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The formula for business model innovation

A business model consists of four things. First, it describes how you make money and why and how your customers pay for your products and services. But more importantly, a business model offers an experience, and that experience is critical to what people pay for. The difference between Saks Fifth Avenue and Walmart lies not only in the quality of the goods and the prices, but also in the way a customer feels because of the service, the atmosphere and the mood.

Similarly, the genius of Starbucks' business model innovation was figuring out how to create a cup of coffee that people would pay ten times more for, and delivering it in an inviting atmosphere where people are content to hang out or hang out for hours work but do this at a really low price for Starbucks.

The genius of Apple's business model is also the experience, the experience of using their devices, and the care and attention devoted to product design and user interface design.

In fact, every company offers or enables an experience or delivers it, and the essence of business model innovation is to carefully shape that experience and improve what already exists.

This is fairly easy to spot in a retail environment, but it is just as easy online.

Google's simple search page also offers a distinctive experience. The large white area has been carefully designed to deliver a very specific message: this page tells you that "everything is about you and whatever you type in the search box".

This was obviously extremely successful, as Google reports that it did more than 3 trillion web searches in 2017, which is about 95,000 per second. Obviously people like to use their (free) service.

But what makes it possible for a business model to work? The third element of the business model is what is going on within the company and enables it to create, deploy and deploy that experience.

The fourth and absolutely essential element of your business model is that it defines how you differentiate (or not differentiate) your company.

In summary, the four things a business model does at the same time are the following:

  1. This is how you make money.
  2. This is how you deliver experiences to your customers.
  3. How to use products, services, technology, supply chain and operations to stay ahead of the competition.
  4. How to differentiate your company.

Every company has a business model because it's just a description of what is. The opportunity to innovate business models is to think about what should be.

The formula for business model innovation

The failure of a company almost always reflects the failure of innovations, the failure to recognize changes and the inability to respond appropriately or appropriately to changes.

And today, as we see another massive wave of new technologies collapse on the global market, artificial intelligence, blockchains, machine learning, self-driving cars, robots, quantum computers, etc. are imminent, so must anticipate that every existing business model will outperform any existing one Business is thoroughly and completely disrupted. This is a clear warning of the need for innovation.

Wouldn't it be so incredibly helpful if there was a formula that explains, simplifies, and makes all of this useful in practice? And in fact there is a simple frame with three elements:

1. Outside: The company offers customers experience by delivering products and services. The current quality of these experiences is today's reality. The vision is to make them transformatively better.

2. Inside: The factors within the organization enable this delivery. These can be diverse, including the product or service itself, the supply chain, operations, and technology. That is the means.

3. The bridge: And then the way a company conveys this value proposition to customers through marketing and branding. These are the messages and means through which the company communicates. That is the story.

This formula for business model innovations immediately gives us important questions about our own business model and how we can improve it:

  • What is the best possible experience that our customer can have? (Vision)
  • How can we organize to achieve this? (means)
  • What is the best brand identity to represent? (History)

We also find that the most successful business model innovators tend to compulsively focus on a particular aspect of their business assets and develop it innovatively and far beyond the previous one. That means they bring it to the edge, the absolute limit of possibilities, and thus create a completely new skill, which they then use to define or enable an exceptionally better value proposition for their customers.

Let's look again at some of the companies we've talked about to see how this works: where did they push it?

Amazon: The company's determination to incorporate its core technology into all aspects of customer relationships.
Apple: The obsession with the design of the user interface has created an ease of use that is the foundation of almost everything else Apple has accomplished.
Google: The obsession with generating user traffic on its platforms has led to growth of two decades.
Southwest Airlines: The obsession with reducing operating costs opened up a whole new business model and led to three decades of exceptional growth and success.
Walmart: The obsession with optimizing the supply chain is the foundation of his global retail empire.

The word "obsession" appears in everyone for good reason, and in fact in each of these examples it is a double obsession. Inside, it's obsession to optimize some aspects of the business. Outwardly, it is obsession to optimize the customer experience.

How business model innovators think

However, getting there may not be easy. Southwest Airlines had a near-death experience in the launch phase before a key element of its ultimately successful business model became clear. It took Google years to figure out how to make money. Amazon and Uber are still losing money, and Apple was still dying in 1997, and it wasn't until 2005 that its decades of persistence began to pay off.

How does it work in practice? Business model innovators often start with these questions at the same time in the foreground of their considerations:

The first is simple: what would improve the customer experience? Answering this question requires a detailed understanding of the tacit dimensions of the user experience.
The second is: how can we achieve this? That is the means.
The third question then focuses on the convincing story, the crucial importance of branding.

You can find these and other key ideas in my latest book, The Brand Bridge – How to Establish a Deep Connection between Your Company, Your Brand, and Your Customers.

At The Blake Project, we support clients from all over the world at all stages of development. Redefine and articulate what makes them competitive in critical moments of change. Please email us for more.

Brand Strategy Insider is a service from The Blake Project: A strategic brand consultancy that specializes in brand research, brand strategy, brand growth and brand building

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