Eight Ways to Rethink Your Business Model
Many businesses today are stuck in a commodity mindset. You hear them say things like, “All customers want is the lowest price.” Or, “This is a mature market.” Or, “You have to move manufacturing to China to survive.”
Whether you’re a small operator, a startup, or a large multinational, it’s easy to give in to accepting prevailing beliefs. Often they’re industry assumptions. Sometimes they are company assumptions (“we don’t have the capability to pull that off”). And sometimes, they are personal assumptions (“I’m not creative” or “An individual like myself can’t impact an organization as big as ours”).
Regardless of type, my 25 years working with companies large and small, and with all manner of industry groups shows consistently that winning firms are those that don’t get trapped into conventional wisdom. Their leaders make it job one to challenge assumptions. They take time regularly to rethink. Use this list below to start a rethinking revolution in your firm:
1. Rethink what everybody in your industry knows to be true (but may not be)
A decade ago, if you were a furniture manufacturer in the United States, the assumption was: “You have to move manufacturing to China or face the inevitable.” The industry was hard hit, but not everyone caved. Bassett Furniture, based in Virginia, got busy rethinking its options. They cut costs, partnered with their workers, and invested in cutting edge equipment. Then they rethought what their dealer network needed most for it to survive. Today, Bassett ships custom orders in 24 hours, its retailers carry less inventory, and enjoy favorable financial terms. Meanwhile, the China Price differential is disappearing as its wages, raw materials and shipping costs continue to rise. “Many companies that offshored manufacturing didn’t really do the math,” says Harry Moser, founder of the Reshoring Movement. “As many as 60 percent of the decisions were based on miscalculations.”
2. Rethink how you sell
The market research industry’s standard practice was to call upon customers to obtain research contracts. Research projects were then conducted on a proprietary basis. But J.D. Power went in a new direction; he rethought the research business. Bearing all the costs upfront himself, he investigated the auto manufacturers’ customer experience. Then he sold his findings to the car companies for a hefty price. Customer satisfaction standouts were given the right – for an added fee – to advertise the proud results. But only if they paid did they have the right to claim that they were “number one in customer satisfaction, according to J.D. Power.”
3. Rethink the markets you serve
Like a lot of hard hit “commodity” paper companies, Mohawk Corporation, of Mohawk, New York, was hit hard by the digital revolution and the “paperless office” trend. Mohawk’s customers were cutting back and cutting out printing. What to do? Mohawk was advised by consultants to cease operations, but they exited the low end of the market, and activated the opportunity mindset. First, they boldly launched an online operation to create personalized stationary. They joint ventured with online websites for customers who create their own coffee table books. And they began selling pricey “superfine” paper to customers who wanted to design personalized holiday cards. Result: 2013 revenues increased 17 percent to $410 million.
4. Rethink what you guarantee
In 2008, during the depths of the Global Economic Downturn, car buyers stayed away from dealer showrooms in droves. Sales at major automakers were down 30 to 50 percent. Rebates weren’t working. But Hyundai North America got busy rethinking industry assumptions. Instead of playing the rebate game, they asked a different question: “Why aren’t customers buying cars?” The question unlocked new creative space. Result: Hyundai began offering customers a “one year no cost return guarantee.” If you lost your job in the 12 months after purchasing a Hyundai, you could return the car for free. Result: sales were up at Hyundai 14 percent.
5. Rethink your customer’s solution
Often, business models get established on a partial solution for the customer. Nobody challenges them for decades. But then someone rethinks what “total solution” would look like in the eyes of customers. That’s what happened when Apple introduced the iPod-iTunes solution. The iPod alone would not have had much impact. But combined with iTunes and the ability to purchase songs for a dollar, the consumer got a complete music solution for the digital age.
6. Rethink how you price
In the jet engine business, the over-riding assumption was: “Use engine sales as a loss leader to secure the lucrative business of selling replacement parts.” But GE Aviation did a rethink. As a result, they upended the industry model by offering customers a bold new choice. Airlines could now buy “power by the hour.” Instead of purchasing jet engines, they could opt to be charged on the basis of uptime, or per hours of use. They could purchase a package that included engines, parts and maintenance, repair and overhaul services.
7. Rethink your customer’s needs
Clayton Christensen is best known for his theory of disruption. But another of his ideas, in this writer’s estimation, is by far his more useful: jobs to be done. Christensen posits that consumers “hire” products to get certain jobs done. The commuter facing a 90-minute drive home in heavy traffic “hires” a milkshake to relieve the tension and tedium of the commute. We “hire” a dishwasher to clean our dishes. Over time, businesses tend to make all kinds of assumptions about what jobs their customers need to get done. Meanwhile, customers’ needs change. By consciously identifying “jobs to be done,” you will often find new and emerging opportunities ripe for exploitation.
8. Rethink your revenue model
For years, Blockbuster dominated the movie rental business. In 2004, they had over 9000 stores. But then came Netflix with a new revenue model: instead of charging customers per daily rental (and adding on late fees), Netflix offered customers movies by mail just as fast as you could watch them and return them. Consumers loved the new subscription model. And Blockbuster began its painful decline. For years, auto insurance companies sold policies based on a person’s driving record and age. Progressive Insurance rethought its revenue model and offered policy-holders a new choice: pay by the mile, and time of day you drive.
These eight strategies are only the beginning. But what’s important is taking action, wrestling with the prevailing beliefs, and pushing back on commodity thinking. For my tips on setting up a Rethinking Session in your organization, see my blog.
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Robert B. Tucker is the President of The Innovation Resource Consulting Group. He is a speaker, seminar leader and an expert in the management of innovation and assisting companies in accelerating ideas to market.
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