How to Design Business Models Archives

July 28, 2021 By Denis Oakley

Are You Thinking Too Small?

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.

The other major error in business model innovation, other than not starting at all, is thinking too small.

This comes back to some of what we said about the difference between incrementalism and step changes in performance.

Years ago, I did the Everest Marathon. We flew into Lukla on a small plane, over the crash site of the plane that had tried to land the previous week. The Everest marathon starts at Everest Base Camp, 19,000 feet or so. It then covers 42 km back down the valley to Namche Bazaar.

Everest Trekking

To get to the start took us 10 days of trekking. It wasn’t fast because our bodies needed to acclimatise to the lower levels of oxygen. Even with this, I foolishly decided to do a 100m spring at Everest base camp. I was about as fast as normal – which was good, given the rocks and ice – but then I ran out of oxygen. If you’ve seen some of the Mafiosi films where the victim has his face wrapped in cling film and desperately tries to breathe, you have some idea of what I was feeling. Red hot lungs, shuddering gasps, and no oxygen coming into my chest.

It took almost 30 minutes for my breathing to return to normal after a twelve to fifteen-second exertion. Horrific.

As we walked up to the start line, we kept reaching new crests, new vantage points, and there were so many points where I said to myself – this is perfect. One was the corner as we walked up past Namche Bazaar and caught sight of Ama Dablam set against a deep blue sky in icy pointed splendor.

It would have been easy to stop right there, thinking that I didn’t really need to go higher.

There’s a tendency to think that because we can make something better with business model innovation that we can be disruptive that we have finished the work.

All it means is that we have found a local maxima. We have found a mountain peak that fits our needs that solve the problem, that is certainly higher than anything else that we have seen so far.

Temptation

There is a temptation to stop here and not climb higher, not push further. Isn’t it good enough, you may ask? For some, it will be but think back to why we are doing this.

We are committing ourselves to business model innovation to escape from competition for a while. The further up we go, the longer it takes for people to catch us.

Why don’t we launch the exercise, get ahead, wait for them to catch up, then repeat?

You can, but most people who know the parable of the tortoise and the hare know how that turned out for the hare.

When you race triathlons, there are some interesting psychological effects at play. In a triathlon, you swim, then run to your bike, jump on it, then cycle for a long time. Then you quickly get changed and start running. The entire process is designed to push you to the limited of your endurance.

Once you are on the marathon, often 6 – 8 hours after you left the start line, there are aid stations every few kilometers. They supply ice, candies, bananas. All the useful stuff to keep you moving forward. Studies have shown that if you stop at these aid stations, it is far harder psychologically and physiologically to pick your speed back up again. The less you slow down, the faster you are able to keep going.

This same psychology applies to when you are searching for business model innovations. The cost of getting started is so huge that losing momentum comes at a significant cost. It is better to keep going, to say, “Yes, this small peak is nice, but Everest is around the corner if we just keep going.”

And for me, it was.

If You Want to Read More

I keep everything structured on my niftily titled business model innovation book page. Head there to browse, binge, read straight through, or cherry pick. Please do take a moment to comment below or upvote comments that you agree with

As I write each new section you can have them sent to your email. The plan is to write something 2 – 3 times a week. It is easy to unsubscribe, but I hope you won’t as the goal is to delight and entertain as well as educate and train you through this business model innovation journey.

July 26, 2021 By Denis Oakley

Digitalise Your Business For Explosive Growth

Digitalisation is the next step from digitisation.

If digitisation is converting our analog information into digital information, digitalisation is the realisation that now information is in a much more flexible form, we are constrained by the old rules of paper and analog.

We can handle the data quite differently, and as a result, we can create more value, we can do things faster or better than we ever have before.

Did Craig List change the selling game?

A really simple example is Craig’s List. This is an American website for selling second-hand stuff and personal services. Back in the day, when everything was analog to sell something that you didn’t want, you had to take out a classified advert (not sure what classified means here) in the local paper, pop your telephone number down and wait for buyers to ring you. This worked well whether you were selling old cars, your body, or bric-a-brac.

It was quite expensive because you had to call the paper, explain what you wanted, write the copy. This then had to be typeset, handed over to the printers and a few days later a newspaper would be delivered to thousands of people with your advert on it.

Craig List realised that by digitalising this process, it could be made significantly faster. You filled out a form with your advert, paid some money, and your advert was up and available for anyone who came to Craig’s website to read. As a result, it was not only cheaper – you did all the work, but Craig’s list was effectively a newspaper with an infinite number of pages. Everything changed.

How did banks digitse themselves?

Digitalisation goes a lot further than that, and as it does, it starts to blur into business model innovation. When I was a student, I went along to NatWest to open an account. A bunch of forms later, I took my cheque to the counter, where it was deposited into the account. When I wanted some money, I came back to the branch and took some out.

A couple of years ago, I opened an account at Starling, a neo-bank. It doesn’t have any branches. I downloaded an app, took my photo, and uploaded my passport. With my identity verified, I had the account opened in minutes. And a few minutes after that I had transferred cash into the account and was spending money using Apple pay.

A lot of the core functions have been digitalised and made vastly more efficient. But in many ways, the bank still has the same underlying business model as NatWest did in my youth.

Digitalisation then is often a halfway house. It is a place between – let’s keep doing things the way they were, and let’s change radically. It is efficiency and effectiveness play. In some industries, digitalisation keeps you in the game – banking or insurance, for example. If you haven’t moved to use apps, for example, for most banking then you are losing customers and credibility. In other industries, it is an opportunity to get a competitive advantage over competitors in one or more aspects of your operations. And in some, it is a part of an overall transformation process.

Digitalisation is the next step from digitisation

You don’t need to do digitalisation to do business model innovation. Business model innovation is not the same as digitalisation, but they often do overlap.

If You Want to Read More

July 16, 2021 By Denis Oakley

What Do I Think Business Model Innovation Definition is?

business model innovation definition remains constant but the innovation changes the industry

So what is business model innovation?

What we have seen so far is that it is not:

Product, service, process, or organisational innovation, though those may play a part.

It is not the process of applying digital technology or even technology to a business model. That may be business model innovation, but it could equally be digitisation, digitalisation or digital transformation, or a melange of all three.

Why won’t the application of digital to a business model create business model innovation?

Simply put, digital technology is merely the latest in a long line of transformative technologies that have transformed business models. What digital technology is special only in the specifics of what it does. The relative transformative power of business model innovation remains – whatever the transformative technology that is driving its use.

That’s a lot of guff about what it isn’t. We also want to make it a bit more attractive than pornography, doing better than saying, ‘I’ll know it when I see it.

Let’s start off with a couple of thoughts to help us create a definition. Business model innovation is disruptive. It represents a discontinuity from what has gone before.

Music and Military Changing the Business Models

An example of this can be clearly seen in music. Three bands stick out in my mind for having disrupted music when I was growing up. The Beatles changed what rock and roll were all about, moving it from saccharine 50’s hits. The Sex Pistols (who I hated) started Punk and broke rock music apart, and then a decade or so later, Nirvana introduced grunge. Each of these musical inputs created a very different style of music, to that which had gone before, but at the same time, the influences of the past on the music were clear.

Using a very different example, if we look at military history, Alexander the Great combined the use of Sarissa (the Makedonian Phalanx) and the cavalry as hammer and anvil in a way that hadn’t been done before and used to conquer the ‘known’ world. Equally, Napoleon used little new technology but combined the infantry columns of revolutionary France and artillery with converging corps on the battlefield to again conquer the known world. Guderian used the concept of schwerpunkt and tanks to smash the post-WW1 military model, and Giap used dispersed infantry and pinprick attacks to smash the post-WW2 model and defeat the Americans in Vietnam.

Tech Companies and Scientists Changing Business Models

In the business world, Google discovered a way to transform advertising by generating data on consumer behavior cheaply and easily. Amazon saw a way to add an infinite number of shelves into a corner bookstore. Salesforce saw a way of making software cheaper by removing expensive onsite installations and licenses.

If we go into science, Galileo and Newton found a way of using the same facts to come to a very different conclusion that, eventually, predicted far more about the way the universe behaved. Einstein took these facts and reinterpreted them again to help us seen the universe and space-time completely differently.

The common approach of all these changes is not that there has been an introduction of new technology. Though that often is the case. Galileo’s theorising was driven by the better optical glass for telescopes, as Guderains was driven by improvements in tank engines and capability. As scholastic philosophers in the middle ages would have put it, technology was necessary for innovation, but not sufficient.

Something more was required. Before we get to that, let’s look at some of the other commonalities.

These ‘business model’ innovations all fundamentally change the way that war, music, science, the business worked. What happened after was qualitatively and quantitively different than before.

Does a Measurable Change Impacts the Business Models?

So the business model has an impact. It creates a measurable change. That change doesn’t need to be universal – I have no idea how popular the sex pistols were in China just after the Cultural revolution, or Nirvana was in Uttar Pradesh in the ’90s. It doesn’t matter. The business model innovation has an impact on the ecosystem around it. It may spill over into other ecosystems, environments, and markets, but against that is not necessary, but it is possible.

A corollary of this impact is that it makes it fundamentally untenable to go back to the way that things were before. A post WW2 general who thought to fight a war in the style of 1916 was at an immeasurable disadvantage, as Saddam Hussein saw in 2003 when he tried to fight a cold war, vs a post end of history adversary.

But despite all this change, much remains the same. Musicians played the same chords, just in a different order. Scientists collected the same planetary or molecular data but fed the results into different formulas. Businessmen still focused on creating similar value propositions for similar customers because the underlying human problems were still there.

Before we start bringing this back together, there is one key point that I’m going to introduce now. We are going to spend a lot of time on over the next few chapters.

Perpetual Shift

The key is that one or more people involved had a perceptual shift. They persuaded others to adopt the new way that they saw the world. The innovators saw the world differently. They reconfigured everything that they knew and combined it and saw that 1+1 not longer equaled 2. 1 + 1 = B.

Because the world was different, the old laws that had governed music, warfare, science, and business no longer applied. And when the old laws no longer applied then they had entered into a magical world. Where for a time, many of the rules were malleable as they sought to experiment and find new rules that served their purpose.

Let’s give a quick military example (and I’m giving fewer business examples at this point in the book to help open your mind – like going into a sauna to open up your pores). After the British success at Cambrai, where tanks were used for the first time – and successfully breached the German trench system. Everyone knew that the rules had changed. The British, French, Italians, Soviets, and Germans all experimented madly, coming up with a huge number of tanks based on ideas that seemed sensible to the theorist but, which were untested (think back to the similarity with the explosion of car factories in our auditable case study).

The German army established a secret tank training school in Kazan in the Soviet Union to practice with all the new tank models and figure out if what seemed to work in theory would actually work in practice. It did, and that formed the basis for the new panzer divisions and thus the blitzkrieg concept that stunningly smashed France out of the war in 1940.

Let’s bring this all back together

Business model innovation is based on a changing view of the world that allows an organisation to use its existing resources, and possibly new technology, to create a quantitive and qualitative shift in outcomes, that fundamentally weakens the competitiveness of all other players.

[Note: I had no idea what the business model innovation definition was before I started writing, but I do like this – it seems fresh, fairly complete, and not too long]

If You Want to Read More

July 14, 2021 By Denis Oakley

Industry Anomalies, How to Spot Them?

As we see business models starting to slowly die one of the key features that they all have is that they have unresolved anomalies in them.

Imagine a tree growing beside a concrete lamppost. As the tree grows, the lamp post remains in place, forcing the tree to grow around it to distort its natural pattern of growth. One way of resolving it is if the tree is large and strong enough to slowly force the lamp post out of its way as it grows. Or if it puts enough strain on the lampost so that it cracks and falls. If it can’t, then the tree is distorted by it. This introduces inefficiencies in the tree’s growth and makes it harder to survive.

Anomalies work like this in business. The weird thing is that they are often not as visible as a concrete lamppost.

Palm Oil Farming: A Complete Anomaly

Let’s think back to our Asian palm oil plantation. This has a number of anomalies, persistent problems that managers could never really fix.

They could never improve the yields on the palm oil trees.
They found it harder and harder to get good staff
Could not find a way of automating harvesting.

Every industry has a number of problems like these. They are driven by market structure, the nature of supply and demand in the market, historical happenstance, the way that innovation happened in the industry, or for another thousand reasons.

Most managers accept these are constraints on the business model. They work industriously to ensure that they maximise sales and profits and minimise costs to ensure that the business works.

Some managers inside the industry see them, like a stump, in the middle of a field, as something that needs to be blasted or otherwise removed.

How to Remove Anomalies That Are Impediments To Business

What seems to be the case is that as anomalies are removed business models are suddenly able to change rapidly. Imagine – taking the concrete lamppost away that has constrained the tree’s growth. It can now expand out into the void that the lampost prevented it from using.

If we increased the yields on palm oil trees, let’s say by 50% through genetic modification, that will drive huge numbers of the lower yield producers out of the market in a few years. It also changes the manpower requirements, exacerbating them in the areas where the new high-yield trees are planted. It also changes the dynamics of palm oil refinery placement. Mills are usually less than 20 miles from the plantations to minimise the time that the bunches have to spoil before they are processed. They could then be made larger, driving down the costs of the finished product through inefficiencies of scale.

From that simplified example, you can see how when we removed an anomaly. Whether it is a technological, cultural, social, economic, or political constraint then a business model can change very rapidly.

This is a sense is what the whole book is about.

What are the anomalies in your industry? Why do they exist? How can they be removed, bypassed, reconciled, and what will that mean to the patterns of business models in your industry?

If You Want to Read More

July 12, 2021 By Denis Oakley

How to Achieve Double-Digit Growth with your Customer

The way the trees adopt to their surroundings, companies should do the exact same to provide the highest customer value

Let’s put this differently.

My daughter is just into her teens. As a result, she’s started to make her room a reflection of her personality. One way that she’s doing this is by having lots of thick wax candles in the room. The room has a wonderful warm glow – it feels safe and secure. She also reads a lot. When I go in to remind her to blow the candles out, (actually I love the smell of the candles being snuffed out), I find her face close up to the book, squinting to make out the black wiggles on the page. The candles are lovely, they let her read. It’s hard though.

If I’m feeling cruel, I’ll switch the light on. As we are living in a temporary rented house in Sharjah at the moment, the light is bright, harsh, and actinic. It kills the mood. It’s more suitable for an interrogation cell where you aren’t going to be allowed to sleep for 36 hours. Those letters pop off the page in crisp-type blocks. Reading becomes easier and faster. Comprehension, recall, and insight all bloom as this happens.

Customer Value

A normally incremental approach to innovation would tinker with the number of candles in the room. Their placement. It would tweak with the way composition and that of the wick. How do we maximise the lux and the flux density on the book pages? As long as we are making it a bit brighter then the reader is happier with the product.

How though? Can we step out of this approach to hill climbing – finding local suboptimal peaks – and find a point where the lighting in the room transcends the reading experience.

This may seem a metaphor – but this was a very real business model innovation at the end of the 19th and beginning of the 20th century – as electricity transformed homes after darkness.

When we are looking for ways of creating customer value, this is the measure that we want to set ourselves. If we measure the increase of performance in percentage terms, even in double-digit percentage terms, then we are not having the impact that is going to create the disruption that our customer desires and needs. Instead, the goal is to look for ways to increase the customer value that they get by orders of magnitude. One order of magnitude is 10 times larger. Two orders of magnitude are 100 times larger.

One final example before we move on.

Wikipedia versus Encyclopedia Britannica. The Future will Always Win

I was always curious as a small boy. One of the most bitter memories of my childhood is my English teacher at primary school, Mrs. King, accusing me of lying about how many books I’d read. I claimed that I’d read every book in the school library. She held me up for shame in front of the entire class. The fact that I was able to give her a synopsis of every book that she pointed out only seemed to deepen my guilt in her eyes. Decades later, that still hurt. My parents recognizing my thirst for knowledge bought me the Encyclopedia Britannica.

I never read it as much as the dictionary, but it was a joyful browsing compansion. As a tool for answering questions, it was good, but the questions I asked had to be important. First, I had to decide whether to look at the Micro or macro part of the encyclopedia, (the little articles or the big ones).

Then I had to practice my spelling and figure out which of 10 volumes the search term was in. Then I had to leaf through 1000+ pages of thin paper, trying to find the right entry. I think that I probably used it once a week or so.

Move on a few decades, and when I am reading a book on my kindle, I press and hold my finger down on a word, and Wikipedia opens up. I then have a reasonably good article telling me what I need to know instantly. I used Wikipedia 5-20 times a day.

Wikipedia, just on those metrics created 35- 140 times more value than my old paper encyclopedia. This is the challenge. This is the goal to work towards for the customer.

If You Want to Read More

July 9, 2021 By Denis Oakley

A Step-Change is a Big Change

Business model innovation can sometimes exist in the eye of a believer. What can seem to one company to be a radical breakthrough, seems to another to be a small piece of incremental innovation.

How do you tell?

The simplest way is to look at the outputs and see if there is a step-change in them.

Let’s give an example. I was talking with author and coach Andrew Sillitoe recently about his book, the Four Keys. As it says on the tin, the book explores the foundations of what makes a solid foundation for a good life. As we talked, Andrew said bluntly, “It doesn’t pop does it?” “No”, I answered, “It has everything that the book should have, but it doesn’t transcend the genre and get people to be recommending it, buying their friends copies, or devoting entire blog posts to the minutiae of a single paragraph.

A step change goes well beyond the god or a workmanlike improvement in a product or service. It makes it so much better.

Step change

I’ve been running consistently for 15 years. 35 years if you include the decades of on and off again running from when I first learned to run across the muddy fields of the North Shropshire Plain. My marathon training has always been poor. I’ve done too much too soon, gone too far too often, go too hard with not enough recovery. So my running has been a triumph of will ever training. Training should be the foundation upon which will launches you into a new sphere.

Then I signed up to peloton outdoor. I don’t have the tread or the cycling machine. Yet, with a coach in my ear, telling me what to do, coaxing me through the dark moments of my marathon training, I have got faster than ever before. It has enabled me to soar. My performance has transformed.

Why am I talking about it from the customer’s perspective? Shouldn’t we think about the impact of strategy on a company’s bottom line? In EPS, share price, or market capitalisation?

Want to Innovate? Follow the Customers

Almost certainly not. Shareholder value follows customer value. When there is a steep increase in the value that the corporation offers to the customer, then that value is reflected in the shareholder value at some delay.

When we work the other way round, then what we see are stagnant companies that cannot drag themselves out of the competitive morass.

Think then about the step change that you can create – check in-less flying, automated cars, refilling fridges, supermarkets that give you offers based on your health objectives – so that you get healthier through indulgence. Think about some of the steps changes that we’ve had already. Seamless sharing of intimate moments with those we care about, instant answers to any question that we ask, always knowing where our loved ones are, sex with a willing (and unpaid) partner at a few hours’ notice.

These are huge changes in people’s lives and satisfaction, and these are the true outputs. The question is not, “how do we do this a little better?” Instead, the question is “How do we do this so much better, that it seems first magical and then life becomes unliveable without it”

These are the steps changes that we look for.

Make no mistake – it is tough – but as a scrambler knows – once you get your hands on the rock, you can gain height far faster than plodding slowly up a path that slowly zig-zags across the mountain.

Are You Thinking Too Small?

Everest Trekking

Temptation

If You Want to Read More

Digitalise Your Business For Explosive Growth

Did Craig List change the selling game?

How did banks digitse themselves?

If You Want to Read More

What Do I Think Business Model Innovation Definition is?

Music and Military Changing the Business Models

Tech Companies and Scientists Changing Business Models

Does a Measurable Change Impacts the Business Models?

Perpetual Shift

Let’s bring this all back together

If You Want to Read More

Industry Anomalies, How to Spot Them?

Palm Oil Farming: A Complete Anomaly

How to Remove Anomalies That Are Impediments To Business

If You Want to Read More

How to Achieve Double-Digit Growth with your Customer

Customer Value

Wikipedia versus Encyclopedia Britannica. The Future will Always Win

If You Want to Read More

A Step-Change is a Big Change

Step change

Want to Innovate? Follow the Customers

If You Want to Read More

Ready to start?

I help entrepreneurs transform their industries through wiser choices

How to Design Business Models