models require understanding the moving parts and then showing how they interact. We think there are more of moving parts that Alex Osterwalder’s 9 (although we love his 9 dearly). That is why we built modelH – a business model canvas designed specifically for healthcare companies to develop and explain their business models.
1. Make sure you business model is more than just a canvas. WHY? Building business model canvases is part of building businesses – but you are a long way from viability with just a canvas. Building healthcare businesses also require more than LEAN & your MVP (but please start with this). This is why our model for building businesses is focused on commercialization from the go.
In summary, know how your model will apply to the healthcare ecosystem, explain how your business model serves all constituents in the multi-sided market (and is believable), and show how you will operationalize your business based on sound decisions.
Here is the deck. Enjoy and let us know how we can make it better. And if you need help launching your company, contact us.
To your health,
The Team at imagine.GO
Join imagine.GO, Health 2.0, Google Ventures, & Henry Ford Innovations for our presentation Dollars & Sense: The Business of Healthcare at HXRefactored in Boston; Wednesday, April 1, 2015, from 3 to 5 PM EST. The Business of Health Care is going to decipher the economics of these influxes, evaluate business models that are working and why, and examine the multitude of players, including non-clinical roles, introduced into the sector.
HEALTH EXPERIENCE REFACTORED / CONFERENCE / APRIL 1-2 2015, BOSTON
It is no shock that the health care industry is booming and about to boom even bigger. In 2014, we saw record-breaking investment in the health care industry, closing the year at just over 4.36 billion. Courting VCs is no longer the only way to get on the map – many hospital groups are also putting skin in the game by launching incubator programs. The industry saw freshman start-ups touch the triple digit mark, which begs the question: who is succeeding in this cacophony of funding and innovation? The Business of Health Care is going to decipher the economics of these influxes, evaluate business models that are working and why, and examine the multitude of players, including non-clinical roles, introduced into the sector.
Principal, imagine.GO
Co-Chairman and Co-Founder, Health 2.0
Project Manager, Henry Ford Innovations
Partner, Google Ventures
To your health,
The Team at imagine.GO
Join Kevin Riley speak the at the 5th Annual Heath Experience Refactored Conference in Boston. The theme will be improving health experience through technology and design. It will be held at the Westin Waterfront from April 1st-2nd, 2015. Kevin will be presenting in the session “Dollars and Sense: The Business of Health Care” on April 1st from 3:45-5:45. Immediately afterwards, there will be a questions and answers session.
Find out more from Kevin Riley along with the best resources, minds and technology as they uncover transforming heath care events. Information on registration for this event is located at http://www.health2con.com
Kevin Riley will discuss his design on healthcare business models and explain the healthcare “ecosystem” in its basic form and how it operates using 3 themes: care consumption, care delivery, and care financing.
The healthcare “ecosystem” in its basic form operates along 3 themes: care consumption, care delivery, and care financing. These domains are interdependent points of interaction along a value chain of healthcare. To impact one point, you impact them all. Make no mistake – healthcare is a business! The problem is that very few people create business models that are considerate of all three points of view.
In addition, across the value chain of healthcare, there are four key stakeholders: patients, providers, payers, and purveyors. To put it in simple terms, the party who consumes the product of healthcare (the “patient”) is usually not the one who pays for it, or at least not most of it. The party that pays for it (the “payer”) is best served when it is not used and is, therefore, motivated to push for less of it. Furthermore, the parties that deliver it (the “provider”), and the parties that support its delivery (the “purveyor”), are not aligned to place realistic boundaries on its cost, thus forcing the system into bankruptcy.
Due to its divided nature, the ecosystem is overrun with inefficiencies and creates dis-incentives across themes and between stakeholders so that each maximizes their value, often at the expense of the others. But the system is not so much broken as made up of working parts not working together. Our diagnosis of the problem is a misalignment of the ecosystem’s building blocks. Our prescription is to reset these building blocks into a better working order. The outcome will be a healthy and aligned ecosystem that is both market-driven and cost conscious.
The imagine.GO team believes the ecosystem can be fixed! The answer lies in aligning the business model, so all stakeholders share an understanding of “value” across the themes of consumption, delivery, and financing. Our definition of value is based on that of Michael Porter, put forth in his paper entitled “What is Value in Health Care?“
Value in healthcare is measured as the patient health outcome is achieved per healthcare dollar spent. A better healthcare business model must then result from three components: Improved consumer experience yielding an informed decision maker aligned to their risk and reward; Increased access to necessary care through an engaged delivery system; and Reduced aggregate cost of care, with a market-driven, balanced incentive and reward model.
Our goal for this presentation is lofty but achievable. We want to discuss how to fix the healthcare system so that all stakeholders can co-create better aligned and market-sustaining business models.
To your health,
The Team at imagine.GO
By Doug Williams
A note from Kevin Riley: This article was written by Doug Williams, Chief Research Officer at Innovation Excellence, one of the modelH collaborators.
I’m proud to announce the launch of a free eBook entitled, “The Power of Co-Creation in Healthcare Innovation.” LeAnna J. Carey, Kevin Riley, and I wrote this book to start a broad conversation about the ailing healthcare industry, and how co-creation amongst key stakeholders can lead to its transformation.
This 18-page eBook addresses the following key topics:
The eBook contains exclusive IX Research survey data from healthcare professionals that support this perspective and provides a clear view of how co-creation and collaboration amongst key stakeholders can spur innovation in healthcare. The eBook also contains a mini-case study of the modelH business model canvas for healthcare, which highlights the authors’ experiences using the Batterii co-creation platform to develop and validate a tool that itself will hopefully spur the development of innovative business models within healthcare.
The eBook is a natural extension of the work we’ve been doing to develop modelH, the business model canvas for healthcare. In early 2013, Innovation Excellence, Kevin Riley & Associates, and Batterii created a groundbreaking partnership to develop the modelH canvas over the course of the year. You may have seen our regular modelH updates on these very pages. We finished the co-creative development phase of modelH in December 2013, and we are anxious to continue to test and refine the canvas in 2014, as well as publish more about our findings and the process that led to those findings. But we also realized that there was a bigger story to tell regarding co-creation in healthcare. We wanted to share our experience with co-creation in the context of the bigger opportunity it holds to transform the healthcare industry as a whole, not just in the development of a new tool for generating healthcare business models.
You can obtain your copy of the eBook by clicking on the cover image above or the link below. Also, I’d like to invite you to listen in to our scheduled radio program on January 29 at 3 pm ET, when the authors and executives from Batterii will be discussing the eBook, the modelH experience, and the power of co-creation.
This article was cross-posted from Innovation Excellence: http://bit.ly/PoCCiHIix
To your health,
The Team at imagine.GO
modelH is a business model canvas designed specifically for healthcare. It was designed to help business innovators generate and evaluate healthcare business models that can create positive consumer experiences, improve care delivery, along with aligning to control costs. Evaluation of each building block in a business model promotes consideration of the model’s strengths and weaknesses. Likewise, the structured layout of the canvas encourages thoughtful reflection regarding how the individual building blocks fit together. The 17 building blocks in modelH deal with 4 key business functions: the customer, your product, your operations, and your finances. As a strategic management tool, modelH can be used to design, describe, challenge, invent, and pivot your healthcare business model.
In this BLOG and 10-minute video, we look at the cord blood retrieval and storage industry through the lens of the modelH business model canvas.
Umbilical cord blood (or simply cord blood) is blood that remains in the placenta and the attached umbilical cord after childbirth. Cord blood contains stem cells that can be used to treat a variety of disorders. It is often viewed as a noncontroversial source of stem cells, which are currently being used to treat a wide variety of illnesses, immune deficiencies, and genetic disorders.
Generally speaking, there are two types of cord blood banks. Private cord blood banks store cord blood to be used exclusively by either the baby or a family member. This option ensures that cord blood is available to the child and/or the child’s family in the event of a future medical need.
Cord blood, donated to a public bank, is available to anyone who may need it. It can be used to treat any compatible patient, and may also be used for medical research. Most of the business model components covered here (for illustrative purposes) apply to both private and public cord blood banking.
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modelH Business Model Building Block Explanation |
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Buyers are the customers a business sells to & may also be the User. In our business model illustration, there are three Buyers: 1) the families that exclusively preserve their child’s cord blood, 2) the care providers who want to use the stem cells in the cord blood to treat patients, and 3) the researchers who want access to cord blood for research purposes. |
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Users are the customers that a business model serves. In this business model, the Users include the 1) families who need the cord blood for treatment of a family member, 2) the individual patient requiring the treatment, and 3) researchers who want the cord blood for research purposes. In this example there is also great overlap of the buyers and Users, but not entirely. |
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Intermediaries affect how a Value Proposition is seen and paid for by the Buyer(s). The Intermediaries in this business model example are 1) the donors who agree to give their child’s cord blood and 2) those physicians treating disorders with stem cells from the cord blood. |
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Jobs-to-be-Done (JTBD) are high-level goals the customer is trying to accomplish. Jobs-to-be-Done are typically stated in the words of the customer. As an example the two JTBDs for a “family” User are:1) “I want to preserve my child’s cord blood in case they have a disease that can be treated from the stems cells within it” and 2) “I need to access my child’s cord blood to treat a disease for me and/or them that can be helped by the stems cells within it.” |
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Value Propositions are products & services offered to customers in order to solve their JTBD. In this business model, an example value proposition for the “family” User involves the Cord Blood Bank collecting and storing the cord blood so that it is accessible to treat diseases and disorders for that person or their family when needed. |
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Key Behaviors are the activities required of the User to complete their JTBD. For the “family” User using a private blood bank they include signing up ahead of the child’s birth and paying for the initial collection and ongoing storage of the cord blood. |
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Key Influencers affect the User’s understanding & ability to complete their JTBD. In this business model example, the FDA, which publishes cord blood banking information for consumers, hospitals and Birthing Centers is a good example. |
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Channels are the ways a company brings its Value Proposition to market. In our business model, Channels include: 1) an owned direct sales force that sells directly to pediatric offices, 2) an owned direct call centers that supports customer inquiries, and 3) an owned digital presence to create supporting materials online to influence the purchase decision of the buyer. Another Channel is an un-owned digital presence used to influence independent sources to post supporting materials online that also help influence the purchase decision of the Buyer. |
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Customer Relationships are connections a company creates with their Buyers & Users. In this business model, there are two main Customer Relationships that must be maintained. The first is personal assistance directly with they Buyer in order to provide them answers for questions about blood cord banking. The second is account maintenance for keeping channel partners informed about changes in the product, the pricing, and/or the diseases/disorders it cures. |
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Experience includes how Buyers and Users perceive a business model’s Channels and Customer Relationships. In this business model example, the Blood Cord Company will have to help Buyers to overcome any price sensitivity associated with the high costs of private blood banking. The Blood Cord Company will also need the ability to project strong financial and clinical assurance so the Buyer is willing to deposit their cord blood with a particular blood bank. |
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Key Activities are the most important tasks required to create the Value Proposition. Some examples of Key Activities in this business model include 1) educating buyers about the value proposition, 2) obtaining informed consent from the buyers, and 3) collecting the cord blood and cord tissue. There are many others. |
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Key Resources are the internal actors required to deliver the Value Proposition. In this model, the Key Resources include: sales staff, call center staff, medical directors, cord blood retrieval experts, cord blood storage facilities and blood tracking/matching systems. |
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Key Partners are the external actors required to deliver the Value Proposition. For this example the Key Partners include 1) the OBGYN Offices and Hospitals that they sell through, 2) the pediatric nurses and midwives that help explain blood cord banking and donation to customers, and 3) the vendors of the equipment and enabling technologies for the collection, testing, tracking, maintenance, matching and distribution of cord blood. |
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Costs are the most important financial drivers of a business model. In this business model, the main Costs are derived from blood collection, blood processing, blood storage, blood distribution, and company overhead costs. |
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Revenue is the way a company makes money from its customers. In this business model, some Revenue examples for private blood banks include a 1) one time fee from the initial cord blood acquisition, 2) a reoccurring fee for storage, and 3) a fee for accessing and shipping the cord blood on behalf of a depositor. |
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Informatics is the data and analytics needed to deliver and measure the Value Proposition. For our business model example, Informatics includes 1) the genetic typing (information) of the cord blood, 2) the quality control information for the viability of stored cord blood, and 3) information on the specific customers and donors. |
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And finally, Externalities are the external forces and regulations imposed upon a business model. An example of an Externality in this business model is compliance requirements imposed by the FDA on all blood cord storage facilities. |
You can download the modelH canvas for this case study here.
You can also see the live Abzimo business model canvas for this case study here:
http://www.abizmo.com/canvas/r/61218b58d56f7630736038ff51e5fdc2e37aca24
If you like what you see here, consider becoming involved in a bigger way.
To your health,
The Team at imagine.GO
We just wrapped up our 17th and final modelH business building block sprint on Externalities. In summary, the sprint for Project 1.17 on Externalities focused on two objectives:
All politics aside, this sprint looks at the understanding how government regulations and other external forces affect your business model. Specifically, we uncovered the key issues that drive and transform your market (and your model) for your business model design with several critical questions. What are the crucial issues related to the changing regulatory and compliance landscape and what shifts are already underway? Where is the market headed due to many regulatory and compliance changes, and how does that affect your business model?
My position for including this building block in our canvas is that almost all healthcare models (at least in my experience) are highly regulated. Therefore, the business model should enumerate the key external forces affect its ability to get to market. Please keep in mind, there was some disagreement amongst the modelH community on this particular section, which we will examine in more detail below.
We defined the questions that should be added to our business model canvas for helping practitioners define the Externalities that affect their business model.
At this stage – my position is firmly set to keep Externalities as part of our business model canvas. My reasoning is due to several factors:
However, there continues to be a considerable amount of debate regarding if Externalities should be part of any business model. To clarify, the external environment is undoubtedly important. It affects, influences, and impacts how our business models operate. However, the point of disagreement is whether Externalities should be included as part of the business model.
Stating, “almost all healthcare models are highly regulated” so regulation should become part of the model is much like comparing all firms impacted by Human Resource (HR) regulation. Should HR be built into their business model too? On that note, every business has competition. Should that area be crammed onto our canvases as well? This is a really slippery slope that causes confusion between business modeling and business strategy. If we are committed to taking this model seriously, and determined to make it a viable tool then it is critical to remind everyone what a business model is.
The definition of business model from Wikipedia is: “the rationale of how an organization creates, delivers, and captures value (economic, social, cultural, or other forms of value).” Wikipedia even goes further to note in the first line: “The process of business model construction is part of business strategy.”
Here we have a clear definition of a model as an independent tool for a specific reason. Two other reference links make the point very well regarding why Externalities should not be included – which it turns out is the consensus thinking on the topic. In many ways, I agree with their assessment.
But, Externalities are a core component of a business model in the heavily regulated healthcare environment. One example from Europe is the introduction of health technologies into a system, which cannot be completed without a health technology assessment (HTA). The U.S. Food and Drug Admiration is another applicable example of how Externalities make or break a business idea.
Let us break down this particular dilemma even further. No healthcare business model exists without Externalities – yet the consensus on business model creation is to create the model and then look at Externalities via an environmental analysis. This was the same approach with the original Osterwalder model for not including the Jobs-to-be-done (JTBD) in the core building blocks, but instead view them as “add-ons”.
In light of this argument, for me to include Externalities and the other new building blocks, I believe they need to pass two tests.
The answer is yes – all of them do.
In regards to healthcare, I feel these building blocks are necessary. For example:
JTBD, Externalities, Key Behaviors and Key Influencers explain external factors that we must consider as part of our core building block designs. If we don’t, I do not see how we can make effective business models. On that note, they are essential to our business model design and should exists as part of the canvas.
Informatics explains what we need to measure and monitor to both prove and improve our value proposition. This is a means to provide how our business model works. It adds the dimension of feasibility to the canvas, which is instrumental to the design.
My answer for why to include Externalities can be summed up using a quote from Einstein: Everything should be made as simple as possible, but not simpler. I can appreciate the beauty, simplicity and acceptance of the original Osterwalder model and I use it for my business modeling outside of healthcare. It is also the basis for modelH. However, in regards to healthcare business models, it is not complete in my opinion and that of many of my healthcare colleagues. I would rather have the base model define an effective business idea completely rather than add add-ons over time. Perhaps it is just a matter of style. I am sure many would disagree with this approach – so I will go on record expressing a genuine understanding and appreciation regarding the opposing position.
I also want to honor the work of Osterwalder’s model and keep to the definition of what a business model canvas truly entails – but at the same time provide a single view into a set of tools that help define all the strategic and operational elements of a healthcare business model.
Adhering to the strict definition of a business model is short sighted to me. I care more about the outcome. A good business model design is elemental to that outcome, but alone becomes trivial – it is ultimately about the business outcome. To that, I will defend the elements of our modelH canvas as imperative to driving a better outcome for a healthcare business model design.
I am comfortable with the finer points I enumerated here – but I am not sure if it will come across to someone who has not done a year’s worth of debating on the subject. This undoubtedly is a work in progress. Going forward, if we plan to put all business strategy into a one-page tool – it may be a different task than what we have asked our modelH community to contribute in 2013. Perhaps this whole effort requires a follow-up to the core business model and requires a primary focus on business strategy. On the other hand, we could display the original BMC – then show the bolt-on sections that are influential to those core elements as a healthcare-specific strategic framework. These are all exciting options as we test modelH on healthcare business models in 2014.
Someone I respect tremendously in healthcare, and a member if the modelH Community, Daniel James Scott, stated that in his belief there should be a healthcare-specific strategic framework that covers everything from start to finish, but a business model canvas does not need everything. I add this to show that 1) modelH is a work in progress, 2) we are not afraid of disagreement (we actually love it), and 3) the members of our community are very bright people who are committed to making healthcare business better. I will let you hear from Daniel in his own words.
“Kevin, I and some others have also mentioned previously that some of these split blocks need not be split out at all, just more specifically tailored for the healthcare market. For example, “Experience” and “Key Behaviors” are virtually no different than how we functionally use the “Customer Relationship” block in the wild. “Informatics” is, with certainty, a part of the existing “Key Activities” and “Key Resources” blocks. Let me take a moment here to note that I completely understand highlighting for emphasis. I just don’t see why making the model more complex makes it more helpful (unless absolutely necessary). It is starting to feel like we’ve over-engineered a product without enough market testing to know if we needed the extra features or not. That being said, “Key Influencers” is the only addition, as of today, that I can buy into; however, I’ve also made the point that the “Market Segments” block should simply be split into three: Buyers, Users & Influencers. I understand here that I am the lone voice in opposition; although, in this case, it may be needed as (1) the discussion tools we have at our disposal are relatively crude, (2) we don’t have the opportunity to discuss in real time, and (3) we are not all able to test as we go – so gut calls are landing in the model adding to the over-engineering.”
To your health,
The Team at imagine.GO
We just wrapped up our 16th business building block sprint on Informatics. In summary, the sprint for Project 1.16 on Informatics completed 2 objectives:
Your Value Proposition is the means your business solves the needs of your customer’s Jobs-to-be-done – this is called Product Market Fit. Measuring your revenue growth and costs is part of good business governance, but, consider that even if you are making money if you do not measure your Value Proposition’s alignment with the Product Market Fit – then you leave yourself open to someone disrupting you. Take into account the whitespace between your Value Proposition and your customers’ Jobs-to-be-done – this is the blue ocean of your business model. Either you explore it – or someone else will. Informatics is the means with which to measure and monitor your Value Proposition.
In this business model building block, we ask the questions you need to gauge how well you are reaching your goals, how closely you are keeping with your vision (and when you need to pivot), and how you are maturing over your business model growth? These are the Questions that should be answered when developing Informatics components for a healthcare business model.
Most business model canvases do not specifically prioritize Informatics as a building block. I cannot answer for others on this topic, but for me to believe a business model is viable – I have to know how it will be measured for success. What data is required both now and as the business matures to ensure that it can pivot appropriately? What data can be mined so that new insights and new business opportunities in the whitespace can be evaluated? In my humble opinion, this is fundamental to any business, which is why we have it as a separate building block it in the modelH business model canvas.
To your health,
The Team at imagine.GO
We just wrapped up our 15th business building block sprint on Revenue. In summary, the sprint for Project 1.15 on Revenue completed 2 objectives:
What are the Questions that should be answered when developing Revenue models for a healthcare business model?
This building block really presents itself as a creative problem solving opportunity. It is the exercise of defining how many ways you are able to generate money from your product, or Value Proposition.
Specifically, we are asking how your business model creates Revenue? There are four elements that your business model canvas should focus on when describing Revenue:
Revenue is made when you someone gives you money for something you do or sell. Revenue Streams define the mechanics of how money will pass from your buyer to you, and how many other hands or business models touch it in the process. You will need to explain the value of your product/service to the consumer and how they will pay for this value. There are many combinations of how this can happen in various revenue models, some of which are explained below.
It is also advantageous to ask the following additional questions as part of defining a healthcare revenue stream.
The best explanation we have seen regarding the understanding of various revenue models that might exist in a business model is from our friends at Board of Innovation. You can find this very complete and detailed example here – http://www.boardofinnovation.com/business-revenue-model-examples.
The Revenue Steam equation we mentioned above is made up of two items – Price and Volume. Let’s talk about price. Price is simply the calculus of how much you think your value proposition is worth, or at least how much you think someone will pay for it. How do you set price?
Price is derived from three foundational elements:
Once you set your price, there are many pricing models you can employ to maximize your revenue. The two main types are fixed pricing and variable pricing. The rest are just simply derivatives of these two.
Fixed pricing is setting a market price and taking it market – such as the price of a heart rate monitor on Amazon. Variable pricing is setting a base price and then allowing Buyers to pay what they will for it – such as the auction method on EBay. Fixed pricing is easy to understand. Variable pricing can make you more money but it puts some customers off. The more sophisticated a company, the more they can make their fixed pricing act like variable pricing. That heart rate monitor on Amazon actually changes price depending on the day and time of day of the purchase. This variance is based on sophisticated pricing algorithms that Amazon employs.
The Revenue Steam equation mentioned above is made up of two items – Price and Volume. Let’s first examine volume. Volume is impacted by your market size and growth. It really depends upon two questions – how much of the market you can capture and how fast you can capture it?
Your market size should define three things for your business model:
These can be seen in relation to each other on the graphic below.
The best explanation we have seen for market speed and understanding the various revenue models is found in Steve Blank’s Udacity class, which you can find here – https://www.udacity.com/course/ep245 . This is simple to read but also accurate and brilliant.
This is a fancy way of saying how often you are paid and the difficulty related to collecting timely payments. For example, if you receive payment as part of someone else getting paid, you have to take into account that delays will inevitably happen. A bottleneck lies with your downstream revenue chain. Delayed payments mean you need more cash on hand to handle your operating costs. It also means your prices should reflect these delays.
In accounting, this complex structure is referred to as Receivables and Revenue Accruals. According to Investopedia, a company records receivables as an asset because it expects to receive payment for that amount relatively soon. Long-term receivables, which do not come due for a significant length of time, are recorded as long-term assets on the balance sheet; most short-term receivables are considered part of a company’s current assets. On the other hand, revenue accruals (or accrued revenues) are treated as an asset on the balance sheet rather than a liability. This reporting is important to the valuation of a company, particularly in the service industry. Billing typically occurs after the work or service is complete. Without this asset class on financial reports, the company could appear to have much lower revenues, and may not have a fair method to balance expenses associated with the accrued revenue. Since these items are industry specific, most companies may reserve for uncollectible accounts. An insurance company, however, may have to set up an account for an unearned premium reserve.
Revenue Cycle also require Key Resources. For example, most accounting systems have a billing module. This system is based on creating a receivable and corresponding invoice for a customer. However, the revenue side is a bit more complex. You can only recognize revenue when earned. Thus, many companies use a different billing/AR system than their accounting software package. This would require using Key Resources for both systems – accounting software and billing software – as well as an interface between them. As you can see, it can become very complex.
If your business model sells directly to a healthcare consumer, your revenue model might be much simpler. However, if you sell into another business model, like an Accountable Care Organization, your payments might be dependent on them. Many good business ideas have gone bankrupt due to poor cash management. Clearly defining the complexity of your revenue cycle and careful management is an important part of your business model.
In conclusion, take time to incorporate these approaches into the Revenue block in your business model canvas. You must be able to clearly articulate 1) that you have an understanding of how you will make money, 2) how big your market is and how much of it you can realistically capture, 3) how you will price to win, and 4) how you will manage your customer payments. Good luck!
To your health,
The Team at imagine.GO