One of the best things about being a consultant and advisor across multiple industries and organisations (e.g. private commercial, publicly listed, startups, NFP / NGO’s and Government) is that you gain a high level of visibility into different business models. This visibility provides the opportunity to see how business models have evolved over time and industry, often adapting to the externalities that influence operations.
How often are you considering your business model?
A frequent question I ask Founders, Directors and leaders is how often are you considering the different aspects of your business model and how that business model can be innovated to drive value. There are perhaps two ends of this spectrum; one is “if it ain’t broke don’t fix it” and in many instances this makes sense – and if you are creating and capturing value, why not realise value whilst you can? The other end of the spectrum is to consider that we are in a period of intense and sustained change, where forces such as technological convergence (bio, data, materials and cognitive sciences are coming together), globalisation (shifts to the Asian century) and major demographic change (ageing population, chronic skills shortages and an increasingly individualised and personalised world) are like the flywheel of change – ever increasing in pace.
To that end, we need to be aware of the potential for disruption to existing business models and, at the same time, acknowledge that not every business or industry is going to be disrupted by an Uber immediately. Some things take time to be adopted. Bill Gross, founder of IdeaLab, named his accelerator on the basis and belief that ‘the idea’was the most important. After analysing his hundreds of investments, the data surprised him and he changed his mind. He now strongly suggests that timing trumps all other factors (check out his Ted talk here).
How do I start to think about my business model?
Whether you are seeking to create social, commercial or other outcomes, there is a significant opportunity to consider the business models of our organisations and simply improve our approach to management. This distinction between innovation and just great management is an important one and worth exploring.
In his book Zero to One, Peter Thiel (founder of PayPal and the secretive big data company Palantir) provides us with clues on how to build the future. Thiel proposes that in essence there are two ways to create progress. One is globalisation, essentially copying things that work or as he articulates it to go from 1 to n. In effect this is good management: finding proven ways of doing things that will add value to your business and then implementing them effectively. Doing the right things and things right. There is a lot to be said for being a fast follower. As Thiel outlines in his book, it’s not whether you are first to market that matters, it is whether you generate future cash flows and value that matters – or in the case of for purpose organisations, it is whether you are able to generate the desired outcomes as opposed to creating activity (for more on this please see the exciting Amplify Social Impact project at out valued client the Centre for Social Impact).
The alternative to going from 1 to n is to do new things via technology and that is to go from 0 to 1. This is of course often an intensive process, requiring research and development and in the case of deep tech coming out of our universities and research institutions often requiring years of incubation before it is ready for commercialisation.
It is possible to do both at once in different areas of your organisation. The question is what parts of your business should do new things and which parts should copy things that work.
How do you decide when to do new things or to copy things that work or both?
What are the clues and signs that you need to look for in regards to whether you decide to do new things, copy things that work or leave things as they are? Performance metrics such as growth and profitability relative to industry and the market, your sustainability as an organisation (balance sheet strength) and also consideration of what the future of your industry or market looks like provide clues as to where in your value chain you might to make changes (e.g. if there is an avalanche of tech players coming at your industry hard, that is a sign that you need to start thinking and acting about what’s over the horizon).
These metrics need to be put into context and one needs to analyse the business model and value chain holistically. Tools such as the business model canvas can support this process. When you are creating something new, you are starting with a blank canvas and it is often easier to step back and look at your business model as a whole because you are forced to. When you are in an existing operating business and you are generating free cash flows, there is often no impetus to drive this change. Increasingly, externalities are driving this impetus; whether it be a royal commission which challenges the social license to operate and culture of financial institutions, to market forces such as a Amazon entering the Australian retail market.
What’s my first step?
As Stephen Covey writes in his classic book 7 Habits of Highly Effective People – Be Proactive. Don’t wait for someone else to make moves on your business model or for externalities to impact it. Whether you’re the Chairman of the Board, CEO or leading a business unit, I encourage you to actively think about it, take advice and make the relevant changes to drive value.
Nick Northcott founded and leads Chrysalis Advisory
Chrysalis Advisory provides advisory services in strategy, leadership, culture and business development to support high growth ventures, transformation in existing businesses and outcomes in for purpose organisations. If you would like to discuss how we can support you to grow, transform and consider your business model please visit our website www.chrysalisadvisory.com.au or contact me at email@example.com