Pop quiz: Why is a business model, and the strategic value proposition that binds it together, often treated as if it will stand the test of all time?
Is it because the core market need is constant?
Is it the fear of scrapping existing assets (infrastructure, business knowledge, and/or people) and the historical cash flow they generate for the unknown?
Or, is it just flat out hard to embark on change?
If you answered any of these, as true as they might be in a singular moment, sorry you’re wrong.
In reality, competitive business models that make sense today will almost certainly be outdated or even obsolete tomorrow. Let’s explore why in practice this is missed.
We did everything they asked for, but still…
Because of the complexities, uncertainties, and potential disruptions inherent in every business environment our operating processes, and by extension our expectations, incorporate a level of flexibility… just think rolling forecasts, mass customized marketing initiatives, and on the fly process adaptations. This baked in flexibility acts as a masking agent. Which results in, organizations too often not realizing they have a business model problem before it is too late.
The signs are there but often go unrecognized or worse yet ignored. It is just too easy and convenient to think that:
- Because the category and everyone in it isn’t growing there is no need to worry.
- Sales, marketing, or some other operational area have gotten lazy and needs to get up to snuff.
- Customers are becoming service agnostic because our category education efforts were successful.
This misinterpretation of strategy challenges as problems can be deadly. Strategy issues are serious, and the longer it takes to recognize them, the more money, time, and people you’ll burn taking on the wrong initiatives.
Knowing when to jump the Life-cycle Curve
The question is how can we identify when its time to pull the plug and move on? Our best defense is improving our understanding of a model’s environment, how it works, and most importantly how its breakdown is likely to express itself.
In the January – February edition of Harvard Business Review Sarah Cliffe interviewed Columbia Business School professor Rita Gunther McGrath in an article titled “When Your Business Model is in Trouble”. One of the key questions asked was, “What are the signs that a business model is running out of gas?” According to Professor McGrath’s research the primary tell tale signs are:
- Service innovation falls flat. Your people have trouble thinking of new ways to enhance your offering.
- Commoditization is creeping into the market. Customers are saying that new alternatives are increasingly acceptable to them.
- Financial statement surprises. Problems start to show up in your numbers or other performance indicators.
Secondary signs include:
- New kinds of competition. New entrants, either from adjacent markets or start-ups unconcerned by the erosion of core revenues, appear.
- The ‘rules of the game’ are changed. Advancements in technology or regulatory shifts enable new players to come into a market and address a need your business already serves, but in a new way.
- Unmatchable execution. A business succeeds cementing its dominance by erecting strong protective barriers, such as getting others in the eco-system to stand with them against competitors, which make it very difficult to compete directly against them.
The call to action: Be remarkable
…to your constituents (customers, sponsors, key partners) everyday, that is the essence of what drives today’s successful businesses. It determines:
- what gets talked about
- what gets funding
- what gets changed
- what gets purchased
- if you continue to survive
Remarkable is a really cool word. Most of us think it means just neat. But it also means worthy of being noticed especially as being uncommon or extraordinary. So, how do we determine what’s remarkable? We do as Steven Blank preaches; we get out of the building and listen to prospective customers.
Who are you listening to?