Business Model Innovation: The Key Strategy of Business Evolution
“A business model describes how your company creates, delivers, and captures value.” – Steve Blank
How powerful and effective is your business model?
What does business model innovation mean to your company?
What are the problems that could have been caused by your business model?
Do you want to look for the answers to the above questions? Then this article will tell you about the complete picture of business model innovation. When we talk about the success story of any brand, the major element is the business model. A business model plays a key role in making profits, implementing functions, and capturing value. If innovation is added to a business model, it will become a framework to capture or create value by doing things uniquely to serve society with products or services in an innovative way.
Business model innovation is the art of enhancing essential features and functions by developing unique concepts for supporting an organization’s financial viability and advancing the business functions. It is where a company forms, distributes, and gets its value. The key goal of business model innovation is to recognize new revenue sources by advancing product value and how they are delivered to customers.
Why is business model innovation so important?
Nowadays innovation is immensely important for every company in the world. In many cases, innovation is only connected with innovative products or services. However, a business model innovation should be significantly more profitable. Continuous changes in customer buying behaviour, globalization, and revolution in digital technology are presently creating a “window of opportunity” for developing new business models. A business model innovation is important because it helps businesses:
- Boost Long-Term Market Value
- Cut Expenses to Save Money
- Increase Sales and Improve Profitability
- Enhance Business Performance
- Improve Employee Performance
- Implement Business Growth and Expansion Strategy
- Gain Competitive Advantages
- Improve Management System
- Build Learning Organisation
- Explore New Business Opportunities
- Develop New Markets
- Create Branding Strategies
- Contributes to overcoming sales rejection
- Helps prepare the company for unexpected events, for example, Pandemic
Examples of Business Model Innovation
Let us have a look at how to do Business Model Innovation and discuss a few examples to get a clearer idea of what it looks like when being practiced:
- Freemium -This is a word that comes from ‘free & premium’. It pertains to business models where the company is providing free services but will charge more when a customer uses the special features then they will be upgraded to paying “premium customers”. For businesses with exceptional products, high gross margins, and high customer acquisition costs, this can be a very dominant model.
- Subscription Models– An effective way to transform one-off purchases to a more anticipated, and over time larger, stream of revenue while guaranteeing that the customers are consistently getting value and is also able to purchase higher-end services because of the purchases arising over time. B2B and B2C businesses are the best examples for Subscription models.
- Platforms– These are categorized by their distributed approach to creating value. Basically these are either marketplaces or matchmakers that come in many forms. They usually earn money by either getting commission from the transactions or by charging the supply side for the value-added services being provided. The most common examples are Airbnb, Alibaba & App Store.
- Direct-to-Consumer (D2C)– This method gives the manufacturer a bigger margins as middlemen are not needed anymore. It gives manufacturers more customer experience and relationship, more control over the brand. Best examples for this are Casper in mattresses or Tesla in electric vehicles.
- Ads, affiliates and sponsorships– Smartphones and Internet are dominating the world and we have witnessed a big improvement in content creation which turned the conventional business model of monetizing content with advertising challenged because competition to capture market’s attention heightened up. For example, Spotify produces the majority of its revenue and profits from its users, the advertising revenue provides the company with a solid secondary revenue stream that can be useful for investing in their new developments.
- Hybrids– A huge number of the most innovative businesses have hybrid business models that actually consolidates multiple aforementioned patterns in a way that is customized for their specific businesses. A perfect example of hybrid business model is Peloton which sells high-end treadmills and bikes for home use which goes with a subscription service that provides exercise programs, online classes and many other useful features to go with the bike. Even if their products are pricey, they are able to sell them at break-even and then generate income with the subscriptions.
9 key points about business model innovation
- Every company needs a business model innovation since updating a business concept is the most important for making revenues.
- The business model innovation of a brand should transform partially and completely to ensure its success to come and present survival.
- At the same time, BMI should focus on both adding quality to existing products or services and introducing new products or services.
- Business model innovations do not essentially require the development of completely new business concepts. It may be a combination of already existing ideas that are widely used all over the world.
- Based on the type of industry or the type of service or product, it can be both a micro and macro innovation model.
- Instead of just one model, a brand can develop several business models at the same time. Moreover, several companies can use a type of business model.
- Business model innovations should focus on the potential to transform an entire industry with a new way of what customers prefer to buy.
- A good business model innovation may have the competence to collaborate with other business model innovations.
- Our present life is to focus on providing good life for our posterity. Hence, a good business model innovation should focus on what would happen in the future.
A combination of the above tips and techniques is essential if you want to develop a good business model innovation. To stay competitive in your business, you need a strong understanding of the key concept of your business model innovation. Based on the elements of a key concept, you can develop a business model innovation with the power of the latest technology. Make sure that your business model innovation will stay positive even under risky situations. Apart from all these things, when you develop a business model innovation, you need to consider other following key elements that will make your business successful.
Money: Running a successful business needs an expensive budget. You need to focus on controlling and managing loans, investments, capital amount, and/or revenue to make the financial function of your business go smoothly.
Pricing: Adopt the right pricing strategy. If your products or services are too high, you restrict your customer base. If they’re too low, your products or services may look substandard. So it is essential to price a product or a service after market research.
The right customers and clients: The most successful companies should be able to discover the right customers and clients as marketing their products or services is around them.
Less competition: As the market is already filled with several types of products and services, you should find out a less competitive product or service.
Need: If your product or service is not the choice of customer’s needs for the time being and in the long run, your business success may become a question. Diligent market research is essential to find out the needs of customers.
Growth: The growth component of a business model innovation should focus on what a company should do to increase the number of customers and key strategies to accelerate the functions to make profits immediately and continuously.
Business network: A good business model innovation should be a model which is suitable to collaborate with a business network. Joining a strong business network is the most valuable resource to succeed in any modern business. Some of the notable key benefits of a strong network are strengthening business connections, developing your creative intellect, improving your visibility, connecting you with extra resources and high-profile individuals, creating new business and marketing opportunities, achieving constant business growth, and increasing profit.
The concept of a business model innovation is highly important to redesign the structure of any business since business model innovation is one of the most authoritative approaches for companies to stand out from the crowd. If a company needs long-term success, an ideal business model is essential. Dhunicorn offers all types of companies with comprehensive business solutions. Business model innovation is one of them. If you want to have a successful business model innovation for your company, we will guide you to enter the right path. And also you can renew your business model with us now for better outcomes!