Five tips to save your business model

Has anyone noticed how many former market leaders are facing major revenue challenges? Sharp. Dell. Best Buy. HP. Penny’s. Pfizer. The list goes on and on. Reading the news, I couldn’t help but notice the Wall Street Journal article “Yellow Pages Last Lifeline: Clinging to Each Other” and draw a connection to so many company plights.

Yellow Pages – remember them? The Digital Age has made books of phone numbers nearly obsolete. Just as Blockbuster could have become Netflix with a better understanding of what business it was in, could the Yellow Page creators have become Google (or at least Yelp) with an understanding that the Digital Age would replace searching physical pages with surfing the web via computers and now smart phones?

“What business are we in?” is the most fundamental question that business leaders should we asking today. Here are five tips for answering the question correctly:

Answer it from the outside in, from the perspective of current and potential customers. Don’t base the answer solely on what your company does today. Customers will buy from you only if they get a better price or better benefits. Think about your business from the perspective of the problems you solve for customers or how you make their life better. That’s the start of smart business models and winning value promises. I’m looking for a grocery store that makes food shopping a joy, not a chore. How about you?

Solve a higher-level problem. We’ve moved to an era of specialization, and now customers want help dealing with the growing complexity of an economy filled with specialists. They are seeking more holistic solutions that address higher-level problems. It’s likely that your business’s skill set will provide only part of the solution your customers are seeking. The trick is to design a business model that solves a larger problem and then create an ecosystem of partners to deliver the solution. Whoever is at the top of the customer food chain reaps the highest rewards usually. Watch health insurers change their business models and move towards a goal of improving health at a lower cost. To do that, they will have to pull in the providers, invest in information systems, and create the incentives for that outcome. Insurers, not providers, in that world would reap the most profit. Recognizing this fact, smart providers are stepping up to absorb the financial risk of healthcare and in essence become insurers.

Create a new category. Products and services quickly become commoditized in the Digital Age. Businesses face diminishing returns from using marketing and sales investments to prove their brand is better than the competitor’s brand and R&D investments in product improvements to strengthen their case. As branding expert Acker argues, the strongest brands create new categories— as Apple did with tablets, Amazon did with readers, and Toyota did with its Prius.

Keep asking the question. Sticking with yesterday’s answer places your company at great risk. Every company is a niche at some level and niches are disappearing rapidly. Film? Cameras? Cell phones? Printers? Desktop computers? As the computing power of the mobile digital devices we walk around with increases, watch even more niches disappear into internal software.

Be comfortable not having an answer. Business leaders love to know the answer so they can move immediately into action. Checking off a box provides strong feelings of accomplishment. In today’s economy you must, as the philosophers advise, learn to love the question itself. The constant probing, “What business are we in?” forces leaders to keep their eyes open to market changes and minds open to new ways of conceiving of what their company is doing to create value for customers.

What business are you in?

Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author. Business model innovation, strategic leadership and smart economic policies are her professional passions. She was an economic advisor for former Wisconsin Gov. Lee Dreyfus.

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