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.
One of the most noticeable effects of business model innovation is the massive increase in customer value that it creates.
This can take several forms.
An increase in market size as new sources of value is unlocked
Shifting of value, from one part of the market to another
I realise that this chapter can be a bit tautological. We often know that we have a profound business model innovation because it creates massive customer value. You can have a lot of customer value created without business model innovation. This is why BMI is a subset of all innovation and strategy.
As a rule of thumb, most companies are happy to be growing at 20% a year. This generally happens in new markets where the size of the market has yet to be determined, and most competent participants are growing, quickly. I mention this only to set an upper limit on what is normal growth. This is about the maximum that can be achieved without profound innovation. Or paper magic by the accountants and tax specialists.
Five years of growth like this will show a company that has grown [your preferred metric of success] by about 2.5 times.
Barriers of Entry
It’s possible that by hitting multiple innovation sweet spots at the right time, that a company could grow even faster than this, so let’s set the barrier to entry into the business model innovation club at 10X growth. Tat is 10X larger over five years, excluding organic growth, etc, etc. There are good arguments to push for 50X or 100x growth as these really focus on the goal that we want to achieve.
That is massive sustained value creation.
To increase the sales growth of 10X or 50X in any mature market either means starting with a lot of money and ending up with a lot less, or doing something very different. Changing the rules of the game.
Google, Apple, Amazon, Netflix, Microsoft, etc all changed the rules of the game. As they did, so they created massive customer value. Or which they received a small part in increased sales, profits share price, etc.
The winners are the consumer. Not the company.
Does Monopoly Create Customer Value?
There were some evil bastards a few years ago who decided to jack up the price of the EpiPen because they were a monopoly provider. The price increased by 5X over 3-4 years with no increase in customer value. I used to have one in my rucksack for when I went out into the jungle. I once got stung by some jungle bees, and after the pain subsided it felt like I’d downed 3 pints in a row at lunchtime (downing = raising the 600ml glass of beer to your lips and finishing it without removing your lips from the glass). Fortunately, I never needed to use my expired and rather, a talismanic EpiPen.
The second approach of shifting value within an industry or market is less obvious.
After MP3s and Napster had reaped havoc on the music industry, Apple shifted value from the music companies to itself through the combination of the iPod and the iTunes music store. It broke apart the album into 99c tracks. In doing so, shifted much of the value of the innovation to consumers. They got to listen to the music they liked rather than second-rate tracks that artists and labels bundled into LPs and CDs.
Apple benefited, of course, but for a number of years, this did not create much if any growth in the music industry. That came later with another business model innovation, with the shift to streaming and all-you-can-eat subscriptions from Spotify.
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
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