Your Industry Is Changing ? Do You Need a New Business Model?

It's in the paper all the time: Company goes bankrupt. Sometimes It's due to shady practices. But then sometimes bankruptcy leaves you scratching your head. How didn't they see it coming? Why didn't they respond to industry changes before it was too late? Sure, your hindsight may be crystal clear, but how is your ability to predict your own future?

Vistage consulted Vistage Trusted Advisor Paul Ratoff and Vistage speakers Bill Poppei and Lisa Nirell to learn just what you should do to keep the blinders off and your feet firmly planted ? even if it means planting them in a different field.

How do you recognize major threats to your core business model?

Our experts offer these five clues to help you determine whether you need to revisit your business model.

1. You are frustrated by customers demanding lower pricing

Ratoff explains, "Commoditization is one of the first clues that the value proposition has changed." What makes your product or service unique? Do customers seek out this aspect? If price is the only differentiation, It's likely your product has become a commodity.

2. Customers are choosing an alternative solution to satisfy the same need

If you find you are losing your customer base, figure out why the shift is happening. Interviewing or surveying lost customers is one way to do this. Is the new industry or product easier to use or does it take less time? Is it less expensive? Does it appeal to their sense of vanity, greed, safety, or ethics?

3. Margins are becoming slimmer due to rising costs of doing business

"If the key cost drivers in your business model have risen out of proportion to price increases," Ratoff explains, "you need to revisit your business model."

4. Your industry is experiencing a burst of innovation and new companies are entering your market

This has been happening for centuries. Poppei provides this old but resonant example: 'the ice harvesting industry, cutting ice from lakes in New York and New England, was once the biggest industry in America. Ice was cut and stored in the winter and shipped all over the world during the hot months. By 1915, the industry was gone. The problem was the invention, in 1850, of artificial ice makers, what we call today the refrigerator. No one in the ice harvesting business ended up making refrigerators. They thought they harvested ice when what they truly did was provide cooling services. They could have adapted, but were wiped out by the new technology.?

5. You find yourself resisting a new industry shift or technology, even when customers are asking for it.

Lisa Nirell experienced the perfect illustration of unwillingness to accept an industry shift when she visited a Mercedes dealer. She was in the market for a new vehicle. She asked the manager, "What is Mercedes-Benz's strategy for building alternative fuel vehicles?" She says it was as if she spoke the unspeakable. The manager firmly replied that they were focusing on fossil fuel technology. Will that work long-term?

Is your company wearing the same blinders? If you can spot the shift early enough, you should be able to adapt early enough.

When is a sale or merger a better option than a transition to a new model?

"A sale or a merger is a superior option if you or your people are wedded to what you're currently doing and can't change," says Poppei.

Nirell agrees. She offers these signs that your current culture and leadership team are not in a position to strategically transform the business:

• Customers are demanding that two competitors work together and merge talents, and these companies are unwilling to.
• The leaders are tolerating major dysfunctional behavior; this is often amplified in family-owned businesses.
• The founder or owner needs to create, but has not yet begun, a succession strategy, due to such things as a serious health/personal issue or retirement.
• The company is unable to meet its goals after 3-4 consecutive years.

Ratoff adds that you should also consider a sale or merger "when new technology or infrastructure with long lead times and high start-up costs are involved."

How do you determine a new business model that leverages your brand equity and customer base?

First "take a deep breath, this will be a toughie" step back and assume you may not know what your brand equity is, especially in a changing market. Start with a clean slate and embark on a fact-finding mission. Nirell suggests hiring an outside, objective group of interviewers to survey lost customers, new customers, best customers, employees, and the community, and to be open to the ideas the survey provides.

Be sure to ask:

• What compels you to buy from us?
• What do you expect from this product or service?
• How else could this company serve your needs?
• What else influences your buying decision?

"Mapping these questions can help you spot pieces that can be added or modified to strengthen the value you offer," Ratoff explains.

When you have all the information at your fingertips, consider reshaping the way you think about your business. "For example," says Bill Poppei, ?instead of selling groceries, grocery stores need to think that they are selling time, entertainment, and nutrition. If you rent plants to businesses, you provide ambience in the workplace that makes people happier, so really, you are in the human resource business.?

Once you redefine your business in this way, a world of ideas may open up for you. And you'll be in a position to identify whether or not changes in your industry require a shift in your business model.

Additional Resources

What the Future Might Look Like

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