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Innovate Your Business Model… or Die

Kids say the darnedest things!going-out-of-business

Recently, researchers asked a group of 12-year olds if they typically listen to music on YouTube, an iPod, or a CD? Not surprisingly, the majority answered “YouTube.” However, the second most common response was, “What’s a CD?”

Researchers also asked a group of high school students how they most often use email. Their response? “To communicate with old people.”

And therein lies one of the most daunting challenges facing today’s companies – the need to reinvent their entire business model rather than just a new product or service.

After all, there’s no point in coming out with a newer and better CD when people no longer use them (much less know what they are). And anyone operating an email-based business might as well get in line right behind the post office because extinction is already knocking on the door, and it won’t take “go away” for an answer.
I recently came across a good read on this subject – The Business Model Innovation Factory: How to Stay Relevant When the World is Changing, by Saul Kaplan. Most books on innovation focus on developing new products, services or ways of working. This one presents a framework for reinventing your entire business model.

Using the well-known story of Blockbuster’s demise as an example, Kaplan presents a convincing argument supporting the need for business model innovation, and offers 15 principles to guide companies’ efforts to achieve it. In particular, the book supports a key point that I make over and over in my blogs and presentations: what made you successful in the past does not necessarily guarantee your success going forward.

In fact, clinging to the past practically guarantees that your company will not be relevant in the future. According to Kaplan, just as today’s business environment demands that we constantly upgrade and improve our products and services, any organization that wants to remain relevant must also continually evolve its business model to keep up with the changing world.

Let’s look at a couple of Kaplan’s principles:

Build purposeful networks. Most organizations have rigid, hierarchical structures that don’t encourage business model innovation. What’s needed are looser, more granular structures that encourage cross-departmental communication and collaboration.

Make systems level thinking sexy. Business model innovation requires change, and a lot of it! Teach people to think on a system-wide level rather than just on the individual components of your current model.

Constantly experiment. Don’t be afraid to push the envelope and sometimes fail. If you’re not failing some of the time, you’re not trying hard enough.

And I absolutely love this one:

Enable random collisions of unusual objects. Seek out unconventional people who challenge you and force you to consider new ideas.

For many businesses, the biggest threats come from outside their industries; from competitors that nobody saw coming. The older and more conservative the industry, the greater the odds this will happen. If disruptive change hasn’t come to your industry in the last decade, you can count on it happening much sooner than you expect.

Producing the solution that nobody sees coming requires looking at the world in new and different ways. One of the best ways to do that is to surround yourself with diverse sources of data that force you to see things differently. The more random (i.e., unrelated to your business or industry) these sources, the better.

This is not easy to do because the human brain actively screens in information that supports our view of the world and screens out data that contradicts it. This includes surrounding ourselves with people who share similar backgrounds, ideas, attitudes, assumptions and beliefs about the way the world operates.

When everyone in our organization sees the business the same way, we’re not likely to get any of those “random collisions” that lead to a disruptively new way of adding value to the market. So we have to make a conscious effort to seek out diverse sources of information, both within and beyond the boundaries of our business.

Nobody wants to be the next Blockbuster. Or the next Borders, Kodak, PanAm or Blackberry (not totally written off yet, but on the way out). But the fact is that almost nine out of 10 companies that occupied the Fortune 500 list in 1955 no longer exist – mainly because they got comfortable with their success and refused to change.

So…how old is your current business model, and when do you plan to change it?

Call to action: At your next management meeting ask, “Do we have a YouTube or a CD business model?”

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