Knowing how to design business models for creating new market spaces and immobilizing your competition will be the ultimate business strategy skill for the 21st century. It doesn’t matter whether you are a local service business, a retail operation, or a manufacturer of industrial equipment, understanding the fundamentals of business model innovation will be key to your continued success.
1. Define Your Target Customer (and Your Peripheral Non-Customer)
The one concept I share that most shocks any of the audiences I speak to is the idea that the non-customer you currently ignore is almost as important as the customer you are currently targeting for your products and services. Of course I don’t mean just any non-customer, but the type of customer I describe as your “peripheral non-customer”.
Your peripheral non-customer is one that you do not currently target but could easily target given your mix of organizational abilities, relationships and assets. Very often, peripheral customers are being served by your neighbors in the value chain and by some of your indirect competitors. Forming the habit of thinking about and monitoring peripheral non-customers can help CEOs and leaders identify potentially disruptive market trends in adjacent industries.
2. Targeting Profit Zones
In his masterful book “Profit Zones”, Dr. Adrian Slywotzky clearly illustrates how profits can migrate up and down activity segments within the value chain, or along the lines of information-based vs. product-based value propositions. As an executive and business leader, your annual and quarterly strategy review sessions should include a clear program for monitoring where the areas of “high margin” return are moving to in your industry.
3. Developing Your Unique Selling Proposition
In the decades since Rosser Reeves first publicized the concept of a unique selling proposition, lazy managers and business executives have increasingly abdicated their responsibility to search for business model innovations that can be crystallized into a short, concise and memorable selling argument.
If you carefully examine competition-destroying businesses like Cirque Du Soleil and Southwest Airlines, you will find that beneath the smiles and favorable customer reviews lie unique business designs that can be communicated in a unique selling argument.
4. Shutting Out Your Competition (Strategic Control)
One of the most powerful insights you can have in your business is a strategic business mapping tool known as the “strategic control index”. This is a very simple but powerful framework for identifying whether your business model covers enough points to dictate or control the moves made by your competitors. Some points on the strategic control index include elements like:
- Having a commoditized product with a 20% plus cost advantage
- Ownership of a clearly differentiated brand
- Ownership of the key customer relationships
- Dominance of the key communication and distribution channels
- Ownership of Industry-wide standards
When you are able to place your organization and competitors on a map that clearly indicates who owns which strategic control points, you will generate business model innovations that acknowledge the most important competitive realities in your industry.
5. Scoping Out Your Blue Oceans
Perhaps the most important single business (and marketing) strategy decision you can make after customer selection is in the scope of your projects and your services. These two elements are necessary prerequisites for developing a relevant and marketable value proposition. The “Blue Ocean” strategy as articulated by Dr. W. Chan Kim and Renee Marbougne provides a very useful set of tools for making decisions on the scope of your offerings.
They conceived of a tool called a strategy canvas which graphically maps out factors that the customers care about and how various competitors accounted for, and combined those factors to create their business designs.
Domino’s Pizza disrupted the Pizza industry by emphasizing factors like speed and delivery while intentionally reducing or cutting out other factors like sit-down restaurants, taste tests, etc.
Carefully consider the profitability of every offering you make available to the marketplace. Design your business model to cater to clearly identified customer priorities rather than industry traditions, personal intuition or hearsay. Your profitability will depend on it.