If getting your amazing product or service into the hands of consumers is the goal, your business model is the most powerful weapon you have to get you there. Every product, especially the one your competitor is selling, relies on one of these. That’s why your challenge is to make your model as innovative as possible. Remember, your success and profitability will be the result of finding the most unique method of squeezing everything possible from each one of your resources.
Even if you understand that being unique is a good thing, you probably know that it’s never easy. So what should you look for? What types of things will help you create a truly innovative business model? The key is asking “what if” questions about your (or your competitor’s!) operations. “What if we did this different? What would that business look like?” Keep reading to discover a few strategies for setting your business model apart from the crowd.
What Are Your Competitors Doing?
Think of it this way: your competitors have invested in personnel, distribution channels, advertising, partners, and more in order to implement their model, but there’s almost always a way for you to do the same thing more quickly and without having to spend as much money. Developing an innovative business model that leverages the existing work of your competition is one of the surest ways to give your operation a competitive advantage. A great example of a business model that was built off the back of an existing model is Netflix. Movie rental was a proven business model. You bring money to the store (or a credit card to an online equivalent), and you take home a movie for 2 or 3 days. Netflix asked, “What would a movie rental business look like on a subscription model?” And the rest is history. This one tweak, to a seemingly insignificant part of the process of acquiring a movie for your consumption at a later date, how you pay for it, created a new company, with a new business model, that was wildly successful.
Observe, Understand, Improve.
It’s important to understand that your established competitors have already created and invested in a business model. They are, in a sense, locked into their plan and that reality makes it difficult for even the most observant member of their team to think critically about how things could get better. Your new business on the other hand, can eye their model from a distance; you can watch it in action. With even the slightest critical examination, you’re sure to find ways to improve upon what they’re doing. Remember, you have very little that you’re already committed to. So implementing an innovative and superior business model should be easy for you.
If however your business already exists, all is not lost. Many companies execute a “pivot.” Amazon used to sell books. Now they sell everything. But they also provide Cloud Computing services. The switch to providing cloud services is a pivot, as was the decision to move away from being a bookstore. All good businesses change, and when it is convenient and makes financial sense, you can implement the change – pressuring your competition to keep up under less than ideal conditions.
Thanks, but What Am I Actually Supposed to Look for?
All that observation and critical thinking is great, but you’re not going to get anywhere if you don’t know how to pick apart a business model to understand what works and what doesn’t. Since the Business Model Foundry AG has already done a great job breaking a business model into its essential parts in its Business Model Canvas, let’s take a look at eight of the most important sections they discuss.
Value Propositions
What value will your business deliver to your customer? Something is of value to people if it solves one or more of their problems. Your method of solving a customer’s problem is your value proposition, and this is one area where your business model absolutely has to be innovative. The key to this discussion lies in these two tasks:
- Identify and solve a previously unrecognized customer problem.
- Offer a better solution to an already recognized problem.
Be creative in identifying both new problems and new solutions to old problems. Ask yourself:
- Can you reduce the price by reducing costs? That’s something of value to a customer.
- Can you get a job done better than the competition? That’s helpful, too.
- Can you improve your customers’ ability to customize the solutions to their problems? A little creativity will go a long way in innovating your value propositions.
Customer Segments
Of course, every business model needs to specify one or more customer segments that the business will serve. After all, if you’re creating value for someone, you need to know who that person is. One way to innovate is by identifying a new customer segment to serve. For instance, maybe you’ve thought of a unique strategy for focusing on a niche market, or perhaps a new niche market is emerging and you’re the first to notice.
Or maybe you have a new and better way to segment your broader target market into subsets, allowing you to customize the value you offer for different segments. Segmentation can be geographic, psychographic, behavioral, demographic, cultural, and so on. With enough well informed research, you’re likely to find a new competitive advantage through market segmentation.
Channels
Your value proposition can’t be communicated to customers if it isn’t delivered through the proper channel. In particular, you will rely on sales channels, distribution channels, and communication channels. When it comes to organizing these channels, there is plenty of opportunity for innovation and fresh thinking.
Ask yourself:
- Are you able to able to better accommodate your customers by employing channels they prefer over those your competition prefers?
- Are each of your channels integrated to support your overall goals?
- What would happen if you allowed customers to purchase products or services differently, for instance, in bulk or through subscriptions?
Customer Relationships
If you want to gain new customers, and form long lasting relationships with each one of them, it helps to answer the following questions:
- What do your customer segments expect of you?
- Can you satisfy their expectations in a new way?
- Can you offer personalized customer service?
- Can you offer improved ways for them to solve their own problems, or use automated services?
Key Resources
A value proposition requires resources; you can’t make and sell the best cookie without the right ingredients. For every business, the resources that make up a truly unique value proposition are different. Brand patents, copyrights, and other intellectual resources are required for some. For others, human and financial resources are the most important.
Can you think of ways to innovate the resources your value proposition demands? Think about these ideas and how they relate to your operation.
- New distribution or communication channels, for instance, may be able to reduce costs for your business.
- Maybe you can outsource some work that your competition is overpaying for.
Key Activities
You need your key resources because together they will provide value to your customers. Answer the following questions to conceptualize how your resources interact:
- What do you need them to do?
- Are there new production strategies you can pursue?
- What about new platforms you could use?
- Think hard about more efficient ways to put your employees and money to work.
Key Partnerships
Your business can forge innovative relationships with a range of partners. Some of those potential partnerships might be lurking just under your nose. Ask yourself who is supplying your key resources. Then think about whether creating mutually beneficial alliances could help both of you reduce risks and acquire key resources. After all, it rarely makes sense for a company to do everything itself; partners are necessary. Finding new ways to develop strategic partnerships can be one of the most interesting and powerful ways to innovate a business model.
Cost Structure
Your key resources and activities come at a cost. So identify the most important costs that your business model requires, and see if there are ways to cut them. When looking for new ways to cut costs, remember that business growth is driven by keeping costs down and by offering a premium value. Every individual cost you cut should support this overall goal.
Before you do anything else to alter your business model, study these issues and start asking questions about how each of them relates to your plan. If you put some sweat and creative effort into answering them, you are well on your way to developing an innovative business model. And if you don’t know what one looks like yet, you’ll recognize it when you have an edge on every one of your competitors.
