Friday, March 08, 2013

Just Assume Your Business Model is Obsolete

Geoff Colvin, the terrific columnist at Fortune, wrote the following this week:

"Innovation" is the hottest word in business, but most of the discussion centers on products and services. The more profound challenge for most companies now is imagining a new business model, a new answer to the fundamental question, How do we make money?  You will face this challenge. For convenience, just assume the following: Your business model doesn't work anymore. That blunt claim won't be far wrong. Even if the model has worked for decades, even if it's working okay right now, odds are that it soon won't be.

I love the advice.  In fact, I would argue that every company should take his recommendation, and simply assume their business model is obsolete.  In other words, chief executives should gather the senior management team and ask them to begin a discussion with that basic assumption.  What would a new business model look like?   Don't wait for revenues to sag or margins to decrease.  Don't wait for new rivals to emerge, or substitutes to disrupt your industry.  Engage in the exercise even if conditions seem quite good for your company at the moment.   Simply going through this process may lead to some valuable insights.  Then make this thought experiment a part of your repertoire... engage in it from time to time with the senior team.   Don't make an annual exercise.  Routinizing it would probably kill its efficacy.  However, when the timing seems right, and the team needs to reflect on some traditional orthodoxies that might be holding the firm back... challenge the team to assume the firm's business model has become obsolete.  

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