Last week I was invited to a SartupGrind talk by Sir Martin Sorrell. He’s the chairman of WPP, the world’s largest advertising agency. He’s taken a company that made supermarket trolleys and turned it into a $20 billion company.
That’s pretty good, isn’t it? It’s certainly better than most people have done.
It’s a classic business model disaster.
What was the advertising business model?
Let’s shift back a few decades and look at what advertising agencies did. They helped clients figure out how to get a response from consumers. This worked because the agencies were able to get and retain creative talent that the big FMCG companies (people who made the stuff you buy in shops) couldn’t.
Back in those days, most advertising went through an agency in some way, shape or form. So who would it be better to talk to the future of advertising with? An agency owner like Sir Martin, or someone else entirely.?
When digital came out marketing agencies gave us some cool (irony) banner ads and all sorts of spam. They charged their corporate clients a lot and headed on a path to the $20 billion valuation. The business model remained the same. Stay between the people who make stuff and the people who buy it. Trade our knowledge of consumer behaviour for sales and profits that grew each year.
That’s very straightforward, very logical, applies all the known business rules, and is also very profitable.
But incredibly wrong.
Growth with blinkers
What happens if instead of being the middle man between the consumer and large corporates you start asking questions like:
- How could we help all companies with their advertising?
- How can we reduce the costs of focus groups and market research by 100x?
- How can we figure out which marketing campaigns actually are effective?
WPP didn’t go there. The question didn’t occur to it, or to any of the other big advertising agencies. The business model worked. They were safe and happy. Nothing to see here, move along.
Advertising with a perceptual shift
A couple of computer scientists saw things differently.
They essentially asked the questions
- How can we allow anyone to advertise as effectively as the largest consumer goods companies in the world?
- How can you, as a small business owner, get the same or better results as an advertising agency?
- How can you spend your money on stuff that works without facing huge bills and ruin if a campaign doesn’t deliver?
The answers to these questions – very different ones than the traditional advertising agencies and their clients were asking – came up with a very different business model.
That business model valued the company at almost $2 trillion in 2021. That’s over 100 times more valuable than the company that Sir Martin built up over 50 years.
The company is Google.
Business model innovation and perceptual shift
Why is this example important?
Google saw the world differently. It made a perceptual shift. It saw the world differently. Assume that Larry Page and Sergei Brin had worked for WPP. Would or could so much value have been created? Almost certainly not because there wasn’t the mental flexibility to look at the world in a totally odd way – one that did not compute based on all the business data that WPP had.
The takeaway here is that
- Using standard business logic is powerful, but it significantly limits what you can achieve.
- To find breakout sources of growth the key is to look at the world in a fundamentally different way
When you are designing a startup, new venture or business transformation and diving into business model innovation – this should be a key aspect of the process.
If you simply apply normal business logic to new data, to innovation, to transformation, you end up with similar types of business coming out. Execution can be awesome, as in the case of WPP. But you leave so much cake on the table it’s as if you never even got to the party.
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