Three Signs That Your Business Model is Obsolete

When I was working on yesterday’s post about the business model experiment that Kaiser Chiefs are running, I came across a quote from Paul Morley that bothered me enough to trigger this post. It’s from the discussion of the idea in the Financial Times, and Morley is suggesting that the experiment is a terrible idea. Here’s why:

If you’ve got the time, it is always best to listen to a great album from beginning to end, preferably with a break in the middle where you turn the record over – creating four very specific moments of drama, the beginning and ends of sides one and two, with moments of surprise and intrigue carefully distributed in between to make separate songs work as a whole.

Bringing It All Back Home, Bob Dylan’s 1965 album, is my choice from the 1960s for the perfect album sequence…

Consequently, letting listeners choose their own album sequence is bad.

Look, I still own about 800 records on vinyl, so I can understand why he’s saying what he’s saying. But still – give me a break!!

Bringing It All Back Home is nearly 50 years old now. Criticising modern artists for not following the same tropes today is exactly the same as saying that Dylan should have been making records in exactly the same way as people were around the time that Robert Johnson was five years old. It’s just nuts.

This is dominant logic thinking – and this is an approach that can kill you in turbulent environments.

A firm or industry’s dominant logic is usually determined by whatever business model first led to success. While things are stable, it is fine to just keep innovating incrementally. However, when things around you start going unstable, you need to start experimenting.

Here are three signs that your business model might be obsolete – if you say:

  • We should be doing things in exactly the same way that we were fifty years ago: I don’t think we need anything more on this – it’s a huge danger sign.
  • I want you to think outside of the box: this one is tough, because it sounds like you actually are asking people to innovate. However, here is what it usually means:

    “Think outside the box” usually means “make a small jump that will move one edge of the box out just a tiny bit”. Incremental. If someone asks you to think outside of the box, and you come back with a star instead of a slightly rejigged box, you’ll most likely be in trouble. Thinking outside of the box is a good sign that your business model is too old.

  • We have to educate the market: this can mean two things – “our new idea is ahead of its time, so people don’t understand it yet”, or “if we just explain it to people, they will still love the business model that we’ve been using all along.” Unfortunately, it usually means the latter. I have yet to hear someone use this phrase when they weren’t already deeply in trouble.

It’s really difficult to move beyond the dominant logic of your firm, or your industry. In part this is because of how strongly connected these offerings are with existing suppliers and customers. Changing the business model is just the first domino in a long line that will then inevitably fall.

Nevertheless, if you see one of these signs that your business model is obsolete, the time to act is now. And at this point, you can’t just move the lines of your box. You’ll have to experiment to see if you can come up with a star.

Student and teacher of innovation - University of Queensland Business School - links to academic papers, twitter, and so on can be found here.

Please note: I reserve the right to delete comments that are offensive or off-topic.

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10 thoughts on “Three Signs That Your Business Model is Obsolete

  1. Nice post.
    Not sure though if anybody would actually say ‘let’s do things the way they did it 50 years ago’ (except perhaps during the brainstorm that led to ‘Mad Men’). But point taken.
    A great way to look outside the bounderies of your businessmodel is by using the Business Model Canvas as developed by Alexander Osterwalder. By first analysing what’s ‘inside the box’ it is easier to understand why your company needs to look ‘outside the box’. The Canvas is a great tool to test drive any new business model before you hit the road!

  2. Very nice segue, Tim. Even if WHAT we’ve been doing for 50 years is valuable and makes the world a better place, HOW we do it must always be open for debate. Anything else is just the superficial pursuit of diminishing returns.

    To your musical point (I love a good metaphor), I’m thinking, if the artist(s) craft a story out of 3/4 of their new material, it would still make sense to allow customers to mix things up; maybe even coming up with additional tracks as alternate “chapters” in the story, allowing listeners to essentially choose their own adventure with the album. That would be epic.

    This all reminds me I need to dust off GreenDay’s “American Idiot” album. The story of St. Jimmy has long been a favorite of mine.

  3. Tim, your raise an interesting point. There is a tension of “this works already” to “do something new”. It’s actually a classic paradox of big firms, or existing projects of any kind (including people). We are successful because of X. But to what degree do we need to consistently / constantly reinvent yourself? Not 100% surely, but there is some part of people that needs to constantly reinvent because that’s also growth. And in companies, some portion of work that should be experiments because that lets us invent the future of the company (rather than harvest the current core business.). For any company and their industry, etc, their % of how much is right for them, would differ. But clearly, the number is not zero%.

  4. Hi Onno – thanks for dropping by & thanks for the comment. I don’t think that it’s very common for people to say “let’s do things exactly as we did 50 years ago”, but I’ve heard a lot of people say things that are functionally equivalent. This is what you get every time there is a fight against change – as Nilofer points out in her comment, sometimes this is justified, sometimes not.

  5. Brian – talking about a good segue is sure to appeal to the ex-DJ in me! I think there are a lot of things that can be done with this approach – your idea is another good one.

  6. Great point Nilofer. It’s an issue that we’ve talked about a bit here in the context of innovation portfolios. In most cases the amount of effort that needs to go into reinvention is reasonably small – probably 10% or so (I talk about Google’s model in this post: http://timkastelle.org/blog/2010/08/innovation-for-now-and-for-the-future/)

    There’s two important points though. One is that if you are investing in ideas that might change everything, you need to be willing to act on them when it looks like they might work. The second is that when the environment goes turbulent (like it is for record labels right now), the experimental % has to increase.

    And getting this balance right is one of the core innovation management challenges.

  7. Tim,
    Interesting points. The way I look at it, you can still do things the way you were doing 50yrs ago if the context (market, consumers etc.) demands it and you are profitable doing it.

    Anyway, to me the key with today’s successful innovations is not that you are innovating an end-product but instead providing the lego pieces so that your consumers can make a 100 different ‘innovations’ for themselves that provide them with the most value. In other words, a firm might still keep an “old process” in place in the back-end but then ‘break it down’ and offer it differently in the markplace.

    So if Morley wanted to listen to the album in a certain sequence, he could very well have done it – and that to me is the beauty with the Kaiser Chief model.

    Regards,
    Ned

  8. Hi Ned, as usual, excellent points. I agree that doing it like you did 50 years ago may still work. But if it is, you probably don’t have to argue in favour of continuing to do it that way because it will be apparent that it’s working. The circumstance that I’m more concerned with is when things aren’t working, but people still insist on sticking with the old methods.

  9. Thanks Tim for excellent post! The reason the 50yrs old approaches still work is due to unequal information availability. The Web is already leveling that in huge ways.

    When is YOUR business to be changed today?

  10. Thanks for the comment Ralf. Info asymmetry is a another big issue – I’ve been meaning to write a post on that for a while now…