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4 Questions to Ask Before Reinventing Your Business Model

Make sure your new business model actually gives your company a competitive advantage.
COLLABORATORS Alex Osterwalder, Bea Fields
4 leaf clover
"Business Model Generation"

There are lots of good reasons to reconsider your business model. The statistics are startling: In 1958, the average length of time a company remained on the S&P 500 was 57 years. By 1983, that dropped to 30 years. In 2008? It was just 18.

But plunging headfirst into change also can be dangerous. (Remember Netflix’s disastrous decision to split off its DVD-rental business?)

So what do leaders need to know beforehand? How do you know if your new model will actually be stronger than your current one?

Leadership blogger/consultant Bea Fields suggests seven key questions to ask. The questions are general and tend to be obvious (“Can you financially afford to reinvent your business model at this time?”) but some of her questions zero in on the potential areas of organizational weaknesses that can cause companies to stumble. For example:

Do you have the right person at the top of your organization?

Just because the team leader has been gifted at leading so far doesn’t necessarily mean that he or she will be during the reinvention phase. If your new model will be more entrepreneurial or driven by technology, Fields points out, then you will need to evaluate whether the person in charge has the critical skill set to lead.

Do your employees have the ability to drive new business growth?

Fields observes that “some people are just plain stuck in the past” while others are “forward thinkers.” To make it through the reinvention phase, you need people who can “bring new customers, partners, investors, talent and consultants.”

Alexander Osterwalder, an author, speaker and adviser on business model innovation, suggests seven different questions to assess your business model design. All of them point to smart, tactical advice.

Have you built in “switching costs“?

The more time, effort and/or money it requires for a customer to spend to switch to a competitor,  the stronger your position will be. The iPod’s success is in large part due to iTunes. Once users copied their music into iTunes and downloaded to their iPod, Apple knew that companies would be far less inclined to watch to switch to another digital music player. As Osterwalder notes, “In a time when little more than brand preferences were preventing people from switching from one player to another this was a smart move and laid the foundation for Apple’s subsequent stronghold on music and later innovations.”

Can you get others to do work for free?

This strategy, he writes, is  “one of the least publicized weapons of mass destruction in business model design.” But it’s everywhere. How does Ikea save costs? By getting customers to assemble the furniture. Similarly, Facebook gets its users to create the content, posting photos, updates and “liking”  stuff. It can help upstarts and mid-sized companies compete against better financed giants. Red Hat, an open source software provider on the S&P 500, was able to slash development costs and compete against Microsoft because its business model relies on the (free) work of open source software developers.

Have you visualized the plan?

Osterwalder believes that you should actually sketch our your ideas using what he calls a “business model canvas.” That, he says, will help clarify your thinking and serve as a vehicle for others to contribute to. How does this work? He devoted a book to the subject, but you can get the gist of how it works by watching this video:

Have you found any other advice helpful for rethinking your business model? If so, please share in the comments section below.

THE PLUS

For the full extent of organizational and behavioral questions posed in this piece, see the blog post by leadership consultant Bea Fields from which they were drawn. Her queries zero in on the general areas of organizational weakness that can cause companies to stumble in any reinvention. The questions which are more tactical in nature come from business-model design guru Alexander Osterwalder. For more like them, check out his blog post, “7 Different Questions to Assess Your Business Model.” To get a sense of how perpetual reinvention can play out and lead a company to stratospheric heights, take a look at how Amazon has morphed over the years....Is it really your business model that needs changing, or is it something else? Margaret Heffernan, a serial CEO and author, takes a provocative view of what declining ROI actually signifies.

Comments

  1. The article is a wonderful thought provoker and I appreciate the steps laid out for each consideration. Each of us must take time to see the smaller pieces of the larger pie… guess by doing so, we will not suffer from business indigestion!

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