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Keeping Your Business Model Flexible

In today's fast-paced marketplace, your business model has to be flexible. Are you up to the challenge?

Denver-based Thought Equity Management Inc. started in 2002 with a straightforward premise: The company would gather speculative print work from various ad agencies and sell it online to newspapers and businesses for use in their creative campaigns. Along the way, Thought Equity would make access to creative print work fast and affordable for smaller end-users. "The whole idea was to bring Madison Avenue quality to Main Street America," says founder Kevin Schaff, 31.

Today, Thought Equity is still in the advertising industry, but the 35-employee company does production-ready TV commercials. Mainly, it has become a leading supplier of digitally mastered stock video footage with a website that houses just about every type of clip, from video of Pope John Paul II's childhood to snowboarding turkeys. Customers can search, preview and download clips in high-definition formats and resolutions, all in real time. Thought Equity manages video inventory for HBO and the NCAA, and customers pay up to $500 per second of footage for somewhat rare or older video clips. "If you want to integrate Michael Jordan's North Carolina game-winning shot into your TV show or commercial, you have to come to Thought Equity," Schaff says. "If you watch CSI: Miami, [and the episode has] two people sitting at a bar watching a game, that game is actually licensed from us."

So what happened to the company's print-based business model? It's gone. Schaff likes to say it evolved, especially as he and his team realized there was a multibillion-dollar opportunity waiting in the motion-footage space. "Throughout the last year, we've made significant strides in our business model," Schaff says. "Making those changes had an enormous impact on our bottom line." The company projects 2006 sales of more than $5 million.

This kind of business-model evolution is just smart business in a marketplace that's moving at warp speed. Gone are the days when a growing business with any hopes of long-term survival could etch a business model in stone and follow it into oblivion. Savvy customers and a fragmented marketplace require companies to move on, adapt or die. In the 21st century, it's not merely an original idea that endures in Darwin's survival of the fittest; it's the ability to change. Strength is derived from nimbleness within the business model itself. David Newman, managing partner of BusinessDNA, a Bryn Mawr, Pennsylvania, sales and consulting firm, says today's successful companies are forward-looking and constantly evolving to meet market demands. "If you're not [flexible]," he says, "your competition will be."

The Pressure Is On
Even the largest companies feel growing pressure to change basic elements of their business models. Microsoft is trying to keep up with Google, Salesforce.com and Yahoo! by changing how it distributes and prices its software. Apple's iTunes, which has shaken up the music and film industries, suddenly faces a threat from Google's new online video service that lets content owners set prices. Netflix's innovative distribution model forced Blockbuster to change its rental model, and Netflix, in turn, must find new ways to compete with digital on-demand movie downloads offered by cable companies as well as competitors like Gamefly. And internet phone startups Skype and Vonage are giving traditional phone companies a run for their money. The list of one-upmanship goes on.

In time, your company will also face disruptive innovations that enter the marketplace and challenge your business model. Consider travel agents and record store owners, many of whom were blindsided by the internet and didn't alter their distribution and pricing models to remain competitive. And in recent years, philosophical movements such as Six Sigma have resulted in a heavy internal focus on quality and operations, says Beth Zimmerman, founder and principal of Cerebellas, a Long Beach, New York, firm that provides strategy and marketing solutions for Fortune 1000 companies. "There was so much effort expended on perfecting existing ways of doing business," she says, "it sometimes muted what was going on [outside] companies."

You can't afford to get blindsided, and flexibility in your business model is your greatest weapon. Almost three years ago, Joel Bomgaars, 26, and Nathan McNeill, 24, started Ridgeland, Mississippi-based NetworkStreaming, a software company specializing in remote support technology for help-desk and technical support. Originally, they sold a traditional software-based solution. A year and a half into the business, however, the company's growing list of enterprise customers demanded something more. Bomgaars says, "They were coming to us and saying, 'We love your technology, but your business model needs to be built in a way that makes it very easy to deliver this technology to us.'"

The company shifted to an appliance-based model with a plug-and-play server device that's delivered to the customer's IT department. Offering a complete, secure solution with a lower total cost of ownership "enabled us to win a lot of enterprise customers," Bomgaars says. "They could be up and running in half an hour." The company has also shifted away from a heavy emphasis on Google keyword marketing toward PR and direct sales. "It's vital for a high-tech company like ours to remain flexible," Bomgaars says. NetworkStreaming's 2005 sales exceeded $3 million.

Flexibility in your business model requires continual experimentation to get to the next level. Maybe you need to add an extra layer to your business model, whether it's franchising, switching from products to services (or vice versa), transitioning to a web-based retail model or a brick-and-mortar location, or going high-end with your pricing. Newman mentions Starbucks' foray into CD sales. "They're very successful [in] the stores with the coffee and everything else. Why mess with success? Because they're looking for the next success," he says. "[Experimentation] is where real business success lies."

But you have to stay focused. "There's been quite a bit of research that suggests [that] small businesses that allow themselves to get too diversified too early lose focus," says Rita Gunther McGrath, a Columbia Business School associate professor and co-author of Market-Busters: 40 Strategic Moves That Drive Exceptional Business Growth. "The dilemma for small companies is [that] you have this real tension between the cost it requires to maintain flexibility and the conservation of resources it takes to keep yourself going."

Adapting your business model means finding new business opportunities while also staying flexible with the solutions you already provide. "I actually believe [flexibility in the business model] is the key to success," Schaff says. "Have your executive-level people out in front of the customers so you can stay on top of what the real demand is."

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Chris Penttila is a Washington, DC-based freelance journalist who covers workplace issues on her blog, Workplacediva.blogspot.com.

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This article was originally published in the April 2006 print edition of Entrepreneur with the headline: Model Behavior.

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