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.
I am not a big business guy. I’ve worked with clients who have sat on the boards of major public listed companies. There’s a big cultural gap. That’s a nice way of saying that I don’t think shareholder value is a good way to run a company. That’s one reason why I don’t sit on the boards of big companies.
Simon Sinek capture this point well. If a company is focused on shareholder primacy, it focuses on making money as its purpose. Whilst this is profitable in the short term, it hollows out the company and makes it an unpleasant place to work. Around 67% of people prefer working at Micros and 42% at MNC.
Customer Value
Let’s leave the big guys behind and go back to the startups, the small companies, who create most of the new value in the economy. Let’s chose a few small companies going back a few years.
Lever Brothers were famous for focusing on the quality of their soap and making sure that their customers got clean.
Cadbury’s focused on making chocolate that the industrial masses loved.
Ford focused on making a car that the working man could afford.
None of these companies focused on the maximization of revenue or profits. They focused on the maximization of value creation for their customers. When they lost, that focus the number of cocoa solids got reduced, cars got designed by committees or with a lack of attention to safety.
I read today that Vale, the mining company, paid $7bn in compensation to the 270 people who died after its dam broke. The dam broke because it cares more about revenue maximization than creating customer value. Is that a good ROI? Nope.
I am not going to continue the polemic, you are either with me at this point, thinking about quitting, or my black and white words are staring blankly up at an empty sky.
Where we start within a business model is thinking about what value we can create for the customer. If we don’t create that value, we don’t have a business. The more value we create, the stronger a business we have.
How to Benefit from Customer Value?
The more value we can create, the strong a competitive position we have.
Let’s play with this for a minute.
If I can create 10X value for a customer and my competitor can only create 8X value, I can use the extra 2X in lots of ways.
I can convert it into profit, convert it into loyalty. I can convert it into long-term growth. And so on.
What have you got there? You have got a range of strategic options. You have space that you can play with.
Strategic space is not the be-all and end-all of everything, but it sure is useful. I have been in enough businesses to see the stress and bad decisions that emerge from having limited space to maneuver.
Another way of putting it, I was cycling in the Pyrenees many years ago. The 4 of us had driven down from the Uk to Spain and had camped out in the mountains. James and I cycled up one of the mountain passes and then came down. It was in the years before GPS, so I have no idea how fast we were going. It was fast enough that I was incredibly conscious that I could not actually use the brakes. Even a slight touch on them would create too much instability, and I would wipe them out quite spectacularly.
Consequences
Fortunately, the road was wide. This wasn’t a problem. I could take the curves with ease, as I was moving slower than the cars and was more maneuverable. I had plenty of strategic space, happily whizzing past a small rockfall, then a moped.
Then the road narrowed and my strategic space disappeared, and I couldn’t take the curve as the road entered a gorge. I went off the road on the riverside, some home managing not to plummet into the river below.
This is the consequence of stepping away from a focus on customers and the value that you create for them.
If we look back a few years, remember how much we all hated BT. BT was the telephone monopoly in the UK. When mobile phones came out – Vodafone and Orange giving us customer-friendly, responsive service, was it a surprise that we jumped? Is mobile so popular now because BT was focused on almost anything other than creating customer value? I remember wondering in the ’90s why we even had separate networks, the ideal customer value would have been to have a single network – not a network split between land and mobile.
If there is a single message when we start the process of designing business models, it is this.
How can you create significantly more customer value than any incumbents in the market?
Think about advertising. Google outperformed the traditional advertising suppliers – WPP, Rubicon, and Ogilvy by a factor of 100 on at least the following dimensions – speed, ease of use, detail, accuracy, impact. That is why it is worth hundreds of times what the entire industry was worth in 2000.
Stepping Away from Incremental Shifts
Customer value has to be a step-change, not an incremental shift.
Incremental shifts are what managers are taught to achieve in MBAs. Get 1% here, 2% there, and soon enough, the company will be doing better. We’re not looking for that here. That is described in thousands of business books. Instead, we are looking for ways to increase customer satisfaction by 5000% in a year.
You don’t get that by using old traditional approaches to thinking. You have to think about how to do things differently. Think about how Zappos made it so much fun to buy shoes. Or about how Starling made it so easy to bank in the UK.
You create an inflection point in the customer experience, in how the customer (or user or whatever) perceives the value that you create for them.
Customer value has to be so extreme so that sales and marketing are almost a waste of time. It is a no-brainer.
What would
– A no-brainer car look like?
– No-brainer diet?
– a no-brainer business book?
– a no-brainer romantic partner?
The point of the no-brainer is that the value proposition is so extreme that the client, customer, or user can say yes straight away without having to spend so much time thinking it through. The value created by saying yes, is so big, that even if you only get 30% (choose your own number here) of what you expect, you are still so far ahead of where you would have been with ANY other choice.
Designing, creating, and growing no-brainers isn’t easy – but those are our goals and the heart of what we need to do when we create real business model innovation.
If You Want to Read More
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