Do’s of Business Model Innovation
By: Karl R. LaPan, President & CEO, Northeast Indiana Innovation Center
When most people think about innovation, products are often top of mind. However, an important source of innovation potential is business model innovation. Think about the largest fleet of transportation cars not owning any of its cars – Uber. Think about the largest network of lodging opportunities not owning any of its hotels or resorts – Airbnb. Think about Southwest Airlines flying ‘point to point’ and only flying Boeing 737 in their fleet when airlines typically ran a hub and spoke system and flew all types of planes. All of these marketplace disruptions reinforce the value and significance of business model innovation.
There has been a movement in the startup world led by the likes of Osterwalder, Reis, Blank, and Maurya to simplify the complexity of disruptive innovation in a 9-block business model canvas or a lean canvas. These canvases create, capture, and deliver value for the various customer segments served.
Keep in mind some of these salient best practices for moving your best thinking to the marketplace.
- Identify likely customer first – Discover and Validate.
- Seek disruption in the marketplace.
- Know how your business venture makes money.
- Pricing drives behavior.
- Know & set your ‘triggers’.
Get out of the lab and get some hands-on customer research to discover and validate the pain, problem or job-to-be-done. Fast testing of your business concept through customer discovery and validation early can save you time, money and resources. Using proven, evidenced-based business search methodologies like The SearchLite can save you a lot of heartburn and headaches later.
Identify the gaps in the existing product or service delivery value chain and create novel or different ways of transforming that product or service to deliver new value to the end-user or customer. Think about the pain points and how your solution delivers a better experience, a cheaper product, or a more engaging customer experience (and delight) to a customer segment. Experiment, iterate, learn, and experiment again (and again and again)!
The profit model is an essential component to business model innovation. What are the ways you create viable profit streams? Think about the razor and the razor blades. What are your razors and razor blades (annuity streams for ongoing and sustainable profit generation)?
Think twice about giving something of value away to get initial users. Maurya makes this point very clearly in his book Running Lean. Pricing drives behavior. What behavior do you want to drive with your pricing strategy? Think strategically about how best to price and deliver your services.
Entrepreneurs often get caught up in loving their idea, product or service so much that they forget to establish triggers. Triggers are needed to make sure you are not deluding yourself when the market is sending you important feedback. For example, you have a terrific idea for a new product disruption and need to sell 61 websites to break-even. Establishing specific goals, timeframes, and success metrics to help reduce the noise in the marketplace and focus your efforts. My first manager at GE once said, “Results, not effort, get rewarded.” Knowing the difference between activity and results is key to your success. Don’t get trapped into loving your idea so much that you forget to pay attention to the warning signs.
Sustainable competitive advantage is more than a business concept taught in an MBA class. To achieve it, it takes market focus, discipline, and execution. Every day companies are trying to unravel your marketplace advantages so a constant focus on business model innovation is essential to staying on top of your industry. Every day, creative entrepreneurs and aspiring innovators are trying to eat your lunch.