Business Model Innovation – Why Agility Matters
There’s no question that business model innovation is a hot topic in today’s business world. After all, who wouldn’t want to be the next Uber or Airbnb? But what does it take to create a new and successful business model?
It turns out that business model innovation is not just about having a great idea but about execution and timing. It’s also about being willing to take risks and experiment. And, of course, it helps if you have a bit of luck.
So, what does it take to create a new and successful business model? Let’s take a closer look.
What is a Business Model?
First, let’s define what we mean by a business model. A business model is a way a company creates value for itself and its customers. It includes the company’s value proposition (the unique selling point that differentiates it from competitors), the channels through which it reaches customers, the relationships it builds with them, the revenue streams it generates, and the costs it incurs.
In other words, a business model is a company’s framework to generate revenue and profits.
To be successful, a business model must be viable, scalable, and sustainable. A viable business model can generate enough revenue to cover its costs and make a profit. A scalable business model can grow to meet demand. And a sustainable business model can be sustained over the long term.
Why Do Business Models Need Innovation?
There are several reasons businesses need to innovate their models.
First, the market is constantly changing, so companies must evolve.
Second, technology is constantly changing and evolving, which means that the way businesses operate also needs to change.
And third, customers are constantly changing and evolving, so companies need to find new and innovative ways to meet their needs.
One will become irrelevant if a company doesn’t innovate its business model. Its products and services will no longer be in demand, and it can no longer generate profits. So, it’s essential for businesses to continuously experiment with new models to stay ahead of the competition.
How to Innovate a Business Model
So how can a company go about innovating its business model? There is no one-size-fits-all answer to this question, as every company and industry is different. However, there are some general steps that companies can take to get started:
1. Define your value proposition.
What makes your company unique? What do you offer that nobody else does? Figure out your unique selling point and focus on developing products and services that capitalize on that advantage.
2. Identify your channels of distribution.
How do you reach your customers? Are there any new or innovative ways you can reach them? Can you use digital channels to reach a wider audience?
3. Build relationships with customers.
How can you create loyalty among your customers? Can you create a community around your product or service? Can you find ways to delight your customers?
4. Generate revenue streams.
What are the different ways you can make money from your products or services? Can you find new ways to monetize them?
5. Cut costs.
How can you reduce the costs of running your business? Can you find ways to automate or streamline processes? Can you outsource tasks or functions that are not core to your business?
How Do You Test The New Business Model?
Once a company has developed a new business model, it’s crucial to test it to see if it’s viable, scalable, and sustainable. There are several ways to do this:
1. Pilot the new model in a small market.
Testing a new business model in a small market can help you determine if it’s viable and scalable. This will help you determine if the new business model is feasible and if it has the potential to be scaled up.
2. Experiment with different pricing models.
One way to test a new business model is to experiment with different pricing models. This will help you determine which pricing structures generate the most revenue. You can also try different promotional strategies to determine the most effective ones. And you can experiment with different combinations of pricing and delivery methods (e.g., free shipping) to see which ones are most popular with customers.
3. Use beta testers.
Beta testers can be invaluable resources in testing a new business model. They can provide feedback on how well the new model works and offer suggestions for improvement.
To find beta testers, you can put out a call for volunteers on social media or your company website. You can also reach out to customers who have previously expressed an interest in your product or service.
Make sure to ask beta testers to provide feedback on various aspects, such as the overall feasibility of the model, the customer experience, and the impact on revenue. And be prepared to make changes based on their feedback.
4. Get feedback from stakeholders.
When testing a new business model, getting stakeholders’ feedback is essential. This includes employees, outside partners, and other key stakeholders.
Employees can offer valuable insights into how well the new model works and how it can be improved. They may also suggest how the new model can be adapted to meet the company’s needs better.
Outside partners can provide feedback on how the new model affects their business and whether they see the potential for collaboration. They may also have ideas for marketing the new product or service.
Other stakeholders may have insights into how well the new model works and what changes (if any) need to be made. Gathering feedback from all these stakeholders will help you ensure that the new business model is successful.
5. Monitor results closely.
When testing a new business model, it’s important to track key metrics, such as sales, profits, customer satisfaction, and engagement. This will help you determine if the new model is successful, needs to be adapted, or should be scrapped altogether.
Barriers to Innovating the Business Model
When it comes to innovating a business model, organizations face several common barriers. These include:
1. Lack of resources.
Developing a new business model can be costly and time-consuming, and companies may not have the financial, human, or technological resources to invest in creating a new model.
This can be a significant obstacle for companies that want to stay competitive and keep up with the latest trends in their industry. Without the necessary resources, it can be challenging to come up with a new business model that’s viable and scalable.
2. Resistance to change.
An organization’s resistance to change can be a significant barrier to business model innovation. This is because the new model may be very different from the old one and may not fit with the company’s existing structure or culture.
If there is resistance to change from within the company, it can lead to conflict and delays in implementing the new model. It can also hamper the company’s ability to take full advantage of the new business model’s potential.
Organizations must embrace change to innovate their business model successfully. This includes being open to new ideas and willing to make changes.
3. Fear of failure.
Many companies are reluctant to experiment with new models because they fear failing. They see it as a risk and are unwilling to take that risk. This fear can keep companies from exploring new opportunities and reaching their full potential.
There are a few ways to overcome this fear.
First, companies must understand that failure is a natural part of innovation.
Second, they need to create a culture of experimentation where it’s okay to fail.
And third, they need to have a clear plan for how they will learn from their failures.
4. Lack of creativity/innovation.
Some companies may not have the creativity or innovation skills to develop a new business model. This can make it difficult for them to create innovative solutions that will help them stay competitive in today’s market. Without creativity and innovation, companies may be limited in developing new and innovative ideas.
If a company lacks creativity and innovation, it may need to invest in training or hiring new employees who have these skills. It’s also crucial for companies to create an environment that encourages creativity and innovation. This includes open communication, inspiring new ideas, and allowing employees to experiment. One option is to consider securing the services of an Innovation Agency that can bring innovation skills and expertise to your efforts.
5. Complexity/overwhelming choice.
Complexity and overwhelming choice can be a barrier to innovating the business model because it can be difficult for companies to stand out from the competition. To successfully innovate their business model, companies need to create a unique offering that is different from what their competitors offer. However, with so many choices available to consumers, it can be difficult for companies to stand out and attract customers with their new business model.
Another challenge that companies face is that the market is constantly changing. What may be popular today may not be popular tomorrow. So, to keep up with the latest trends and stay competitive, companies must continually innovate their business model. This can be daunting, especially if the company lacks creativity or innovation skills.
Examples of Business Model Innovation
There are a few ways to innovate your business model. You can either pivot your existing model or create a new model altogether. Pivoting your model means changing your current model to make it more effective. On the other hand, a new model is an entirely new way of doing business and may not have anything in common with your current model.
Several factors contribute to the success or failure of innovating your business model. Below are a few examples of successful and unsuccessful business model innovations.
Successful Business Model Innovation
1. Apple
Apple is a prime example of a company that has successfully innovated its business model. They’ve been so successful that they’ve created an entire industry around themselves. One reason for their success is that they’ve always been willing to experiment and take risks. For example, when they first introduced the iPhone, many skeptics didn’t think it would be successful. However, Apple overcame these challenges and became one of the world’s most popular smartphones.
2. Amazon
Another successful company that has innovated its business model is Amazon. They were one of the first companies to introduce online retailing and change how consumers buy products. They’ve also successfully diversified their business into other areas, such as cloud computing and streaming media. Amazon has stayed competitive by continually innovating its business model and exploring new opportunities.
3. Southwest Airlines
Southwest Airlines is another company that has successfully innovated its business model. When they first started, they faced many challenges, such as high operating costs and competition from other airlines. However, they overcame these challenges by introducing low-cost fares and becoming the first “no-frills” airline. This allowed them to compete with the more prominent airlines and eventually became one of the largest airlines in the United States.
Unsuccessful Business Model Innovation
1. Blockbuster
Blockbuster is a perfect example of a company that failed to innovate its business model when it needed to most. Many don’t know that Blockbuster was one of the first video streaming services. It launched in January 2002, but with limited consumer broadband, the market for this business model innovation was way too small to be sustainable, and they gave up on the service soon after its launch. When Netflix introduced online streaming, Blockbuster didn’t react quickly enough, given its earlier attempt, and ended up going out of business altogether.
2. BlackBerry
Another company that failed to innovate its business model is BlackBerry. When they first introduced the BlackBerry smartphone, it was a revolutionary product that changed how people communicate. However, they failed to keep up with the competition and eventually lost market share to companies like Apple and Samsung. BlackBerry could not adjust its business model quickly enough to keep up with the changing market, so it went out of business.
3. Toys “R” Us
Toys “R” Us is another example of a company that failed to innovate its business model. They were the go-to store for toys and children’s products when they first started. However, they could not keep up with the times and eventually lost market share to online retailers like Amazon. Toys “R” Us could not adapt its business model to the changing market, resulting in bankruptcy.
Surviving and Thriving
Business model innovation is a critical component of success for any organization. However, it’s not always easy to achieve success. A company must be willing to experiment and take risks to succeed. They must also be able to adapt quickly to changing market conditions.
While most organizations think they have the innovation skills and resources in the heat of competitive battle, some organizations cannot maintain the pace of change required to survive and succeed. This is often because they lack the agility to pivot their business model in response to market changes quickly. As a result, these companies find themselves at a significant disadvantage and eventually go out of business.
To avoid this fate, companies must continually invest in innovation and ensure they have the necessary resources and capabilities to succeed. Companies can survive and thrive in today’s competitive marketplace by constantly pushing themselves to improve.
To know more about business model innovation and agility, listen to Business Model Innovation – Why Agility Matters.
