Five tips to innovating your business model
IRISH technology firm Stripe allows web developers to embed in just five minutes a payment service in their systems easily as uploading a YouTube video. Founded by two college dropouts, brothers Patrick and John Collison, who have since moved to Silicon Valley, Stripe’s early investors included Peter Thiel and Elon Mask, founders of competing company PayPal.
Stripe is disrupting the web payment services offered by the financial services industry by removing many pain points—the need for merchant accounts, long pages of contracts, face-to-face interaction, gateways, subscriptions and long waiting time—in exchange for a simple 2.9% commission plus $0.30 fee per transaction as well as a dashboard to track customers and their payments.
With the increasing number of online transactions amid the snail-like pace in establishing merchant accounts with credit card firms and payment providers, Stripe is reminding us the following lessons we can learn from innovators: erates and challenges every element of this industry logic. Just because some companies have
been successful does not mean they have been doing all the right things. Each element must be treated as assumption. The more a practice has been unchanged, the more you can exploit and disrupt an industry.
Unlike banks, microfinance firm Kiva does not have a credit committee. Instead, the micro-lending catalyst allows individuals to personally choose who they want to lend money to, thus removing its credit risks.
2. From pain points to pain killers
In the Philippines, many upper class and upper middle households have an extra car for “color-coding” days. The insurance risk is different when a car is unused more than half of the week. Still, players in the insurance industry continue to ignore this and charge a fixed annual premium. Why can’t they charge based on different variables, such as kilometers traveled, and thereby disrupt other players?
3. From competitor’s strength to competitor’s weakness
In the 1980s, market leader in home wa- ter purifiers Lux (formerly Euroclean), went from house to house, literally knocking on doors. Eventually, security became a concern, women left their homes for work and condominium living became a trend. Waters Philippines in 1995 decided to enter the market and challenged Lux’s direct selling approach.
Waters Philippines used the multilevel marketing approach, employing the services of mostly part-time sellers, thus creating for them an opportunity to be entrepreneurs with small capital. Waters Philippines emerged as the new market leader in the late 1990s despite having less offices and employees than Lux.
4. From non-users to users
Cebu Pacific Air stimulated demand in order to bring down the costs of its airfare. It targeted both occasional and frequent travelers, including those using sea and land transportation. How did this happen? Cebu Pacific removed free meals and newspapers while resorting to new ways of satisfying non-users such as alternative airport and frequent flights.
5. From niche to mainstream
Disrupters would often start operating in the niche market before moving to main- stream. The offer of a disrupter may not be attractive initially to existing users, especially if it would mean additional investments. New users may be early adapters, eventually attracting existing users.
Look at former dominant market leader Kodak. Its original business model relied on film and film developing centers. With digital cameras becoming cheaper, specifications adjusting technologically and consumer behavior shifting in favor of storing photos in computers rather than photo albums, the Kodak model has been abandoned. Mobile phones with camera features also make the use of digital camera much more convenient.
Market leaders must avoid becoming cases of the what-could-have-been. They need to know how not to be disrupted by competitors and new entrants. Instead, they must disrupt themselves. Market challengers and new entrants will be motivated the most by disrupting and changing the way the industry competes.
(Josiah Go is the chairman of marketing training and advocacy firm Mansmith and Fielders, Inc. He is conducting the 20th Business Model Innovation on July 21-22, 2016. Please e-mail info@mansmith.net for inquiries. You may also follow his blog, www.josiahgo.com.)