© Linda Gorchels 2011
Business model growth can come in many “flavors, with three progressively more difficult venues: Sustaining Growth, Transformative Growth, and Disruptive Growth.
Sustaining growth is usually organic growth from the core – such as introducing new products and services for your existing customers, selling your current products to different customer segments, dominating channel and support services, and renewing or extending product lifecycles. But it’s important to do so from the perspective of solving customer needs better than anyone else. The initiatives in this area focus on creating new or more customer value without significant changes in strategy, structure, culture or business models. This may include making decisions on whether to protect and maintain core products, services, or revenue streams; renew underperformers; retire end-of-life offerings; and resurrect or relaunch concepts and products that may have a chance for a second life.
Sometimes sustain growth efforts morph into transformative growth. Obviously there is no solid wall between them. It’s a matter of increasingly leveraging your ability to create value beyond your core business. With transformative growth, you tweak, shift, morph and reframe your business model to focus on an expanded customer base (adjacent markets), with new value propositions. Over time these incremental moves into adjacencies can fundamentally redefine the core business.
Transformative growth comes from transitioning into adjacent markets and/or better utilizing or expanding competencies (whether internal or external). Customer focus and value are inextricably linked, since the perception of value is defined by the groups (usually customers) that provide the revenue for that value. Can you leverage your assets in different ways to provide more value to existing customers? Can you rethink the way you capture value (e.g., using leasing, subscriptions and other alternatives to your traditional pricing)? What is the opportunity for growth in new industries or countries?
There may also be an opportunity to use an underexploited capability or asset as an engine for growth. McDonald’s historically provided fast-food lunches as its core business. But that left the building underutilized at other times of the day. By broadening its menu to include more breakfast items, it was able to leverage its fixed assets, and appeal to a different set of customers.
More substantial change is implied with this third category. Disruptive growth refers to creating something new to the world, or at minimum establishing a dramatically different business model for your organization. They can be “bet-the-farm” propositions if they are stand-alone, rather than part of a portfolio. That’s why for existing companies they are likely part of a broader look at business model renewal.
Procter & Gamble’s FutureWorks is a growth effort focused on enabling different business models – some transformative and others disruptive. The firm’s more disruptive models involve franchised service-based businesses that leverage the brand strength of existing products. Teams explored how to disrupt the dry-cleaning market, for example, while capitalizing and expanding on P&G’s knowledge of consumers’ laundry-cleaning perceptions and experiences. According to the P&G FutureWorks website in June of 2011, the company opened three Tide Dry Cleaners® stores in 2008 and is now pursuing franchisees. Similarly it has tested and is now seeking franchisees for its Mr. Clean Car Wash® businesses. Both initiatives moved into new customer markets (for P&G) while building on existing brand strength and consumer knowledge. The new business model also required collaborating with external partners to develop new revenue streams. By hiring Agile Pursuits Franchising, P&G gained franchising knowledge that it would have taken years to develop internally.
Another example of disruptive growth comes from the automotive industry. With increasing interest in renewable energy and the growing market for electric vehicles, many battery manufacturers (such as A123 Systems, Exide and Johnson Controls) are racing to perfect lithium-ion batteries. But some companies are looking at the potential disruptive growth opportunities inherent in the ecosystem of the electric car industry. In addition to new products, there will be a need for servicing, replacement, and recycling of these products – as well as operational recharging to extend the range of driving. Interstate Batteries and Better Place have the potential to establish those disruptive business models.
Interstate Batteries began selling batteries 60 years ago, and is America’s largest distributor of lead acid batteries – including the types that go into electric cars. It manages private-label replacement batteries for the world’s largest automakers. But it is also in the process of opening dozens (and potentially hundreds) of stores for distribution and recycling. CEO Carlos Sepulveda wants to stake a claim as the “RadioShack of renewables.”
Better Place, a start-up, is working to build stations for swapping and recharging batteries (analogous to gas stations for traditional cars). One of the significant drawbacks of electric vehicles (EVs) is the time it takes to recharge batteries. When done with a normal standard outlet (110V) – referred to as Level 1 charging – it can take longer than overnight. Even with Level 2 (the voltage required for a stove), it would take about 6 hours. Level 3 is the fastest, but existing batteries are not yet ready for this type of charging. And another drawback is the shorter driving range of most EVs on a given battery pack. That’s why battery-swapping was conceived as a potential solution.
So consider the full range of sustaining, transformative and disruptive growth options when renewing your business model portfolio.