Never let market size fool you into making a misconceived target market choice. Social media pioneer Ning wisely gave up its Facebook-inspired dream of success with millions of consumers to serve a much smaller set of business customers instead. In making the change, its customer base grew from 17,000 to over 100,000 according to Fortune Magazine, while the certainty of paid subscriptions replaced uncertain advertising revenue. Ning’s software enables its customers to launch and run their own private social network with employees, customers, fans or suppliers. The switch from consumers to organizations emerged from the CEO shutting down Ning’s free service. Consumers jumped ship for one of the 125 plus free social media Facebook clones. With a narrower but relatively under-served target market, Ning was free to add services that deepen and differentiate its value to business customers. Additions include analytics for the…
Brown goes green with a smart business model strategy
I have long admired UPS for its continuous improvements in customer value. With a mission to “synchronize the world of commerce by developing business solutions that create value and competitive advantages for our customers,” the world’s largest package deliver company has emerged as a leader in supply chain management services and less-than-full truckload shipping. These additions enable even the smallest of companies to compete with the big boys without distribution issues precluding ever being considered. Indeed, UPS is one of the reasons barriers to entry have fallen in many industries. UPS argues that logistics (the planning and control of the flow of goods) is intricately linked to sustainability, as the goal of logistics is to use the least resources to transport items from one place to another. In a one-page advertising spread in last week’s Wall Street Journal UPS touts its efforts…
Trader Joe’s Business Model Wins in a World With Excessive Choices
All too often the rationally best alternative comes with subtle trade-offs that reduce the emotional benefits of your purchase. Take the Accura I purchased owing to the high service costs I had experienced with my Audi. Within hours of driving out of the Accura dealership, I grieved the Audi’s zippier feel and realized that I had just paid a huge price premium for a Honda with fancy wrapping. The emotional loss need not always be the case. Take Trader Joe’s, in a class by itself when it comes to grocery stores. Fortune magazine captures the Trader Joe’s experience perfectly in saying, “Trader Joe’s is not an ordinary grocery chain. It’s an offbeat, fun discovery zone that elevates its shelves with a winning combination of low-cost, yuppie-friendly staples (cage free eggs and organic blue agave sweetener) and exotic, affordable luxuries – Belgian butter waffle…
In a global economy, local business models thrive.
Even as companies become increasingly global, a reverse trend is happening that is worth paying attention to. In an intriguing feature story in Madison, Wisconsin’s alternative newspaper, The Isthmus, journalist Phil Busse argues that Madison is at the forefront of a revolutionary approach to agriculture – Slow Money, an offshoot of the local food movement, that holds the potential to disrupt the food industry. Revolutionary suggests something outside normal business. Actually, it’s business at its best. Slow Money is an innovative business model ecosystem for building local employment, reducing carbon footprints and enhancing the nutritional value of locally available food. Back to the story – A small group of Southeastern Wisconsin agricultural innovators are seeking to build a more robust growing and food-processing infrastructure. The problem they aim to solve is the fact that the average American meal is estimated to travel 1500…
Three business model lessons that Walmart forgot
Love Wal-Mart Stores, Inc. or hate it, you have to admire the consistent business model strategy its leaders followed to emerge as the world’s #1 retailer. They dramatically improved distribution productivity – in fact, supply chain as a revered specialty arrived with Walmart, as did a measurable bump-up in US productivity due to Walmart’s efficiency. They then leveraged growing power over its suppliers to fulfill Walmart’s compelling value promise – “everyday lowest price.” It took decades for competitors to figure out how to stop the Fortune 500 company’s march. Did leadership hubris then lead to Walmart Stores, Inc.’s weak post-recession performance? Walmart stores open at least one year lost .75% revenue each quarter over the past year while Target, Costco and Family Dollar saw same-store revenue climb. Walmart’s decline is about more than post-recession consumers shopping-up. The American consumer is still highly price-sensitive,…
Five Indicators of Broken Industry Business Models
How do you know when an industry is broken and radical change is undoubtedly on its way? The question is an important one for established and start-up companies. Industry transformations offer rich opportunities and devastating risks. Take the case of college education. I’ve seen enormous progress in my daughter’s writing and critical thinking skills since her arrival at Bates College in Maine where she is a Junior. Yes, the tuition payment (without any scholarship or financial aid) is very high, but I see significant value in the exchange, based on the college papers Lauren has shared and conversations about issues at the dining room table. Apparently Lauren is the exception to the rule among college students, according to a recently released book, Academically Adrift: Limited Learning on College Campuses by Richard Arum and Jospia Roksa. “According to their analysis of more than 2,300…
American Airlines Business Model Strategy Bet
In the high-testosterone game of Chicken, two drivers race towards each other at accelerating speeds. The first driver to veer his car off the path loses the game. Clearly win-win solutions fail to exist in this game. Either one player proves his cowardice, or both players crash. A physically safe, but economically lethal game of Chicken is at play in the airline industry right now with American Airlines in one of the drivers’ seats. American wants travel agencies to bypass booking on Global Distribution Systems and instead use American’s own direct-connect network to book tickets. Global Distribution Systems (GDS) consolidate and keep up to date hundreds of airlines’ fares and schedules, presenting them to travel agents and online travel agencies like Expedia. GDS companies earn revenue from the airlines for any tickets booked on their system, sharing some of the revenue with the…
Can Business Model Innovation Help Curb Obesity?
I watched Food, Inc. over the holiday weekend, a documentary about US food companies whose products fill grocery store shelves and bins and supply our numerous restaurant chains. I’m a pragmatic independent, so I’m able to see through the one-sided nature of the filmmaker’s criticisms of food companies. But there’s significant merit in the film as well. The filmmakers argue that the application of factory methods to our food system in the last two decades – with its relentless drive to reduce costs – has stripped food of its nutritional value and safety. The catalyst to the change was the emergence of super-sized buyers the likes of McDonalds and Walmart. Even if you are not a McDonalds or Walmart customer, your food choices are being driven by their demands on suppliers. One net result, the film claims, is that we are a far…
10 best practices of business model innovation leaders
I love the ease with which marketing-guru Seth Godin communicates vital concepts. In a recent blog A Paradox of Expectations he writes: Better than expected might be the level of quality that’s necessary to succeed. Of course, once that becomes the standard, the expectation is reset. The basis of competition has shifted to business models because features and benefits of individual products and services have become so easy to copy. But even business model value promises are subject to the Paradox of Expectations. So how does a leader stay ahead of the commoditization curve? Follow my Ten Commandments for staying out of commodity market quicksand. They form the epilogue of my book about business model innovation, Beyond Price: Differentiate Your Company in Ways that Really Matter. Practice these behaviors in the next year and you’ll better fulfill your unique and highest value role…
AT&T’s business model Achilles Heel
Protected markets are great things, while they last. But when they end, the protected companies pay a huge price. Do you remember when the US car industry lost its near-monopoly position with the entry of Honda and Toyota, who demonstrated that high quality was affordable? When a consumer discovers there is something better after having had no choice, he feels ripped off by the monopoly-like provider. And that ah-ha is disastrous for companies when markets open as customer loyalty is essential to retaining market share. No wonder US consumers waited a decade to recognize that US car quality has improved dramatically. The company that’s going to pay a heavy price for a monopoly-no-longer position is AT&T, the exclusive Apple IPhone network since the to-die-for phone’s introduction. With Apple likely to add other providers in 2011, one would think that AT&T would be working…