Business Model Innovation Step 3: The Customer Experience

I've been writing about our process for helping our clients design new business models.  This is the third installment.The design of a successful new business model is always based on one key factor:  the customer’s experience.Did you ever wonder why customers might not like you?  The photo above captures our ongoing confusion in a rather insightful way ....  Is this how you're communicating with the people who do business with you?It’s essential that business model innovators develop a clear understanding of the customer’s experience, and to help them we have developed a way to visualize the value propositions that are embedded in any business model.In order to grasp the essential experience that customers are having, it’s necessary to see the world through their eyes. But it’s often difficult for people to leave behind their company-centric viewpoint.  For example, we were recently discussing some innovation opportunities with a client of ours, and an idea emerged in the conversation that, if implemented, would have required the client to fundamentally change its distribution model.   There were two people from the client organization in the room, and the moment the idea came up they both erupted in a chorus of reasons why that was impossible.  Once they calmed down, we pointed out to them that it probably wasn’t so useful for them to defend their existing business model, but rather it could be interesting to explore some alternatives.  This only provoked another eruption, and both of them stood and nearly started shouting about how the change we were we suggesting (only as an idea, mind you) was out of the question.This time, rather than argue the conceptual point, we responded by simply mentioning that given their extreme agitation about the idea, it probably had something to it, and merited further exploration.  They were so taken aback by this that we had a moment’s calm, in which we could explain that their emotional attachments could blind them to opportunities.How else could you explain the fact that upstart companies are usually the ones that develop new business models, while older companies don’t? That’s a rather bold statement, so let’s give some evidence.

• It was start-up Nike that revolutionized the sports apparel industry, not the established Adidas.
• It’s the newbies Napster and then Apple that revolutionized the music industry, not the established Sony or Philips.
• It was start-up Netscape that launched the internet browser, not the established Microsoft.
• It was start-up Southwest that revolutionized the airline industry, not the established American, Delta, or United.
• Or Google.  Or eBay.  Or Home Depot.  Or Wal-Mart…

It’s not always the case that the newcomer finds the new business model, but it is quite often, simply because incumbents are so busy defending their existing revenue streams rather than looking at their own vulnerabilities, or seeking to better understand the hidden needs of their customers.Often this leads them to provide lousy experiences to their customers, which creates the openings for the start-up competitors.So when we need to really understand what it is that a customer is experiencing, we cannot rely on our own preconceived notions of the value proposition, we have to learn to see through their eyes.So we ask, “What is a basic value proposition?  What is so clearly a given that everyone does this?”And then we want to know what is an improved experience?  What would cause the customer to recommend us to their Facebook friends?And finally, What would constitute such a differentiated, outstanding experience that we would create loyal friends, dedicated customer advocates who would help us build our business the most powerful way, through their viral enthusiasm?It’s not necessarily easy to answer these questions, and often a company’s insiders actually don’t know the answers.In this case, we may engage in ethnographic research, through which we will expose the hidden, or tacit factors that shape the customer’s view of the world.  It is these tacit factors, the unspoken attitudes, beliefs, needs, and desires, that we must address in our search for a transformative value proposition.Gaining that knowledge, and understanding what we’re really providing our customers today, is what this step of the business model design process is all about.