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LEAD Innovation Blog

Read our latest articles on innovation management and innovation in a wide range of industries.

Date: 27-Apr-2018
Posted by: Franz Emprechtinger

5 tips on how to find new business models

 

Many companies understand innovation as only newly developed products. But the market is increasingly demanding total solutions. Read in this blog article how you can use an innovation process to develop new overall solutions instead of just products and how new business models can be created. This is the case, for example, with roller coaches for racing cyclists.

Every product, however successful it is on the market, has reached the end of its life cycle. At the latest when this end is foreseeable, product management should consider a successor together with the research and development department. The most important and often the only requirement for the novelty is that it is technically better. The question of whether the market actually wants it at all falls behind.

 

Focus on technical perfection

In order to illustrate this mechanism better, an example helps: One thing that is becoming increasingly relevant, especially after the high-calorie Christmas season: many of us feel the strong urge to lose excess kilos as quickly as possible. However, the bad cold weather prevents many people from exercising outdoors. One way to move around is a home or roller trainer. This alternative is particularly popular with racing cyclists, as it is possible to sit and pedal on their own bicycle saddle.

The manufacturers of such sports equipment have always tried to outdo each other in terms of the technical characteristics of home or roller trainers. The devices are becoming quieter and quieter, have an ever more natural feel for pedalling, show their pulse and other performance values or can be folded up and stowed away more easily.

Case Study Business Model Innovation

 

Not an eye for the essential need

The problem that all these models do not solve together: It is extremely boring to pedal for one or more hours without moving from the spot. In other words, the focus on the purely technical characteristics of the home and scooter trainers obscures the customer's actual needs. He wants to do sports and have fun. He wants to have the feeling of rushing through beautiful landscapes and hunting like-minded people in order to overtake them with a smile on their faces.

Virtual experiences have real fans

Thanks to digitalisation, it is now possible to deliver indoor athletes their biggest victories and bitterest defeats in their own four walls. This is made possible by online platforms such as Zwift, sensors and Smart Trainer. An athlete logs into one of the online platforms via app and connects his computer with sensors that measure pulse, speed or cadence. The Smart Trainer is also connected to the app. On the screen, the athlete can now see a virtual world in 3D or real videos of real tracks. He can now drive through them with his virtual racing bike and overtake other virtual competitors.

 

 

In order for it to move, it must step into the real pedals of its home or role trainer. This is connected to the web and can simulate the virtual terrain: If it goes steeply uphill, the resistance increases, if it goes downhill, then it decreases. In this virtual world, the user can drive against the computer or with or against real sportsmates, no matter where they are sitting on their Smart Trainers. He can complete racing series as well as training sessions accompanied by professional trainers. And he can share his achievements in his own four walls with sports communities like Strava. The sports unit at home offers a lot of what a real ride with the racing bike offers. So indoor training is no longer boring.

 

New source of revenue through Smart Trainer

The transformation from a dull fitness machine to a smart trainer has paid off for the manufacturers. They can now pack even more technology into their equipment and thus achieve a higher contribution margin. However, this has opened up a completely new business model, which is being worked on primarily by newcomers and not only by fitness equipment. The user is quite willing to pay something to participate actively in this virtual world. Premium membership in online platforms such as Zwift, Trainerroad or Bkool costs around ten euros per month.

 

Lower costs but higher complexity

These memberships may even earn more than the Smart Trainer's sales. The development of such platforms also requires less financial resources in order to further develop an exercise bike to such an extent that it differs significantly from that of its competitors. After all, it usually costs less to develop software than to invent new hardware and bring it to market maturity. In practice, business model innovations generally require a small investment of resources and promise higher revenues. The latter at least if the new offer hits the nerve of the target group as precisely as it did with the example just described.

 

5 tips on how to find new business models

In order In order to develop such innovations, however, a completely new innovation process and a new way of thinking is required. Because with a product-centered approach, which is very common in many companies, new business models cannot be designed. The most important differences are the following:


  1. In order to come up with possible new approaches at all, you should have open discussions with some of your customers. Of course, this should not grow into a market research among your clients. If you are familiar with the contents of the interview with the tenth customer, you should not plan any more interviews. Because you wouldn't find out anything new.
  2. Say goodbye to the idea that innovations mature in your own house. You can only develop these together with the customer. New business models or services require constant testing and feedback from the user. They must therefore approach the customer at a very early stage. It is often a mere hypothesis and not even a concept or even a solution. In this process, you must openly ask your customers for their opinions and make it clear to them that you want to work with them to find a new solution. The customer, with whom you want to complete this process together, corresponds very much to the typology of LEAD Users.
  3. The research and development department is the wrong contact for developing new business models or services. If you have a product management system that is very well networked throughout the company, you should locate the project there. The project team has to know exactly which department it involves in the innovation process. This may well be your own accounting department. A good alternative to product management is a specially formed internal team consisting of members from the most diverse departments. This team can serve as initiator and then pass the innovation project on to the product management later.
  4. The innovation process is anything but linear. New service or business models cannot be developed with the established Stage Gate model. Agile innovation management is much better suited for this.
  5. If you develop a new product, this is a success if the total revenue exceeds the total cost of ownership within the life cycle. New services or business models must certainly pay off. However, the revenue flows are somewhat more complex. To stick to our example with the role trainer: If you develop a free app for your Smart-Trainer product range, which is far ahead of the competition and only works on your devices, this can be worthwhile. You don't earn anything with the app, but the sales of your Smart Trainer is booming.

 

Conclusion: How to find new business models with an innovation process

Consumers and B2B partners alike are increasingly demanding total solutions rather than new products. However, such solutions cannot be developed in the same way as new products. Rather, you must develop these services together with your business partners. This requires a completely new way of thinking. After all, you can no longer develop innovations of this kind within your company alone. And it takes courage. It is not easy to approach one of his best customers with a question and not a solution in the form of a new product.

5 tips for a future fit innovation process

Franz Emprechtinger

Born in Ried im Innkreis. As former Head of Innovation, he was responsible for the entire project management and specializes in the areas of fuzzy front end and business model innovation.

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