When the Foundation of Your Business Model Melts Underneath

By late winter in the White Mountains, strengthening sunshine beams through the birches. It weakens the snow-covered ice on the streams, soon to melt and swell the rivers of New Hampshire and Maine. There’s a window of weeks or days when a hiking group can save time by snowshoeing across a section of iffy ice. Underneath, the water’s only thigh-deep, so not dangerous if you plunged through. It’d just be a mite cold, miles from the trailhead in 36 degree air.

So you make your way carefully along, snowshoes probing for good footing. In one place, the ice is already broken up and you find yourself stepping onto a floating ice section that’ll support you briefly before tipping and sinking. You need to leap onto another ice platform before your first one goes under—rather like a frog hopping from one lily pad to the next. Do it successfully and your steps are exhilarating. Hesitate too long in one place, and you’re sunk.

The “Lily Pad” of Your Current Business Model

Similarly, some business models can last quite a while but the time comes when they’re undermined by changing conditions. Hesitate too long to leap to a new model, and you’re sunk like Kodak, Blockbuster, and many other once-great names.

How do you know when it’s time to re-examine the decisions underlying your business model?

• You might find yourself walking away from prospects because it’s clear that they won’t be profitable at the prices required.
• Margins aren’t where they used to be.
• You hear yourself saying “Our industry has commoditized” and “We have too many idiot competitors.”
• You can tell that the mix in your market has shifted. For example, I’ve known several B2B service firms that saw high-end opportunities dwindle as corporate purchasing took buying decisions away from business unit managers and functional VPs, then negotiated single- or dual-sourced supply agreements in high-volume-for-low-price deals.

Revamping a Weaker Business Model

When I work with executives who need to reexamine a business model, I usually counsel them to discover and implement the simplest changes needed to revitalize their business model. We use the Marketplace Sweet Spot Locator℠ as one of our tools. (I wrote about this last fall here.)

The Sweet Spot Locator allows us to isolate each of the five decisions outlined below, and play with the possibility of changing one or two at a time. That’s usually much less risky than trying something that’s new in four or five dimensions all at once.

5 Decisions to Make to Revamp a Weaker Business Model

1. Should we change or expand customer types?
Hollingsworth & Vose—with a history dating back to 1728 with founders Benjamin Faneuil and John Hancock’s uncle—is a grand example of a company that shifted its types of customers to keep up with the times. From its roots supplying buyers of paper, the company evolved to provide advanced separation media to filter manufacturers, battery manufacturers and apparel factories.

2. Should we change the problem solved?
Piaggio Group, the maker of Vespa motor scooters, is readying a new product that doesn’t move people around cities. Says WSJ Magazine: “They’re leaving the boulevards and highways to the car companies and focusing on solutions for smaller urban pathways: the sidewalks, the bike lanes, the corridors of buildings. Initially, they won’t attempt to transport humans.

“Instead, they’ve set their sights on light cargo [such as groceries]. Gita, the first product from Piaggio Fast Forward, is a round, knee-high robot that CEO Jeffrey Schnapp terms “a smart land drone.” The bot functions like an intelligent, agile pack mule. Able to carry 40 pounds, Gita can follow a human—trailing just a couple of feet behind—through doorways, down hallways, around corners and along crowded sidewalks.”

3. Should we create a new offering?
GE acquired the additive manufacturing companies Arcam and SLM Solutions to not only supply GE’s own aviation equipment plants, but also to supply customers of other GE businesses. GE had already invested in its own development of the technology, also known as 3D printing, to reduce the need for parts machined from solid stock.

4. Should we shift to a new operating or service delivery model?
By renting movies on DVDs and mailing them to customers, Netflix built up a sizeable business. Today, Netflix customers stream their movies, TV shows, and other digital content.

5. Should we shift to a new revenue model?
Microsoft long sold licenses to Office and other software packages, and still does. But the company’s direction is now selling software as a service—a hosted, frequently updated solution.

Markets are always changing and adapting, so periodically your business needs hiring strategy to change and adapt with them to stay relevant and continue to create superior value for your customers and clients. Reexamining the five areas above is a great start to evaluating where your business may need to change.

If it’s getting more difficult to make money because your market shifted or matured, our ProfitProgress℠ strategy services can help you revamp your business model before it’s too late. Head over here to learn more.