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When I study business model innovation, I often notice the theme of developing close relations with important customer and noncustomer stakeholders:
1. For example, Education Management (a trade school in art education) looked to provide a more productive employee to the largest local, regional and national employers, while making it more economically attractive to obtain this learning.
2. American Woodmark (maker of kitchen cabinets) was optimizing the best way to distribute through the largest home-building supply outlets, while making life easier for those who would use the cabinets and install them.
3. TriQuint (a high-tech provider of semiconductors) was hearing the needs of the biggest customers for wired optical networks and wireless applications, and helping equipment designers establish improved solutions.
4. Iron Mountain (a data and file storage company) was explaining to the senior management of its customers the enormous benefits of outsourcing data management while attracting the biggest, national customers with safer, more reliable storage.
Once you have those relationships, you must keep the relationships from becoming available to competitors. The relationships become part of the foundation of your future business models.
While you maintain these relationships, you have a chance to learn first what the newest and most difficult problems are that these key stakeholders have. You can also create dialogues where the stakeholders will help you acquire the knowledge you need of their existing circumstances so that you can improve upon and redesign your business model to better serve those needs.
These relationships also provide you with a base load of volume that makes everything you do more profitable, allows you to offer more benefits, lets you provide more attractive pricing, and lowers your costs:
1. Education Management saw its revenues per fully developed school rise, with no relatively little more investment.
2. American Woodmark was operating its factories more intensively with longer volume runs.
3. TriQuint was selling higher volumes of its chips than competitors in these same applications, which lowered its development and production costs on a per unit basis.
4. Iron Mountain was filling its storage sites faster and collecting more revenues per facility than those who did not have national accounts or data management services.
In the case of Education Management and Iron Mountain, the business model advantages also made it possible for the companies to expand geographically through acquisition and local startups, and still have superior economic results compared to the old business models. With this scale came even more potential business model advantages.
Obviously, in planning to provide such improvements, you will be wise to locate places where being first will provide the most on-going benefit. So the key strategic questions you should be continually asking are:
1. Where can you be first with the new business model?
2. Where does being first provide the most initial advantage?
3. Where does being first provide the most potential long-term advantage?
4. How large will the need you are serving first become?
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:
www.2000percentsolution.com
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