Business model innovation is how a company rethinks and repositions itself in order to impact the marketplace. The theory of business model innovation is that by providing a better solution to an issue, new markets can be created, new customers can be found, and businesses will grow. Business models are typically created with the intent of satisfying customer demand or dissatisfaction.
A business model innovation is defined by Fintalent’s business model innovation consultants as the creation of new value propositions and relationships with customers. It can also be done by changing an organizational structure or developing new technologies that enable changes in how products are delivered. Within business model innovation, you may want to check out Funders and Founders or even Investor Junkie. Funders is a website that not only gives you tips on how to get your idea off the ground, but also allows you to start searching for investors right away. You can begin by browsing through a list of companies featured on the website. This will allow you to search by company type (e.g., accelerator), location, and investor type (e.g., angel investor). Each listing details the company name and link, location, industry, number of employees, target funding amount and stage of business model innovation (idea phase), as well as target investment round amount. Once you narrow down the companies and investors you want to do business with, simply search for them by name, email address, phone number, or portfolio.
Examples of Business Model Innovations
In March 2015, Google announced that it was going to provide free app installs for Android phones in India in partnership with Micromax through its “Android One” program. In the past, to install Google apps on an Android phone, users had to pay between 15 cents and $1.50. In this case, Google was able to reach a different audience by lowering the price of its products. The “Android One” program enabled Google to sell ads more cheaply than it would have in other countries because of the different demands of the Indian market.
Another example of business model innovation happened in the early 1990s when Dell Computers informed their customers that they were going to start selling directly from their website. Back then online shopping was fairly unheard of and many people did not even own computers capable of purchasing things online. Dell’s website was a pioneer of online marketing and allowed the company to cut out retailers who were selling directly to consumers. By doing so, Dell was able to lower prices for their customers and reach a much larger audience than they would have if they had sold their products at traditional retail stores. This not only increased sales but it also provided much better service because customers could order products on Dell’s website and they would be shipped directly to them.
The way that Dell priced these products was slightly different from the traditional retail model (which we call ‘retail markup’) in which the retailer receives his or her revenue from manufacturers by selling products at a higher price than it costs for the manufacturer to produce them.
This model is illustrated by the traditional retail mark up using the formula:
Retail Price = Cost of Items Re-sold – Retailer Profit = Cost of Items Re-sold + (Retailer Profit/100).
Virtually all retailers follow this model because they sell on average between 2 and 3 times their cost of items sold. This, however, meant that Dell was able to charge drastically lower prices for their products because they were cutting out the middleman. After Dell had developed an online following and virtually become a household name, other computer companies started to impose a retail markup on their products and sell them directly from their websites instead of through retail stores.
Dell’s business model innovation led to the creation of a new category of products called ‘direct-to-consumer’, and it created a new way of reaching consumers by directly selling a product from the manufacturer to the consumer.
Business model innovations are created to meet the demands of the consumer in terms of price, quality, needs, or desires. Businesses must create new ways to generate revenue or cut costs by modifying their business models in order to remain competitive in the marketplace. Businesses also need to continuously innovate so that they can adapt to changes in the market and in consumers’ needs. Business model innovation helps a business develop ways to remain financially stable or even increase profits while at the same time meeting the demands of customers.
The concept of business model innovation was first mentioned by Osterwalder and Pigneur in their 2009 book, “Business Model Generation”. It describes business models as “blueprints” that describe how a company creates, delivers, and captures value. “Business model innovation is more of a process than an idea; it’s about continuously improving and innovating” said professor Matthew Dixon. He added that business model innovation is similar to the “creative process of artisanship”. According to professor Dixon, there are three parts to business model innovation: functionality (how the service works), features (what features go into your product or service) and design (the way in which the product or service looks).
Businesses must create innovative ideas and produce them in a way that ensures that they are able to compete effectively in their markets. Business model innovation helps businesses create effective strategies that will benefit their employees, create new products and services for consumers, as well as increase revenue and profit.
Steps for Business Model Innovation
i) Identify an issue that the consumer faces (usually a large problem) and come up with a solution to that issue. Only after achieving environmental fit should you move further into other aspects of your business model.
ii) Create a new business model around this issue to satisfy this need. This is a very dynamic concept because your proposed business can be challenged in many ways including by existing competitors, regulation, and by the existing marketplace. For example, Airbnb has been questioned over zoning laws in various cities since its inception.
iii) Build and operate your new business model. This is a very important step in the process. It can take many years to develop your business model.
iv) Once your business model is in place, you have a product or service that you can repeat over and over again without having to make much effort because the demand for it will get stronger and stronger with time. Therefore, this business model has the ability to create or produce a very constant stream of revenue for your company. This may become difficult for an existing competitor who has not yet figured out how to duplicate this new way of doing things, making it even more challenging for them to compete against you (see below).
How Business Models can Change
There are many ways that a business model can change. A business model can change through a “reinterpretation,” which may happen over time as you collect information about the market and about your current and potential competitors. For example, Airbnb does not have to re-invent the wheel with each city in which it operates. Instead, the company uses its research data on the demands of those markets, to refine its service in these cities over time. This allows them not only to provide an even better product than before but also to differentiate themselves from their competitors who have yet to react to this new offering.
The test of a business model is how successfully it manages to sustain itself without the need for significant capital investment. This means that when the issue that it solves is either an important consumer problem or a large enough market demand, the business model will be able to turn this into an ongoing revenue stream.
One of the ways in which a company can gain advantage against its competitors is to add new features and functions that are not part of their core product or service. This may be done through innovation or through acquisition. For example, companies like Nest, Fitbit and Tesla have all added features on top of their existing products to create new platforms on top of which they earn additional revenue. This allows them to create additional value from their existing customers and also attracts new customers who didn’t previously have access to these new services.
Key Takeaway: Business model innovation is about identifying both a problem for a consumer and coming up with a solution for it. This is done in a way that provides the customer with value and makes your company money through multiple sources. In order to do this, your new business must be able to answer key questions such as “What technology do we need?” “Who is our target customer?” and “How will we make money?” It is only after answering these questions that you can build your actual business model, which will be vital to achieving environmental fit and ultimately growing your business over time.
Summary:
Business model innovation is a process that allows a company to shift the way they do business so that they have long-term success. It creates an environment where the company can adjust over time and become more successful as a result. This can be applied to any industry, vertical market or type of company including startups and large corporations alike. Business model innovation is often confused with product innovation. It is important for a business to understand the concept of each in order to best position themselves for long-term growth in their industry.
