On June 5th at the Hilton Suite Markham Convention Centre, Hogg, Shain and Scheck proudly presented Nick Niemann’s ‘Innovation Can Make or Break Your Business Model’ seminar to a great crowd of entrepreneurs. Niemann, a practicing lawyer and the CEO of BriefBack Business Institute LLC, reviewed the essential components of any business model.
Innovation Can Make or Break Your Business Model
Similar to the animal kingdom where it is the survival of the fittest, business success is determined by how we can adapt, change and grow in the economy today. No matter what type of industry or segment your business belongs to; Niemann recognizes that we must define our business model today and answer how and why our business works.
Almost all companies start from the bottom, experience growth, reach a plateau and then begin to tail downward. It is reality. That is why we as business leaders need to change.
We must remind ourselves that all businesses are perishable. This fact becomes even more prominent as more competition arises. Recognizing the limited shelf life, we must think of our model in terms of where we can go, how to adapt and stay forward from month to month and year to year.
The Balancing Act: Preserve, Remove, Create
As business leaders, we must ask ourselves (1) How do we preserve our company, (2) how do we remove parts of the company that we have already progressed beyond and (3) how do we create new aspects to grow our business model? Harvard’s research tells us that too many people spend too much time focusing on how to preserve the business. The key is to reach a balance but why have people not done this? Is there a formula?
Capture your current model: What and How
Niemann breaks down two key questions a company needs to ask itself. First, what business are you really in? The mistake people make is to conjure a view that is much too narrow or too broad. For instance, Kodak restricted their view to only the film and camera business enabling the introduction of the digital camera to be their downfall from their unwillingness to change. Niemann speaks of the “Goldilocks Principle,” where the key to strike a balance to be just right. To strike the balance, a business must change their perspective by focusing on customer satisfaction, solutions, benefits and not the product or service itself. If Kodak defined themself as a company in the business of saving memories and storytelling, the digital camera would have been seen as an opportunity, instead of a threat.
Second, how does your business model (1) Create, (2) Deliver and (3) Capture value? As an example, Niemann tells the story of how our modern day supermarkets’ business model came into fruition. The origin of the grocery store is the small corner store where its customers were merely people from the neighbourhood and its cost structure was high because grocery clerks would pick out the food you need and deliver them to your home. Michael Cullen, an assistant manager at Kroger who listened to and engaged customers daily, envisioned he could (1) create value by offering a large line of products at low price and (2) deliver it in a large ‘one-stop-shop’ store. He (3) captured value in realizing that people were willing to drive to save money at a larger store and catering to a wider geographic area was the key to grow its customer base. Such a store would have a lower cost structure by eliminating the grocery clerk completely. His vision was rejected by both Kroger and A&P. Cullen finally found support for his idea in New York, grew his idea to now 48 stores in America and is known as the father of America’s First Supermarket. From Cullen, we can also learn that someone existing in your organization today may already have an idea on how to improve the company and all they need is for you to listen.
Innovation defines Profitability: 4 Forces
Today, business models are living much shorter lives and two thirds of CEOs are implementing extensive innovations to their models. Blockbuster Video, MySpace and Polaroid are just three of the many recognizable brands that failed to innovate, relied on a static business model and failed.
To enable us to apply what Michael Cullen saw in his business, it is important we think of our business model in terms of the four forces. An organized and logical business model is the crucial first step to innovation and this tool allows you to simplify your model.
The Canvas: A language Business Models speak
True strategic thinking is the capability to design multiple business models and then determine which will operate effectively in today’s environment. Real tactics is the method in selecting how to execute your strategy. To synthesize strategy and tactics, we use a language first materialized by Dr. Alex Osterwalder, an international leader in Business Model Design called The Business Model Canvas.
The canvas creates clarity as it lays out nine key building blocks to your model:
This tool allows clear visualization of a business to indicate potential opportunities and threats. We can spot upcoming roadblocks – for instance if a business has only two suppliers, it can become a predominant issue if one supplier goes out of business. Forward-thinking allows us to make clear decisions regarding how to execute our model. For example, it helps clarify if we have the right resources to select a certain revenue stream (Netflix uses subscriptions, Blockbuster failed with rental fees). It helps us picture an opportunity. For example, in 1987, a struggling Nespresso focused their business primarily on coffee machines for high-end restaurants. They needed to change and remodeled their business to capture an opportunity in the household and office market. The now successful Nespresso makes revenue through machines, capsules and accessories. Many company models are dead or dying, so ask yourself what is one thing that can improve your company’s growth and profitability and reinvent your business model.
Take Action: Reinvent Your Business Model before it’s Too Late
Reinvention can often be smart fine-tuning of an existing model. As a business faces adversity, not all aspects of its business model necessarily need to be changed since success or failure is often not an “all or nothing” outcome. Management should draft variations of business models – if one aspect fails, other models should be available as alternatives to avoid being caught flat-footed. Constantly be mindful of your business model and don’t be afraid to make the change when it is needed. Life is a great big canvas; so throw all the paint you can at it.