Framing the business model so it can be quickly but well understood by others is core. So, how do we do it? By Paul Hobcraft
You have come to end of a fairly long week. You have finally finished your Business Model Canvas. Finally you have a working hypothesis of something that is going to challenge some of the existing business models around. You should feel pleased; it took a lot of hard work to get to that point.
Laid out on one piece of paper is something that could have real business value yet although you can see where the dots connect, you begin to wonder if others will see the same compelling value, to invest in it, to back it, to simply support it and encourage you to continue.
Completing a business model and identifying its critical parts is only that first step, the hard part is getting it off the ‘drafting board’ and making it something tangible and potentially commercially viable for those around you to engage with.
What is the next step in executing this potential game changing business model
Thanks to the business model canvas people are enthusiastic to build new business models and find business model innovations, but often they get lost in technocratic details. They just see building blocks but they forget the overal logic every great business needs.
I just had the pleasure to spend sometime with two passionate freaks and both have built a business around their uniqueness and idiosyncrasies. The idea behind this post is to inspire you to find YOUR business model for YOU. Do not copy somebody else but find something that fits YOU and YOUR unique skills.
Long Range Planning, a prestigious academic journal on strategy, discovered the topic of Business Models and Strategy. It dedicated a whole Special Issue to Business Models. I have mixed feelings regarding the Special Issue. On the one hand it is great that academia takes up such an important topic; on the other hand, it is shows again that academia is a self-referential system which has a strong bias to not-invented-here syndrome since most authors do not reference earlier works that were published outside their closed community of Strategy professors. Sad. Many of the ideas I have read at other places before.
To be honest, I get a bit bored about the mantra that design thinking will solve the problems of large corporation. Well, when I go through the case studies at Ideo I am extremely impressed by their client list but not about the output. I have seen several design thinking sessions and I am not impressed at all with the output. The results are very often: More-of-the-Same but with fancier design.
The question what a good strategy is is difficult to answer. With hindsight it is easy: A good strategy is one that works. But in foresight? Many formulated, intended strategies are plain boring, generic and not customer centric, but focused on investors. Many business model innovators on the other hand have clear strategies that are focused on customers and on the value proposition.
Thinking in business models helps you in change projects, particularly in the unlearning of unwanted tacit assumptions and knowledge of the past. Forgetting what made you successful in the past is the key challenge in any change project, learning new things actually the easy part.
I am currently involved in a large change project. The company involved was living in a cozy environment. Demand was stable, predictable; project cycles were measured in years to decades and due to high entry barriers the firm was sure to “win” all business from its customers. Quality was so defined that the products lasted for eternity, most of the time longer than they had to last. Due to the heavy duty nature of its customers’ business everything was engineered to customers standards and very little of the components were bought off the shelf. Cost was not a major issue as long it was in budget.
And now the world has changed. Their customers had to change due to pressure from their clients. So the world of my firm will never be the same but since the change is coming slowly, there is time to adapt. The question is now: How can the firm change? How can it forget the habits that made it successful in the past but impede the future?
The German retail and travel conglomerate Arcandor AG formerly known as KarstadtQuelle AG filed on June 9th 2009 for insolvency. It claims that the financial crisis is the reason. It had asked the German government in May for state aid but the government refused. But is the financial crisis the real reason for the dire situation? I do not think so. The business models of its retail activities (Karstadt and Quelle) are just dead. The management did not innovate on its business model and that is the reason for failure.
Most writers and bloggers take the music industry as a prime example for an industry that failed to innovate its core business model. But there are many other industries where failure to innovate its core business lead to their decline. A sad prime example of missed innovation is Karstadt, a large department store chain in Germany and Quelle, a German mail order powerhouse.
The typical answer from managers to the question “What is the purpose of your business?” is: “to make money”. Well, that is to some point right but the money comes from customers and therefore the purpose of a business is to find profitable customers. And financing your sales to your customers is only sustainable when you see the cash in your pockets in the end. That basic purpose got lost over the last years of shareholder value thinking.
I gave last week a workshop on business model innovation for a large Swiss technology firm. The firm is well entrenched with its customers, you can almost call the firm a purveyor to the court for some customers. But times are changing and therefore did the new management arrange a workshop on customer centric business model innovations.
That is of course right but: Where is the money coming from? How can you earn money for your shareholders without somebody who pays you? Where is your salary coming from? Is it really the company or where is the cash coming from?
Beginning of the week, I had a long discussion with Dr. oec. Susan Müller and Prof. Dr. Thierry Volery, two researchers at the University of St. Gallen. They want to figure out how high the excess return is earned by business model innovators. They want to know which kind of business innovation like value innovation or architectural innovation leads to what kind of über return or excess return.
Very interesting question in particular since most researchers including myself are still using case studies to make our point.
What made the discussion even more interesting was that we discussed what a business model is. There are several technical definitions like mine but for us more interesting was why the term became so prominent in the last years. With the term business model the word business returned to prominence in the conversation on strategy.