Business Model Innovation: Change the Model, not the Business

Change the Business Model not the Business. Business Model Innovation

Often times, entrepreneurs think that big ideas need to be revolutionary—that in order to achieve disruptive success, they have to come up with a cutting-edge idea. Most times too, when businesses fail, business owners quit only to start an entirely new venture because they think the problem is with the ‘business’. As a result, the focus of innovation for most companies is on new products or new market segments.

Revolutionary or cutting-edge ideas are quite expensive and take a long time to incubate, and I’m guessing you have neither the time nor money at your disposal. On the other hand, I believe in the doing the impossible too—so Godspeed, if you plan to create a revolutionary idea. However, if your goal is to come up with a viable business that promises both immediate and long term results, try improving on existing products, services or strategies—they could be originally yours or those of others.

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You must have heard that in order to improve or be innovative, you need to “think outside the box”. Not a bad suggestion but sometimes, the answers are just right “within the box”—it is all about perspective. Looking at things from a different point of view can be quite enlightening. The problem most failing businesses face is usually not with the business but the approach, strategy or model, as the case may be.

According to an article that highlighted Andrew Campbell’s approach to business model innovation, a recent Economist Intelligence Unit global survey of 4,000 managers revealed that 54% believe that business model innovation is more important for success than product or service innovation.

To further buttress this perspective, IBM found that companies whose operating margins had outstripped their competitors’ over the previous five years were twice as likely to emphasize business model innovation, rather than product innovation or cost reduction.

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There are numerous examples of simple ideas and business model innovations with huge success stories. For instance, Google had no business model to speak of for much of its early life. As explained in the book—The Search; How Google and Its Rivals Rewrote the Rules of Business and Transformed Our Culture, Google was once a maddeningly unprofitable company. In 2003, the AdWords program which allowed businesses to advertise to people searching for things on google.com was included as one of its many innovative strategies. This was the leap that took Google from popular search tool to advertising juggernaut. Five years later, in 2008, Google reported to the SEC that it had generated $21 billion in advertising-driven revenue alone.

In another amazing example, Amazon didn’t have to start with a revolutionary idea. By providing a better business model than the typical book shop, it offers a wider selection of books and rather than expect you to make another trip to the book shop to collect your orders, they deliver them to your door step at a significantly lower price.

Facebook, in its early stage, was designed for only college students—in fact, you could only sign up with .edu e-mail addresses. By 2006, Facebook was opened to anyone 13 years or older with a valid e-mail address. The business didn’t change—only the strategy changed. The company, at some point, sold a 1.6% stake to Microsoft for $240 million.

Evidently, success in business correlates more with improving business ideas than with creating new businesses or products. This implies that, instead of asking how to break even, it’s far more productive to ask, “What can I do differently?”


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