How do you innovate in business these days? How do you create new markets? Is it even possible for you to disrupt a complacent industry? Entrepreneurial strategist Paul Broadfoot provides a fast-hack framework to innovate your business and disrupt your market.
Finding new ways to grow your business – and fast, is your imperative to avoid new competition establishing a beachhead in your space by beating you to it.
As a leader, you need to view your business as a framework comprising four models, and explore change in at least one of them.
1. Business model
Your business model answers the two questions:
- What is my income-generating asset?
- What is my income-generating activity?
There are six different asset types available in today’s market (physical, financial, digital, knowledge, marketplace and syndicate) and four different activities (distribution, connection, creation and contracting).
As an example, a supermarket has an income-generating asset of the physical products they sell. Their income-generating activity is distribution.
The food manufacturer that makes the foods that the supermarket sells has the same asset type, the product (physical), but they create the foods, so their income-generating activity is creation.
When Netflix streams movies to your TV, they employ a digital: distribution business model. But when they created their own TV shows like Orange is the New Black, they added digital: creation as an offering.
Once you have determined what type of business model you have now, and what the prevailing norm is in your industry and market, you can explore new combinations.
How might you swap or change the way you operate?
Consider the following examples for inspiration:
- Traditional business model - Radisson Hotels, physical: contracting. Distruptive business model - Airbnb, marketplace: connection.
- Traditional business model - Coles (food), physical: distribution. Distruptive business model - Coles (insurance), financial: distribution.
- Traditional business model - Apple iPod and iPhone, physical: creation. Distruptive business model - Apple iTunes, digital: distribution.
- Traditional business model - bank (loans), financial: contracting. Distruptive business model - mortgage broker, financial: connection.
2. Revenue model
When Netflix entered the US market in 1998 with mail-order DVDs, they changed the prevailing revenue model. They charged a monthly subscription for unlimited movies. The customers who had the fastest turnaround times could watch 17 or 18 movies a month.
This wasn’t a new revenue model to the world (gyms had long been using it), but it turned out to be revolutionary for DVD watching, as was the delivery to your door.
There are four types of revenue models based on how you charge your customers and how many parties are involved:
- Transaction – two parties involved, ownership changes, clear beginning and end, e.g. purchase a product online or in a retail outlet.
- Introduction – three parties involved, ownership changes, clear beginning and end, e.g. real estate agent charges a commission.
- Utilisation – two parties involved, payment for usage or time, ongoing, e.g. online software subscriptions like Microsoft Office, Norton Antivirus.
- Affiliation – three parties involved, payment for usage or time, ongoing, e.g. LinkedIn premium subscription, industry association membership groups, networking groups.
Your revenue model is much simpler to change than your business model above. It quite frequently gives you revolution or the price of evolution.
There is a very strong trend towards utilisation models – can it apply to your business?
3. Communication model
How do you communicate your value to a prospect, customer, buyer or client? What communication channels do you use?
- Who is doing the communicating? You (sales force, your social media, advertising?) or others (PR, online reviewers, clients/customers for word-of-mouth)?
- Is it paid or unpaid? (Should you reallocate what you do and don’t pay for? e.g. less direct sales and more PR?)
- Is it face-to-face or cyber space? i.e. 3D (sales, distributors) vs 2D (website, social media, blogs, print)
When Michael Dell changed the prevailing norm of marketing computers via salespeople in retail outlets and chose instead to communicate directly, he thus knew the customers better, tailored to their requirements and delivered the bricks and mortar costs he avoided back into consumers’ pockets.
You have probably been selling and marketing to prospects and customers the same way for years.
Times have changed, buyers are consuming more information online before they speak to you and they have more noise and less time. How are you changing your approach in response to that?
4. Differentiation model
For years, study after study showed that there were three main ways to differentiate from your competition:
- Lowest price (process innovation)
- Best product (product innovation)
- Best service (customer innovation)
These all still apply, but the trouble is many companies try to be more than one, which of course makes them less good at their primary one. This leads to less differentiation, which leads to beige, vanilla invisibility.
So pick one and put that one on steroids (so to speak).
Consequently, changes in your business model, revenue model and communication model actually give you a fourth way to differentiate.
Innovating the way your business operates is called market innovation. You can recognise market innovation when you see competition from outside your industry enter your space and when the way business is done in your industry is significantly changed.
Now it’s time for that business to be you.
Paul Broadfoot is an entrepreneurial strategist and the author of Xcelerate: Innovate your Business Model, Disrupt your Market and Fast-hack into the Future.