Cars Mania

Almost all business people work long hours and are dedicated to their work. Yet some achieve great benefits from their efforts while others are simply holding the line. What are the lessons of this differential success for those who are working on business model innovation?

Let’s start with an analogy. Have you ever watched water break through an earthen dam? At first, the water simply washes against the whole side of the dam. Gradually, the speed of the water and the uneven composition of the earth in the dam cause erosion to begin.

Next, all the dam begins to erode. But the sections that eroded first continue to weaken more rapidly than any other part of the dam. Suddenly, a small trickle of water makes it through the dam.

Rapidly, the trickle grows into a stream and then a torrent. At the same time, the water cuts an ever wider channel through the dam. And, the neighboring sections of the dam begin to collapse from the onset of wetness and water pressure. Soon, all the area behind the dam is filled with water.

This natural physical process also describes the way that business model innovations work. The innovation starts eroding resistance to build a strong advantage that causes those customers with the greatest potential to benefit and most open minds to be attracted. Other, similar customers will be attracted next.

If a business model innovator shifts attention away to serve dissimilar customers or to provide different benefits, the earthen dam will probably hold the business model innovator back. Subsequently, in improving the business model, the innovator must first concentrate attention on the area of advantage that has breached the dam. In this way, resistance can be overcome for the next innovation even more rapidly than for the last one.

A positive example of this approach was Dell Computer as it focused in on providing custom build desk-top machines at lower prices with fast delivery. The firm did the most with that market before stretching out into laptops.

An example of poor business model innovation is General Motors which focused more and more on earning money from financing activities rather than providing better vehicles. Today, the company is almost penniless . . . despite being led by GM’s former chief financial officer.

Which route to business model innovation will you follow?

Too often the route to fast money turns out to be an exit ramp into a rapid fall into disaster. Build on your initial breakthroughs, not on your wild fantasies!

Copyright 2008 Donald W. Mitchell, All Rights Reserved

Donald Mitchell is chairman of Mitchell and Company, a strategy and financial consulting firm in Weston, MA. He is coauthor of seven books including Adventures of an Optimist, The 2,000 Percent Solution, and The Ultimate Competitive Advantage. You can find free tips for accomplishing 20 times more by registering at: http://www.fastforward400.com