Developing an existing business model

The development of your own business model in order to position yourself for the future and be competitive is an absolute classic. I am often confronted with this field of innovation and would therefore like to share my experiences.

I show you concrete possibilities and approaches to develop your own business model and make it fit for the future. These are divided into four perspectives or working levels and all derive from our experience with our clients and business model development projects:

• The big drivers
• The strategic axes
• The specific recommendations for action
• Helpful tools and methods

Developing the business model – the big drivers

The big drivers form the foundation of development work. Business models can be developed more easily if the people who do this know the key drivers of the big “why”. It always makes sense that business models should be innovative, that they should be digital and that the target group, sales, product and distribution should work well – but why do we have to constantly improve and adapt our business models?

The main reason for this is that the world is changing ever faster. The biggest current drivers are: Climate change, artificial intelligence and war crises, as well as their negative consequences.

In this so-called VUCA world, it is essential that we constantly rethink and develop our business model in order to survive on the market at all.

The strategic axes

Once we agree on the big drivers and imperatives, we can now move to the next level of development work – the strategic axes or corridors we should follow. In our current VUCA world and the change in values in the younger generations, the target-oriented axes in the development of a successful business model lie in the environment of attitude, values and the way we do things.

What do these axes mean in concrete terms? Some approaches are:

• Questions before answers
  Questioning the current status quo of the components of your business model is now actually a strategic element that needs to be done on an ongoing basis. Whether certain parts of the business model still make sense can suddenly change in this day and age.
  
• Observation before evaluation
  Strategically, it makes more sense to spend time permanently and closely observing people and the components of their business model instead of constantly re-evaluating them. In our complex world, we only have the exciting opportunity to perceive change through detailed observation.
  
• Change of perspective before defending your point of view
  Since the introduction of Alexander Osterwalder’s Business Model Generation, it has been clearly proven that a change of perspective, especially towards the customer or user, is one of the greatest success levers for business models. In our volatile and fast-paced world, success lies in the exact fit with our customers.
  
• Reflection before criticism
  With regard to business models that surround our own business model in the market, it is strategically extremely helpful to reflect on them in detail before we criticize them, as we often do. Competitive intelligence has always been essential, but our worst competitors are not those who do things the same way, but those who do things unorthodoxly differently.

The specific recommendations for action

We have been supporting our clients in their innovation and business model projects for many years. The result is something like a small, selected catalog of reliable recommendations for action that can be described as tried and tested in the field of business model development. Let our small catalog inspire you for your development work.

1. create switching costs in your business model

Commercial, technical and emotional customer lock-ins make business models more durable and successful. Switching costs are the costs and obstacles that customers have to overcome when they want to switch from one provider to another. These costs can help to create customer loyalty and prevent customers from switching to a competitor.

Practical tip: First examine your business model to see where small switching costs may already exist. Then try to increase this change effort with new ideas. After that, you start to generate completely new ideas for further switching expenses.

Examples of switching costs in a successful business model:

• Financial switching costs: Customers may have to incur financial expenses to switch to another provider. These can be fees for the termination of a contract, the purchase of new equipment or the payment of set-up fees.
• Time-related switching costs: Switching to another provider can be time-consuming. Customers have to invest time in familiarizing themselves with the new provider, concluding new contracts or transferring their data. These time costs can deter customers from switching providers.
• Social switching costs: Customers may have social ties to their current provider, such as a long-standing business relationship or strong brand loyalty. Giving up these ties can be emotionally difficult for customers and prevent them from switching providers.
• Technological switching costs: If customers are tied to a specific technology or platform, switching to another provider can cause technical difficulties. For example, compatibility problems could occur or customers would have to get used to a new user interface.
• Contractual switching costs: Customers could be tied to long-term contracts with high penalties for early termination. These contractual ties can prevent customers from switching providers, even if they are dissatisfied with the current service.

From our experience: We know from several hundred workshops that the topic of switching costs in one’s own business model immediately leads to a moral and ethical discussion. And that’s a good thing! The creation of switching costs in one’s own business model should and must be discussed because it has a lot to do with one’s own values. It is clear that, from a business perspective, switching costs make your own business model more successful.

2. reduce complex customer experiences.

Practical tip: The approach here consists of two very classic work packages. First, you write down all the individual steps that a customer has to do or go through in order to be able to use your product or service to its full extent. Then start your research with your most relevant competitors and take a close look at whether and where their customer journey is simpler and easier than your own. In this way, the first potential areas for simplification can usually be found quickly. You can also look at specific trends and companies in other sectors to get inspiration for simplification ideas.

Advantages at a glance:

• Improved customer satisfaction: A simple and smooth customer experience generally leads to higher customer satisfaction.
• Increased customer loyalty: A simple customer experience can help to build customer loyalty.
• Reduction of errors and complaints: Complex processes and procedures can lead to errors and misunderstandings, which in turn can lead to customer complaints.
• More efficient operations: A simple customer experience can also lead to more efficient internal operations.
• Cost savings: Complex systems and processes can be associated with higher operating costs, whether due to training costs for employees, error corrections or additional support costs.

Simplifying the customer experience can help to increase efficiency, improve customer satisfaction, strengthen customer loyalty and reduce operating costs. This can help to make the business model more successful and competitive.

3. make your business model transparent and honest

Practical tip: Test purchases and secret shopping approaches are the best way to find out where your business model lacks transparency and honesty. Inexperienced mystery shoppers usually find such places or potentials very quickly that you can no longer recognize yourself.

Advantages of transparent and honest business models:

• Building trust: Transparency and honesty are crucial for building trust between companies and customers. When customers feel that a company communicates openly and honestly about its products, services and business practices, they are more likely to build long-term relationships and do repeat business.
• Long-term customer loyalty: Trust is a central component of customer loyalty. Transparent and honest companies not only gain the trust of their customers, but can also retain it in the long term.
• Positive reputation: Companies with transparent and honest business practices often enjoy a positive public reputation. A good reputation can help to strengthen a company’s image, attract new customers and attract talented employees.
• Customer loyalty and recommendations: Transparent and honest companies often have engaged customers who not only come back, but also actively recommend the company to their friends and family.
• Reduction of legal risks: Companies that act transparently and honestly often reduce their legal risks. By communicating openly and complying with regulations, companies can avoid potential legal disputes and negative legal consequences.

Transparent, comprehensible and honest business models are more successful in the long term because they build trust, promote long-term customer loyalty, build a positive reputation, increase customer loyalty and recommendations and reduce legal risks. This helps to ensure the long-term growth and sustainability of a company.

4. make your business model a seamless part of your customer’s life

Practical tip: To get a good impression of how many and which breaks are still in your business model, it is best to work with test purchases here too. If people who don’t know your company (could even be students) describe in detail how the customer journey went, then even the smallest breaks become visible and can reveal exciting areas of potential.

The disruptions can be media disruptions, technology disruptions, knowledge disruptions or even communication disruptions. An ideally conceived business model is considered seamless when there are no more breaks and it is as convenient and practical as possible for the customer. A seamless business model is crucial today for several reasons:

• Customer expectations: Today’s customers expect a seamless experience across all channels, whether online, mobile, in-store or via social media. A seamless business model enables companies to meet these expectations and provide a consistent experience regardless of how customers interact with the company.
• Competitiveness: In an increasingly digitalized world, the competitive landscape is more intense than ever. Companies that offer a seamless business model can stand out from the competition and make customers stay loyal to them.
• Efficiency: A seamless business model can improve operational efficiency by facilitating the flow of information between different departments and systems. Integrations between different systems enable smooth data exchange and reduce manual tasks, saving time and resources.
• Customer loyalty: A seamless experience can lead to stronger customer loyalty. Customers who have a positive experience and have no problems interacting with a company are more likely to return and continue doing business.
• Innovation: A seamless business model can promote innovation by enabling companies to quickly integrate new technologies and trends and offer their customers continuously improved services. By using data and analyses, companies can better understand the needs of their customers and develop relevant solutions.

Today, a completely seamless business model is critical to meeting high customer expectations, remaining competitive, improving operational efficiency, fostering customer loyalty and driving innovation.

5. protect your business model effectively and intelligently from competition

Admittedly, this topic is very classic, but it is also more important than ever. Spying on and imitating well-functioning business models has developed into a large, very dynamic economic factor, especially thanks to the helpful AI. Just like them, your competitors in the market are becoming ever smarter and more cunning in the game for market share. To effectively and intelligently protect your business model from competition, you should use a wide range of strategies:

• Protect intellectual property: Protect your intellectual property with patents, trademarks and copyrights. This can help protect your innovations and brand image and make it more difficult for competitors to copy your ideas or imitate your brand.
• Promote customer satisfaction and loyalty: Invest in world-class customer service and experience to increase customer satisfaction and retention. Satisfied customers are less likely to switch to the competition and can even become ambassadors for your company.
• Develop unique value propositions: Develop unique value propositions that set your company apart from the competition. Identify the needs of your target group and offer solutions that they cannot find elsewhere.
• Form partnerships and alliances: Form strategic partnerships and alliances with other companies to expand your reach and gain access to new markets or resources. This can make it more difficult for competitors to penetrate your market.
• Continuous innovation: Keep innovating to develop new products, services and business models that meet your customers’ needs. Keep up to date with trends and developments in your industry and adapt your offering accordingly.
• Effective branding: Invest in effective branding to build a strong brand image and influence the public’s perception of your company. A strong brand can promote customer loyalty and make it more difficult for competitors to gain market share.
• Flexibility and adaptability: Be flexible and adaptable to changing market conditions. If you can react quickly to new trends and opportunities, you can gain a competitive advantage and keep the competition at bay.

By combining and applying these recommendations for action, you can effectively and intelligently protect your business model from competition and ensure long-term success.

6. ensure good scalability.

The best way to come up with ideas to improve the scalability of your business model is to stress test your business model.

Practical tip: Let’s assume your company sells 500 products per week. Now ask yourself what exactly would happen if 1000 orders were received in the next week. Write everything down in detail – who talks to whom about what, what things need to be ordered, what new tasks suddenly arise, what bottlenecks occur, what happens on the timeline, and so on. This usually reveals very quickly where ideas are still needed to ensure better scalability. Depending on the objective and relevance, carry out the stress test again with even larger quantities.

Potential fields of good scalability:

• Exploiting growth opportunities: In a globalized economy, companies are constantly and suddenly presented with new opportunities for growth and expansion.
• Increased efficiency: Scalable business models enable companies to optimize their operating processes and work more efficiently.
• Responding quickly to change: In a constantly changing business environment, it is important to be agile and flexible.
• Competitiveness: Companies that have scalable business models are often more competitive.
• Meeting investor expectations: Investors and lenders are placing increasing value on companies with scalable business models, as these can offer high growth potential and attractive returns.

The rapid scalability of a business model is often crucial today in order to exploit growth opportunities, increase efficiency, react quickly to changes, remain competitive and attract investors. Companies that are able to develop and implement scalable business models are better positioned to achieve long-term success and hold their own in a dynamic market environment.

7. care for recurring revenues

Recurring revenue is revenue that a company regularly generates through the sale of products or services for which customers pay repeatedly, usually at regular intervals. This type of revenue is particularly valuable as it represents a stable source of income and often reflects long-term customer loyalty and relationships.

Practical tip: Actively use tools, such as the verrocchio Business Inspiration Cards, to quickly get lots of inspiration for initial ideas for recurring sales.

Here are some examples of categories of recurring revenue in a business model:

• Subscriptions: Companies that offer subscription services receive regular payments from customers for access to products or services. This can include software subscriptions, magazine subscriptions, streaming services or memberships to gyms and other clubs.
• Royalties: Companies that own intellectual property such as software, patents or trademarks may receive royalties from other companies or individuals who acquire the right to use the intellectual property.
• Service contracts: Companies that offer recurring services, such as maintenance contracts for technical equipment, may receive regular payments from customers to ensure the ongoing provision of these services.
• Leasing and rental: Companies that offer rental or leasing services for physical products, such as cars, equipment or real estate, receive regular payments from customers for the use of these products over a certain period of time.
• Consumption fees: Companies that offer consumption-based services, such as telephone, electricity or water supply, receive regular payments from customers based on the actual consumption of the service.
• Prepaid models: Companies that offer prepaid services, such as cell phone contracts or prepaid cards for digital content, receive regular payments from customers in advance for the use of the services.

8. revolutionize your cost structure

Companies whose cost structure is more than 30% lower than that of their competitors are almost always very successful in the long term – we have learned this over many years. Names like IKEA or RyanAir immediately spring to mind.

There are several well-known business models and brands that base their success on a very low cost structure. Here are some examples:

• Low-cost airlines: Companies such as Ryanair and Southwest Airlines have successfully developed business models based on low operating costs. They optimize their operational processes, use efficient aircraft fleets and minimize additional services in order to offer low prices for flight tickets.
• Discount retailers: Companies like Walmart and Aldi rely on efficient operations, large volume purchases and lean inventory management to offer low prices on a variety of products. By focusing on cost efficiency, they can offer their customers competitive prices and still remain profitable.
• Fast food chains: Companies such as McDonald’s and Subway have geared their business models towards standardized processes, efficient supply chains and low personnel costs in order to offer food at low cost. By simplifying menus and processes, they can produce large quantities and still maintain low prices for their products.
• Online marketplaces: Companies such as Amazon and Alibaba use scalable online platforms, automated processes and cloud infrastructures to keep their operating costs low. By eliminating expensive physical stores and using data analytics, they can operate efficiently while offering a wide range of products.
• Freemium models in the software industry: companies such as Dropbox and Spotify offer free basic versions of their services and generate revenue through premium subscriptions with extended functions. By automating processes and using cloud infrastructures, they can keep costs low and still offer high-quality services.

These examples are intended to show how companies can build successful business models based on a very low cost structure through cost efficiency and optimization of their operating processes. This enables them to offer competitive prices and still remain profitable.

Strategic recommendation for action: Don’t just focus your brainstorming on the things your customer sees, but spend at least the same amount of time and energy on optimizing behind the scenes. Be radical, even if it’s difficult – it’s worth it.

9. digitize everything that can be digitized

Companies should follow the statement “Digitize everything that can be digitized” for several reasons:

• Increased efficiency: The digitalization of business processes can significantly increase efficiency by automating manual and time-consuming tasks. This enables companies to use their resources more effectively and reduce costs.
• Improved data analysis: Digitization can give companies access to vast amounts of data that they can analyze to gain insights into customer behavior, market trends and operational processes. This data analysis can help companies make informed decisions and optimize their strategies.
• Improve the customer experience: Digitalization enables companies to offer personalized and seamless customer experiences, whether through tailored offers, fast response times or user-friendly online platforms. An improved customer experience can lead to higher customer satisfaction and loyalty.
• Promoting innovation: Digitalization opens up new opportunities for companies to innovate, whether by introducing new products and services, using technologies such as artificial intelligence and machine learning or creating new business models. Continuous innovation enables companies to remain competitive and set themselves apart from the competition.
• Enable scalability: Digital solutions are often scalable and can grow with the growth of a company. This enables companies to react flexibly to changes and expand their business without compromising the efficiency or quality of their services.

Comprehensive digitalization gives companies the opportunity to optimize their business processes, better understand and serve their customers, drive innovation and fully exploit their business potential. By making full use of digitalization, companies can be better equipped for the challenges and opportunities of the digital era.

10. focus on uncompromising customer centricity.

Precisely identified jobs, profits and gains are the key to a better business model. Alexander Osterwalder, the inventor of the Business Model Canvas, emphasizes the importance of total customer centricity because this means that companies design their entire strategy, products and services around the needs, wishes and problems of their customers. Here are some reasons why total customer centricity makes sense:

• Customer satisfaction and loyalty: By focusing strongly on the needs of their customers, companies can develop products and services that are precisely tailored to their requirements. This leads to greater customer satisfaction and loyalty.
• Competitive advantage: Companies that engage intensively with their customers and understand their needs can set themselves apart from the competition. By providing unique solutions that optimally meet customer needs, they can gain a competitive advantage.
• Innovation: Total customer centricity encourages innovation as it forces companies to continuously find new ways to meet their customers’ needs. By working closely with customers and gathering feedback, companies can develop innovative products and services that offer added value.
• Long-term success: Companies that focus strongly on the needs of their customers are more successful in the long term. By building strong customer relationships and creating added value, they can win the loyalty of their customers and build long-term business relationships.
• Agility: Total customer centricity enables companies to be agile and adapt quickly to changing market conditions. By responding flexibly to customer feedback and continuously improving their products and services, they can adapt to the changing demands of the market.

Maximum customer centricity is therefore essential because it helps to measurably increase customer satisfaction, gain a competitive advantage, promote innovation, ensure long-term success and improve a company’s agility.

11. use sustainability as your compass

Introduction of SDG-oriented, circular business models and production methods ensure future viability. Sustainable business models that act in line with the Sustainable Development Goals (SDGs) will be successful in the future for several reasons:

• Customer preferences: Consumers are becoming increasingly environmentally aware and ethical in their purchasing decisions. They prefer products and services from companies that are committed to sustainability and social responsibility. Sustainable business models can therefore exert a strong attraction on customers and strengthen their market position.
• Regulatory requirements: Governments and international organizations are increasingly implementing guidelines and regulations to promote sustainability and protect the environment. Companies that have already implemented sustainable business models are better equipped to adapt to these changing regulatory requirements and minimize potential risks.
• Access to capital: Investors and financial institutions are attaching increasing importance to sustainability and ESG (environment, social, governance) criteria when allocating capital. Companies with sustainable business models therefore have a better chance of obtaining financing and attracting investors.
• Resource efficiency and cost savings: Sustainable business models can help to use resources more efficiently and reduce costs. By implementing environmentally friendly processes and technologies, companies can reduce their operating costs and minimize their ecological footprint at the same time.
• Risk mitigation: Sustainable business models are often less susceptible to environmental, social and governance risks. Companies that focus on sustainability can reduce potential risks such as resource scarcity, environmental pollution or negative impacts on the community and thus strengthen their long-term stability and resilience.
• Brand value and reputation: Companies that are committed to sustainability and social responsibility can strengthen their brand value and reputation. A positive image as an environmentally conscious and ethical company can promote customer loyalty, strengthen stakeholder confidence and increase attractiveness as an employer.

Sustainable business models that are in line with the SDGs will be successful in the future as they meet changing customer preferences, fulfill regulatory requirements, facilitate access to capital, promote resource efficiency, mitigate risks and increase brand value.

12. create exciting cross-industry partnerships

Cross-industry partnerships, i.e. partnerships between companies from different sectors or industries, can have a number of positive effects:

• Innovation and creativity: By working together with companies from different sectors, new ideas can be generated and innovative solutions developed. The exchange of know-how and perspectives from different industries can lead to creative approaches that drive the development of new products, services or business models.
• Access to resources and expertise: Cross-industry partnerships enable companies to access resources and expertise that they might not have on their own. This can facilitate access to technologies, production capacities, distribution channels or market access and enable partners to improve or expand their offerings.
• Risk reduction: Risks can be reduced through cooperation with companies from different sectors. For example, if a company wants to expand into a new region, working with a local partner from a different industry can help to better understand local market conditions and minimize potential risks.
• Opening up new markets: Cross-industry partnerships can enable companies to penetrate new markets that they might not be able to reach on their own. By working with partners who are already established in these markets, companies can expand their reach and gain new customers.
• Use synergies: By working together with companies from different sectors, synergies can be exploited that lead to mutual benefits. For example, a company from the technology sector could work together with a company from the automotive sector to jointly develop intelligent vehicle systems that benefit from the strengths of both partners.
• Creating competitive advantages: Cross-industry partnerships can help create competitive advantage by enabling companies to stand out from the competition. By developing unique products or services through collaboration with partners, companies can strengthen their position in the market and improve their competitiveness.

Deep cross-industry partnerships can offer a variety of benefits, including innovation and creativity, access to resources and expertise, risk mitigation, opening up new markets, leveraging synergies and creating competitive advantage.

Helpful tools and methods

There are of course a large number of tools that we can use to develop our business model. But there are some essential and tried-and-tested tools that no toolset should be without and that we are happy to recommend here:

Business Model Canvas

The Business Model Canvas is a visual tool developed by Alexander Osterwalder and Yves Pigneur to help companies analyze, plan and communicate their business model. It offers a structured method to visualize all important aspects of a business model on a single page.

The Business Model Canvas enables organizations to visualize their business model in a simple and understandable way to better understand how all elements are connected and how they influence each other. This makes it easier for companies to develop their strategy, identify potential opportunities and risks and continuously improve their business models.

Value Proposition Canvas

The Value Proposition Canvas is a tool used to understand and develop a company’s value proposition in more detail. It is a supplement to the Business Model Canvas and focuses specifically on the “value proposition” component of this model. The Value Proposition Canvas was also developed by Alexander Osterwalder and Yves Pigneur.

Companies that use the Value Proposition Canvas can better understand how to align their value propositions with the needs, wants and problems of their customers. This enables them to develop products or services that offer real added value and effectively address customer needs. The Value Proposition Canvas is therefore a valuable tool for product development, marketing strategy and general business planning.

Future scenarios

Future scenarios are narrative descriptions or depictions of possible future developments, events or trends that are based on various assumptions and analyses. They are used to explore different possible futures in order to help companies better prepare for future uncertainties and opportunities.

By using future scenarios, companies can make their business model more future-proof in a targeted manner, prepare for uncertainties and secure their long-term competitiveness. They enable companies to act proactively and take advantage of opportunities instead of just reacting to changes.

SDG Focus Finder

The Verrocchio Institute’s SDG Focus Finder is a tool that supports companies in aligning their sustainability strategy with the United Nations Sustainable Development Goals (SDGs). At verrocchio, we specialize in promoting sustainability in companies.

The SDG Focus Finder provides companies with a structured method to identify the SDGs that are most relevant to their business and to develop concrete actions to contribute to these goals. The tool consists of several steps:

• Identification of the relevant SDGs: Companies are guided to identify the SDGs that best fit their business and activities. This is done by analyzing the company’s impact on the environment, society and the economy, and by taking into account the interests and expectations of stakeholders.
• Prioritization of the SDGs: After identification, the relevant SDGs are prioritized to determine which goals are of the greatest importance to the company and where it can make the greatest contribution.
• Development of measures: Based on the identified and prioritized SDGs, concrete measures are developed to contribute to these goals. These can be strategic initiatives, programs, projects or partnerships aimed at improving the company’s sustainability performance and achieving a positive impact.
• Measurement and reporting: Finally, mechanisms for measuring, monitoring and reporting on progress in implementing the measures are defined. This enables companies to track their performance, communicate their results and continuously improve their sustainability strategy.

The Verrocchio Institute’s SDG Focus Finder is designed to help companies develop a holistic and strategic approach to implementing the SDGs. By aligning their sustainability efforts with the SDGs, companies can help address pressing global challenges while promoting long-term business success.

Inspiration Cards

The Verrocchio Institute’s various“Inspiration Cards” are tools that support companies in developing creative ideas and innovative solutions to challenges in the areas of innovation and sustainability. These cards serve as a source of inspiration to provide new food for thought and promote creative problem solving. The Inspiration Cards contain a variety of ideas, concepts, best practices and case studies from different sectors and areas of sustainability. They cover a wide range of topics, including environmental protection, social justice, economic development, ethical corporate governance and much more.

The Inspiration Cards are particularly suitable for:

• Brainstorming and idea development: Companies can use the cards to generate creative ideas and develop new approaches to solving sustainability problems. By being inspired by the proposed ideas, teams can explore new approaches and develop innovative solutions.
• Best practice examples: The cards also contain best practice examples from companies that have already successfully implemented sustainable initiatives. These examples can serve as inspiration and guidance for companies to see how other organizations have implemented sustainability in their business.
• Stakeholder engagement: The cards can also be used as a stakeholder engagement tool to involve different interest groups in the sustainability planning and implementation process. By going through and discussing the cards together, companies can gain valuable feedback and strengthen understanding and support for their sustainability efforts.
• Strategy development: Companies can use the cards to develop or revise their sustainability strategy. By examining and evaluating the various ideas and concepts on the cards, they can set their priorities, define goals and plan concrete measures.