Alex Osterwalder on Innovating Your Business Model
Innovation, according to entrepreneur, author and co-founder of Strategyzer.com, Alex Osterwalder, is what your business needs for longevity and success. Alex believes that successful companies are those that compete at the level of business model, not just at the level of product, or service, or price.
“Innovation is not a talent or idea problem. It’s a process and culture problem. Companies are not putting in place the right systems for the great innovators and great ideas to emerge. People on the ground know very well what could work, but we don’t give them the space to explore. And if that doesn’t change, a lot of companies are actually going to pay the price and go out of business.”
Alex knows what the challenges are in driving innovation. He knows what needs to be done in terms of structure, power and resources. And he knows how company culture fits into a business model. And in this incredibly insightful episode, he shares his thoughts and actionable processes with listeners.
“An invincible company has three characteristics – they always reinvent themselves, they compete not just on products, technology, price and service, they compete on superior business models. And they understand transcending industry boundaries. People who see themselves in one industry, usually that’s not going to play out well in the long term.”
It’s a slightly longer episode, so make sure you’re sitting comfortably, and don’t forget to bring a pen and paper, you’ll want to take notes.
On today’s podcast:
- Creating an innovation culture in a company
- Rethinking business models and business R&D
- Transcending industry boundaries
- Entrepreneurial CEOs don’t have to be founders
- Innovation needs money and power to succeed
- The monetary value of experience
The Importance of Business Model R&D with Alexander Osterwalder
According to Alex Osterwalder, an invincible company is one that is constantly rethinking their business model generation. A business that wants to stay in just one industry is never going to survive long term. Companies need to break out of industry boundaries if they want to be around for the long haul.
Think about Apple, for example, they’re in the phone making business and yes they make money from phones, but they also do software.
“The challenge is to stay in the same mindset and not be squeezed into one area. But figure out ‘how can I create the most value for customers, not just with one product but with a superior and better business model?’”
Rethinking business models
The idea of disruptive innovation – where you don’t change your business model once you have it, you just keep reworking it, rethinking it, to make it better and better, ‘incremental innovation’ Alex calls it, won’t help your business do anything other than die more efficiently.
The challenge for all companies, big and small, when trying to improve and scale your business, you need to not just create new products, services and technologies, you need to constantly be thinking about the next growth engine. And the key says Alex, is not just to think, but to actually experiment with business model generation.
He calls this ‘Business R&D’.
Business Model R&D
“The challenge is it’s a different mindset. You need to reinvent yourself while you’re successful. You need to put energy into that. And there’s no company probably on the planet that doesn’t look at innovation and do some form of innovation. But they usually don’t take it seriously enough.”
The thing about innovation is you don’t start with the perfect solution. You have to do tons of experimentation and experience tons of failure in order to figure out what works and what doesn’t. To have big wins you have to have big fails.
Just look at Amazon, they’re constantly innovating:
“This is a big lesson for everybody. You know, listening here, even your competitors will come from very unexpected places. I mean, come on, who would have ever thought that a book retailer would disrupt IBM?”
And it’s not innovation if you know what you’re doing.
“What we need to do in innovation, and we know this from venture capital and early-stage venture capital, in particular, you can’t pick the winner in innovation, you can’t pick the winner, because if you can pick the winner, de facto you know. It’s not an innovation if you know it’s gonna work.”
In order for a company to be successful at innovating, they need to have a CEO who is fully committed to innovation, who understands that long term growth isn’t something that can be achieved overnight. Someone who knows they will need to experiment with the business model and the value proposition.
“I think the great innovators, they really think long term. Jeff Bezos likes to say, ‘Oh, you like our quarterly results? We made them five years ago, right.’ So you can’t innovate if you’re not thinking long term.”
And there are three types of innovation:
- Efficiency innovation
- Sustaining innovation
- Transformative innovation
No one is better than the others, you need all three.
How to invest in business model innovation
So here’s what you need to do – you have to realise that if you want to succeed as an innovative business, you need to invest in about ten business ideas, but know that 6 of these value propositions or new business ideas will fail. You’re not investing in the ideas per se; you’re investing in the teams to come up with the ideas.
You need to give your teams bandwidth to work and to let them run. And don’t look at the return on the new business idea, nor look at the return on the team, you look at return on the whole portfolio. Because you aren’t investing in any one team to innovate, you’re investing in innovation as a whole.
You don’t give each team money and command them to innovate and succeed, if you do this they won’t take risks and innovate because they’ll be afraid of failing. You need to let them know that each team will get the same resources, but at the end of it if you have to say, 5 teams, you’ll kill 4 of their projects and refocus every team member on the one remaining team project.
“[This way] you don’t lose a lot of money, you lose a little bit of money and you incrementally invest more in the ideas that are emerging. So it’s just a different mindset. You don’t look at investment per team, you look at investment on your portfolio.”