The pandemic has given us all an opportunity to build a new business future. Market disruption equals opportunity for those willing to look and work for it. This is the time to adjust and innovate your business model to market conditions.
During COVID and the VUCA season it has created, we have seen ample reason for companies to adjust their business models. There are three main catalysts for business model innovation: market contraction or expansion, introducing a new product or service, and/or trying to attract new customers. These three factors have been increasingly present over the past year.
In fact, both market contraction and expansion have occurred on a level rarely experienced. Some industries have seen not only growth but also new opportunities that have sprung up from contraction in others. Offerings like specialty cleaning services, clothing companies making masks, delivery and shipping services, and more have expanded. In contrast, travel and tourism, in-person entertainment and events, and optional healthcare services have contracted.
Some of the contraction has been due to lack of access to raw materials, which affects both the processor and the consumer. In other cases, the upswing in demand of a service like food delivery means restaurants must work within a limited supply chain in order to deliver value.
How do you know if you need to innovate your business model? When there is disruption and any of these conditions are met, you must innovate because the old model is no longer relevant.
Business Models and Delivering Value
In its simplest form, a business model outlines how you help your customers and how you get rewarded for it. It’s how your organization delivers value to and then collects value from your customers.
Your company delivers value by creating solutions that the market needs now. When you deliver meaningful value, the market rewards you with customer relationships, profits, and a future. If these three are not happening, you do not have a sustainable business. You must have focus on all three. If you just focus on profits, you are at the lowest level of business: transactional and not very sustainable. If you develop relationships with the market and create a strong brand, this in turn sets you up for the future.
Six Types of Business Model Innovation
If today’s economy has forced you to reevaluate your business model, this is the time to make it clearer and more direct. There are six main opportunities for innovation in your business model:
1: Value Proposition Innovation
Make sure your value proposition is simple. Do not assume that your customers understand the value that you provide. You should consistently remind them of your value proposition. Be clear and contextual in your communication with customers and suppliers. Make it direct so that customers can connect their needs with your offering.
2: Pricing Innovation
Evaluate whether your pricing strategy allows you to generate enough profits and is sustainable to help you grow into the future. For example, if you had an in-person offering that you are now taking virtual, your cost structure will change. While the value of the offering may still be the same, the cost to deliver may have changed. You may have additional costs in the form of technology, additional sessions, or customer service. You may have reduced costs, in the form of meeting space, supplies, and hard costs. You need to take all of these factors into consideration when determining the price. Do not make the mistake of making the assumption that virtual is cheaper. Review your numbers and optimize the pricing accordingly.
3: Customer Acquisition Innovation
Review how you connect and develop relationships with your clients. How well are you convincing them to buy your solution during this stressful time? Remember that convincing someone to buy during a trying time is much harder, so you cannot use old tactics. You need to have a different level of relationship and a different approach. Where can you access and communicate with your customers? Who influences your customers? What influences your customers? The answers to each of these questions take deep thinking and research, and they are always changing. This means you need to consistently evaluate and update your customer acquisition strategies.
4: User Experience Innovation
Measure if you have made it easier for your customer to access your solution during this period, especially digitally and virtually. Are your customers appreciating the value of your solution the same way they used to appreciate it when they were using a different channel? Do you have an opportunity to deliver more value with the current user experience that your customers are having? The more actions people have to take to access your solution, the more likely they will not purchase it—this creates friction, or poor user experience. Experience your product and the process through the eye of your customers. Do you have the best user experience possible for the offerings you are providing? This is another opportunity for regular evaluation and updates.
5: Profit Model Innovation
Record and evaluate the activities you need to deliver a solution to your customers, or for your customers to receive your solution. See if you can reduce, combine, and simplify those steps. The more you can optimize this process, the more you can see increased profits. Take these same steps with raw goods and other procurement.
6: Channel Innovation
Try to make your solution less resource dependent so you can deliver it faster, better, and cheaper. Make it easy for your customers to access your solution. Invest in whatever makes the process easier. Get clear and make sure you understand every step in the workflow that must be carried out to deliver the solution to the customer and for the customer to receive the solution.
Optimizing your business model requires an integrated approach of these six elements and a reevaluation of how one impacts the other. Taking the time to innovate your business model now will give you a more sustainable business, clearer inputs, better profits, and an enhanced future.
Originally published by Innovation Management, February 25, 2021. | Featured image via Unsplash.
