5 Important Points About Business Models


One Technology, Five Business Models

In the late 1990s, some researchers at The University of Queensland made a breakthrough.  They invented radar equipment that works with an extremely high degree of precision over a relatively short range. Once they had made their discovery, they next started working on bringing their technology to market. Their first thought was that this would be very useful for locating pipes and underground power lines when people were digging things up. They built a prototype and called their company GroundProbe, and started trying to sell their radar to backhoe operators to help them avoid digging up power lines.

Since this first try at commercialising their technology, GroundProbe have built five different business models on top of their discovery:

  1. Power line avoidance for backhoe operators: this first business model failed. It turns out the backhoe operators weren’t that worried about digging up power lines.  Why? Because it didn’t cost them too much to do it – the power companies were the ones that had to make the repairs.
  2. Monitor slope stability for mining engineers: this business model succeeded – GroundProbe invented a new industry. Wall collapses at a mine are extremely dangerous, and often very costly as well. These collapses are preceded by small changes in the face of the wall, and these changes can be detected by GroundProbe’s radar. Consequently, their technology can be used to evacuate people and equipment before a wall collapse, and sometimes it can provide enough advance warning that the rock wall can be reinforced, avoiding the collapse altogether.
  3. Provide a stream of site data to mining engineers: This business model also succeeded.  As competitors sprung up for business model #2, GroundProbe evolved again. Many mines didn’t have enough free resources to adequately monitor and interpret the data coming from the Slope Stability Radar – so GroundProbe started to offer not just the equipment, but a stream of interpreted data.
  4. Provide safety to workers in enclosed spaces, sold to mining engineers: this business model failed. This was built around a small, portable version of the radar that they called the Work Area Monitor (WAM).  There appeared to be strong demand for a product like this, but the first attempt to sell this through the existing business model failed.
  5. Provide safety to workers in enclosed spaces, sold to health and safety: this business model succeeded. In order to sell the new product, GroundProbe had to reconfigure the business model to provide value to a different group of people within the mine.  Once they did this, the WAM started to sell.

Five Business Model Innovation Lessons

The GroundProbe story illustrates a few important points about business model innovation. Here are the five key points:

  1. Great new ideas need great new business models to go with them. It’s not enough just to solve the technical problem.  You also need to build a business model on top of your tech.  And this isn’t just true for tech-based firms. If you have a service-based firm, a not-for-profit, or any other organisation that creates value for people, the business model is a separate layer that lies on top of whatever your core activities are – and it’s one that you have to get right.
  2. There isn’t one “correct” business model. GroundProbe has built five different business models on top of essentially one piece of technology.  There are many others that could be built on top of it as well – starting a business is about finding the business model that works best.
  3. The best business model evolves over time. Once you find a business model that works, there’s no guarantee that it will work forever.  That is why GroundProbe added business model #3 – competition reduced the effectiveness of business model #2. In each of the five examples, every time they changed the value proposition, they also had to retool their entire business model – this is often a challenge
  4. When you’re starting out, you can search for the right business model. And this is the one big advantage that startups have over established firms – they’re not locked-in to an existing business model.  This is particularly important as technological evolution and other events change the business environment.  Twenty years ago, it was still a big advantage to have a big chain of physical stores to sell things from.  Today, you’re much better off having a big network.  Amazon was able to build this from nothing, while Borders failed to adapt to the web while also trying to maintain their chain of stores.
  5. It’s often a big mistake to crank new ideas through your existing business model. When GroundProbe launched the WAM, they tried to sell it through their existing business model.  This didn’t work.  They had to go through the same process they did in building business model #2 – they had to create a market for their new idea by finding the people for whom it created unique value.  This is always a discovery process.

Business model innovation is a critical management skill. It’s extremely hard to innovate without it as part of your overall toolkit.  Whether you’re running a startup, or are in an existing business, you need to think about your business model.

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

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3 thoughts on “5 Important Points About Business Models

  1. Business Model? Really???? UQ seems to have a view that everything is business model rather than strategy (marketing, production etc)

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