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 primary goal of your business model is to maximise the impact of your value proposition.
Why is this necessary? Well, by itself, the value proposition is an exposed caterpillar, plump and waiting for the competition to pick it off.
Imagine that I made power tools in a fairly standard way. Let’s imagine that I chose quality as the part of the price, quality triangle that I focus on. Being generic any competitor who comes along can snaffle my customers with his low prices if they think that price is more important than quality.
That’s not rocket science. As we start wrapping an interesting business model around it, customers pay by subscription, the tools are marketed with a savvy campaign, and some interesting stuff happens in R&D and manufacturing (the rest of the business model) then the handtool manufacturer becomes a lot less appealing.
The caterpillar has grown a bunch of those pretty but venomous spikes on its back.
How do Value Proposition and Business Models go hand in hand?
If we look at it this way, with the business model wrapping itself around the value proposition, we can design it to maximise the perceived value that the customer receives.
You can see it as a force multiplier or a delivery mechanism.
Google uses its business model in the same way. The ecosystem of apps, Gmail, youtube, docs, meetings, etc, are designed to maximise data extraction from users to feed the effectiveness of its core value proposition – we understand the user behavior of the people you want to sell to.
Apple wraps design and a closed garden ecosystem around its handphones to make the experience of using them even better – its core value proposition vis a vi Huawei and Samsung.
When I work with many entrepreneurs, this approach seems quite weird. It gets even weirder when I talk to more mature companies.
To them, the business model is how you deliver the value proposition. The thing is that for any value proposition there is a manifold of ways to deliver it. So it makes sense to design your business model to have the maximum impact on creating value that you can. This is one way of achieving competitive advantage, as Michael porter would say, or differentiation.
As we move into the next chapter, we will look in detail at how to achieve this.
If You Want to Read More
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