Just because you can make an omelet, doesn’t mean you’re a restaurateur!

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Quick, tell me your organization’s business model. Can you? Can you tell me what a business model is? Oh, it’s how we make money!  Therein lies the problem.  It’s a lot more than just making money – making money is the output, not even the outcome, let alone the model.  Your organization, whether for-profit or not-for-profit, has a business model.  And finally, business model innovation is getting the recognition it deserves. 

That’s why I was thrilled when my friend and one of business model innovation’s gurus, Saul Kaplan, wrote a must read book sharing his real world experiences - The Business Model Innovation Factory.  Long before it became fashionable, Saul was leveraging the power of business models in his career.  His organization, The Business Innovation Factory (BIF), is a vehicle for sharing real life stories about business models that have transformed industries and lives.  If you want your organization to survive and thrive well into the 21st Century, read this book.

Saul’s definition of a business model is simple and straightforward: “A business model is a story about how an organization creates, delivers and captures value.”[1] It is simple, but not easy and in today’s world very short-lived.  Business models used to last decades, now sometimes barely years.  That’s why we see so many good ideas either not make it to market or not for long.  It’s why just because you can make a great omelet doesn’t mean you can make 30 great omelets at once in your restaurant.[2]

Most organizations think of innovation in terms of creating value:  products, services and experiences.  Yet few are really good at truly understanding what the customer needs. That’s why there are many inventive organizations, but few innovative ones.  Saul quotes Theodore Levitt (Harvard Business School Professor), “People don’t want a quarter-inch drill, they want a quarter-inch hole.”  Clayton Christensen, an advisor to BIF, taught us that customers are hiring companies to “do a job” for them.  Saul cites Whitney Johnson’s description of what jobs social media does for her[3].   There is more to doing a job for a customer than just creating the solution – you have to actually get it to them.

Saul emphasizes a very critical, and almost always overlooked, component of business models - the HOW of delivering value.  We know the importance of a living, adaptable, actionable strategic plan.  It focuses the organization on the WHY and WHAT of value creation.  It provides everyone with a common mission and purpose.  Saul urges us to also create a shared operating model on HOW value will be delivered.  This is a very powerful way to align everyone on the activities and resources, a way to let people see and understand how they can and do contribute to actually delivering value to their customers. A shared operating model enables people to “collaborate with a shared purpose for value delivery.”[4] A shared operating model helps the organization identify the most important capabilities (not necessarily core competencies) and provides a roadmap for networking these capabilities to deliver value to customers.  I think this is one of the most important areas for an organization to focus and shows why strategy & execution need to be interwoven.  Those that take this recommendation seriously will be significantly advantaged.

So how do we do this? Saul is a man of action, so he provides actionable principles for business model innovation, also known as the BIF Genome – Connect, Inspire, Transform.  We need to iteratively experiment with business models.  For many, this is frightening.  Saul’s recommendation to build a business model innovation factory in the organization comes from the many real-world experiments he and the BIF team have run in BIF’s experience labs.

As we move further into the 21st Century, we need to shift our thinking from just pouring money, time and people into R&D for ‘stuff’ to also putting money, time and people into R&D for business model innovation.  Saul’s book is a much-needed guide to doing just that.  Seeing a real life business model innovation factory in action can help too, so take a trip to Providence, RI.  I’d suggest you organize that around BIF-8 – so you can not only see, but also hear, learn, discuss from and with those who have and are doing it.

Thank you, Saul, for sharing your years of learning, of failures and successes, and of wisdom with us.  I hope we heed your recommendations to Connect, Inspire and Transform.

[1] Kaplan, Saul. The Business Model Innovation Factory.  (New Jersey: Wiley & Sons, 2012),  pg. 18.

[2] (Kaplan, 2012), pg. 23.

[3] (Kaplan, 2012), pg. 20.

[4] (Kaplan, 2012), pg. 29.