Let me just come out and say it. I am a nerd. And the nerdy topic that I get most excited about is business model innovation. As I write this, I can feel my team rolling their eyes; I talk about business models all the time. I think a quality product is important and customer engagement even more so, but an innovative business model is the foundation for ground breaking innovation.
Let’s look at the Ford Motor Company. When Henry Ford incorporated his company, he was one of hundreds of American car manufacturers. Ford cars were good, but there is no evidence that they were the best. Just like many of his competitors, a Ford got you from Point A to Point B. The real reason that Ford is one of the three American car makers left standing is their business model innovation.
Start with wages. Fords were cars for the masses and therefore reducing the cost of the car was important. Logically, you would source the cheapest labor possible and have them work as hard and fast as they could for as little money as they would accept. Ford turned this logic on its head paying his factory workers $5 an hour (to put this in context, his cars cost $290 in 1924) so that each one of his workers could afford one of his cars. He made his own market right in his own factory.
Pricing and distribution were another crucial Ford innovation. Ford brought leasing to the automobile industry making his cars even more accessible and adding a second, diversified revenue stream to his company. He also invented the dealership model. Carrying inventory is expensive. Ford pushed that burden onto an independent dealer network creating a favorable cash flow positioning and balance sheet for his own company.
And I haven’t even talked about the assembly line.
When working on your business, do not just think about what you want to sell, but how you can design a system of turning raw materials into revenue in a way that fits with your product strategy. Maybe you too will become obsessed with business model innovation.
Meghan McCormick is the CEO and co-founder of Dare to Innovate. She is a systems thinking passionate about using innovation to deliver value to communities, companies, and consumers. She’d love to help you make your business model more innovative. You can reach her at Meghan@daretoinnovate.com.