Business Model Innovation in 4 Steps

Things are changing and no one is immune.   In some industries, the change is happening at breakneck speed. Think about products or services that did not exist a few years ago that now are taken for granted. Uber is one that quickly comes to mind for me.   Airbnb is another example. But are they providing a new service or did they find a different way to make money from an existing service? Regardless, it is safe to say they found a new business model that took off, and as a result they are making a lot of money.

Startups are not the only companies that can roll out new approaches to do business. Established companies can do this as well, and by doing so, they can also disrupt the traditional ways of doing day-to-day business.   One challenge that existing companies have to tackle is the prevailing assumptions of how to make money in their respective industry.   There are long-standing beliefs, assumptions, and constraints, often unspoken, about value creation in each industry. Those beliefs become ingrained into the corporate culture, especially if the company has been successful in the past with the current model, the proverbial “If-It-Ain’t-Broken, Don’t-Fix-It” mentality.

It is these set assumptions about the industry where startups are finding advantages. However, existing companies have an advantage over the startups in that they are already playing the game and are familiar with the players.   Being willing to take another look at the business models, challenging the status quo, and thinking differently, the advantage tips back to the existing company. It can be done and it is not as painful as some may fear.

BM ComponentsThe process begins with identifying and documenting all the assumptions and beliefs about the industry. Writing down the prevailing industry business model will help in uncovering the unspoken ideas about how the industry currently works. To aide the conversation, leveraging the Business Model Canvas helps ensure all the components are addressed.   By challenging each component of the business model, reframing it, turning it upside down, new mechanisms to create value begin to emerge. (Hint: Challenge Map is a good tool to thinking differently about a component). A four-step process can help shift conventional thinking to something new and innovative.

The 4 Step Process

Step 1:  Create the business model that currently dominates the industry
Challenge Question: What are the long held beliefs and/or assumptions in the business model? What is sacred? What have people been afraid to touch in the past?

Step 2:  Challenge the ideas behind each business model component
Challenge Question: What drives the core beliefs? What is at the base of the core belief? Why do the belief exist? Are the beliefs or assumptions true?

Step 3:  Look through the new lens
Challenge Question: What is a replacement idea that no one currently believes? Can things be done in a different way? Does the new component(s) make sense? Is there a similar business model in another industry? (Hint: Exchanging business models from industry to industry works well).

Step 4:  Develop the new business model
Challenge Question: Is the new business model complete? Is it radically different or an incremental change? Does the new business model create value? What has to change in order to activate the new business model? Is there a new mechanism or product/service that falls out of the new business model than can give an added business advantage? How long will it take to transition to the new business model? Does the new business model provide an advantage?

Business Model Innovation Process

Teams can systematically examine each element of their business model. Various innovations are possible within each element.   Several new business models may exist at the end of the exercise.

Established companies struggle to innovate their business models unless a new product or service forces them to do so. Blockbuster is an example of a company waited too long to challenge their business model for their service. Netflix beat them to the punch for By Mail DVD. Blockbuster never recovered. But all companies regardless of size, age or past success, can disrupt their industry if they are willing to take a serious look at the belief systems currently in place. Will what works today still work tomorrow? Is it possible to move forward and ahead with what is done today?

2 Comments

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