Business Model Innovation: 3 Strategies to Drive Growth
In the last five years, business strategists have hailed innovation as the holy grail to success, the solution to all problems, the missing piece to the puzzle. We can almost see a correlation between the rise of so-called “unicorns” (start-up companies valued at over $1 billion) and the word “innovation.” Praised for their inventive services and products, unicorns make the headlines (Airbnb, Tesla, Uber), reap financial support and public endorsements, and seem to grow unstoppably.
To some extent, there is truth in this correlation. In our fast-paced, ever-changing world, where consumer demands shift increasingly fast, innovation can sustain the viability of a business by positioning it as the market leader, rather than the trend-follower. However, it is important to differentiate between product innovation and business model innovation, and emphasize why this difference is critical for the social sector.
In a nutshell, a business model is a description of how you create, deliver, and capture value. While product innovation focuses on developing new offerings, business model innovation creatively rethinks core activities, partnerships, resources, and customer relations.
For example, the solar-powered lamp d.Light is an innovative product—it is a new offering to the end-user. On the other hand, the door-to-door distribution channel pioneered by Shakti is an innovative business model. Business model innovation has been shown to decrease costs, increase revenue, and make organizations more resilient. For the social sector, that means more resources to be invested in maximizing impact.
Here, we explore how you can start reimagining your business model and drive overall growth.
Understand Your Starting Point
The first step is to understand your current business model. Make sure to spend some time mapping your business model using the framework of your choice. Tools like the Business Model Canvas can help you describe and design your model.
Once you have a clear understanding of how your business currently operates, you can begin innovating to take it in a new direction.
3 Tactics to Drive Business Model Innovation
Tactic 1: Ask “What If?”
People think in a pre-programmed way. We grow up constantly absorbing information on how to behave, mostly by seeing people act a certain way. When we see the same scene occurring multiple times, our brains create a dominant paradigm out of it. Essentially, we spend our time building up an image of what “normal” looks like.
This principle extends to how we decide to do business. We subconsciously believe that what others are doing and focusing on must be the way to move forward.
For instance, common beliefs we ingrain early on include:
- “Owning key assets is essential for my competitive advantage.”
- “Customer loyalty guarantees the future of my company.”
- “I capture value from my end-user.”
This is where the space for innovation exists—what if those beliefs were not true?
What if owning assets increases your costs for no reason? The Standard Bank in South Africa leverages retailers in the community as part of its distribution network, incubating new businesses within the community. It is now South Africa’s largest bank.
What if you strove for customer empowerment rather than locking in your customers? This thinking gave birth to Coursera, which allows universities to share knowledge with anyone who has an internet connection—knowledge once reserved to only those who could buy their loyalty to a university.
What if your end-user, the one who needs your service the most, is not encumbered by having to pay? This is where social companies such as Warby Parker and WakaWaka developed cross-subsidization models, enabling those in need to to access the product or service.
These are only some of the underlying beliefs that form our thinking and stifle innovation. Take a look at your business model—what are the core beliefs that support it, and what would happen if those were not necessarily true?
Tactic 2: Explore What’s Out There
Now, you’ve identified a weakness in your business model, or perhaps an area that could be strengthened. The good news is that the solution has most likely already been explored and tested.
Think of your business model as a recipe: the combination of ingredients may be unique to you, but the ingredients themselves do not have to be. There is no such thing as a brand new idea, only new connections made between existing elements.
Look at companies that inspire you. How do their businesses operate? How do they interact with their customers, secure their key resources, and make their processes more intelligent and data-driven? Where do they maximize social impact? Don’t be afraid to draw inspiration from companies in different industries; try to apply their precepts to your business.
Take the company Andela, for example. Andela links IT companies with top tech talent in Africa after training them to become highly skilled developers. The young talent scouted by Andela can pay for their training once they are matched with work for a global firm. How would your business model change if you adopted a “pay-for-success” revenue model like Andela’s?
Jollibee Foods Corporation (JFC) in the Philippines started buying directly from smallholder farmers in different regions of the country in 2009. How would your business model change if you bypassed the middle-men?
Remember, this stage of your business model innovation is still a paper exercise. You are not taking any actual risks by rethinking your business from these different angles. Keep an open mind, and you may be surprised at the insights you gather.
Tactic 3: Iterate, Iterate, Iterate
When children play, whether they’re building sandcastles or working on their latest art piece, they have no doubt, no fear of failure, and no fear of trying. Somehow those fears begin to grow in us as we age, inhibiting our creative potential.
Business model innovation requires a certain amount of bravery. Yes, you will be changing what seem like critical elements to your business. Yes, it will be very daunting at first. But there’s a smart way to take risks.
Remember you can test your new business model on a small part of your organization before rolling it out entirely. Pilot the new business model in parallel to the existing one. Quickly capture feedback from suppliers, constituents, and other partners you are working with and tweak your model accordingly. Consider any “failure” as a learning opportunity. Business model innovation is truly an art, and like any art, practice leads to mastery.
Business model innovation draws from basic innovation principles. The real question is: how many of these principles have you actually spent time applying?
Don’t wait for tough times to start working on your business model. In fact, you should be doing so when business is relatively smooth-sailing. Business model innovation does not have to be expensive and complex, and it will actually make your organization more sustainable and resilient to external change in the long run. It’s time to explore it!
Saskia Rotshuizen facilitates workshops on business model innovation. She is also a project officer at the Bottom of the Pyramid Innovation Center in Utrecht, Netherlands. Contact her at email@example.com.