When it comes to launching a company, it’s important to realize when the business model isn’t working for you. It’s equally as important to understand when it’s time to move on or whether you should change the way you’ve been conducting your affairs.
“In order to stay competitive, companies today have to be able to reinvent themselves,” Pamela Mitchell, founder of The Reinvention Institute, told Success magazine.
Case StudiesPayPal is an excellent example of a company that reinvented itself after nearly getting destroyed. According to the Jessica Livingston book “Founders At Work: Stories Of Startups Early Days,” the global e-commerce site was originally envisioned to be a cryptography company. The business struggled trying to decide whether or not it should continue on the path it was founded upon or change directions. After many years of trial-and-error, PayPal became open to change and reinvented itself as the premier online payment system.
Facebook faced similar adversities. In the beginning, it exclusively catered to college students; at one point, to join Facebook you needed an e-mail address ending in ".edu." Founder Mark Zuckerburg decided to open the social networking site to high school students as well, but he knew he needed to be able to reach a wider audience. In 2006, he opened Facebook to anyone 13 or older with a valid e-mail address.
“Sooner or later, all businesses, even the most successful, run out of room to grow,” authors Paul Nunes and Tim Breene wrote in the Harvard Business Review. “Faced with this unpleasant reality, they are compelled to reinvent themselves periodically. The ability to pull off this difficult feat—to jump from the maturity stage of one business to the growth stage of the next—is what separates high performers from those whose time at the top is all too brief.”
Here are some things business owners should consider before reinventing the rules:
1. Evaluate the warning signs. There will be a few plain-sighted and under-the-radar warning signs to show you that your current business model is failing. Being too dependent on your company’s line of credit, having high administrative expenses, bad management and other internal issues, are all signs of a failing business. Before changing you model entirely, attempt to fix these standalone issues. If there are too many of them, and it ends up costing more money, it may be time to move on from your old concepts.
2. Focus on a niche. Your business can have many products and services available. When changing the business model, you might want to consider focusing on a single product or service and building a reputation around that niche. For example, clothing giant Gap started out as a record store that sold jeans on the side. After nearly becoming bankrupt, Gap changed their marketing strategy and began focusing solely on clothes, expanding their reach as a retailer. Recently, Gap has bounced back from staggering dips in profits by bringing in new recruits and targeting a younger crowd.
3. Give some things away for free. Offering trials and free services is a great way to attract new customers when reinventing the business. Veteran entrepreneur Norm Brodsky advised one company to offer a six-month free trial program, where when the trial ended, customers would be prompted to pay a licensing fee. Many businesses offer similar trial memberships, such as Netflix, Amazon Prime and Adobe Photoshop.
Brodsky advises business owners to not forget about current customers when focusing on attracting new ones. “If the company adopts this approach, it should offer old customers something at the same time,” he says. “They would be justifiably resentful if they felt they were being taken for granted. Customer loyalty needs to be rewarded. It's always a bad idea to treat new customers better than old ones.”
4. Take the emotion out of it. Change in business can be extremely difficult, and not just from a financial or technical perspective. When you’ve worked so hard to create a viable company from the ground up, there’s going to be emotions involved. Re-examining the idea you thought would work for your business is a giant leap, but one that must be taken if your business is struggling and you want to stay afloat.
When Kathleen King lost her 23-year-old bakery, she started up a new one and says that taking the emotion out of the equation helped the business grow dramatically in its beginning stages. "This doesn't mean I have no emotional investment in my business at all," King says. "But once you let go of the hold that emotion can have on you, it becomes a much more positive thing."