Want to avoid being disrupted? Transform your business model.

I have long been a fan of Clay Christensen who wrote Innovator’s Dilemma and advanced the concept of disruption.  He identified situations where new entrants to a market start with a basic product that only appeals to the lower end of the market.  The upstart then continuously improves the product, through interaction with customers, until it has knocked off the incumbent.  We can look back now and see many examples where this has happened and I expect we will see an increasing number in the future.  Incumbents don’t have to stand by helplessly while this happens.  The key to avoiding disruption is to transform your business model.

There are two ways to do this.  One way is to incubate new business models that have the intention of disrupting your existing business.  We have often heard the expression “Disrupt your own product before someone else does.”  This is a proactive approach to avoiding disruption.  To do this requires a completely independent venture that can operate outside of the existing business.  This venture has the freedom to explore new business models without interference from the vested interests that exist in any organization.  Every company should be doing this on an ongoing basis since virtually everyone will face a disruptive innovation at some time.

The other way to avoid being disrupted is to react quickly when signs of disruption start to emerge.  A recent Harvard Business Review article pointed out that few disruptive innovations are a direct hit on the incumbent business.  There are still many things that the incumbent does better at the time of the initial attack.  The existing market leader has to create a new business model that incorporates the strengths of the current business model.  This approach also requires an independent venture that will incubate the new model.  The company has to manage the process of pulling the existing strengths from the old business model into the new one.

I have mentioned in prior posts that business model innovation is critical at a time when technologies can be copied or leapfrogged.  Business model innovation can be used to create a brand new market, make a move to disrupt an existing market, prevent disruption by innovating your own business model or reacting to the early stages of disruption.

Published by Vince Bulbrook

Vince has spent over twenty five years working with entrepreneurs providing financial and strategic advice. Much of this advice has centered on business model design and product development. Issues such as determining how to invest product development resources, pricing options, features, distribution and client requests all come in to play. For much of the past fifteen years Vince has operated a business providing CFO and strategy services to small businesses. In this period he spent three years in the product development group of a software company that had a $26-million development budget. Along with overseeing the development of a product he also worked with senior management and the other product teams to determine how to manage the product portfolio. He has advised clients in software, entertainment, digital media, publishing, retail and distribution on product pricing, feature selection, distribution strategy. Prior to founding the advisory business Vince worked with Price Waterhouse and Ernst and Young. Vince graduated from the Ivey School of Business with an HBA and is a Chartered Accountant.

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