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Seizing the White Space: Business Model Innovation for Growth and Renewal

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Seizing the White Space: Business Model Innovation for Growth and Renewal

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When this occurs-when delivering new value to the market requires you to reconsider the fundamental building blocks that make the business work-that opportunity lies in your company’s white space.

the range of potential activities not defined or addressed by the company’s current business model, that is, the opportunities outside its core and beyond its adjacencies that require a different business model to exploit. White space is a subjective valuation: one company’s white space may be another company’s core. What matters is that it describes activities that lie far outside a firm’s usual way of working and presents a series of unique and perplexing challenges to that organization. It’s an area where, relatively speaking, assumptions are high and knowledge is low, the opposite of conditions in the company’s core space.

Seizing the white space requires new skills, new strengths, new ways to make money. It calls for the ability to innovate something more core than the core, to innovate the very theory of the business itself. I call that process business model innovation.

Apple did something far smarter than wrap a good technology in a snazzy design; it wrapped a good technology in a great business model. Apple’s genius lay in its realization that making it easy and convenient to download music to the iPod would fuel demand for its high-priced music player.

Stanislavsky’s great contribution to Western art was to propose that while creative inspiration often leads to structure, just as often, structure unlocks creativity.

A business model, in essence, is a representation of how a business creates and delivers value, both for the customer and the company. Of course, the notion of how value is created and delivered is fundamental, but strangely, businesses can rarely articulate it clearly.

First, every thriving enterprise is propelled by a strong customer value proposition (CVP)-a product, service, or combination thereof that helps customers do more effectively, conveniently, or affordably a job that they’ve been trying to do. The CVP describes how a company creates value for a given set of customers at a given price.

Second, the profit formula defines the way the company will capture value for itself and its shareholders in the form of profit. It distills the often-complex financial calculations into the four variables most critical to profit generation: revenue model, cost structure, target unit margin, and resource velocity.

The third and fourth elements of the model, key resources and key processes, are the means by which the company delivers the value to the customer and itself. They are the critical assets, skills, activities, routines, and ways of working that enable the enterprise to fulfill the CVP and profit formula in a repeatable, scalable fashion.’ When properly integrated together and congruent with the CVP and profit formula, they provide the essence of a company’s competitive advantage.

Customer value proposition: An offering that helps customers more effectively, reliably, conveniently, or affordably solve an important problem (or satisfy a job-to-be-done) at a given price.

customers do not really buy products-they hire them to accomplish particular tasks.7

people don’t go to the hardware store to buy a drill, for instance; they go to buy a hole. The drill they purchase is the candidate hired to get that job done.’

To develop new CVPs in the white space, you must stop trying to figure out what kinds of products people are trying to buy and instead work out what they are trying to get done in their lives in a given circumstance.

An offering is a product, service, or some combination, made available at an affordable price. Included in the concept of an offering is the experience of purchasing, using, and maintaining it. Sometimes, for instance, a job can be satisfied more by how something is sold than by what is sold:

  • agreed. como se vende es sumamente importante

The job-to-be-done and the offering combine to form the customer value proposition for any successful business model.

The more important the job, the better the match between the job and the offering, and, generally, the lower the offering’s price, the greater the overall value generated for the customer from the customer value proposition.”

Focused CVPs are as important for what they rule out as for what they rule in. By concentrating on jobs, a well-defined CVP helps overenthusiastic innovators resist the temptation to overload offerings with features that customers don’t want to buy (and will resent paying for).

Profit formula: The economic blueprint that defines how the company will create value for itself and its shareholders. It specifies the assets and fixed cost structure, as well as the margins and velocity required to cover them.

The revenue model is the offering price times the quantity sold.

low-cost business models, price is a key starting point for determining the profit formula.

In premium businesses, the price tends to be dictated by the cost of the resources needed to deliver the CVP.

A comprehensive approach to defining quantity asks three questions: 1. How many customers will I have? 2. How many units per customer per transaction will I sell? 3. How many transactions per customer can I expect? The first question goes to the potential of the customer addressed by the CVP. The other two define the type of offering developed to satisfy the job-to-be-done.

The cost structure is simply made up of direct costs and overhead, taking into account economies of scale.

The target unit margin is the operating profit per unit required to cover overhead costs and achieve the desired profit level at the target volume. Strictly speaking, it’s an outgrowth of the revenue model and the cost structure, but I call it out here separately because it’s used so often in many companies as a proxy for the entire profit formula.

Resource velocity defines how quickly resources need to be used to support target volume. It specifies not just the number of widgets a business can make, but how many it can invent, design, produce, warehouse, ship, service, sell, and pay for throughout the value chain for a given amount of investment during a given amount of time. Similar to asset turnover, this variable includes not only the actual turnover of current assets like inventory but the ability of the overhead or other related resources and established processes to support the planned turnover.

Innovations that increase resource velocity allow you to make acceptable aggregate profits at lower gross-unit margins.

Key resources: The unique people, technology, products, facilities, equipment, funding, and brand required to deliver the value proposition to the customer.

Key processes: The means by which a company delivers on the customer value proposition in a sustainable, repeatable, scalable, and manageable way.

“What unique combination of personnel, technology, products, facilities, equipment, suppliers, distribution channels, funding, and brand are needed to support the customer value proposition within the constraints of the envisioned profit formula?”

Key processes are those recurrent, critical tasks that must be delivered in a consistent way, such as manufacturing, sales, service, training, development, budgeting, and planning.

Business rules, behavioral norms, and success metrics connect the elements of a business model and keep the system in proper balance. They ensure that the business can repeatedly and predictably deliver the customer value proposition and fulfill the profit formula.

You need a new model when, to fulfill the new customer value proposition, you find you must: • Change your current profit formula, especially the overhead cost structure, the resource velocity, or both; • Develop many new kinds of key resources and processes; • Create fundamentally different core metrics, rules, and norms to run your business.

achieve transformational growth or renewal within your existing market by delivering new customer value propositions, wrapped in appropriate business models, to address these new jobs.

When these offerings reach a good-enough level and performance-related jobs are mostly fulfilled, the basis of competition shifts. Customers will no longer pay a premium for additional performance improvements; they want higher quality and reliability. A product’s functions and features become necessary but not sufficient to induce customers to buy. So companies must differentiate their offerings by better satisfying customers’ desire for well-made and reliable solutions. At that point, process innovation becomes the key to success.

Once most of the functionality and reliability requirements of consumers are met, the basis of competition shifts yet again. Customers begin to demand innovations that allow them to fulfill their jobs-to-be-done more quickly, more easily, or in a way more precisely tailored to their individual needs. Companies now compete through convenience and customization to garner premium prices.

Finally, when a competitive offering accomplishes most jobs related to all three aspects of performance, the market becomes just about entirely commoditized. At that point, companies compete almost solely on cost. The progression is not always linear; the basis of competition can shift directly from reliability to cost.

But opportunities can arise whenever customers have jobs-to-be-done that are not fulfilled by existing CVPs.

One does not discover new lands without consenting to lose sight of the shore for a very long time. -Andre Gide

Seizing your white space beyond means developing new business models in support of customer value propositions aimed at potential customers who are currently nonconsumers.

There are four main barriers to consumption: wealth, skills, access, and time.b

Innovation is risky but it’s not random. Innovators have a disciplined invention process. They may not be able to articulate it, and sometimes the Eureka! moment happens in the shower, but it stems from a disciplined process. -A.G. Lafley

The clearer your understanding of the job-to-be-done, the more powerful and enduring the customer value proposition you can develop.

The job is rarely understood clearly at the outset, and the details of the blueprint won’t nearly be fleshed out during its initial conception, so managers must understand the work of business model design and implementation as a process of testing hypotheses and applying lessons learned rather than one of rigid execution.

Designing a New Business Model First comes thought; then organization of that thought, into ideas and plans; then transformation of those plans into reality. The beginning, as you will observe, is in your imagination. -Napoleon Hill

To become truly customer-centric, you must stop asking your customers “What do you need?” and start asking them “What are you trying to get done?“2 This is the question that will set you down the road to a jobs-based approach.

It’s critical when searching for unfilled jobs-to-be-done to realize that you must think not only about the functional aspects of a job but also about its social and emotional aspects-which together make up the experience that customers desire in accomplishing the job.4

Designing a new model begins, of course, with the customer value proposition-the offering that addresses the job at a prescribed price.

The goal is to establish a set of reasonable assumptions that can be tested and modified during implementation in an iterative fashion.

The fact is, implementing a new business model is mostly about managing assumptions. To manage assumptions, you must define them clearly, then test them during the implementation process.

Not every new game-changing business model must be cut from whole cloth; sometimes it’s enough to employ a familiar one in a new way.

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