Sep 22, 2020 at 2: 37 pm

Building Better Cluster Business Models

What are the ‘good’ business models for innovation clusters? How can we build better business models for innovation clusters? How can new strategy tools help you shape better business models in your cluster? These questions will be explored in-depth in the coming three months in the Global Cluster Leadership Program. Welcome to a cluster business model party!

Christian Rangen

6 MIN READ

A Global Challenge

Over the past 5 years I have worked with more than 50 clusters and cluster initiatives around the world. Over the past 12 months I have read more than 250 cluster snapshot analysis. The single biggest challenge standing out across all of these interventions; what is our cluster business model? How do we develop a better cluster business model? How do we secure funding (to get started, to grow, to scale), what are our financing options? Who will fund it? What are the best funding options? What are the best business models for us?

Surprisingly, this has been the very same challenge from Mexico to Mongolia, from Costa Rica to the Ukraine. The challenge of finding the right business model for a cluster seems to be a truly global challenge.

Little Research Exists

In developing the Global Cluster Leadership Program, we did extensive research into the global best practices on clusters, updated cluster theory and emerging case studies of innovative clusters. To our surprise, we found very little research and publications on the topic of cluster business models.

One of the most available sources we found came from a Master Thesis by Nadja Dehne of German cluster, Silicon Saxony. She has also published a great infographic on her work.

After reviewing the available literature, talking with cluster managers and national cluster programs, we concluded that the domain of ‘cluster business model’ is still in its infancy but with a significant, global demand.

What is a Cluster Business Model?

There are many definitions of business models. The majority of clusters that have put work into this area already have been using the Business Model Canvas and adapting and tweaking it to make it fit a cluster’s everyday realities.

While we absolutely love the Business Model Canvas and using it with passion, we also realize it is not a perfect match for clusters in general. The very nature of clusters requires a slightly different approach.

This is why we have recently developed four alternative visual tools, designed to help clusters develop better business models – using even more precise tools. These tools are now actively being used by a growing number of clusters and national cluster programs around the world to start shaping a better understanding of cluster business models.

One of these tools, the Cluster Business Model Map, is designed to help new participants get the most basic understanding of a cluster business model, working with the options of Public Funding and Private Funding. Used together with the brand new Cluster Business Model Cards (pictured below), this is a powerful introduction exercise for anyone working with clusters and cluster financing options.

With a total of 28 unique cluster business model cards, every cluster team will be able to develop their unique funding model, thanks to visual thinking and easy-to-use-tools.

Three Steps to a Cluster Business Model

In order to design actual cluster business models, we suggest a three-step approach:

1. Revenue & Funding side: Private Sector vs. Public Sector

What are our revenue, funding or financing sources available – today and in the future?

How much of our total financing should come from the public sector side, how much from the private sector?

With the 28 visual business model cards, this become a lively exercise and great insights for the stakeholders.

2. Revenue, Funding & Cost Structure: how much money do we actually need

Many cluster we meet have not yet a solid grasp of funding requirements and the various budgets. We propose four separate pieces to a cluster cost structure:

1. Set up costs

These one-time costs are required to get the cluster started, but will not be needed for cluster operations. Typical study trips, studies or consulting fees are common here.

2. Staff

Your personnel cost, both full-time, part-time and flex-time is going to be the largest operating cost early on.

3. Operating costs – ex.staff

Office space, events, marketing, design, web pages; depending on your strategy and speed, the operating costs can be kept very low or disturbingly high.

4. Projects

For most clusters, ‘special projects’ are the big initiatives, with an equally big capital structure behind them. Yet, these projects typically have dedicated funding programs, sitting outside the daily operations of the cluster itself. Great clusters, like the Danish Energy Cluster, are truly impressive in their ability to secure project funding and deliver a massive project portfolio for the cluster.

These four cost structures must then be viewed against the available financing options to balance out a basic budget.

3. All 14 building blocks

More advanced clusters or more forward leaning cluster managers will want to develop a far more holistic cluster business model. These may consider using the brand-new Cluster Business Model Canvas. With 14 building blocks, this advanced-level design exercise, requires you to work through value proposition, target users, funding partners, and much more.

In the three-month Business Model Party, we will be working through this with 100’s of participants to gain deeper understanding of the various models and practices that exists within clusters around the world.

A  Dedicated Cluster Business Model Canvas

Based on our insights and work in the field, we have now developed a dedicated Cluster Business Model Canvas (with gracious approval from the developers of the original BMC). This dedicated Cluster Business Model Canvas consists of 14 building blocks and is completely built around the needs and challenges of innovation clusters of any size.

Working with and mastering this new Cluster Business Model Canvas will be a key part of the coming three month Cluster Business Model Party, taking place in the Global Cluster Leadership Program.

A brand new Cluster Business Model Canvas

 

Action Case: Latin America

We were recently working with a large cluster initiative in Latin America. With over 100 key stakeholders involved and a limited pre-existing knowledge about cluster business models, the participants had a weak starting point. But using a digital collaboration platform, the Cluster Business Model Map and the 28 Cluster Business Model Cards, participants from across the local ecosystem were quickly able to identify, grasp, discuss and decide on the key business model components they wanted to pursue.

Snapshot from Cluster Business Model work in Latin America

Learning to Work Visually

A key part in our quest is helping leaders, organizations and clusters working better by working visually. The tools, cards, simulations are all built on the powerful principles of working visually on strategy.

Clusters we interviewed leading up to the Global Cluster Leadership Program, often described the challenges of getting key board members and partner to actually understand what a cluster is and what a cluster business model is. Often, these clusters would have extensive and detailed documents, outlining the best of intentions in great detail. But they were simply too complex for most people to grasp.

By working visually, most people can easier grasp new, complex information. For clusters, working visually frequently leads to:

–       Faster shared understanding

–       Stronger alignment

–       Better buy-in

–       More successful execution

These things are all needed in the space of cluster business models, hence fueling our passion for creating better and better visual working tools for Innovation Clusters and Innovation Superclusters around the world.

Developing Global Domain Knowledge

One of our aspirations is to be able to develop a shared global knowledge pool and shared global case studies on Cluster Business Models. This will allow the identification of trends and successful practices. It will help identify gaps and common challenges clusters face all around the world in their pursuit of successful innovation clusters.

The work over the coming three months will happen in shared work spaces and visual collaboration boards for all members of the Global Cluster Leadership Program. Following the three months, we hope to assemble a working group, close collaboration with Dutch cluster expert Victor Haze, to help write up and publish a series of publications and videos, sharing with a much wider audience, what the emerging best practices in Cluster Business Models look like. Kudos to Javier Sevilla for already kick-starting this work in Mexico.

Join Us on October 1st & Beyond

If you are struggling with your cluster business models, or you would like to get a deeper mastery of both existing and future business models for your cluster, we encourage you to join us for the deep dive.

If you are already signed up for the Global Cluster Leadership Program – make sure you join the October 1st LIVE digital Workshop. For stronger impact in your own cluster or local ecosystem, we do encourage you to sign up your cluster staff or even your board, to create a stronger domain knowledge with you key cluster stakeholders.

If you are not yet signed up for the Global Cluster Leadership Program, please do so today, and get up to speed to join us for the three month deep dive into cluster business models starting this October.

Together, let’s build better cluster business models.

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Do you want to learn more about Innovation Superclusters? Download the free report, Building Innovation Superclusters today.

Christian Rangen
Christian Rangen

Strategy & transformation advisor to companies, innovation clusters, ecosystems and governments around the world.

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