How to invent a brand new business model

We all want to be the startup that delivers an experience so frictionless that it disrupts a decades old industry.

Uber, Apple, and Amazon are the envy of the business world. Their business models are dissected and scoured for crumbs that will lead other entrepreneurs and stakeholders to innovate and evolve their businesses.

But revolutionary business model innovation is hard. Really hard.

It takes more than an inspirational “go innovate” deck or locking your greatest minds in a conference room to replicate what Apple did for music, what Uber did for transportation, or what Amazon did for retail. To get there requires an innate understanding of your business and industry, but above all an understanding of the human end user.

The human condition continues to trump everything. The brands that get this are investing in experiences like never before. To credit the success of Apple, Uber, and Amazon to digital disruption alone completely ignores the critical importance of the experience they provide their consumers.

Consider the amount of thought Apple puts into its packaging and the “unboxing” process. The company could easily have ignored packaging as an insignificant consumer touchpoint, but instead it transformed the package-opening experience into a magical moment that consumers share across their social channels.

In fact, the more connected we get, the more we will look for meaningful human connection derived from experience.

So stop checking the box on digital and thinking the channel alone unlocks business-changing innovation. It’s not about digital, it’s about being where your consumers are and authentically connecting with them.

It’s not pushing a brand in their face, it’s being there for them when they need you and being a button click or tap away in an hour or less.

If you can deliver on that experience, well then you’re the Uber of the future. Then you’re the Amazon of the future. Then you’re the Apple of the future.

So how can you design the business model of the future?

1. Start with change management

Innovation starts at the organizational level so it will be dead on arrival without proper change management.

Innovation is not a KPI, it has to be embedded within the cultural fabric of a company.

If your employees aren’t empowered by the values and vision of your organization to push, listen, try, and explore, innovation will remain elusive. You’ll be surprised how much creativity can emerge when you empower employees to become disruptive inventors and explorers.

At the same time, if everyone in a company is a disruptor, you can cannibalize your own successful business.

The smart middle ground that is becoming increasingly common is to break off specific teams within your organization that are 100% focused on innovation. Dedicated teams are tasked with immediate product and service innovation, innovation 12 months from now, and finally five and ten years out. Like anything in business, innovation has to be measured and analyzed in cycles.

When structuring these teams, take cues from startups and build agile, cross-functional teams that can “move fast and break things.”

Small teams made up of practitioners from a variety of disciplines will be substantially more adept at the creative problem solving required of true innovation. The fresh perspective that a designer can offer an engineer, or that a supply chain expert can offer business development will unlock previously unconsidered solutions. There is far more connective tissue between departments than you think.

2. Test, test, test

You’re going to fail.

But that’s fine, Rutherford didn’t split the atom on his first day, and YouTube was originally a video dating site.

Real innovation comes from design thinking — the process of observing and brainstorming that leads to a wealth of ideas, each of which needs to be tested. The failure of 19 ideas will make the 20th that much better for the lessons learned along the way.

Think like a scientist, formulate a hypothesis based on what you believe to be true about your business, and test the hypothesis.

You’re going to make a lot of bets, some (read as most) will fail.

But you have to swing for the fences. Venture capitalists succeed because they hit home runs on a minority percentage of their investments.

VC Rockstar Peter Thiel, an early investor in Facebook and cofounder of PayPal, calls business-changing breakthroughs 10x improvements in his inspiring book Zero to One.

“Companies must strive for 10x improvements because merely incremental improvements often end up meaning no improvement at all for the end user … only when your product is 10x better can you offer the customer transparent superiority,” he writes.

But you have to insulate what is already successful about your business from the iterations you are hoping will become 10x improvements.

3. Mind your P’s

Who are your customers today, who will they be tomorrow, what is their lifetime value, what are the reasons you’re gaining customers, and more importantly, why are you losing them?

You can learn a lot about innovating your business model from the good old fashioned four, now seven, marketing P’s: product, price, place, promotion, packaging, positioning, and people.

Think critically about each to find holes in your value proposition.

If you’re losing customers because of price, how can you deliver more value in your product’s value chain to justify your price?

But remember that it takes more than a focus on cutting costs to disrupt industries. Cost cutting is a valiant, and necessary, exercise, and by no means do I intend to diminish its importance. Just look at Apple; Tim Cook cut his teeth at Apple as a supply chain guru, an operations genius.

Poor supply chain can doom a business. If your product isn’t complete, tested, launched, and in the hands of your customer, it will fail. An inferior product will beat you to the punch.

But great marketing, sales, or distribution can also put an inferior product in the hands of your customer.

How often do you personally buy a product or service of lesser quality out of convenience? It’s hard to resist what’s in your hand, or a button click away.

Better, faster, or cheaper. If you get two you’re lucky, but it takes more than Tim Cook’s awesome supply chain to get an iPhone in your hands.

4. Build on your existing foundation

No one is so savvy that they can do without the help of proven toolkits. Find the innovation framework that works best for you.

I’m a personal fan of Doblin’s Ten Types of Innovation framework and IDEO’s Ten Faces of Innovation. But start with something that your entire team comprehends. Universal shared language around business is itself a catalyst to fostering an innovation culture.

Strategyzer’s “Business Model Generation” and its latest “Value Proposition Design” are fantastic books for building a shared language because they hinge on the “how” in a way that teams of all disciplines and experience levels can get behind.

5. Rally against repetition

The most common reason a company fails at innovation is that it’s too good — too operationalized, too precise from a process perspective. All this adds up to routine; after all, routine creates optimization, optimization saves costs, saves time, and in almost all cases improves product quality.

But routine is the enemy of innovation.

Sure, if you keep doing the same thing over and over again, you’re going to have a very lean, six sigma-esque process. The problem is, you will never innovate because you will never try anything new.

You need that small group of explorers that are dedicated specifically to inventing, innovating, and iterating on existing products and services inside your company.

Siloing them actually gives them the fresh perspective required to approach problems differently. We get numb to the people, processes, and organizational ways of thinking that we experience day in and out.

Fight repetition and unlock fresh thinking with exploration.

Explore, iterate, fail, repeat. Innovate.

Peter Sena II is an entrepreneur, angel Investor, and Yale University Venture Mentor who founded Digital Surgeons, a global innovation & design firm that creates better brand experiences. You can follow him on Twitter: @petesena.