September 27, 2013 Leave a comment
I have recently completed a consulting project with a large company who had acquired a startup to fill a strategic gap but was having difficulty generating any business traction. Basically, the business was missing targets across the board. What they needed was to refine their business model.
You have seen my previous posts about Business Model Generation. It is a concept that has been championed by Steve Blank and other entrepreneurs in Silicon Valley as a way to work out the kinks in a business idea. It is a process that walks through each element of the business model (including product Return on Investment) and tests each by getting out of the building and validating assumptions. I can say by experience that this methodology works well. I applied this approach with this large company and others in the past with great success.
I was inspired to write this summary of my recent project today because I saw a Harvard Business Review article claiming “Large Companies Struggle with Business Model Innovation“. They are correct in most cases, but the company I consulted with was open to the approach and then benefited by supporting each stage in the process unlike the examples discussed by HBR. In fact, I credit them for recognizing they had a problem and bringing in help to resolve them.
When I first engaged with the company, sales were nonexistent for this product after several good months of trying. I started out by creating a business model canvas that showed their current assumptions for this business. I took a couple of weeks and performed an assessment of each stage of the business model by making phone calls to contacts within the target industry. I wanted to see just how far off they may have been in order to plot an initial course correction because it was obvious that their initial attempts were way off of the target.
It may be obvious to you that the value proposition for a product by target users is the most important thing to get right. If the product is not an order of magnitude better at solving a problem or less expensive, then your company will have to reply on other elements of the business model to create market pull. The goal is to have a solution that users want and will fight for budget to obtain. To get this right, we went through a series of customer/prospect meetings to clearly understand their top 3 to 5 problems. Through this customer discovery we were able to find how we could apply our technology to address one of the top problems. During this process we were also able to learn how they described the problem and the impact of the problem.
In order to implement this ROI completely we needed to:
- make several enhancements to the product to address the key problem
- update the marketing materials to reflect this new capability communicating it in a way that uses descriptions familiar to the customer’s pain
- launch the product update focusing on this solution.
The result was organic growth of this product within the major accounts who had it by users providing internal references. This organic growth, or I like to call it “Market Pull” for the product only occurs if the product is significantly better than existing approaches.
We further addressed gaps in the other elements of the business model as well. We adjusted pricing, updated the channel (because the initial channel was insufficient), engaged with new partners, shifted our key resources on optimizing the value proposition and more. The final business model canvas showed several pivots from the initial canvas. In fact I would have been surprised if that was not the case.
The bottom line is large companies can benefit from business model innovation, but as the HBR article says, company leadership must endorse, support this approach and be willing to experiment (validate assumptions and pivot if assumptions prove to be incorrect) in order for this methodology to succeed.
Contact me if you need help turning around your product segment or business.