Knowing how to design business models to create new market spaces and immobilize the competition will be the definitive strategic business skill of the 21st century. It doesn’t matter if you are a local utility, retail operation, or industrial equipment manufacturer, understanding the fundamentals of business model innovation will be key to your continued success.
1. Define your target customer (and your peripheral non-customer)
The one concept I share that most shocks any of the audiences I speak to is the idea that the non-customer you currently ignore is almost as important as the customer you currently target for your products and services. Of course, I don’t mean just any non-client, but rather the type of client I describe as your “peripheral non-client”.
Your peripheral noncustomer is one that you are not currently targeting, but could easily target given your mix of organizational skills, relationships, and assets. Very often, peripheral customers are being served by their neighbors in the value chain and by some of their indirect competitors. Forming the habit of thinking about and monitoring edge noncustomers can help CEOs and leaders identify potentially disruptive market trends in adjacent industries.
2. Orientation to profit zones
In his masterful book “Profit Zones,” Dr. Adrian Slywotzky clearly illustrates how profits can migrate up and down segments of activity within the value chain, or along the lines of information vs. Product-based value propositions. As an executive and business leader, your annual and quarterly strategy review sessions should include a clear program for monitoring where the “high-margin” return areas in your industry are moving.
3. Develop your unique selling proposition
In the decades since Rosser Reeves first published the concept of a unique selling proposition, lazy business managers and executives have increasingly abdicated their responsibility to seek business model innovations that can be crystallized into an argument. short, concise and memorable sales pitch.
If you look closely at competition-busting businesses like Cirque Du Soleil and Southwest Airlines, you’ll discover that beneath the smiles and rave reviews from customers lie unique business designs that can be communicated in a unique selling point.
4. Shutting down your competition (strategic control)
One of the most powerful insights you can have in your business is a strategic business mapping tool known as a “strategic control index.” This is a very simple yet powerful framework to identify if your business model covers enough points to dictate or control the moves made by your competitors. Some items on the strategic control index include items such as:
- Have a commoditized product with a 20% higher cost advantage
- Ownership of a clearly differentiated brand
- Ownership of key customer relationships
- Mastery of key communication and distribution channels
- Ownership of industry-wide standards
When you can put your organization and your competitors on a map that clearly indicates who owns which strategic control points, you will generate business model innovations that recognize the most important competitive realities in your industry.
5. Exploring your blue oceans
Perhaps the single most important business (and marketing) strategy decision you can make after client selection is the scope of your projects and services. These two elements are necessary prerequisites for developing a relevant and marketable value proposition. The “Blue Ocean” strategy articulated by Dr. W. Chan Kim and Renee Marbougne provides a very useful set of tools for making decisions about the scope of your offerings.
They devised a tool called the strategy canvas that graphically maps the factors customers care about and how various competitors factored in, and combined those factors to create their business designs.
Domino’s Pizza broke into the pizza industry by emphasizing factors like speed and delivery, while intentionally reducing or eliminating other factors like sit-down restaurants, taste tests, etc.
Carefully consider the profitability of each offer you make available to the market. Design your business model to meet clearly identified customer priorities rather than industry lore, personal intuition, or hearsay. Your profitability will depend on it.