Every startup starts off with a number of disadvantages against well-set incumbents: they are not the first-to-market, they probably have less money, they have less resources and they definitely have less of a brand (and mindshare) in the market. What startups have on their side is the freedom to innovate on business models.
Business model innovation can come in many forms that include but not limited to:
- Fulfilling the need differently (from CDs to iPods; from iPods to streaming).
- Fulfilling multiple needs at one shot (embedded camera and video recorder on a smart phone).
- Telling a story to create a need that never existed before (introduction of iPad is a classic example).
- Collecting payment based on outcomes (pay per click, pay per action, pay per lead, pay per visit...you come up with your own).
- Create peace of mind while fulfilling the need (hassle-free returns of goods).
I could go, on but you get the idea.
Let’s pick three areas and drill down on the business model innovations that are underway there.
1. Video rentals
Blockbuster and Hollywood Video (now, no more) ruled the video rental world for years before Netflix was born. The reason why Netflix was born? To fix a broken business part of video rental business: late fees. That part was broken that even the inconveniences of Netflix business—no instant gratification as people had to wait for their DVDs in the mail—were forgiven.
Today, the Netflix business model has evolved, and new players like Redbox have come in with their own twist: DVD vending machines at local stores with limited selections for a dollar per night. Blockbuster doesn’t want to give up yet. They now have an offer called “Blockbuster Total Access” that provides hybrid access—online rentals with unlimited in-store exchanges. That’s hard to replicate by anyone without physical stores across the nation. They may be too late, but only time will tell.
2. Car rentals
Car rentals is a simple business. You go to a different city and you need a car, so you rent one at the airport. (Nine out of ten car rental companies are at the airport.) But what if you need one when you are in your own city? Enterprise Rent-A-Car comes into play. With partnerships with a bunch of insurance companies and body shops, Enterprise Rent-A-Car has a thriving business.
What other innovation could be there? Enter ZipCar and the world of car rentals changes again. Scott Griffith, the CEO of ZipCar thought of car rental business differently: as “shared car ownership.” ZipCar calls its customers Zipsters and they get membership to use Zipcars on an as-needed basis on a pay-per-use model. The innovation at ZipCar continues. They have extended the same model of shared car ownership to corporates that are looking to reduce costs of maintaining expensive fleets. Today, more than 20 percent of their revenues come from them.
3. Business applications
In the late 90s, I used to work for a CRM company where a typical installation would take anywhere from six weeks to more than a year. We needed to understand the requirements, customize our application, test and roll it out to production. Then Salesforce.com and Zoho came in blazing the trend of cloud-based applications. The world of business applications changed.
Business applications could be provisioned in days instead of weeks. Where else can the innovation come from in this space? How about giving these business applications for free? That’s what a new startup Apptivo is intending to do. They have 50 plus business applications ranging from Marketing to Supply Chain, completely free for any number of users. Monetization plans are on the drawing board and will be implemented later but for now, completely free seems like a compelling offer.
Innovating your business model is no longer an option, whether you are a startup or not. If your business model is successful, someone is out there trying to replicate it so you might as well commoditize it after a while and move on to the next phase.
Image credit: Don Moyer