Whether it thrills or terrifies you, the unknown has great power. Its manifestations—the novelist's blank page, the painter's empty canvas—are mythologized with good reason: their universal potential to intimidate or inspire the artist.
As an entrepreneur, you navigate similar tensions between creativity, risk and reward. At the same time, you're focused on employees and customers while somehow financing a growing company. Reinvent Your Business Model, the new book by Mark W. Johnson, is for those who chart the unknown by writing and revising a business plan, those who can barely define their own and everyone in between.
Along with Clayton Christensen, the Harvard Business School professor famous for his work on disruption, Johnson is co-founder of Innosight, a Boston-area consulting firm serving global brands and startups across industries, from health care to aerospace and defense. In his latest work, Johnson revisits and builds on his 2010 book Seizing the White Space, advising companies for strong, steady growth within and beyond their existing markets.
In Reinvent Your Business Model, you acknowledge that "business model innovation" is an executive buzz phrase. Why do companies have trouble translating it into action?
In my research and work with clients, I've found that very few people really know what a business model is or isn't, let alone understand their own organization's.
—Mark W. Johnson, author, Reinvent Your Business Model
In busy day-to-day life, most people follow the rules and norms of a company, maintaining the status quo. They don't pause to truly define abstract concepts. Within an organization, there are usually different answers to the question, "What is your business model, and how does it work?"
Your Four-Box Business Model provides a framework for turning abstract concepts into a real plan. Its key element is the customer value proposition [CVP]: how a company effectively solves a customer's problem or satisfies an important job to be done. What's a great example of this?
Early on, Amazon figured out how to get paid by customers in advance of paying suppliers. That was completely transformational in the retail book industry, as I explain in the book. By shifting cash flow from a seller-financed model to a buyer-financed one, and by capitalizing on internet technology, Amazon could improve its supply-chain management, ultimately benefiting customers.
Coming up with new profit formulas can be very challenging for companies wedded to existing processes. Since not everyone is a serial business model innovator, it makes sense to focus foremost on solving customers' important problems with a reliable, convenient or affordable product or service.
How might a CEO hire for team members prone to identifying opportunity in a new business model?
Leaders with traits analogous to those of entrepreneurs—comfort with ambiguity, perseverance through multiple setbacks and the ability to shift and adjust accordingly—can be discovered and cultivated by applying our framework. We're trying to democratize that kind of genius, intuition and instinct. We study exactly what happens in making those connections.
Although it can be tedious, you can gain that understanding through our structured set of observations and questions. We've done a lot of research into companies that solve previously unmet problems and help people make progress in their lives. You have to start with very existential aspects of purchase and use and ask deep questions. Ultimately, they'll lead you to pain points. The process might be long and rigorous, but ideally, you end up at a rewarding solution.
Your book gives equal priority to hard numbers, such as minimum percent gross margins and profit formulas, and the more intuitive insights that lead to business model innovation. How else might a CEO nurture that kind of culture?
I think you can screen for people who have a combination of creativity and drive while creating value for customers and growing revenue and profits. If your company can repeat and scale that, you'll grow along with demand.
Test for those things, and if they're not working, make adjustments. You don't design a business model and just say, "Boom, here it is." Ninety percent of successful companies change their business model four times before they get the right approach in place. Especially in the beginning, it's important to have the discipline to kill projects that aren't viable or scalable.
In the interview process, it helps to focus on the learning process. Seek out employees who can pivot—those able to withstand periods of disappointment on the way to finding your ultimate business model.