The many advantages of starting with a business model innovation first

When studying successful business model innovations, I often notice the theme of developing close relationships with important customer and non-customer stakeholders:

1. For example, Education Management (a trade school in arts education) sought to provide a more productive employee to larger local, regional, and national employers, while making it more financially attractive to obtain this apprenticeship.

2. American Woodmark (maker of kitchen cabinets) was optimizing the best way to distribute through larger home building supply outlets, while also making life easier for those who would use the cabinets and install them .

3. TriQuint (a supplier of high-tech semiconductors) listened to the needs of larger customers for wired optical networks and wireless applications, and helped equipment designers establish improved solutions.

4. Iron Mountain (an archive and data storage company) was explaining to its clients’ senior management the huge benefits of outsourcing data management while attracting larger national clients with more secure and reliable storage.

Once you have those relationships, you need to prevent the relationships from becoming available to competitors. Relationships become the solid foundation on which your future business models are built.

As you maintain and nurture these relationships, you have the opportunity to first learn what the newest and most difficult issues facing these key stakeholders are. You can also create stakeholder dialogues to help you gain the insight you need from your existing circumstances so you can improve and redesign your business model to better meet those needs.

These relationships also give you a large volume base that makes everything you do more profitable, allows you to offer more benefits, allows you to offer more attractive prices, and lowers your costs:

1. Educational Management saw its income increase per fully developed school, with relatively little additional investment.

2. American Woodmark was running its factories more intensively with higher volume runs.

3. TriQuint was selling higher chip volumes than competitors in these same applications, which lowered its development and production costs per unit.

4. Iron Mountain was filling its storage sites faster and collecting more revenue per installation than those without national accounts or data management services.

In the case of Education Management and Iron Mountain, the advantages of the business model also made it possible for the companies to expand geographically through acquisitions and local startups, and still outperform previous business models. With this scale came even more potential advantages of the business model.

Obviously, when planning to provide such improvements, it will be wise to locate the places where being first will provide the most ongoing benefit. So the most important strategic questions to continually ask yourself are:

1. Where can you be the first with the new business model?

2. Where does being the first to innovate the business model offer the greatest initial advantage?

3. Where does being first provide the greatest potential long-term advantage?

4. How big of a need will you be meeting initially?

Copyright 2008 Donald W. Mitchell, All Rights Reserved