How to create a new business model

Competition in industries is essentially competition between business models. A recent , which led to a post about the , reminded me of a great creative exercise to help you look at your and other industry’s dominant business model as a lego kit.

You can then break them down and, like a builder, reconnect them like building blocks to create new business concepts.

Business Model Innovation

Here’s how it would go:

First you start by thinking about the trends that are happening in the world and how they affect your industry, your business and your customers. You then look at different industries where incumbents are being disrupted (at least trying to!) by startups who are already taking advantage of these trends. Let’s take two trends that are making an impact in several business arenas right now: Crowdsourcing and game mechanics.

Here’s an example how this might look like:

Game Mechanics are being talked about tirelessly right now from a technological and marketing perspective for their ability to create customer engagement, as illustrated by Foursquare and Groupon. As for crowdsourcing, it has become Threadless’s core business strategy by letting their community create t-shirts with their own designs that if become popular, can be sold and they get to make money.

Now that we have to two examples we can start by asking questions:

What if we made game mechanics part of how our business is run instead of treating it like a marketing tactic? What if we made it core to our business strategy? How would we create value? What if our customers had a say at the boardroom table about how our business in run? What if we co-created our business with them? How would value be created and what would it mean for them and for us?

Equipped with curious thoughts it’s now time to go into discovery mode and look for businesses who have designed their business strategy around both trends and are playing by a different set of rules. Take for example , a NY based restaurant that with the use of both game mechanics and crowdsourcing. Here’s how the NY Times explains it:

Customers start by going to, where they can build a burger. There’s a list of options to choose from, including the type of burger bun,  a beef, turkey, veggie or salmon patty, condiments and more.

This is also why the burgers are shaped like doughnuts: customers are asked to pick a “scoop,” which goes into the middle of the burger, from options like avocado and chili mango, baked beans or mac and cheese.

Once you place your order, you can give it a name and off you go to pick it up. And this is where the game aspect comes in. 4Food has a leaderboard that shows the most-ordered burger. That turns it into a social networking food game.

Here’s how it works: I create a burger, call it “The Bits Burger” and broadcast it to Twitter or Facebook. Each time someone orders my special creation, I get 25 cents credit in the restaurant and my burger rises up the leaderboard. The more customers order my burger, the higher it goes and the more credits I get, until I’m eating free.

If we were to look at the business model for 4Food it might look something like this:

  • Who are our customers?
    Digitally connected individuals who are between 18-35 years old that use Facebook, Twitter and Foursquare on a daily basis.
  • What products or services do we sell?
    DIY hamburgers.
  • What distribution channels do we use?
    Internet website and any device connected to the internet that has a internet browser.
  • What do we charge our customers for?
    Small cost of burger, plus fries and drinks.
  • How are we different from competitors?
    A customer can potentially eat for free if his creation gets ordered enough times.

As you can see, 4Food’s business model is entirely different from traditional restaurants. Incumbents will have a hard time trying to replicate it themselves as it requires them to abandon the status quo. This is what happens when different trends converge and an opportunistic entrepreneur sees a connection between them for an interesting new business concept. And that is what this exercise is all about, seeing connections from a holistic point of view.

The above example is fairly simplistic for practical purposes, there’s much more to it than just cherry picking but the basic ideas to help you create new business concepts are:

Look outside your industry

If you look around the web, startups are designing their business models around not just one trend but many that when combined can alter the rules of the game or create a new industry as is the case with Foursquare. When looking to innovate it’s useful to , that’s why I chose 4Food. Because restaurants are a traditional business and haven’t changed much in decades, 4Food presents an extreme look at what the future might hold for that industry.

Create a new Lego Kit

Now you may be asking but what about me? It’s time to play make believe and take parts of the exemplary businesses business model and apply it to your own. Treat every component of the business model as as separate (for a holistic look use ), and create scenarios about how that might look. It’s like looking at other businesses like part of a Lego Set and then taking them apart and combining them in different ways.

Insights, insights, insights

The point of this exercise is to look for insights by asking ‘what works?’ ‘who’s done it?’ and ‘how can we do it?’ and then imagining how it might look.

What do you think? I look forward to hearing your thoughts!

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