What is Business Model Innovation?

M. McGee
M. McGee
Businessman with a briefcase
Businessman with a briefcase

Business model innovation centers on taking an existing business model and adapting it to a new direction in order to have a sole market niche. Even though it has potential, business model innovation is a risky endeavor. This process will remove a great deal of competition in a market, as the direction of the new business will be significantly different enough from existing businesses. This new direction typically amounts to a greater market share in the long run, as later competitors will have to fight against established brand recognition.

There are generally two types of business models followed by most businesses: specific models and general ones. The specific business model applies to that business alone, while the general one applies to any business of that type. For instance, a specific grocery store may have methods and practices laid out to govern their specific business, but the general model for most grocery stores is the same.

The general models lay out the basic way the business works. For instance, it would cover what sorts of products the business sells, the basic layout of a store, and so on. These models are based on people’s expectations for the business. If a new customer enters a grocery store and the stock is so random they can’t find anything, it is unlikely the customer will return.

Business model innovation applies to those larger general models. In order to succeed in a crowded market, a business takes an existing general model and adapts it to a new direction. This new direction can be a small change or a radical one.

Small forms of business model innovation adapt an existing model into a slightly new direction. These changes don’t alter the business type, but they do offer a good or service that is absent from a standard version of that business. For example, a grocery store that includes workout areas, cooking classes and a dedicated health food area would be uncommon enough to separate itself, but not so different that it is no longer a grocery store.

Radical forms of business model innovation are the ones that really get people’s attention. These are when a company takes a significant turn in an industry. This often allows them to enter a new industry unopposed, until other companies copy their general model. For instance, taking the standard bookstore model and adapting it to work as an online store was a radical change. For a little while, the first company to succeed at making the change over was alone in the market.

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      Businessman with a briefcase