What industry do you work in? Are you sure?
Thanks to the rapid pace of innovation lead by the tech industry, there are now so many creative ways to run a business that “the whole idea of industry classification is falling apart,” declares international business model expert Dr. Alexander Osterwalder.
It used to be that every industry had one main business model and could figure out its competitors. Banks collected fees and issued loans. Software companies charged for licenses. Telephone companies built networks and charged for minutes.
But today there are “more and more different business models competing in same industry so that the idea of ‘industry’ itself” is becoming irrelevant, Osterwalder says.
Osterwalder is known as Dr. Business Model. He’s a business model expert who has consulted for 3M and Deloitte, among others. He co-wrote the book “Business Model Generation” and sells an iPad app of the same name.
For instance, is PayPal a bank? Is Apple a retailer? Is Amazon’s Mechanical Turk a temp agency? Is Skype a telco? Is Salesforce a software company? Is Facebook a magazine?
In other words: businesses can’t tell who they are REALLY competing against. That means there are new rules to determine how your company competes (its business model). Here seven ways to help you win against all comers, whoever they are.
No. 1: More models are better than one. No matter how much money your company is making right now, your company needs multiple business models. Microsoft has more than $70 billion in annual sales and is flush with cash. It’s hard to argue with its success. But it makes most of its money from software licenses and that’s losing ground to other business models including open source (subscription support), ad supported, freemium, SaaS. Microsoft is trying to get into many of these new areas, with limited success so far.
No. 2: Rethink the competition. Apple’s genius isn’t just that it makes beautiful PCs and gadgets. It has turned those gadgets into new business models for a PC company. The iPod demolished the rest of the music playing industry because Apple built iTunes, where people could buy and store their music. Ditto for the iPhone, iPad, and the App Store. Apple decided to compete with Sony instead of micro-focusing on its traditional competition, Microsoft and PC makers like Dell.No. 3: Bring creativity to customer retention. If you can keep customers happy AND make the “cost” of leaving higher than than staying, customers won’t leave. Apple did this with iTunes by making it a hassle for iPod users to change devices. It used the MP4 (AAC) music format when most of the industry had settled on MP3, which made it easy for music to be played on many different players. To switch players, people would have to convert their entire music libraries to a different format.
No. 4. Bring your design skills. “Once you understand business models you can then start prototyping business models just like you prototype products. Sketch out different options,” says Osterwalder. You should see what happens when you try different options, such as different customers segments (mass or niche) or different purchase options (direct or through resellers).
No. 5. Test your business models. No matter how much thought and modelling you do, “you don’t know if it’s going to work. The only judge is the actual market,” says Osterwalder. So test as much of the model as you can in small batches. Test price, sales methods, talk to potential partners.
No. 6. Tell a story — in pictures. Once you decide on which business models you will pursue, try telling the company’s story in pictures. This is especially important if you’ve really come up with such a radically new business idea. Fire up PowerPoint or grab some sticky notes and draw it out, as simply as possible. Show how people will find your products, use them and how your company will grow.
No. 7. Do it all over again. “You want to think through five or 10 different business models before you decide. What happens if you give the product away for free? Charge $1 million? Where you partner with your biggest competitor (like Zynga and Facebook)?” Maybe you won’t need 10 models, but over time, you might.
The only way to prevent the hot new thing from disrupting your livelihood is to disrupt it yourself.