When Is The Right Time For Business Model Innovation
Doing Business Model Innovation at the wrong time can be a waste of effort and resources. At the right time, it can transform your business, industry and the world. Timing is everything. So how do you figure out the right time for business model innovation? Here’s a useful worksheet to help you figure it out.
Have a look at the business model lifecycle sketch above. The time to develop new business models is at either the introduction phase or the end of maturity, going into stagnation and decline.
The Growth Phase is the Wrong Time
If you try and develop a new one during the growth phase you will generally lose badly. The reason is there will already have been a large number of entrants going into the market. They will have come in with a variety of business models. The bad ones will have died.
The working ones will have received venture capital money (or money from firms internal resources) of the order of $100 million to $2–3 billion per company through Series B, C and D funding. The high growth of existing entrants plus the wall of money means that new business models have a low chance of adoption. In other words, once a market stops being hot for early-stage investors, the window has closed.
The Maturity Phase is the Wrong Time
In maturity, most business models have settled down into a lower growth, higher profitability phase. They know what works, and the companies using the business model are working out how to optimise the value capture from users and consumers. Business model innovation at this phase is disrupting that managerial focus and is seen to be lowering shareholder returns.
Opportunities do start arising towards the end of the phase — as companies can see how their business model will be under threat and start preparing for its demise. For example, Kodak knew that digital cameras would be the way forward for decades, it developed the first one in 1976. It timed the switch to a new business model reasonably well (but the larger photography market was disrupted at the same time)
The Growth Phase is a Good Time
Getting in at the ground floor is always good. New business models can work well in a new industry. No one knows quite what is going to work. Many companies use business models from closely related sectors. They may be substantially modified or not. There is also the opportunity to be very innovative.
The downside is that there is a lot of competition. There are normally thousands of startups and new entrants in the market, and business model innovation or differentiation is often key to survival.
The Stagnation Phrase is a Great Time
The stagnation phase is a great time. This has two great characteristics. Sleepy incumbents. Few new entrants. This is like going into wood and looking for rotten trees. Externally they may look sound, but when you take an axe to them they fall quickly. The question is which business models are challengeable.
Enough with the Theory, How do You Tell?
I’ve put a worksheet together that enables you to quickly work out whether your sector or industry is ready for business model innovation.
