Stress Test Your Business Model for Innovation

Business Model Stress Test

Perhaps you’ve heard the Chinese proverb: the best time to plant a tree was 20 years ago; the next best time is now. This holds true of innovation efforts for your organization. If you haven’t taken innovation seriously—to the extent that you are participating in innovation theater (CB Insights has a great breakdown of 19 sure-fire innovation theater strategies)—this may be the time to start thinking about what your business looks like in the longer term.

COVID-19 has altered our way of life and doing business across the globe. We are seeing tremendous innovation from the private and public sectors, even as many companies are trying to rationalize how to keep business humming in a new landscape. While we hope for a healthy, quick end to the pandemic, it does serve as a reminder of the necessity to focus on innovation strategy and the long-term viability of your business.

We’ve discussed filling innovation portfolios before, like focusing on Competitive Advantage. We thought it would be helpful at this point to discuss the benefits of stress testing your business model. Ideally, you shouldn’t be forced to ask questions like…

• “How do we deliver value to our customers differently?”
• “How might we have a more variable cost structure?”
• “What other value can our processes/organization provide?”
• “Who are other customers we can service?”

An innovation team—that is, a deliberate discipline within your firm focused on the maintenance, growth, and discovery of value – should be well-suited to exploit your business model by asking these types of questions routinely. They should be focused on scanning the horizon for new products, services, technologies, or partners; on adding context to ambiguous areas and bringing back data for decision-making to ensure the future success of the firm. One aspect of this is to find ways to disrupt your own business model.

My favorite tool for doing this is a Business Model Canvas (BMC), made famous by Alex Osterwalder’s book, Business Model Generation. We can look at the other side of the coin and think of it as Business Model Reduction.

Here is an example I’ve used to show how big questions or stress testing your business model can lead to innovation…

We take a swag at the BMC of Enterprise Rent-a-Car (note, this was not completed or endorsed by Enterprise and is simply illustrative).

We see the value they intend to deliver, who they plan to serve, and how they will monetize and deliver that value.

Let’s see what happens when we ask a few big questions to add strain to the model.

Can we rent cars without branches?
How might we flip our cost structure?
How might we reduce reliance on a partner?

An innovation team is actively asking these questions. They’re trying to get the company to “eat its own tail” as opposed to succumbing to external disruption. Their process would most likely be to state hypotheses after these questions, test those assumptions, and translate learnings while developing the concepts. Perhaps after a few rounds of this, they have a new BMC to try…

Quite a few things change here.

First off, branches are gone. We’ve cut down the number of partners quite a bit, and now we have remote staff management as a key activity…with no key resources.

If you’re thinking, “This now looks a lot like Lyft,” you’re right. Take notice how the right side—the customer and value side—largely remains unchanged. A few more iterations at the right time, and maybe Lyft & Uber aren’t household names.

Fortune published that 56% of corporate car renters stopped renting cars altogether (March 2019). Many folks are surprised to learn Lyft was founded in 2012, or that Uber was founded in 2009. It takes some time to get to disruption, but as Hemingway once said it happens  “gradually, then suddenly.”.

To paraphrase—the best time to start innovating was 10 years ago. The next best time is now.

At Method, we are constantly scanning the horizon for our clients and bringing back areas to explore while helping them along with their digital transformation. If you have questions about how to best stress test your business model, let us know—we’re here to help.