Looking for business model innovation? For any project that respects itself, the business model, or Business Models, is a crucial point that should not be overlooked if you want your business to be sustainable. Business Model Adviser & Innovation Broker gives us his vision for an innovative business model.
Innovation around Business Models is today at the heart of business discussions. The evolution of technologies, the change in consumer purchasing behavior and the current crisis period are pushing young entrepreneurs to rethink globally how they create, produce and capture value.
New concepts and approaches have been developed such as “Design Thinking” and Lean Start Up, which are now well supported by the main business support structures that are incubators, the regional chambers of innovation.
Used well, these new development methods facilitate the design of innovative Business Models, the rapid prototyping of the idea in the market and the strong evidence for investors of the economic potential of a business.
Examples of Business Model Innovation
Thus, young French shoots like “Gemnyo” have tackled the Jeweler market and the shops of the Place Vendome by innovating in their Business Model. They offer to create your jewel 30 to 40% cheaper than the market price.
For this they rely on:
- the single Internet channel, thus removing heavy investments in premises and their security,
- a limited working capital requirement: 0 stock – since the jewels presented are only 3D models, and payments are made upstream of production,
- The clever use of 3D printing technology, to create prototypes before microfusion.
All these elements contribute to the birth of a model that breaks with industry standards.
But this new kind of innovation is also practiced by big names like Decathlon through new services or events. A good illustration is their annual Trocathlon program.
Indeed, all stores of the brand offer for a few days to their customers to facilitate the sale of used items in the parking of the stores (it goes from cycling, windsurfing and clothing). If the sale is done, decathlon cashes the money and pays the individual in a purchase order. Otherwise, the person comes to pick up his product.
The two main benefits are understandable: purchase orders are loyal and sales are a substantial cash advance. But that’s not all. This event attracts sellers and buyers who take advantage of their visit to go to the store and make additional purchases.
Other parts of the (time-limited) vouchers distributed following the sale of used products, some consumers will not use them. This is a well-known phenomenon of marketing professionals that can generate additional income without real costs associated.
While the innovation of Business Model is attractive, it is nonetheless based on well-known economic elements and a flawless motivation of these entrepreneurs to carry out their project.
I propose you to go through the founding principles of the approach and the best practices as well as the 3 key indicators to evaluate the performance of your Model.
Founding Principles and best Practices
They are for the most part the opposite of the common sense we developed during our education.
Designing a Business Model is based primarily on a common definition.
While the term Business Model is widely used in the media and expert groups, its definition remains unclear. Alexander Osterwalder and Yves Pigneur proposed a simple definition in 9 blocks (the Business Model canvas) and which has the advantage to remain very visual and facilitate the generation of ideas.
As Promising as your idea may seem, it still remains an idea
It is a principle that every entrepreneur should cultivate continuously and is the source of many failures. Not falling in love with one’s idea and agreeing to be wrong is the first step to success. Entrepreneurs very often compare the company they are launching to their baby, but they too often confuse the idea or initial project with the goal of any business: to be profitable.
This is further amplified by the commitment they make to investors through financial plans and projections based on the only truth that the idea will work.
The Lean Start Up from Eric Rise’s reflections highlights a fundamental rule: “Prove as quickly as possible the potential errors of the envisaged business model”. This culture of failure as a factor of development is often the opposite of the academic currents of management. However, it is very effective in testing the market potential of an idea. Failure is part of the entrepreneurial experience, so it is best to do it as quickly as possible, before committing too much energy and financial assets.
The Proof is outside your Office
Professor Indiana Jones advised his students “Get out of the library”. The reality is neither in the books nor behind your desk, is it owned by the only people important to the success of your business: your customers.
Meet with them and discuss with them the problems and frustrations they face, the unmet needs and desires that will be at the heart of your value proposition. This principle was taken up and developed by a famous Silicon Valley entrepreneur: Steve Blank.
It highlights the need to prove as quickly as possible that the product or service you are proposing will solve a key problem or fill a critical need of your customers. Steve Blank pushes all entrepreneurs to meet their own future customers and understand and evaluate what can encourage the act of purchase.
Perfection as the Engine of Procrastination
We want the best for our customers. However, when we launch a product or service, we want to validate that it presents an opportunity with interesting, profitable and sustainable growth potential. To do so, the concepts of Lean Start Up advocate the development of a “Minimum Viable Product” (PMV) targeting a very particular segment: The “early adopters”.
This term refers to a slice of consumers, fond of novelty and accepting features and primary design provided they meet a problem or need. On this basis, the entrepreneur must focus on identifying the minimum functionalities that will fulfill this function.
Measure the performance of a Business Model
Concepts such as Return on Investment and Net Present Value are used by most investors. However, they are based on an arbitrary prediction of the potential earnings of a business.
When testing a Business Model idea on the market, other indicators should be considered and allow:
- almost immediate evaluation of the market reaction,
- the proof of influence of the corrective actions undertaken,
- Validation of the test performance itself.
So can be considered in this approach:
The acquisition cost per customer, compared to the profit generated by customer: Very little considered by young entrepreneurs, it is possible to evaluate quickly, if your business is profitable. A chronological and population follow-up called “cohort analysis” makes it possible to note the effects of the corrections that you put in place successively with the evolution of these indicators.
Customer retention rate: Acquiring a new customer is extremely more expensive than keeping it. By regularly evaluating the rate of customers who remain loyal to you, you naturally increase your profit.
The rate of consumption of capital: Certainly one of the pillars of entrepreneurship and yet still poorly controlled. It is the speed at which you consume your financial resources (which are not infinite) to successfully demonstrate the credibility of your project.
These new approaches and tools make it possible to approach innovation from a non-technological angle.
On the other hand, we can appreciate the significant changes that they generate in the way we design our projects and test their market potential before considering any fundraising.
On the other hand, the explosion of new technologies has radically changed market access channels by making them more transparent, cheaper and allowing a constant exchange with our customers. Thus the internet, mobile and smart grids offer a profoundly different experience of consumption.
This evolution has also facilitated a structural redefinition of economic actors. So many models today rely on the collective as “crowd funding”, or give an actor capacity to the consumer as the individual production of energy. All these transformations offer a field of fantastic opportunities for entrepreneurs and in history they have never had such a great capacity to invent and influence our world of tomorrow.
Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
Love my efforts? Don't forget to share this blog.