Meet the Expert
Partner, Business Model Innovations, LLC
- 33 years as CEO, consultant, in R&D management
- CEO of three startup technology companies
- Partner and Global Innovation Practice Leader at McKinsey & Company
- Closed seven financings, $250M in licensing deals, $500M in M&A deals and created three large joint ventures with Fortune 500 corporate partners.
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Business Model Innovation
Partner, Business Model Innovations, LLC
- Companies expect to get the design right the first time and are tempted to abandon ship, or throw someone under the bus, when they do not.
- It is very rare that a company will successfully ramp-and-run with a prototype business model. With heightened senior management scrutiny, there is disincentive to take risk. Unfortunately, this undermines success. If the product is not right the first time, it can be a career "limiter." The name of the game is iteration and adaptation. Being allowed to learn and adapt is the Silicon Valley way. It is about getting it right, not about being right. Speed matters, but being allowed to learn and adapt is fundamental.
- Don’t assume that the technology is the product or that the product is the business.
- Many would-be innovators assume that the technology is the company, especially in the startup phase. First-rate innovators do not make this assumption.
Take Google. Their technology is search algorithms, but their company is largely an advertising entity. The search technology brings people to a site and then the technology makes Google very efficient at measuring and capturing advertising dollars. Google’s technology provides value to the users who come to the site, but its business model entails driving traffic to a web site and then mining the user’s data. The product, from the user’s perspective, is not the business from Google’s perspective.
- Companies get trapped in “or” thinking when they need “and” thinking.
- When companies are bringing innovative products and services to market they often get trapped in tradeoffs, in thinking that if they go in one direction it means they’re not able to go in another. This is the trap of “or” thinking.
Truly creative innovators are able to create business models that redefine the value proposition in a way that captures more than one opportunity simultaneously. For instance, rather than targeting one market or another, they find a model that enables them to reach multiple constituencies at once.
“Or” thinking comes from fixed assumptions about what is possible, but innovators stretch the realm of what’s possible. If neither choice looks good in an "either/or" question, throw out the question and reframe. Reframing creates space to discover "and" solutions.
- Firms may have a potentially disruptive product that’s ready to launch but they haven't thought through the business model.
- Many engineering-driven companies create products because they can. They become enamored with the technology and of the potential products, but they don’t think through the business model. They’re much more innovative on the technical side than on the business side.
When business model innovation does not keep pace with product innovation, it often means leaving money on the table. Worse, many startups with great ideas are stillborn when they reach the marketplace because of insufficient validation of the business model.
A great technology does not necessarily mean a great product and even a disruptive product does not necessarily mean that the innovator has a great company.
- Many companies believe that innovation must come from new product development or acquisition – ignoring the potential of new business model innovation.
- Business model innovation is a bona fide opportunity to grow – or even to transcend – a company's core business. But business model innovation requires a level of creativity beyond traditional product development or acquisition strategies. It often requires working outside the existing organization structure, which can behave as an "immune system" killing off threats.
Even with existing technologies and products, companies can innovate by changing the business model. Once companies perceive business model innovation as a real opportunity, they are rather quick to conclude that they don't know how to do it.
Many companies do not have experience in this type innovation and will continue to churn out new products within existing business models, failing to seize lucrative opportunities for which they are well-positioned. They leave these opportunities to the disruptive startup around the corner poised to grab a large slice of the pie.
Business Model Innovation: Common Problems