Six Secrets of Breakthrough Business Models

A new resource hits the Project Breakthrough website

Written by John Elkington and Jacqueline Lim

Business models are in the news. Whether it’s Airbnb, Uber or the Trump Organization, we are all interested in how other people make money — and in the impacts they are producing along the way, both positive and negative.

Some people think exponentially when they think of business models. Peter Diamandis, serial entrepreneur and founder of the XPRIZE Foundation and Singularity University, often tells his students, “You want to be a billionaire? Find a billion-person problem that you can make a dent in.”

But what’s the next step after you’ve found that big, audacious problem worth solving?

Diamandis’ colleague Salim Ismail argues that the key is to build a highly scalable organization, what he calls an ‘Exponential Organization’. His 2014 book, Exponential Organizations, co-authored with Michael Malone and Yuri van Geest, outlines a 10-step mechanism to building such an organization. But get to Step 6, “Find Your Business Model”, and you are immediately confronted with a problem: the world is swimming in business models.

How to choose one — or several — that can help produce revenues while addressing one or more of the social and environmental challenges flagged in the UN Sustainable Development Goals?

This is the question that Volans asks in our latest report, Breakthrough Business Models: Exponentially Social, Lean, Integrated and Circular, published in September 2016 and commissioned by the Business and Sustainable Development Commission, set up in early 2016 to define the market value of pursuing the SDGs.

The Commission’s final report, launched at the World Economic Forum summit in Davos in January, concludes that the SDGs open up 60 market “hot spots” collectively likely to be worth up to US$12 trillion a year in business savings and revenue by 2030.

But what would a potentially breakthrough business model look like? Stelios Kavadias, Kostas Ladas and Christoph Loch from Judge Business School in Cambridge, UK, published an article on the features of transformative business models in the Harvard Business Review’s October 2016 print edition. They noted that:

“In any given industry, a dominant business model tends to emerge over time. In the absence of market distortions, the model will reflect the most efficient way to allocate and organize resources. Most attempts to introduce a new model fail — but occasionally one succeeds in overturning the dominant model, usually by leveraging a new technology. If new entrants use the model to displace incumbents, or if competitors adopt it, then the industry has been transformed.”

Looking across 40 businesses from Airbnb to Amazon, from GE to Uber, each with its own unique business model, the authors found six recurring features across many of those models.

Interestingly, businesses that displayed a higher number of these features correlated with a higher success rate in transforming their respective industries.

When viewed in relation to the complexity, scale and urgency of the SDGs, it is clear that these same six features offer new opportunities to deliver against the SDGs in powerful ways, particularly when applied in combination.

This week, a new section exploring innovative business models goes live on Project Breakthrough. Co-evolved by Volans and the UN Global Compact, Project Breakthrough spotlights leading edge thinking and practice in sustainable innovation.

But what are the six secret ingredients of a successful business model? Here they are, presented through the Breakthrough lens:

1. Personalization: Beyond tailoring products and services to meet customers’ individual and immediate needs, Breakthrough Leadership involves businesses identifying potential customer segments experiencing real world problems and unmet needs. The SDGs offer a powerful compass in identifying such needs.
2. Closed-Loop: This means progressively replacing a linear ‘take-make-use-waste’ paradigm with a circular system, where products are recovered and recycled — and, ideally, stressed ecosystems are progressively regenerated. Here Breakthrough Leadership requires businesses to do more with less, reducing the creation and consumption of new products.
3. Asset Sharing: Where the cost of costly assets is shared across users, typically via a digitally enabled ‘platform’, the Breakthrough imperative pushes the designers of business models to ensure value is created across both financial and extra-financial domains, for the business, the value chain and, ideally, other stakeholders.
4. Usage-Based Pricing: By charging customers only for usage, they benefit from not having to buy a product outright. Breakthrough business models take into account the affordability and accessibility of essential products and services to customers, incentivizing customers to adapt their behavior.
5. Collaborative Ecosystem: Businesses that improve collaboration with partners across the supply chain can better allocate risks and cut costs. There is scope for businesses to look beyond the traditional supply chain, working with non-traditional partners such as competitors and other industries or sectors to achieve system-level impact on SDG-related opportunities.
6. Agility: The use of innovative tracking and sensor technologies enables businesses to adapt and respond to market decisions and adapt in real-time, creating greater value for customers and lowering costs. Those pursuing the opportunities presented by the SDGs must be prepared for the intense cycles of trial and error required, and nurture the mindsets and cultures necessary to stimulate and sustain innovation.

To find out more, visit Project Breakthrough (www.projectbreakthrough.io) and follow us on Twitter (@breakthrough_io). Coming soon: a series of profiles of potentially disruptive technologies and how they can help — or hinder — progress towards the Sustainable Development Goals.