Reinvent Your Business Model: Think Customer, Aim Big, Move Fast– Kill the Old Business Model Before It Kills You…

Business models describe the rationale of how an organization creates, delivers, and captures value (e.g., economic, social, cultural, or other forms of value). 

Simply put, the business model describes– how a business positions itself within the value chain of its industry, and how it intends to sustain itself… The business model converts innovation to economic value, and spells-out how a company makes money by specifying how it’s positioned in the value chain… 

Whenever a business is established, it either explicitly or implicitly employs a particular business model that describes the architecture of the value creation, delivery, and capture mechanisms employed by the business enterprise– it reflects management’s hypothesis about what customers want, how they want it, and how an enterprise can organize to best meet those needs, and make a profit… Ultimately the success or failure of a company depends first and foremost on how well its business model design matches customers’ priorities…

According to Joan Magretta; a good business model answers Peter Drucker’s age-old questions: Who is the customer? And what does the customer value? It also answers the fundamental questions every manager must ask: How do we make money in this business? What is the underlying economic logic that explains how we can deliver value to customers at an appropriate price?

The creation of a business model is much like writing a new story, which is a variation on the generic value chain underlying all businesses. This chain has two parts: First, associated with making something; second, associated with selling something. A business models need to pass two critical tests: the ‘narrative’ test (the story doesn’t make sense) or the ‘numbers’ test (the profit & loss doesn’t add up). However, a business model is not the same as strategy; it describes a system but they do not factor in competition…

According to Michael Porter: Dealing with competition is a strategy’s job and doing better than your rivals, which means being different… Ultimately, both a good business model and effective strategy are required for business success…

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In the article What Exactly is a Business Model? by Vivek Wadhwa writes: Many people in business talk about business models. But, if you quizzed a random sample of these people, you’d find that they really don’t know what a business model is… The reality is that a business model is like the old saying about teenage sex: everyone talks about it all the time; everyone boasts about how well he or she is doing it; everyone thinks everyone else is doing it; almost no one really is; and the few who are fumbling their way through it incompetently.

For almost any traditional business, the business model is so obvious that you don’t have to talk about it: Stores sell goods. Restaurants sell meals. Hotels sell lodging. Airlines and taxis sell transportation. Think of the business model as how you make money. How you get money out of your customer’s pocket and into your bank account. The new businesses, mainly Internet businesses, need to explain how they make money.

Some businesses still get away with generating traffic, so-called eyeballs, but not money. The underlying assumption in these cases is that the traffic means a likelihood of being able to generate money– somehow, some day. And if you want to be really trendy, use the phrase ‘business model’…

In the article Kill Your Business Model Before It Kills You by Ron Ashkenas writes: Why do business leaders wait too long to modify or abandon their business models? The U.S. Postal Service, even with the constraints of its government mandate, has known for years that its traditional model was coming apart; Kodak realized that film was being replaced by digital media long before it changed its investment strategy; even a sophisticated G.E. waited too long to reorient its lighting business away from incandescent bulbs.

From these cases, and others over the years, it seems to me that there are two keys for getting ahead of the business model curve, both of which apply to managers at all levels: First, remember that no business model lasts forever. The most dangerous trap that any manager can fall into is complacency. Peter Drucker reportedly once said; the biggest curse for any business was twenty years of success… Markets, environments, and technology can change so quickly that no amount of profit today guarantees success tomorrow.

Years ago, during the ‘dot-com’ boom, Jack Welch required each of his businesses to go through an exercise that he called ‘Destroy Your Business.com’ in which he asked them how ‘dot.com’ competitors could possibly put them out of business. In other words, long-term success is more likely when we welcome the anxiety of competition, instead of avoiding it. The second key is to continually and actively be on the lookout for new business opportunities that can potentially replace the current model. If you only invest in refining today’s business model you’ll get locked into it.

Testing, incubating, and investing in alternative models hedges against that possibility. Sure there will be failures, but with enough persistence and creativity, some viable alternatives will emerge. Nobody wants to be in the position of trying to defend a business model that has little runway left. So instead of assuming that it can’t happen to your business, take the lead in looking for alternatives– long before the competition leaves you in the dust…

In the article Your Business Model is Obsolete by Geoff Colvin writes: Innovation is the hottest word in business, but most of the discussion centers on products and services. The more profound challenge for most companies now is imagining a new business model, a new answer to the fundamental question: How do we make money? All business people face the challenge, sooner or later– even if business model has worked for decades, even if it’s working okay right now, odds are that it soon won’t be...

Not since the Industrial Revolution have we seen a longer or broader list of companies whose business models are suddenly obsolete. Start with virtually all companies in the media business, or any company that relies on owning copyrights or selling advertising. Then look at how major retailers– Best Buy, Target, Wal-Mart… are rethinking their models in response to show-rooming (i.e., browsing in-store and buying online from eBay, Amazon…)

The whole education industry needs a new model. So do banking, the post office, computer makers, big-pharma, music, and telecoms. They all need new business models, and almost all are having a hard time finding them: Business model innovation is a competency that doesn’t exist in most companies, since it never had to... For example, the newspaper business model worked great for 200 years; twenty generations of management didn’t have to change it.

Why should we expect that today’s generation would know how it’s done? It’s the same in most companies. Even in today’s environment, your new business model will not last nearly as long as the old ones… The new normal is Amazon: It launched with an innovative model as an online bookstore. Then, it also became a marketplace for other booksellers. Then, it started offering other products (e.g., clothing, computers…) requiring far different distribution infrastructures; then, it began selling digital books, music, TV shows, and movies online; created its own branded devices (e.g., Kindle and Kindle Fire); added web services for companies; and is now investing hundreds of millions of dollars in original programming, and in warehouses for same-day delivery of groceries and other merchandise…

The model is changing continually. Peter Drucker noted that ‘sloughing off yesterday’ is almost impossibly difficult, yet every organization must get used to doing, it regularly. The largest obstacles will be weak imaginations, threatened interests, culture… Business model innovation is the new essential competency: It’s hard, and it will separate tomorrow’s winners from the losers.

In the article How Sustainability is Reinventing the Business Model by Eric Lowitt writes: Do you remember when business was not only uncomplicated, but dare I say, easy? You found customers with unmet needs, created a solution to those needs, and sold the product or service at a profit… Essentially you created a business model; identify customers, create a solution customers want, source the needed materials to put the solution together, and get it to the customers– that mapped out a path to growth…

There are trailblazing companies that are rewriting conventional business thinking to overcome the challenge of sustainability. These companies view sustainability not as altruism, not as ‘do less bad’, but as an arrow in their competitive strategy quivers. They are marrying profitability with sustainability by seeking– partnerships with strange bedfellows, financing from unique sources, and ideas from the crowd. In short, these trailblazers are reinventing their business models.

Companies used to set goals they were capable of achieving on their own, that is; be number one or number two; go global…To achieve these goals, companies have entered new markets, invested heavily in developing countries, and adapted to the realities of the Internet. As long as they applied their core capabilities correctly and swiftly, they controlled their own growth trajectory. But, not anymore: Trailblazers think not only bigger, but also broader when setting the paths for growth. Sustainability is the catalyst that is leading trailblazing companies to reinvent their business models…

We are witnessing a fundamental paradigm shift in business today; business dynamics have evolved beyond many of current business models… According to Carol Kinsey Goman; today’s business leaders are experiencing shock as their old business model are breaking down, and many business leaders remain emotionally attached to theories that have long since been disproved… We are only just beginning to understand what it means to move from a purely analytical ‘objective’ perspective to one that includes; subjective, intangible and emotional aspects of business

In 1982, John Naisbitt wrote in his classic book ‘Megatrends’ about the collapse of the ‘information float’. He defined information float as the amount of time information spends in any media channel– the amount of time between transmission and reception. Today, technologies such as; social media, smart phones, high-speed data mining, ubiquitously networked electronic devices… have precipitated the collapse of the customer feedback float— the amount of time it takes a vendor to understand whether their product suits the market’s interests. This collapse of the customer feedback float becomes part of the new psychology behind the new business models…

The old business model was– market research leads to a defined problem that leads to a defined solution that leads to big scope development… Whereas, the new business model says; take a step back from any pre-defined ideas about a product and think about possible consumer pains, undiscovered needs… Allowing your perspective to shift from a big-plan-specific vision to a fluid-discovery-process… Seeing business growth as a series of discrete discoveries, instead of an over-reaching plan, that wires your brain for flexibility. This, in turn, will enhance creativity and ability to innovate… It’s a new way of thinking; a clearer, braver way to think…

According to Clayton Christensen; one of the most compelling cases yet for the maxim: You can build a better mousetrap, but that doesn’t mean they will necessarily use it… Christensen’s argument goes something like this; innovations that disrupt markets nearly always start with a new, or newly applied, technology that offers a significant improvement over previous ones. But, great technology alone is not enough for success.

To truly shake things up in a market, innovations also needs– new business models and value networks– new supply chains, channels to market… and, sometimes it can take a long time for new business models and value networks to evolve…

However, it’s time for business models to get back to being actual business models: If you really want to grow your business, then base your business model on innovation and new value creation; most important–value what your customers really wants and are willing to pay…