This post is an extract of my forthcoming book on business model innovation. The innovation book looks at why business model innovation is needed and how it works. You can read more about it here. These posts are early drafts of planned content and I’m putting them out to get feedback. Please do comment below, or subscribe to these pages to get each new section as it is published. In today’s post, we will be looking at finding opportunities in this new world.
Revolutionary business is the time when business is changing. At the moment, lots of people are talking about disruption and transformation. Ok. They are doing a lot more than talking. In almost every industry, there is a huge amount of change. Old business models have stopped working or are being superseded by new business models.
Now you may have spotted an underlying assumption in what I am describing. I’m assuming that you have periods of stability and then periods of change. I’m assuming that what we face now is not going to be a rolling process of change leading on forever. It’s going to stop, and stability will emerge at some point.
At best, our memory as businessmen goes back 40 years. No one in business now really remembers the oil price shock of the 1970s. Memories are more of the news reports of the shock. Equally, no one alive went through the great shock of the 1920s, or the multiple shocks of the 19th century.
Financial shocks and bubbles aren’t the subjects of this book. But psychologically they appear to be similar in an important way. We tend to get very present at the moment as business people (maybe not as much as meditation boosters would like). Financial disruption happens, and then we return back to business as normal before we get another burst of change.
Internet changing the world
I remember the internet bubble, the financial crisis, and now Covid and how each slowly merged back into doing business as normal.
When we look at the business model change, it is often triggered by new technology. New technology can create huge periods of disruption of revolutionary business. This is when businesses start actively trying to change their business models to find a new stable approach to doing business. Revolutionary business is both bad and good for business.
On the one hand, it makes it hard for management to apply the normal rules and make the model more effective and efficient every year. The business model – and thus corporate profits are at risk. On the other hand, a new business model offers significant opportunities to grow and profit as the markets change.
Watermill
In previous eras of revolutionary business, we’ve seen some pretty amazing things happen. Let’s do a quick tour.
I’m going to start with the watermill. The idea that you could use water flowing in a stream does work. In Europe, this came to the fore in the 12th century (Check on this in my book on Watermills). With about 50 years of some millers in France discovering that you could mount a wheel in a river and use it, with gears, to crush grain and turn it into flour, watermills sprouted up along rivers and streams all across Europe.
This was important because it transformed the business of farming, and to a certain extent of war. Instead of milling grain by hand. Or using oxen or donkeys to turn the millstones, you could now do it 20 times as fast for a fraction of the cost once you had defrayed the capital expense of building the mill.
This meant, more fields could be planted with grain, and that meant bread could be made faster and easier – and armies could be provisioned better. This impact rippled through European agriculture and made it significantly more profitable and was closely linked to the huge increase in productivity that happened after 30% of Europe’s population died as a result of the Black Death. Writing that makes me think how lucky we were with COVID.
Steam – the biggest invention
Steam was another time when we had technology usher in a period of the revolutionary business. After Newcomen invented the steam engine and Boulton and Watt started manufacturing them commercially in Birmingham in 1775, they were used first in mines. That was to pump the water out, allowing mines to go down deeper and deliver coal more economically to the surface. Then machines brought the coal back up, then factories saw that they could use steam-powered machinery. Then the textile industry realised that they could increase the speed of their looms, making cloth faster – and removing workers’ fingers and hands at a faster rate as well. Steam could also be used for transport, and an economic boom followed that destroyed the economics of the old canal and turnpike (toll roads) networks.
And yet, by 1850, the industry has mostly settled down again, with steam engines deployed and being used almost everywhere that they could be. What happened after that was much more normal business as we saw ever most efficient steam engines being introduced and the business model stabilising.
Coal into gas – another invention
In the 1890s, there was a flourishing industry turning coal into gas, which was then used to light business and people’s homes. With his first commercial power station in New York, Thomas Edison showed, after thousands of experiments to find the perfect material for a lamp filament, that electricity could be used to light people’s homes and offices. Then, it could be used to power machines. Then machines could be made ever smaller. This electrical business revolution lasted perhaps 60 years. I remember my Dad’s works getting electrical Japanese milling machines and lathes in the early 1980s. About the same time as the last burst of adoption of major white goods was being bought across the west – washing machines, dishwashers, and the like.
I’ve chosen these examples because they are big visible, and we can all see their impact across society and business. But revolutionary business doesn’t just hit business as a whole. It doesn’t just hit an industry or a sector. It can hit subsectors or niches and bypass others. So you can say that the oil and gas industry is in a normal business, but the subsect is in a revolutionary business phase.
Revolution
What I want you to see here is that even though these changes were revolutionary and disruptive. The revolutionary business eventually came back to normal business over a period of time.
Where we are now in the 2020s is no different. Digitalisation – a broad all-encompassing term – will eventually play out its course. It will be clear what the digitalised business model is for most industries and sectors. There will then be a longer or shorter period of normal business before the next big change comes along to disrupt our theories on what makes a good business model.
Why does it matter if we are in revolutionary business?
On a very practical level, if you want to start a business with a standard business model, then you need the sector to be in normal business. If you want to be using a new business model then the sector needs to be in revolutionary business.
You need different business model approaches depending on the state of the industry. In the next section, we’re going to talk about business model paradigms and why they are so important.
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