Netflix ousts Blockbuster. Starbucks creates a rapidly growing revenue engine that every local coffee shop missed and is poised to steal share from bland-tasting Maxwell House and Nescafé on grocery store shelves. Amazon disrupts not just booksellers Barnes & Noble and Borders, but also Target and Walmart, with its no-bricks-and-mortar business model strategy.

All too often leaders of established businesses act like horses pulling carriages in New York City’s Central Park, wearing blinders to avoid distractions. Which brings me, a political independent, to the narrow thinking of Wisconsin’s Republican Gubernatorial candidates on high-speed rail transit connecting Milwaukee, Madison, Chicago and, eventually, Minneapolis, St. Paul.  The two candidates are loudly against the investment at the Federal and State levels, while their Democratic opponent favors this investment.

The Republican candidates along with other opponents of high-speed rail argue that no Wisconsinite is going to take the train to go see his mother or make a client visit in another city, because cars are faster and more convenient. As a result, the trains will be a financial disaster. These critics are thinking about the future with eyes on past and current behavior.  They are judging the behavior of the current workforce, not thinking about those who elected to not to live in Wisconsin or how our work force will change as the baby boom cohort retires. As a result, critics are missing the entire argument for why trains are essential to Wisconsin’s future.

Wake up Walker and Neumann.  Beyond the close to billion dollars of needed economic stimulus, the trains will make our two largest metro areas a more attractive location to live, work, and play, drawing outsiders to our region and slowing if not reversing the “brain drain” that is worrying the majority of people in the state.

Ask my 20-year old daughter out of the blue about the train, and she says, “Awesome, Mom. I’d have access to jobs in three cities if I moved back here from Maine after college.”  Generation X and Y are moving to large urban areas, where multiple job changes within an industry or profession are possible without disrupting childcare, schooling, professional networks or friendships.  Milwaukee and Madison both fall short in meeting this location consideration, but with a train connecting our two leading University centers to Chicago we’d be considered more often as a location for careers.

We’d not just create a more level playing field by connecting our cities, we might secure a competitive advantage as the affordability of our cities and ease of living in Wisconsin sure beat that of LA and many other large labor markets that are drawing recent graduates and young couples ready to start a family. Our expanded market would not just be large enough to build careers within, we’d also create an expanded market for businesses to sell their products and services within.

In addition, the effort to transform the Milwaukee Airport area into the Midwest’s distribution hub would benefit from the high-speed rail extension, as would tourism if we were smart like the Europeans and created biking, hiking and sightseeing tours connecting our cities. Summerfest could expand, students trying to complete overcrowded degree programs would have more options, and the list of beneficiaries goes on and on.

Many readers may not know or remember that Wisconsin lost many of its community-enhancing corporate headquarters starting in the 1950s as a result of acquisitions by out-of-state companies, a loss that has lowered our per capita personal income relative to the nation and many surrounding states. The companies that lost their independence to forward-thinking competitors often did so because Wisconsin leaders assumed drivers of industry success would not change.  They and our political leaders at the time were blind to size becoming a key success factor, forcing consolidation in industry after industry. In their conscious and unconscious decisions to stay small and conservative they failed to conserve jobs and income growth in our state.

Let’s not do it again.

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For insight on business model strategy, read my recently released book, Beyond Price.

Instinct is an important ingredient in business model strategy decisions. A winning business model strategy addresses a multitude of questions with answers that fit together seamlessly to carve out a unique space, a task that is very challenging in increasingly cluttered and mature markets. According to New York Times bestselling author Jonah Lehrer in How We Decide, instinct emerges from the part of our brain best designed to find answers to complex questions, the part of our brain in which creative connections arise. No wonder intuition advances our abilities to engage in business model innovation!

Lefebvre’s instincts told him to experiment with a temporary (a.k.a. “pop-up”) restaurant, one that exists only for a few weeks and then disappears. The parallel that gave rise to the concept in the creative chef’s mind was renting an apartment versus buying a home, offering less risk and more opportunity to experiment. In the last few years, the pop-up concept has been especially popular with retail stores and location-specific art installations and performance spaces.

Lefebvre’s first pop-up restaurant, LudoBites 1.0, was located in a friend’s bakery. Sandwich shops and other spaces with daytime-only customer bases provided the canvases for the next four pop-up experiences. Lefebvre changes the menu with each new location, employing student chefs as staff.

One measure of success is the speed with which tables are reserved. Krissy Lefebvre, the chef’s wife, shared in the NPR interview:

“Reservations for the current iteration, LudoBites 5.0, were snatched up in less than 20 minutes online. Most restaurants don’t announce reservations and have 3,000 people come on at once. I mean, it’s really like releasing a concert.”

The pop-up concept is more than an opportunity for Lefebvre to take holidays in between iterations. It’s a brilliant disruption of the gourmet restaurant dining experience. Elite foodies pay an exorbitant premium price for a Michelin 5-star dining experience because of its scarcity–only about 80 chefs earned 5-star ratings last year.

With LudoBites’ pop-up concept, uniqueness is magnified because there is a limited time to experience the restaurant before it is gone forever.  If customers miss this opportunity, they have to wait months before they can experience Lefebvre’s magic. At the same time, costs (and therefore prices) are lower due to temporary locations and staff.

Lefebvre deployed his many talents and leveraged his reputation to create a unique market space that allows him to work less while earning more. What does your intuition tell you about how to best differentiate your business and deploy your talents?

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For insight on business model strategy, read my recently released book, Beyond Price.

Collaboration yields victories previously thought unachievable

Two vastly different news stories, one about Alzheimer’s and the other about dollar stores, together convey an important strategic leadership lesson about the importance of alignment with partners in achieving an organization’s goals.

Dollar stores (Dollar General, Family Dollar Stores and Dollar Trees) are growing rapidly at the expense of Walmart. Recently the dollar stores have added a lot more branded products e.g., Kraft, Heinz and others. Better packaged food selections, plus dollar stores’ closer (than Walmart) proximity to low-income neighborhoods has attracted new customers and larger shopping trips as rising gas prices increase the cost of driving to Walmart.

Lipton Cold Brew Iced Tea and Jello No-Bake Cheesecake in a dollar store? I suspect that after decades of Walmart’s ruthless purchasing practices, consumer goods companies seek any opportunity to diversify their channels to gain supplier power to fight Walmart’s Herculean purchasing power.

Two recent examples demonstrate Walmart’s incessant drive to secure lower prices:

Walmart recently told suppliers that Walmart’s fleet would soon pick up its purchases. That’s great for Walmart, lowering its shipping rates, but it will raise shipping rates to Walmart’s competitors. Volume drives shipping costs after all.

This past week I learned that a leading branded product – an esteemed brand whose name is the name of the category – sells every Walmart unit at a loss. Why? Walmart’s “Take this price or we’ll carry a different brand” purchasing philosophy is to blame. Because losing the Walmart volume would price the company out of other channels, this company takes Walmart’s win-lose deal. (Confidentiality precludes my sharing the name of the brand.)

Switching gears, scientists in academia, the US government, drug and medical imaging companies are sharing data as part of an unprecedented “collaborative effort to find the biological markers that show the progression of Alzheimer’s disease in the human brain.” The 10-year old project now serves as a model for efforts to cure other diseases, like Parkinson’s.

According to one participant in the Alzheimer’s work, “…we all realized that we would never get biomarkers unless all of us parked our egos and intellectual-property noses outside the door and agreed that all the data would become public immediately.” Terrific findings are being generated, with the prospects for better (patent-protected) drugs and diagnostic tools around the corner.

I love this example of collaboration because our culture increasingly contains an “Eat what you kill” norm, in which everyone seems to be out only for himself and those he loves. One measure is that social outcomes unacceptable in decades past – unemployment rates of 50%+ for black youth and many middle class families using food pantries – are now taken as unsolvable problems.

The scientists on the other hand recognize that in most cases we are stronger together than we are apart. Collaboration with partners to achieve a common goal enhances shared success, which then circles back to make us stronger. Medical companies in the Alzheimer’s project will likely find leading positions in billion-dollar markets.

Walmart on the other hand dictates terms and cares not for the carnage. That approach worked when they were the lowest price game in town. It spells trouble now that dollar stores, Tesco, Aldi and Amazon are building business models that challenge Walmart’s lowest cost position.

Our nation faces thorny problems whose solutions will create new markets but likely require many organizations’ expertise. Walmart’s approach, I suspect, will leave it isolated and less competitive in an economy requiring collaborative efforts. Winning companies in the new economy are not just aligned internally around their value promise, they are aligned with all their outside partners to build a stronger overall value-chain.

Strong business models are anchored in hard-to-copy advantages. Collaboration with outside partners, as well as internal alignment gained through a collaborative culture, builds stronger advantages. What are you waiting for?

The rock bank legend Three Dog Night’s observation – “One is the loneliest number that you’ll ever do” – refers to business, not just love.

Exercise:
Sit down with a blank sheet and draw the value chain for your company – the major steps, support services, suppliers and partnerships that get your product or service to its customers and, if you are a B2B company, their customers. Include material suppliers, channel partners, and other important contributors to your success. Also place the name of competitors and complementary product companies on the page. Then ask: “What’s in no one organization’s vested interest to do that done together would advance our shared well-being?” Now do the same exercise taking a community perspective in lieu of an industry perspective.

Your answers may reveal new or different kinds of relationships with your suppliers, your competitors, non-profits or Chamber of Commerce members, relationships that can enhance your organization’s value promise, talent pool or market reach.

• Established decades ago as a niche technology company
• Successfully executed many technology evolutions and disruptions
• Earned price premiums for decades due to outstanding service and quality
• Survived the 2008 decline – hardest years in the leader’s professional life
• Previously distant competitors (by geography and technology) are moving into his markets intensifying price competition
• His largest direct competitor is now offering “one-stop full-line” solutions which are far more comprehensive than his company’s niche offerings

Furthermore, his company’s sales force used to work directly with buyers, with relationships keeping win rates high. Now an online bidding system decides which company gets each order. After becoming “qualified” to compete by proving his company meets quality and service standards, his company must bid anonymously online against other qualified suppliers. There is no feedback on why his company won or lost or how his company’s prices compared to that of the competitors.

Welcome to the “new-normal” for B2B companies in a flat to declining economy.

Age-old stories are contained in this company’s story.

• One story is the maturing of technology, creating easier entry and a closing of feature gaps by competitive technologies, both of which create a more competitive playing field. Once low-end copy-shops are now doing high-quality print work.

• Another story is the growing strength of the channel-loaders, the companies that enter into maturing technologies and bring a full-array solution to customers. These companies can completely eliminate market opportunities for companies supplying only selected technologies to the same customer group. When anesthesia equipment companies built machine and patient monitors into their anesthesia machines, they significantly reduced the sales of stand-alone monitors into the OR.

• The third story is disruptive innovation, stripped down versions of a given technology that lower price points, open new markets and steal share from existing markets. Notebook computers did just this.

• The final story is the disappearance of technologies as they are replaced by newer, better technologies. Remember how every household once had one or more land lines?

Technology is changing more rapidly in today’s economy. The fast pace of change often results in leaders become focused solely on their company’s technology strategy, seeking technology advances for the sake of remaining on the cutting edge. This is a mistake as technology decisions get made without a larger market-context.

Instead of asking “How can I move into the new technology?” leaders should ask the following types of questions:

• What do (or could) we uniquely do with each new technology? Which customer groups would most benefit from this? What business would we need to be in to best serve this market?

• What are the unmet needs of the customers we now serve or could serve? What frustrations and compromises do they experience dealing with today’s technology and companies providing it? How might new technologies solve these problems in ways competitors could not easily duplicate?

Understanding technology trends certainly informs these conversations. The answers should be defined for today’s technology and technology you could add. But the focus is on customer needs and solutions, which should always remain front and center.

Never forget that a business only exists if it can profitably solve customers needs better than the customers could solve on their own. Technology is a means to an end and not an end in itself.

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For insight on business model strategy, read my recently released book, Beyond Price.

In today’s economy, “status quo” is any company’s weakest strategic direction as the world is changing more rapidly and unpredictably. While forecasting the future is impossible, understanding dynamic trends and their implications for your organization’s risks and opportunities is paramount for making solid business model strategy decisions. In McKinsey’s words:

“Managers must also gain an understanding of deep external forces and the narrower trends they can unleash. In our experience, if senior executives wait for the full impact of global forces to manifest themselves at an industry and company level, they will have waited too long.”

McKinsey consultants and I say the same thing to our clients: Rather than “external trends” being a “check the box” step accompanying annual planning, it is vital that leaders keep emerging trends front and center every day. Doing so will ensure that current decisions are not divorced from how the world is unfolding, sometimes slowly albeit decidedly.

The five global trends that McKinsey feels will define the coming era are:

• “The great rebalancing. The coming decade will be the first in 200 years when emerging-market countries contribute more growth than the developed ones. This growth will not only create a wave of new middle-class consumers but also drive profound innovations in product design, market infrastructure, and value chains.
• The productivity imperative. Developed-world economies will need to generate pronounced gains in productivity to power continued economic growth. The most dramatic innovations in the Western world are likely to be those that accelerate economic productivity.
• The global grid. The global economy is growing ever more connected. Complex flows of capital, goods, information, and people are creating an interlinked network that spans geographies, social groups, and economies in ways that permit large-scale interactions at any moment. This expanding grid is seeding new business models and accelerating the pace of innovation. It also makes destabilizing cycles of volatility more likely.
• Pricing the planet. A collision is shaping up among the rising demand for resources, constrained supplies, and changing social attitudes toward environmental protection. The next decade will see an increased focus on resource productivity, the emergence of substantial clean-tech industries, and regulatory initiatives.
• The market state. The often-contradictory demands of driving economic growth and providing the necessary safety nets to maintain social stability have put governments under extraordinary pressure. Globalization applies additional heat: how will distinctly national entities govern in an increasingly globalized world?”

The greatest long-term danger of the current economic malaise arises when leaders become so focused on current business conditions they fail to invest enough mental and change-management energy in business model innovation. Focused on today, they fail to create a company that will thrive in emerging conditions.  McKinsey’s report is a good reminder to take a longer-term view and align today’s business model strategy and execution decisions with shape-shifting trends sure to drive your market opportunities and risks.

Don’t wait to be certain about how the future is unfolding. You’ll face greater risks if you do.

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For insight on business model strategy, read my recently released book, Beyond Price.

Jobs's iPhone 4 antenna decision veered Apple off course

The blogosphere is aflutter with talk on Apple’s recent customer satisfaction issues linked to the new iPhone 4’s antenna design. A quiet whisper turned into thunderous noise once Consumer Reports decided to not recommend the phone because calls are dropped if the antenna is covered while in use (for example, by the user’s hand holding the phone).

Much of the on-line conversation centers on public relations lessons and a debate about the sensitivity issues of the iPhone versus competitive products. (For a good assessment of the PR lessons for Apple, see The Leadership Playlist blog.)

There is more to this lesson than public relations.  I think in terms of business model and strategic leadership, and I believe Jobs ignored Apple’s business model in resolving an internal debate about the antenna, a product design decision that I’m confident Jobs now regrets.

Apple’s value promise includes two key benefits for which customers are willing to pay a price premium. One is an owner appearing “cool” or “savvy,” as the company’s products offer among the most elegant looks on the market for technology products (for most products, as a matter of fact). But a key driver of Apple’s recent financial success has been growing adoption of Apple products for business (as opposed to school or home) use. And in the business world, the benefit promise that converted PC and Blackberry users to the Apple brand is that the company’s products “save you time and minimize frustration.”

Genius ergonomics make Apple products effortless to use. I recently cared for my 87-year old mother, a woman who quickly mastered the iPAD, without prior experience with Apple products. (Try teaching your elderly Mom to use a Blackberry.)  Apple’s effortless products also enable users to better manage more digital information, making Apple products time-savers in our lives. I’ve argued before that Apple moved into Applications faster than its competitors because saving time and minimizing frustration are the essence of Apple’s brand promise.

Jobs placed “cool, elegant design” before “saves you time and minimizes frustration” in deciding on the antenna design, and that was a mistake.

When your business model value promise is multifaceted, it’s vitally important that leaders not advance one element of the promise at the expense of another. Rather, strategic leaders force their team to find the collaborative break-through solution that advances both elements and therefore overall value.

Apple’s first solution to the problem–offering a free bumper case to all owners–contradicts both value promises.  Early adopters now have to take time to order a bumper case or get a refund for one they’ve already purchased and the iPhone looks considerably less sleek with the requisite case.  Eventually Apple will figure out the antenna solution that delivers effortless time savings, while retaining the look of the thin iPhone 4. Apple’s delay in doing this wasted its customers’ time and increased frustration, costs that could have been avoided if Apple had acted more proactively.

A leader steeped in business model innovation can avoid the costly issues Jobs had to leave his vacation early to resolve. Keep your value promise front and center at all times and train teams to align their decisions to meet or exceed this promise. Unlike Jobs, you’ll be able to finish your vacation.

In Saltzburg, an imposing castle stands atop the city. (The photo is an IPhone shot I took in Salzburg.) Indeed in most significant Austrian cities there are castles or grand churches hundreds of years old, each so stately it defines the character of the community.

I can’t help but wonder how the imposing presence of the past impacts those who live in Austria today.  Unlike the US which grew steadily, the Austrian-Hungarian empire significantly shrunk following World Wars. How does this affect the cultural norms passed from generation to generation?

Yet in many ways Austria is far more modern than the US. Austria has the highest production and consumption of organic food within Europe according to Fodor’s.  By the end of our trip, Nick and I will  have biked over 210 miles, 90%+ on bike paths safe from road traffic. And there are hundreds of more miles we will not cover. Hallways in hotels old and new have motion sensitive lighting, while solar panels cover far more roofs than I’ve seen covered in the US. (The roofs by the way are tile-built for life.) The Danube River is dammed at many points to capture its current for electricity, but boats and fish still travel downstream and upstream thanks to large locks built into every dam.

Linz is an old industrial city that has reinvented its business model (yes, cities have a parallel to business models) as a European Cultural Capital, with tourists filling its lively streets and performances.  The industrial base has also reinvented itself according to the Linz write-up I read. Milwaukee could learn something from Linz just as Wisconsin could learn a lot from Austria’s tourism approaches, so friendly to bikers, hikers and motorcyclists alike.

Austrians’ love for their land is visible even to tourists.  Edelweiss, the Sound of Music’s  closing number in which the Austrian Von Trapp family leaves Austria to avoid the father becoming part of Hitler’s army, sounds even more sad as I recall it. A tour of Mauthausen’s prison camp where 123,000 innocent Jewish people, Russian prisoners of war and Austrian resistance fighters were killed reminds visitors (many of them Austrian students on the day we visited) of an ugly part of the country’s past.

The best cultures are ones that honor values from the past vital to success going forward. Values that no longer serve the greater good are weeded out. Strong cultures, like that in Linz,  are not just open to changes required by the times, they proactively capitalize on the need to change in ways that create a stronger future.

Great leaders astutely identify the values that must be left to history while reinforcing the values that will create tomorrow’s works of art – the outcome of our collective efforts.

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For insight on business model strategy, read my recently released book, Beyond Price.

Years after his business model innovation, Bob’s firm finds itself in the toughest macro conditions of its lifetime. (Bob’s firm serves real estate developers and building owners in Orlando, Florida–a market very hard hit by the recent recession). Yet his company is still making money.

What about Bob’s industry peers? About 10% of the 275 US plants in his industry have already shut down, unlikely to ever open again. Furthermore, Bob and his team have stayed out of the nasty bid market in which contractors and subcontractors win business, only to squeeze out little or no profit.

I keep thinking about the other companies in the precast-prestressed concrete industry. I worked with forty companies for about two years and stay in touch with some of them. Most know of Finfrock Industries remarkable story of transformation, yet none have followed fully in Bob’s footprints. “Why?” I ask. “Because we’re precast firms, not contractors,” they answer. They thought the risk of competing against their customers (general contractors) was too high relative to the return of becoming the general contractor on projects.

I find this situation very sad. An entire industry could and should have been transformed. Instead, just one leader discovered the promised land of competing with a new business model.

One of the most important strategy decisions you make as a leadership team is: What business are we in? Don’t leave the answer to this question to history, your competition, or serendipity.

What business are you in? Find an answer that uniquely addresses an important issue facing a target market with the ability to pay for that answer. Bob redefined his business to give owners and developers more build features for their dollar, in a shorter period of time, and with less schedule risk. No wonder he’s succeeded on every measure.

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For insight on business model strategy, read my recently released book, Beyond Price.

Any mother can speak eloquently about the challenges of getting her child to eat healthy foods, with vegetables the most daunting. Yet, sales of Vidalias onions are way ahead of last year’s numbers – because of kids.

A savvy campaign involving Shrek, a beloved ogre staring in Dreamworks’ films of the same name, deserves the credit. The onions are displayed with pictures and a giant blow-up of Shrek in the grocery store, complete with recipes like Swampy Joes. Kids, according to the June 28, 2010 Wall Street Journal, are clamoring for Moms to buy Vidalias onions and cook the meals that Shrek and his friends enjoy.

What’s good for kids is good for the onion business. Victory, at last, exclaims this Mom.

I hope Kraft and other packaged goods companies are paying attention. Packaged food companies are facing enormous pricing pressures from a consolidating customer base (Walmart, Target and regional chain grocers). Furthermore, retailers can easily backward integrate into copycat versions of branded goods products thanks to the existence of private label food manufacturers. Net result: Kraft and its competitors are stuck in commodity-market quicksand. They keep cutting costs to maintain earnings expectations, a non-sustainable business situation.

The food companies that help parents raise kids with healthy eating habits will build brands that matter to parents. More and more parents are willing to switch purchases (from other food to onions) and pay a premium price (Vidalia versus generic onions) for this value-add. When will companies wake up?

What can your business do to solve an important social or environmental problem otherwise unaddressed?
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For insight on business model strategy, read my recently released book, Beyond Price.

Fortunately, “The times, they are a changing.”

A recent Accenture-UN Global Compact report states that sustainability is moving from the sidelines into senior leadership team meetings where sustainability issues will influence corporate decisions on capabilities, processes, systems, in fact the entire supply chain. “According to the survey, A New Era of Sustainability – UN Global Compact-Accenture CEO Study, 2010, the global economic downturn did little to dampen corporate commitment to sustainability, in fact it seems to have done the opposite: 80% of the CEOs say the downturn has raised the importance of sustainability.” Concern about sustainability is at an all time high, with climate change and education among the top areas of concern.

Small wonder. For companies competing in maturing industries with flat to falling demand, the best new business opportunities are unsolved problems. Environmental health and community well-being are areas ripe with unsolved problems. Other top drivers of company’s commitment to sustainability, according to the study, include brand, trust and reputation (three forces that are highly interdependent). Sadly, consumer demand and employee engagement ranked lower in advancing the sustainability agenda. With a stronger economy, consumers and employees may become more important factors.

So what does this all mean for business model innovation?

With sustainability concerns on the sidelines, environmental footprint considerations and advancing local communities’ well-being didn’t even enter business model considerations, except indirectly as drivers of cost and perhaps workforce availability and quality. Now, decisions about target market, business scope, value promise, advantages and profit drivers (the five strategy decision areas of the business model) will increasingly take sustainability goals into account.

The UN Global Compact is but one of multiple groups in which companies committed to sustainability make commitments to which they are then help accountable. Business for Social Responsibility and CERES are two groups I also admire. I encourage you to look at these organizations’ websites and see example after example of member companies changing their business models to advance sustainability goals.

My sense is that sustainability concerns will follow the pattern of PCs – a lot of hype, slow uptake at first and then zooming demand driven by successive waves of expanded technical capabilities, with adoption rates steadily rising.

Don’t be a laggard in sustainability practices, therefore, if you want to ride a wave to better performance and if your want to seize opportunities to attract and retain today’s young talent.

At a time when economists are exploring broader notions of national well-being than Gross National Product, companies are being compelled by external risks and opportunities to move beyond financial performance to a Triple Bottom Line (profits + people + environment) focus. CEO feedback in the Accenture-UN Global Compact survey reflects CEOs’ deep appreciation that there is no way to hit all three targets until sustainability moves from a lower-level staff responsibility to a leadership imperative, affecting how leaders are judged and company performance is measured. Going forward, commercial decisions will increasingly be shaped by a desire to leave more than just investors and customers better off by the company’s actions.

What are you doing differently to advance your Triple Bottom Line?
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For insight on business model strategy, read my recently released book, Beyond Price.