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Learn to Evolve

7 ways to transform your business model.
April 8, 2009
URL: http://www.entrepreneur.com/article/202810
The Dos and Don'ts of Game Changing

DO
• Look at your business through the lens of another industry to find new ways to operate. If you're in manufacturing, how would you operate as a retailer, or vice versa?

• Talk to your customers about what they need today. This will help you find new competitive advantages.

• Get employees on the front lines talking about how customer mind-sets have changed and how the company can better reach consumers.

• Reexamine your business model for products, processes, promotions and so on that are no longer effective.

• Constantly look for ways to add value to your company, product or service. This doesn't have to be expensive. A retailer, for example, might set up a small play area with secondhand toys to keep kids busy while parents shop. It's the small things that can boost a revenue line.

DON'T
• Stay the course. Realize the economy has changed and your company must change with it.

• Stop marketing your product or service. You need to actually communicate with customers now more than ever.

• Assume your suppliers, vendors and distributors are doing fine. Go see them in person. Check in with their suppliers, too.

• Get complacent if margins are still good because rapid industry transformations rise to the surface in tough times. The newspaper industry, for example, saw trouble coming for years, but healthy sales kept it from making necessary changes.

• Stop being creative. Aim for discipline in your core business balanced with a willingness to try new things and create new markets.
For companies feeling their way through the worst recession since the 1930s, it's easiest to stay focused on next quarter's numbers, improving operations and lowering costs where possible. Just stick with the playbook and keep your head down, and things will be fine, right?

Wrong. This recession is different from other recessions in its scope and depth, and the worst thing you can do is more of the same. Staying the course with your current business model "might let you survive a little bit longer, but you're not going to create that competitive advantage necessary for the long term," says Scott Anthony, president of Innosight, an innovation consulting firm, and author of next month's new book The Silver Lining: An Innovation Playbook for Uncertain Times.

You've got to change your game. But how can you do it? Here are seven ways to be a game changer right now:

  1. Get comfortable with chaos. Globalization and technology are leading to constant economic turbulence. Being a game changer begins with a recognition of this new normality, says John A. Caslione, founder of GCS Business Capital, an M&A advisory company with offices worldwide, and co-author of Chaotics: The Business of Managing and Marketing in the Age of Turbulence. "[There's] going to be continuous turbulence punctuated by spurts of prosperity and downturns," he explains. "Understand that you're not going to be able to count on uninterrupted periods of prosperity."
  2. Reassess your customers' values. This recession is changing people's mind-sets, not just their spending habits. It's still too early to tell what long-term impact this recession will have on customer behavior, but a more cautious, anxiety-ridden consumer has arisen in the short term. People are reevaluating their values and their purchases. How have your customers' values changed in the past six months, and how have their needs changed? The answers could spark new product and service ideas aimed at value-conscious consumers. Your company's closeness to customers is a huge advantage, so talk to them or work up a simple survey. Says Caslione, "You've got to be talking to your customers more than ever before to be able to understand how their needs are changing."
  3. Understand that a good product always sells. A startling number of companies and game-changing products were actually launched in very tough times. Campbell's Soup was introduced in the 1890s. IBM launched its personal computer in 1981. The first iPod came out in late 2001. These periods were economic low points and seemingly not the time to launch new products. Marketing research company Nielsen found customers' willingness to purchase innovative products in good times and bad times has stayed remarkably constant over the past 30 years. "Just because times get tough," says Anthony, "doesn't mean people aren't willing to pay for things that help them solve problems."
  4. Think new markets, not just cost cutting. Trimming costs where you can (renegotiating prices with suppliers and distributors and lowering your overhead) is very important, but don't stop there. Game changers see levers they can pull (e.g., affordability, convenience, accessibility, location and cost) that change a market or create an entirely new one. When MinuteClinic, a timesaving one-stop shop for simple ailments, launched in 2000 inside select CVS pharmacies, its model changed the game--and consumers responded.
  5. View scarcity as a good thing. When sales are good, there's no urgency or any real need to be innovative. Feeling like your back is against the wall actually forces you to try new things. Now's the time to ramp up a few low-cost experiments and reexamine your entire business model for weaknesses in light of the economy. What have you got to lose? Welcome the challenge.
  6. Stop defending the status quo. An idea sounds great-until you realize the operating margin or some other metric will be lower than expected. Microsoft had all the tools to create Google's search advertising business but abandoned the idea when search produced a paltry (by Microsoft standards) $1 million in sales during its first few months. By the time Microsoft finally recognized the importance of search, Google had a commanding lead in the market. Bending a little bit could pay off big time.
  7. Serve the customers you hate. Every company has customers it sees as undesirable from a cost or profit perspective. Consider Netflix, which started out with a traditional pay-per-rental model in which customers paid late fees. In early 2000, 45-employee Netflix switched to a subscription model without late fees, a move that appealed particularly to customers who have trouble returning movies on time. Today, Netflix has around 250 employees and its business model is thriving in the recession. "It's not just the customers you've learned to love but, in fact, customers you've learned to hate and figuring out ways to innovate to make them great customers," Anthony says.

Every game has winners and losers. Which side will you be on? "Continue to dream, continue to experiment, continue to think differently," Anthony says. "But you've got to prove your dream more quickly than you ever did before." Now hurry--your customers are waiting.