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Business ModelsInnovative Business

models for
Competitive
market"
Thesis Project

9/1/2013
Symbiosis International Business
Management
Semester V Exe MBA 2011-13

Table of Contents
1.
2.

3.

About the document3


1.1 Purpose and objective of the document......3
1.2 Team members/RASIC Involved......4
Business model a introduction.......5
2.1 Need for a new model ...5
2.2 Thinking about a business model...6
2.3 Uses of a Business Model8
2.4 Examples of known Business model.10
Introduction to business Commerce...14
3.1 Types of Commerce in case of a business15
3.2 Difference between a business model and Business Plan..16
3.3 Components required for a successful business model17
3.4 Examples of some business model of some Internet Giants19
3.5 Failure of business model in case of Internet Gaints...22
3.6 Designing principles in case of new business model23
3.7 Questions before applying the design principles...28
3.8 Questions for Applying the Design Principles....29
3.9 Few examples of Innovative Businesses...30
3.10 Forget your Customers and Develop Innovative Business Models.39
3.11 High Level Summary of a Business Model..50
3.12 The new and Innovative business Model of (CS)2..51
3.13 Business Model of (CS)2.53
3.14 More elaboration on this business model of (CS)2..54
3.15 Benefits with the model of (CS)2.55
3.16 Limitations with the model of (CS)2.55

Abstract about this document


This project work is prepared by Semester V students of Executive
Education Master of Business Administration (MBA) batch 20112013.
We as Semester V Students of SIBM would like to cast an extended
vote of thanks with gratitude to our respectable guide Vinod
Shastri without whom this would not have materialized.

Purpose and objective of the document


The data, materials and other information mentioned here as under
is only for study purposes and is hypothetical this cannot be used
without prior permission of the team members in charge of making
this project.
If considered as a successful project or a thesis has to be
copywriter, trademarked and patented as per SIBM norms towards
the best interest of the students and the faculty staff in charge.

Team Members

Need for a new Model


The present market condition is such that all kind of domain names online and
offline mega store are available.
However each of there are only and only focusing in sale and after sale or before
sale services, However human wants and needs are almost unlimited.
It extends beyond the normal boundaries sale and services. It has to be
comprehensive and it also has to be easy convenient and has to me made
available to all.
We will be studying in all kind of models and also their miss (gaps) and we might
try fill those each of the gaps with the new innovative model and concept that we
have with our new innovative approach to the business model.
But surely it is all at different places and more spaces making life difficult for the
end consumer since there is no single stop shop for all needs.
The present project work aims at brining all of the objects under one umbrella.
What is a business model?
A business model is a description of how your business intends to operate and
make money. At the most basic level, it involves a producer making or servicing
something and selling it directly to customers at a profit.
Alexander Osterwalder describes business model as a description of the value
a company offers to one or several segments of customers and of the
architecture of the firm and its network of partners for creating,
marketing, and delivering this value and relationship capital, to
generate profitable and sustainable revenue streams.
The development of a business model is essentially a strategic perspective rather
than an operational assessment, and focuses on how you capture value i.e. it
includes a description of the value proposition. Deciding upon a business model

becomes particularly important as a concept when it is not a simple make and


sell directmodel and you are looking to create value through a non linear route.
The Business Model An Introduction
In days of old, business was arguably a lot simpler; you produced something and
sold it for a profit, building up a good reputation over time so as to ensure
ongoing patronage. Before the industrial revolution most sales were essentially
local, and you had a much greater steer on competition, demand levels and
pricing. You probably sold your products directly to consumers as the butcher,
baker or candlestick maker.
Fast forward 200 years and business has changed considerably. A lot more
creativity is needed to get noticed in a time-pressed world (not to mention in
making a sale). You are probably facing global competitors, and in many
instance a widely dispersed audience who are increasingly difficult to reach in a
cost effective manner. As a result, numerous alternative strategies have emerged
to get your product to market, safely into the hands of the consumer and
business model innovation has become increasingly popular.
Companies that put more emphasis on business model innovation experienced
significantly better operating margin growth (over a five-year period) than their
peers.
Business model innovation is the key to unlocking transformational growthbut
few executives know how to apply it to their businesses.
In many respects the emergence of business model innovation started with
Gillette and razor blades. They worked out that if they sold the razor at low cost,
consumers would happily pay for the blades. Given the resultant switching costs
and customer inertia, the result was often a lifetime of patronage (despite the
fact the initial transaction was a loss-making one for the producer). In essence,
by providing something at below the market price (the razor); you can create a
market for a secondary product (the blade) upon which you make ongoing

profits. A second characteristic of the model was that the mark-up on the
secondary products were often disproportionate relative to their cost so were
highly profitable for the manufacturer. Anyone who has had to buy replacement
ink cartridges will bear witness to this!
A trend in recent years has however been the growth of companies with
uncertain business models. Twitter, for example:
Twitter has become an influencer in the way information is shared around the
world. But while its immediacy, transparency and simplicity offer answers about
all things both newsworthy and mundane, one big question about Twitter has
gone virtually unanswered: how it plans to turn a profit.
Of course, the big challenge for the likes of Twitter, Facebook and other social
media sites is that attempts to monetize come at a number of costs, often the
privacy of the user and their ability to use the service without interruptions from
third party advertisers. Monetizing a free service invariably degrades the
experience for the customer and hence companies need to walk a fine line as
Facebook found to its cost in recent months.
Thinking about your business model
If you are an entrepreneur starting a new business, it is very important that you
consider a number of different business models as it is possible to derive
revenues from a range of different sources at various stages of the products
lifecycle.
Businesses can also operate hybrid business models. For example, newspapers
make their money from a mix of advertising revenue and the price they obtain
for the newspaper. As we have seen in London, models can change over time as
the value of certain portions of the business increase in value; for example, the
Evening Standard newspaper is now given away free every evening (hence
relying solely on advertising income to sustain itself). As U.S. Cambridge, U.K.
-based entrepreneur Doug Richards proclaims:

One may start a business with the idea that one will sell a product to customers
only to discover that no one will pay for it, but they will accept it when it is
provided for free. When thats the case, advertisers may pay for the production
and distribution of the product.
In essence, business models are essentially dynamic as new opportunities can
emerge at various points on the value chain. Sticking to the newspaper industry,
the dominant online business model for many years was free online content
supported by advertising. However, the commercial viability of such a model is
not sustainable (most sites lose money) and this tactic also results in lost sales
as some people substitute a free digital copy for a physical paid one. The Times
in the U.K. has recently changed its model to a paid for access one whether
they can make it a success is debatable, given the fact so many free substitutes
are over the Internet.
Uses of a business models
Starting a new business: If you are starting a new business (particularly an
Internet-based one) and are seeking investment, the business model will
be an important element of your business plan. Any prospective investor
will be very keen to understand your business model clearly i.e. how you
intend to generate cash, and whether it appears that you can do so
profitably.
Innovation and product design: Business model innovation enables you to take a
holistic view of the business to assess unique opportunities that exist
outside of innovation solely on the product side. Business models also jump
industry so it is a good idea to keep abreast of innovative business models
you come across (regardless of the context). One simple (yet common)
form of innovation is deploying business models from another industry in
your own. As Mark Johnson claimed in Reinventing your Business
Model:

Business

model

innovations

have

reshaped

entire

industries and redistributed billions of dollars of value. The low cost


business model pioneered by the likes of Irish airline, Ryanair (replicating
the Southwest Airlines model) is now becoming more popular in the hotel
industry, for example, where costs are being reduced significantly and
entire business models are being reassessed. The CitizenM hotel in
Amsterdam airport, in the Netherlands is one such example; staffing levels
are far below industry averages as customers are forced to self serve.
We looked at every process to see where we could streamline, says
Michael Levie of the new hotel chain. Building costs and personnel
costs are the biggest outlay for hotels. So we have no reception or
restaurant staff. And the construction is modular. Our hotel rooms
are designed as fully fitted units that can be stacked one on top of
the other. This way, weve managed to reduce the construction
time to ten months, saving on costs.
Creating Revenue Streams: As mentioned in the opening sections some Internet
companies struggle to monetize their customer base. Their business model
is effectively parked as a trade off to attracting users. The logic here is
simple; if you offer a free service you remove the biggest risk or barrier to
new prospects. Once you have significant volumes of users you can then
create a business model to monetize this large user base. Similarly, in the
gaming industry free to play has been a popular model where users play
the games for free but pay to acquire virtual goods be it tools to play the
game better e.g. buying weapons or multiplayer access.
Competitive Analysis: A traditional means to assess the attractiveness of an
industry was to undertake strategic analysis using the methodology prescribed
by Michael Porter in his Five Force Analysis. His core argument was that these
following five forces determine the competitiveness of an industry and hence its
attractiveness:

1. The threat of the entry of new competitors


2. The intensity of competitive rivalry
3. The threat of substitute products or services
4. The bargaining power of customers (buyers)
5. The bargaining power of suppliers
Understanding businesses from a business model perspective can also be
extremely instructive as you can build up a narrative regarding how companies
perform certain activities to gain a clear understanding as to their strategies.
Using this in tandem with Porters Five Forces will give you a good sense of the
competitive landscape which can then help you decide on the optimal strategy to
pursue and also to preempt competitive threats.
Over and above each of the points mentioned above it is just to iterate the fact
that a unique business model if found to be really unique and successful could
also be patented and write protected against copying and also trademarked for
this to be counted as a Asset to your business, which could also thereby help
gain capital inflow from the market.

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Examples of Well-Known Business Models


The following are some examples of business models that are used by various
businesses.
The Add-On model
In this instance, the core offering is priced competitively but there are numerous
extras that drive the final price up so the consumer is not getting the deal they
initially assumed. If you have recently tried to buy an airline ticket or car
insurance, you will have spotted that the number of extras you are offered can
almost reach double figures!
The Advertising model
The advertising model became popular with the growth of radio and TV where
the TV stations earned revenue indirectly from people looking to promote
services to the audience they attracted, rather than via consumers paying radio
and TV stations for the consumption of their TV programs.
Some Internet businesses derive revenue predominantly as a result of being able
to offer advertisers access to highly targeted consumer niches (often in the
absence of revenue from selling their goods or services). So if your website is
about a narrowly defined topic, it is likely to attract a highly defined niche
audience who could be offered complimentary products or services with a higher
probability of success than blanket mass market advertising.
However, this business model is increasingly difficult to justify if it is your main
revenue stream. For a start, the landscape is extremely competitive and
advertisers are spoilt for choice. Building brand awareness and translating that
into site visits is a very difficult and costly challenge. Successes such as
Facebook are very much the exception to the norm.
If this model is being considered for your startup, it is worth noting that
nowadays

most

savvy

investors

ignore

vanity

metrics

such

as

Page

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Impressions/Visitor numbers and want to understand whether the underlying


business proposition is profitable. Examples such as YouTube illustrate how hard
it can be to monetize free content even when you have significant visitor
numbers. In short, this model is in decline for most businesses.
The Affiliate model
An affiliate is simply someone who helps sell a product in return for commission.
However they may never actually take ownership of the product (or even handle
it). They simply get rewarded for referring customers to a retailer when they
make a sale. Again this business model has been a huge success given the ease
with which the Internet facilitates it.
The Auction model
The auction model is synonymous with eBay, these days, but of course auctions
have existed for hundreds and hundreds of years. The tulip market in
Amsterdam is one of the more famous examples. There are numerous different
types of auction, from English, to Dutch, Vickrey, Sealed Bid, etc., and they all
share certain characteristics: the price of the good is not fixed; each individual
assesses the value of the good independently; final value is determined via
competitive bids. This business model has become very popular in recent years
as the Internet has helped to broaden its appeal.
The Bait and Hook model
This is essentially the razor blade analogy listed above, where disproportionate
amounts of the value are captured on components, refills and the like. Anyone
who regularly buys ink cartridges for printers will recognize this model where
customer lock in and switching costs result in monopolistic pricing on the
component side. The mobile phone business also grew rapidly on the back of this
model as handsets were often supplied free of charge when you signed up for a
contract. Nowadays with SMART phones, such is the level of demand for some

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that consumers have to pay hundreds of pounds for the phone and in many
instances minimum contracts are 18 months.
The Direct Sales model
While direct selling was initially the primary route to market, production
efficiencies coupled with improvements in transportation meant producers could
reach a much bigger market and this resulted in the pre-eminence of the retail
distribution model for many years. However the emergence of the Internet as a
distribution channel meant that producers could dis-intermediate costly resellers
and sell direct to customers themselves, in effect going the full circle. The PC
manufacturer Dell is a great example of a company who is very focused on the
direct sales business model.
The Franchise model
Opening a franchise is essentially buying a working business model in a
particular industry. You pay royalties for the privilege but get access to a winning
recipe, a support network and an established brand. Two famous franchise
business models are McDonalds and Subway.
The Freemium model
This is where the business gives away something for free in return for your
personal details so they can then market to you and hope to build up a
relationship so that you buy from them in the future. It is typically used in
service-based businesses where the lifetime value of the average customer is
high and is increasingly popular with Internet services such as Spotify, Skype, or
Flickr. Many of these offerings have similar cost structures where the marginal
cost of serving an additional customer tends towards zero. The core free offering
then acts as a gateway to the paid service. For example, with Spotify, the free
version comes with adverts, the paid does not.

The Internet Bubble model

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At one point, unique visitor numbers to a site had a large perceived value. Many
businesses offered free Internet services and businesses were valued on the
basis of potential rather than underlying profit and loss metrics. There are still
remnants of this today, and some spectacular examples like Twitter.com, where
the notional valuation of the company is considerable even though existing
revenue streams are negligible. The actual business model is in effect getting
lost in the media hype and proliferating user numbers, and it is more a case of
figuring the business model out at a later stage than up front. Naturally this is a
highly flawed strategy and rarely works.
The Low-Cost model
The low-cost model can be summed up in one word: Ryanair. This is an
extremely well established business model, where the aim is to drive significant
volumes of customers (at a low customer acquisition cost) and by charging a
very low price. In return, revenue is earned from a whole host of ancillary
sources these include:

Bank card charges

Advertising on seats

Lottery ticket sales

Flight insurance

Selling train tickets

Priority seating

Extortionate charges for excess baggage, reprinting a boarding pass, etc.

Preferred car hire rates

The model is not simply about trying to extract a whole myriad of extra cash
from consumers, but also configuring every single aspect of their business model
so as to drive out cost. Examples include buying oil futures to manage oil price
fluctuations, having destination tourist boards pay for newspaper advertising,
having staff pay for their own uniforms and training, and so on.

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The Pay as You Go model


With this model actual usage is metered and you pay on the basis of what you
consume. Some mobile phone contracts operate on this basis i.e. the user can
buy a phone card which gives them credit. Each call is metered and the credit is
reduced as the minutes are consumed (in contrast to subscription models where
you pay a monthly fee for calls).
The Recurring Revenue model (Subscription model)
With the recurring revenue model, the aim is to secure the customer on a long
term contract so that they are consuming your product or service well into the
future. Given that the cost of customer acquisition can be high, retaining
customers is a primary goal for most businesses. It is also becoming
synonymous with subscribing via direct debit. Most utilities providers operate
under this model. Magazine publishers have also been looking to expand this
portion of their business for some time, offering heavy discounts to subscribers
(who buy all issues directly), rewarding them over individual discrete purchases
(bought on an ad hoc basis from various third parties).

Examples and types of Well-Known Commerce Models

1. INTRODUCTION
E-Commerce is a huge domain on conducting business over internet and eretailing is part of it. When we discuss on digitally / Internet enabled commercial
transactions between organizations and individuals using latest web technologies
as per the policies of the Organization it takes the form of e-business. Nowadays,
'e' is gaining momentum and most of the things if not everything is getting
digitally enabled. Thus, it becomes very important to clearly understand different
types of commerce or business commonly called as e-Commerce.

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There are mainly five types of commerce models


1. Business to Consumer (B2C)
This model involves organizations as business houses and consumers and
customers. This is the most common model in e-commerce. In this model, online
businesses sell to individual consumers. When B2C started, it had a small share
in the market but after 1995 its growth was exponential. In this business model
the business house will have a e-commerce website which will list all their
product categories with detailed information about products with photographs,
flash animation and comparing similar products etc., for quick decision making
over web. E.g. An online Music portal selling CDs / DVDs and streaming Audio
on the web e.g. www.imusti.com.
2. Business to Business (B2B)
It is the largest form of e-commerce involving business of trillions of dollars. In
this form, the buyers and sellers are both business entities and do not involve an
individual consumer. It is like the manufacturer supplying goods to the retailer or
wholesaler. E.g. www.indiaplaza.in is a online store, which sells popular branded
products to consumer, where its supply chain network directly linked to
Manufacturer. Hence Business to business model.
2. Consumer to Consumer (C2C)
E-Bay is an excellent example for this model an auction site where a consumer
can sell their antique or old used items at discounted price to others, rest of the
consumers who are all interested in those items will bid for that. This auction will
happen for a time period and ends; now the highest bidder will make payment
and buy the product. Here e-bay plays a role of having / facilitating a platform to
make consumer to consumer transactions.
3. M-Commerce
Now a days all business executives were busy and want to do financial
transaction without going physically to bank. Example: Consumer want to pay

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their utility payments viz., Insurance premium, Telephone bills, Income taxes
etc., Transfer money to anybody in this world via mobile banking (e.g. ICICI
Bank iMobile) opens up the new technology of ecommerce as Mobile commerce.
Further the regular online stores were also optimizing their site user interface
design in order to make consumers shop from their mobile devices viz., iPad,
iPhone, Android enabled phones, and Microsoft windows mobile 6.x enabled
devices.
There are other types of e-commerce business models too like Business to
Employee (B2E), Government to Business (G2B) and Government to Citizen
(G2C) but in essence they are similar to the above mentioned types. Moreover, it
is not necessary that these models are dedicatedly followed in all the online
business types. It may be the case that a business is using all the models or only
one of them or some of them as per its needs

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Business Model vs. Business Plan


A business plan is essentially a more detailed version of your business model. A
business plan has been traditionally understood as a physical document,
although increasingly this view has changed as business plans have migrated
online. The business plan format very much depends on the context and
business plans are often verbalized via presentations where a presenter pitches
their business plan to an audience. Business models are more likely to take the
form of either simple verbal descriptions or one page visual representations
which can either be produced before a business plan or as part of the same
planning process.
Alexander Osterwalder, co-author of Business Model Generation, agrees with the
link, arguing that: when you have designed and thought through your business
model you have the perfect basis for writing a good business plan.
If you are looking to build a new business and are about to draft a business plan,
you should also spend time working out your optimum business model as well as
drafting a visual representation of it. In recent years there has been significant
innovation in the range of business models, and some of them may be of
relevance to your offering. Finally, it is also worth noting that some business
models such as the Internet bubble model have largely had their day. Very few
investors will invest in businesses these days that have advertising at the heart
of their business model.

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Components required for a successful Business Model


Five components of a successful Business Model Components As per the Forbes
magazine.
Component #1: Your Revenue Model
In a nutshell, this is your strategy to generate revenue. What you plan to sell,
and what will convince people to buy. Value propositions, positioning, effective
messaging, product/market fit. For example, when I say Victorias Secret, what
comes to mind? Yes good or bad they have a clear understanding of their
revenue model and communicate it well. Although most business owners get the
importance of this in theory why do so many struggle? Perhaps because they
really dont get it after all. Do you?
Component #2: Your Gross Margin Model
Their value game is one of low pricing, so they cant mark up their products by
an exorbitant amount and still play the value card. However, lets look at the
legal service industry. It has, on average, a gross margin of 93.22 percent,
according to Butler Consultants. Although I am not advocating you jump into the
legal game, its critical for you to understand your own gross margin model. Can
you see why?
Component #3: Your Operating Model
If youre Costco, its slash and burn the expenses. Which is why they operate out
of huge bare warehouses with pallets stacked high of goods. No thrills, no frills,
stack em high, watch em fly. However, if youre in the legal service industry, its
all about high style and lavish surroundings. Ever visited a big law firm on the
top floor of a downtown New York highrise where both the views and service is
breathtaking? Both businesses operate and make decisions based on the
knowledge of their operating model. Do you have a clear understanding of
yours?

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Component #4: Your Working Capital Model


Indeed, cash is king. Do you understand your cash flow requirements? As you
may or may not know, cash flow is significantly different than revenue. For
example, if you operate a bricks-n-mortar retail store on the main street in your
town, you experience first hand the need for cash. You must spend cash to fill
your store with product so its available when a customer walks in ready to buy.
Thus, inventory sucks up a tremendous amount of your working capital.
However, if youre an author who strictly sells downloadable books online, your
need for working capital is significantly different. Laptop, pair of pajamas and an
account with Amazon can theoretically produce millions of downloads to create a
significant cash river.
Component #5: Your Financing (or Investment) Model
Yes extreme examples here. But your success is greatly dependant on your
understanding of these 5 components of your business model.

Successful business model and eBay and the reasoning behind its
success.

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Yard Sales
Buying quality, unique or rare products at yard sales and flea markets is a
common next step for many eBay beginners. If you live in a large town, you may
be able to find items that are free for the pick up, and there may be regular
estate sales or auctions advertised in the newspaper. Visiting these sales can be
fun, and finding excellent deals or rare items is exciting. In the beginning you
may pay more for an item than you can auction it for on eBay, but with time and
specialization you will learn how to spot the best deals or haggle sellers down on
prices.

Consignment
The eBay consignment business model brings products to you instead of you
having to go out and hunt for them. With this business model, you advertise
locally for quality products that people want to sell. They bring the items to you
and you decide whether they will sell well on eBay. If you determine they have
potential, then you work out a consignment agreement with the seller. The
consignment agreement states that you will pay them a percentage of the

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auction price if and when the item sells. You take the photos, create the auction
listing, and handle the payments and delivery, so your portion of the selling price
needs to be high enough to cover those services.
eBay Stores
Ebay Stores allows you to set up an online store that sells products at a set
price, instead of allowing people to bid in auction format. This business model is
preferred by many eBay entrepreneurs because they can determine how much
profit each product they sell will make. Many eBayers combine eBay store sales
with auction sales because many buyers prefer the thrill of "winning" an auction.

Drop shipping
The dropshipping eBay business model is often used with eBay stores, to
provide products for direct sale. This business model doesn't require that you
stock products in your home or business location though. Instead, you find a
drop shipping partner that carries the items you want to sell and you set up a
business account with them. Then each time an item is sold at eBay, you provide
the drop shipper with the order details. You pay a lower, wholesale price to the
drop shipping company, and the difference between your cost and the price your
customer paid is your profit. This model is popular because you can set the profit
margins without having to handle packaging and shipping.

Wholesaling
Wholesaling is sometimes referred to as lot sales or bulk sales. This eBay
business model focuses on selling products in bulk instead of individually, and
the products are usually sold to other eBay business owners. You may find estate
sales or auctions in your area tend to sell certain items in bulk for example, such
as 1,000 books at a penny apiece. Instead of creating 1,000 separate auctions,
it's simpler and faster to sell the entire lot for an extremely low price, such as 5
cents each plus shipping.

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Fall of ecommerce gaint flipKart


The Major reason behind the fall or failure was the simple reason that it was
just a eStore or a Shopping mall over the internet.
It began its journey just like Amazon which was another online mega
book store. Buying and selling of books, which later not just expanded to almost
everything it also expanded its reach to development of manufactured products
such as tablets and mobile phones, one thing perhaps FlipKart hasnt done so far.
FlipKart may be certainly needing to devlop its own products or services
Sooner or later however even that it might as well consider dropping the free
cash of delivery service since even that caused a major hit to the e-commerce
model.
With the latest or even the best book or product that gets sold it actually
doesnt suffice the requirement of human needs and wants.
Human needs and wants are also extending to services which directly
connect to the customer tangibly, physically and even telepathically.

As we begin the second decade of the 21st centurya decade that is likely to be
turbulent and uncertain for the association communitythe strategic imperative
for innovation in all forms is becoming ever more insistent. Among all of the
possible areas of focus for our pursuit of innovation, there is an especially urgent
need to devote greater attention and energy to the complicated work of
business-model innovation so we can ensure our organizations are able to thrive
over the next decade and beyond.
Last year I wrote for Associations Now about the profound leadership challenges
of imagining, designing, and implementing new business models ("Leading the
Way With Business-Model Innovation," August 2010). Since then, I have

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reflected on a critical question: What are the underlying principles of businessmodel innovation for organizations seeking new success in the business of
associating? My hope is that the six principles presented here will provide
association leaders with the right kind of strategic guidance to seize the initiative
on business-model innovation. It is clear, however, that if associations are going
be successful in this effort, they will need to embrace a genuinely different point
of view on the nature of value creation in a more digital, more social, and more
interconnected world

Design Principles for Innovative Business modelIt is important to keep in mind that Business model are offered as principles, not
absolutes. Design is at the heart of business-model innovation, and association
leaders will benefit if they are able to actively experiment with these principles in
ways that will create space for unexpected business-model concepts to unfold.
Design principles function as both inspiration for novel possibilities and
generative constraints on what is possible. It is from within this creative tension
that the most powerful ideas will emerge.
In crafting these principles, I have tried to make a distinction between the
association as we understand it todaya formally constituted organization with
well-established ways of being, thinking, and actingand the experience of
"associating," which is itself a way of being human. As we have learned in recent
years, associations can make associating possible, but not all associating occurs
because of associations. Our thinking about future business models needs to
focus on maximizing the value of better outcomes for our stakeholders, not
preserving the traditional structures and inputs we often regard as most
important.
Purpose and profit are interdependent.
Associations must resolve to end the fruitless and counterproductive clash
between dedication to a larger sense of purpose and the pursuit of profit. The

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truth is that associations cannot thrive without both of these invaluable


resources. Associating must be about the purposeful creation of meaningful
"thick value" in exchange for a reasonable level of profitability that, in turn,
generates a consistent revenue stream for reinvestment in more value creation.
It is not an either/or choice, but we tend to make it one. We frequently struggle
with placing too much emphasis on one idea over the other, sometimes out of
good intentions, but just as often because we fear increased external scrutiny or
do not want to alienate our most vocal stakeholders. The challenging creative
work of innovating our business models can help us overcome this false
dichotomy, however, by serving as a balanced and integrative framework that
enables associations to pursue the goal of purposeful profitability in a more
strategic way.
Intimacy drives value creation. The long-term success of purposefully
profitable business models for associating will depend on our ability to build real
intimacy with our current and future stakeholders. Genuine intimacy leads to a
stronger sense of empathy, and when it comes to new value creation for 21stcentury stakeholders, no amount of quantitative data will ever supplant the
transformative potential of one penetrating empathic insight. Associations must
learn who their stakeholders are and what moves them as people, not just where
they work or what products and services they buy.
Former Harvard Business School professor Shoshana Zuboff argues that Apple
has forever changed the way we consume music by reinventing the individual
listening experience, or what she calls "I-space." When we think about
associating, the business-model implications of I-space certainly pertain to the
most intimate relationship any of us will ever know: the relationship we have
with ourselves. It is this distinctive self-knowledge about individual identity and
intentions, personal interactions and influences, and human imagination and

25

inspiration into which our organizations must tap to connect with stakeholders in
a deeper, richer, and more enduring manner.
The social layer is digital. Over the last decade, we have witnessed the
creation of a robust public social layer of interaction, conversation, and sharing
in the form of blogs, wikis, and most recently, near real-time information flows
(Twitter) and global social networking sites (Facebook). The explosive growth of
smart mobile devices over the last four years has amplified the impact of the
social layer on the experience of associating, and in the decade ahead, the
continued implementation of the "game layer"the application of game
dynamics to shape human behaviour in every contextwill take that experience
to yet another level.
For as long as there have been associations, the social layer has existed almost
entirely in the physical dimension. Throughout our history, creating sustained
relationships required regular face-to-face contact among participants

at

association events. Today, relationships flourish in a fully digital form, a medium


that makes them always accessible, highly portable, easily shared, and thus
more valuable. It is impossible to underestimate the impact of this paradigm
shift on membership-centric business models that put pay-to-play access to
relationships at the heart of their value proposition. In our new business-model
designs for associating, we must consider new ways to capitalize fully on the
digital social platforms at our disposal to infuse greater meaning into a full
spectrum of relationships between and among stakeholders, without necessarily
imposing a requirement for any of those stakeholders to join the organization.
Networks are fluid. The mobility of relationships makes it ridiculously simple
for our stakeholders to rapidly assemble their own networks, for whatever
purpose, whenever and wherever they are needed. Networks are a primary
driver of the phenomenon of "pull" that authors John Hagel III, John Seely
Brown, and Lang Davison discuss in their book, The Power of Pull: How Small

26

Moves, Smartly Made, Can Set Big Things in Motion. According to the authors,
"pull allows each of us to find and access people and resources when we need
them, while attracting to us the people and resources that are relevant and
valuable, even if we were not even aware before that they existed."
Associations have traditionally enjoyed a sense of ownership over the networks
they have helped to create, but those networks are now fully within the control
of their participants. Today's fluid networks operate at a speed much closer to
the real-world pace of our stakeholders' work, and they enable the free flow of
rivers of information and content filtered and curated by network participants. In
this context, the presence of trust within networks is crucial. As part of new
thinking about business models, association leaders should consider what unique
contributions their organizations may be able to make to nurturing social capital
that can bridge across and between formal and informal stakeholder networks of
associating to unleash serendipity, imagination, and innovation.
Collaboration is the new content. In a world of technology-enabled
knowledge work, content creation is a continuous and increasingly collaborative
process. But even more critical than the specific outputs of those collaborations
is the residual impact of collaboration itself as an essential outcome for our
personal, organizational, and societal well-being. The ability to pursue significant
and sustained collaboration makes it possible for stakeholders to unite to meet
their current needs, as well as tackle the deeper problems facing the industries,
professions, and fields in which they work. What makes Wikipedia a worldchanging resource is not merely the content it provides but the on-going global
collaboration that sustains it.
Associations today are quite focused on figuring out how to support greater
member engagement. Unfortunately, in far too many organizations, this still
means "buy stuff from us or give up your valuable time to work on trivial
matters." True collaboration is not about asking stakeholders to sit together

27

while performing the make-work required to keep yesterday's bureaucratic


machinery grinding, but rather it's about inspiring them to associate in order to
connect with the shared intention of advancing the common good. For
associations, creating platforms that constantly place our stakeholders in
meaningful, comprehensive, and trusted collaboration with each other is a
compelling business-model opportunity that is not yet fully realized.
Openness is the default setting. Beyond transparency, the experience of
associating is situated in a context of genuine openness. Openness promotes
inclusion and trust but also creates important challenges for individual privacy
and choice. From a leadership point of view, of course, openness is a major
source of consternation because it accelerates the flow of control away from
institutions and toward individuals, groups, and networks. In response, many
associations seek to impose control through planning activities and governing
mechanisms, even when doing so is impossible or injurious to their long-term
standing.
In a blog post last summer, Tim Leberecht, the chief marketing officer of frog
design, riffed on "design for the loss of control," a concept first articulated by J.P.
Raganswami,

chief

scientist

for

Salesforce.com.

Leberecht

argues

that

organizations may find value in intentionally designing their work to narrow the
extent of their control. As he writes, "A deliberately designed loss of control
grants companies the only remaining and arguably most critical competitive
advantage: access. As long as they enable and facilitate knowledge flows, ideas,
passions, skills, and experiences, they have access to them." For most
association leaders, this is a hugely radical, even dangerous, idea. And yet it is
quite possibly the most important design principle for all new business-model
concepts of associating. In very practical terms, business models designed for
the loss of control may well deliver greater value while incurring lower costs.
After all, among other problems, control is expensive. In strategic terms,

28

business models observing this design principle can help energize stakeholders
with a renewed sense of purpose. Among other opportunities, the loss of control
encourages new self-organized forms of associating.
These six design principles are not a panacea for associations struggling with the
challenges of a world in upheaval. They do not provide easy answers and readymade solutions. Instead, they force us to confront the limitations of association
orthodoxy and hopefully inspire us to be bold in designing business models that
will make it possible for our organizations to thrive over the next decade and
beyond. Now is the time for all of us who care deeply about the future of
associations to display the necessary courage, determination, and imagination to
make it happen. Let's get started.
Jeff De Cagna, FRSA, an ASAE Fellow, is chief strategist and founder of
Principled Innovation LLC, located in Reston, Virginia.

Sidebar: Questions for Applying the Design Principles


To help association leaders apply the design principles to the work of businessmodel innovation, here are six questions for reflection and inspiration. These are
not the only questions, but they will get your internal conversation started and
headed in the right direction.
1. What are the key elements of a new cycle of "thick value" creation
through which profitability can flow from purposeful action?
2. How can we create a sustained conversation that builds intimacy and
empathy with our current and future stakeholders?
3. What are the different types and forms of "associating" relationships we
are willing to offer to our current and future stakeholders, beyond
membership?
4. How can we intentionally nurture social capital across fluid networks to
unleash serendipity and enable the phenomenon of "pull"?

29

5. What will it take for us to move from narrow "member engagement" to


expansive and sustained "stakeholder collaboration"?
6. How do we deliberately design a 21st-century experience of associating
for the loss of control?
No matter how far the marketplace advances, there will always be problems that
plague consumers and that no company can seem to solve. This is not
necessarily a bad thing, because it creates a niche for the right company to fill.
For example, motorists experience considerable straining when cleaning their
windshields from the inside. So the makers of the Windshield Wonder saw an
opportunity to address an unaddressed problem, a successful product was born,
and the rest is history.
Small businesses can experience great success and expand their operations
when they find innovative solutions to common problems. Often, it can mean
cultivating a loyal and much-needed customer base, which any small business
needs in order to sustain itself and grow.
What follows is a list of 10 innovative small businesses that are making their
mark this year with inventive products. Read ahead to see what they are

Few Innovative BusinessesWith so much focus on tech startups and the newest apps, we sometimes forget
that some of the most innovative businesses are the ones that put a new spin on
something familiar.
In New York City, companies have taken everything from the gym to restaurants
to dry cleaning and reinvented them, building rabid followings and creating
amazing products.
We've found the 25 most innovative businesses in New York City. Whether
they're

startups,

brick-and-mortar

shops,

or

pop-up

restaurants,

these

companies are completely revolutionizing their industries.

30

Amor y Amargo
What it is: A cool new concept for a bar that focuses exclusively on bitters.
Why it's innovative: Amor y Amargo is a bar that brings a new appreciation to
bitters. But it's more than just a bar. In addition to the house-made vermouth
available on tap, the space includes a retail shop and classroom so that novice
bartenders can purchase barware and participate in weekly mixology classes.

Blue Apron
What it is: A website that delivers all the ingredients you need to cook a meal at
home.
Why it's innovative: Blue Apron is a new concept in grocery shopping that
delivers all the ingredients you need to cook a meal right to your apartment.
Members can sign up for a weekly subscription service and have fresh
ingredients delivered (for free!) that will make three meals in just the right
proportions. The company also promises that each meal takes 35 minutes or less
to prepare.

Brooklyn Boulders
What it is: New York City's only indoor climbing gym.
Why it's innovative: Besides indoor rock climbing, Brooklyn Boulders offers a
wide variety of classes; from basic climbing to slacklining (a type of tightrope
walking that is popular with climbers). The gym also offers other fitness classes
like Pilates and yoga. Climbers can try to scale different courses, including a
model of the Brooklyn Bridge or a giant stalactite. Courses change daily to keep
things fresh.

31

Chloe + Isabel
What it is: A jewelry website that turns its users into mini entrepreneurs.
Why

it's

innovative:

Chloe

Isabel

empowers

women

to

become

entrepreneurs by selling and buying jewelry both online and in person. Women
who become merchandisers receive a digital workplace where they can create
their own online boutique and earn a commission. They receive training,
marketing tools, and recommendations to help them build e-boutiques.

Culture
What it is: A homemade yogurt shop.
Why it's innovative: Culture is a shop that sells fresh and frozen homemade
yogurt, giving yogurt a cult following. It's so good that the authors of Park Slope
blog F'd in Park Slope even said they "wanted to have sex with this yogurt." The
shop strains its product and sells the yogurt on site either frozen or fresh. It
also features local up-and-coming artists' work on the walls of the shop.

DashLocker
What it is: A 24/7 dry cleaner that has fully automated the dry cleaning
process.
Why it's innovative: With DashLocker, you'll never miss your dry cleaning
again. Customers drop off clothes in secure lockers at any hour of the day or
night. DashLocker then picks up the clothes from the lockers within 24 hours,
and returns the cleaned clothing back to the lockers within another 24 hours
after that. Clothing dropped off by 10pm will be ready by that time the next day.
You can sign up for email or text message notifications.

Do or Dine

32

What it is: An innovative restaurant in Brooklyn that's helping to revitalize the


area.
Why it's innovative: Located in the Bed Stuy/Clinton Hill area of Brooklyn, Do
or Dine is a restaurant with an unusual and innovative menu. The owners of Do
or Dine had no prior cooking experience, yet their unorthodox menu
think chicken and woffals (organs pumped into a waffle and topped with a
Cornish game hen) and foie gras donuts has gotten rave reviews.

ab.com
What it is: A website that sells carefully-curated designer pieces and local goods
at great prices.
Why it's innovative: Fab.com is an online retailer that emphasizes design and
unique local goods at great prices. The website features "daily design
inspirations" and killer sales that can save members up to 70 percent off retail.
It raised $40 million in 2011, and sells art, furniture, home decor, paper goods,
toys, gadgets, and more.

KiwiSweat
What it is: A pop-up fitness company that finds unique NYC destinations to work
out in.
Why it's innovative: KiwiSweat brings the pop-up shop model to the gym,
offering truly unique classes in unusual places. Think yoga underneath the
Brooklyn Bridge, or spinning at MoMA. Classes can be one-time events or up to
four-week-long sessions. Schedule, location, and details are all kept secret until
a few weeks before the event begins. There are no memberships, and every
class is treated individually.

33

Kurrenci
What it is: A currency platform that is changing the way people spend money
online.
Why it's innovative: Kurrenci is an online currency platform that makes it easy
and safe for people to spend and earn money online. Kurrenci is partnering up
with local, national, and global e-commerce sites to make money more valuable,
safer and more convenient by using kurrenci almost like points as money.
You can use it to buy things, give gifts, and donate to charity.

The Little House


What it is: A boutique that sells men's and women's clothing and accessories
and is changing the shopping experience.
Why it's innovative: The Little House aims to change the shopping experience.
Here, co-founders Savania Davies-Keiller and Joel Alexander Morales showcase
their original designs and attempt to make the shopping experience genuinely
personal and unique. If you stop by and make a connection, expect an invite to
become a member to get early access to collections, bespoke tailoring services,
and invites to other events.

LTO (Limited Time Only)


What it is: A restaurant with rotating menus and chefs.
Why it's innovative: LTO gives chefs an opportunity to showcase their work
and

patrons

name reflects

the

opportunity

the pop-up

to

try

different

restaurant's rotating

cuisines.
chef

The

restaurant's

culture. LTO

features

celebrity chefs and obscure culinary names who occupy the kitchen for anywhere
from a week to a month.

34

The Meatball Shop


What it is: A meatball-centric restaurant.
Why it's innovative: The Meatball Shop is responsible for turning meatballs
into a trend. Co-owners Daniel Holzman and Michael Chernow opened the
Meatball Shop as a "fuss-free" place where people can come and order comfort
food exactly the way they like it. Diners tick off the kind of meatball and add-ins
they want with the meatballs on dry erase menus and are served delicious,
custom meals.

My.Suit
What it is: A custom suit shop that allows men to choose suits either in person
or online.
Why it's innovative: The company custom tailors made-to-measure suits for
men in New York. Once you're measured, you can either choose to go into the
store to build the suit from hundreds of fabrics and cut options, or use an
innovative online tool to tweak it to your specifications. They take even more
measurements than a typical tailor, making sure the suit is perfect and ready to
wear in two weeks.

Nitehawk Cinema
What it is: An independent movie theater that offers carefully curated films,
food, and drinks.
Why it's innovative: Nitehawk shows both first-run and repertory films, and
makes the experience unique by offering table side food and drink service,
including

handcrafted

cocktails

and

local

beer. Nitehawk

single-handedly

managed to overturn a prohibition era law that prohibited alcohol from being
served in movie theaters.

35

NoMad
What it is: A hotel and restaurant in the NoMad (North of Madison Square Park)
neighborhood thats playing a key role in revitalizing the area.
Why it's innovative: The innovative restaurant at NoMad has been called best
new restaurant in New York. NoMad lets people experience Chef Daniel Humm's
food without paying the steeper prices at his flagship 11 Madison Park, which is
considered one of the best restaurants in the city. One of the most popular
dishes at NoMad is the roast chicken for two stuffed with brioche, foie gras, and
truffles.

RedFarm
What it is: A cool upscale Chinese restaurant that serves innovative dishes.
Why it's innovative: Located in the West Village, RedFarm is an upscale
Chinese restaurant that presents its dishes in a very whimsical, playful manner.
Check out, for example, the Pac-Man ghost dumplings with the sesame seed
eyes or the Katz's pastrami egg roll. The restaurant is a collaboration between
dim sum master chef Joe Ng, who is Chinese by birth, and restaurateur Ed
Schoenfeld, who is Chinese by calling.

Rice to Riches
What it is: A rice pudding bar with over 20 flavors of pudding.
Why it's innovative: Rice to Riches is a rice pudding bar that serves over 20
flavors of rice pudding, such as coconut coma and espresso with chocolate chip.
They don't pretend that their products are healthy or good for you, but instead
emphasize that people should be able to indulge on occasion. And their rice
pudding is definitely indulgent. Beware your waistline, because they also make
overnight deliveries.

36

SoulCycle
What it is: A fitness program that has revolutionized indoor cycling.
Why it's innovative: SoulCycle has managed to build a rabid and evangelical
fanbase by offering incredibly intense bike workouts with blaring music,
choreography, and inspiration from instructors. It's not just biking; there's
dancing and weight lifting as well. The classes sell out in seconds, and the
company makes an effort to create a truly immersive and addictive experience.

Story
What it is: A permanent retail shop which completely changes every 4-6 weeks.
Why it's innovative: Story is a store in Chelsea that completely reinvents itself
every 4 to 6 weeks. The environment, merchandise, and story behind the store
will be completely different. Before they were STORY, they launched in beta as A
Startup Store featuring five New York startups Artspace, Birchbox, Baublebar,
Joor and Quirky who wanted to have a storefront presence and create an
innovative new way to present and market products.

Tre Truck
What it is: New York City's first mobile skateboard shop.
Why it's innovative: Tre Truck is the first mobile skateboard shop in New York.
The truck carries over 30 different brands of skateboards, and is staffed by avid
skaters who genuinely know about and use the products they sell. From
skateboards to board components, protective gear, and even snacks, the truck
has everything a skater could want. The truck moves from Skate Park to skate
park all around the city, and you can find them on Facebook or Twitter.

37

Vaute Couture
What it is: A shop that sells high-end and animal-friendly fashions.
Why it's innovative: Vaute Couture emphasizes fashion, sustainability and
ethics. All of the products that designer Leanne Mai-ly Hilgart creates are
completely vegan, using no leather, fur, wool, or animal products of any kind.
She uses cutting-edge fabrics and recyclable fibers to create winter coats that
are just as warm as their animal product-using counterparts, along with a variety
of other vegan apparel.

VenueBook
What it is: A website that can give anyone the ability to plan events like a pro.
Why it's innovative: Formerly known as InstEvent, Venue Book is a free
website that links party planners with their ideal venues. Planning a birthday
party? Just tell VenueBook what you're looking for and they will look through
their database of bars, restaurants, lofts, and other venues. The service
will collect all the necessary information about pricing, packaging and availability
for you so you don't have to.

VerameatWhat it is: A designer that sells creative, handcrafted jewelry.


Why it's innovative: Vera Balyura's designs are often nearly sculptures rather
than typical jewelry. All of the pieces are handcrafted in New York City and richly
detailed. They aren't your typical designs; Verameat features necklaces like a
fighting octopus and lion, and multiple pieces involving dinosaurs.

YotelWhat it is: A modern, budget hotel thats leading the charge for small hotel
rooms at a decent price.
Why it's innovative: Yotel is all about maximizing space while retaining
comfort. The modern hotel, which offers tiny but moderately-priced pod-like

38

rooms, opened its flagship building in New York in 2011. Yotel also boasts the
Yobot: a giant crane that helps guests store their luggage in the communal TTech by Tumi Luggage Lounge.
As time goes on, one of the more interesting trends that continues to happen
with surprising regularity is how frequently new business model
As time goes on, one of the more interesting trends that continues to happen
with surprising regularity is how frequently new business models and ways of
doing business are emerging through social media and online tools. In many
cases, these trends are helping to reinvent how businesses sell and consumers
buy all kinds of products. For that reason alone, new sites are worth paying
attention to no matter what industry your business happens to be in.

The

benefit of that for your small business is that watching these new models may
also spark a new idea or method of selling that you can consider for your own
business:
1.

Woot - This online retailer takes the unique approach of only selling a
single product each day. Around each daily product is a dedicated
conversation stream, live commentary and a detailed description. By
focusing on a single product, not only do they add a layer of conversation
and description to the product, but they also give their users the
perception that each daily deal is special and only available for a limited
time. This focus allows them to add urgency to their site and convert
browsers to buyers quickly. While you may not be able to convert your
entire business to just selling one product at a time, this model may be
the next evolution of the long-standing "deal of the day" model that many
businesses have used at one time or another in the past.

2.

Groupon - How much would you lower your standard prices if I could
guarantee you 100 customers? Or how about 1,000? The premise behind
Groupon is to offer customers "collective buying power" - which

39

essentially means that you can offer a great deal and it will only kick in if
a set number of consumers take you up on it. Go on the site and you will
see deals sorted by region and many of them have been redeemed by
thousands of people. What Groupon shows you is that sometimes you
CAN actually count on volume to compensate for lowering your prices.
The nicest thing about the site is that instead of trying to recreate this
model on your own site, you can add a special offer for your business to
Groupon.
3.

Hotwire - By now most people are familiar with the new auction based
pricing model that Priceline introduced into the travel industry. Letting
consumers set the price for what they are willing to pay was a revolution
in the travel industry at the time when Priceline was introduced. Hotwire
used the slightly adapted model of offering exact prices, but not letting
you know the details of what you booked until after you pay. If you have
your own e-retail site, this model can be a good way to get rid of excess
inventory in a different and more fun way.

4.

Blippy - If you don't live your life in social media, the idea behind
Blippy will likely confuse you. It is a social site that lets people
automatically share the latest things they have purchased (and how much
they paid for them) by linking the site to a single credit card. This level of
transparency and sharing may seem crazy to many people, but the site
represents a social experiment that points to an interesting opportunity
for businesses whose customers may be used to sharing every small
detail of their lives. It may be an outlier in this list of business models as
they admittedly dont have a revenue model for the site as yet but the
shift in what people are willing to share online is the real trend worth
watching.

40

5.

Dubli- This site offers some of the most creative pricing models you can
find online - and models that have not yet been duplicated across many
others sites. The first is what they call a "reverse auction" where products
have a starting price and you use credits that you purchase on the site to
reveal the current price. Each time a member of the site uses a credit to
reveal the price, the price goes lower until someone decides to make the
purchase. The second model is based on a "unique price auction" which
means you need to have the lowest bid that no one else chooses to have
in order to win.

Forget your Customers and Develop Innovative Business


Models
Merely focusing on customers will not lead to groundbreaking changes in your
business model. Instead, opportunities for business model innovation arise when
focus is shifted to value creation for non-customers.
All organizations have certain assets or capabilities which can be valuable to
non-customers. However, many fail to realize what they have and for whom it
could be valuable, and perhaps most importantly how to create and capture the
value. This article provides some thoughts on how to approach the subject and
examples of how among others IKEA, P&G and Amazon.com have realized and
captured value. I hope this will serve as inspiration for business innovators to
examine their organizations with fresh eyes.
IKEA, the worlds largest furniture retailer, has a vast majority of its stores
located outside of city centers with comparatively low property prices. Each store
attracts large crowds of shoppers from long distances, driving up sales for
nearby retailers and affecting the value of surrounding property. IKEA realized
the value created by their stores and customers, and through IKANO Retail
Centers it now develops and operates shopping destinations and retail parks
around IKEA stores

41

Procter & Gamble is credited with many business innovations including brand
management, the soap opera, and now recently sourcing 50% of its product
innovations externally. P&G has been licensing its technologies, trademarks and
other innovation assets to other companies for a long time extracting value from
non-customers. When P&G realized the potential in using a newly discovered
technology during a diaper project, to enhance the performance of trash bags
and food wraps, P&G didnt take it to market. Instead, the company decided to
create a joint venture with Clorox, a rival firm in the cleaning category that
owned Glad, a leading bag and food wrapping brand. The collaboration turned
out to be highly successful, leveraging P&Gs assets and capabilities within R&D
and branding, as well as Cloroxs products and established brand Glad. The total
sales doubled in four years, turning Glad into a billion dollar brand.
Amazon.com, a firm which started as an online bookstore, diversified into
selling DVDs, CDs, MP3 downloads, video games, electronics, apparel, furniture,
food, and toys. Realizing that its processes and IT infrastructure could be used
by other companies and individuals, Amazon.com created another path of
growth. Being able to guarantee a 99.9% monthly uptime, it started to offer a
number of services such as storage, computer capacity leasing, end-to-end
product sales and a full logistics platform handling orders, payments and
shipments. Today Amazon.com powers and operates retail web sites for
companies such as Target, Mark & Spencer, Lacoste and CDNOW. Amazon S3
(Simple Storage Service) reportedly stores more than 102 billion objects as of
March 2010.
You have to create value for non-customers
The rapid pace of technology and business change raises serious questions for
executives on how to continuously innovate and find new ways to create and
capture value, what resources and capabilities to develop in-house and how to
use collaborative or distributed value creation. The need for organizations to

42

increasingly manage uncertainty and volatility is driving organizations to become


more flexible, and utilize external resources and capabilities when and where
appropriate.
Traditional value chains are in many industries being replaced or complemented
with flexible value networks. When companies increasingly are seeking external
resources and capabilities, or rely on complementary products and services for
their business models to be successful, there will be increased competition for
assets and talents. Why should a promising start-up collaborate with you and not
your competitor? Why should software programmers develop applications for
your platform and not competing platforms? Why should a university or research
center develop new knowledge in your field? Why should innovators share their
ideas with your company?
You already have things that are valuable to non-customers
Global connectivity of organizations has reduced old barriers and enabled new
ways for companies to access external resources and capabilities. I often argue
that if a company is creating and capturing value for customers today, the
probability that the same company has assets and capabilities valuable to noncustomers is incredibly high. You might have very loyal customers, or customers
with high switching costs, information on customer behavior and needs, strong
brands, partnerships with leading value chain actors, superior processes, unique
technologies, patents, trademarks, low cost production, quality programs, etc. all
of which could be potential sources of business model innovation.
Philips, one of the largest electronics companies in the world, is not only
providing its consumer electronics, healthcare and lighting products, but
technology and IP which has the potential to cannibalize on the companys
markets. At the company website, visitors can browse, access and license
technologies and other innovation assets, and the company also provides
knowhow, training, services and support to realize or support other businesses.

43

Philips is selecting and sharing assets that are potentially valuable for noncustomers to the extent that the side-business is becoming substantial. Does
your organization even know what you have that could be potentially valuable for
others?
You throw away things that are valuable to non-customers
Companies depend on customers for revenues which drive decision making and
how companies prioritize resource expenditure. The importance of deeply
understanding your customer at both the rational and the emotional level cannot
be stressed enough. However, by always seeing things through the lens of
customer value creation, companies constantly waste unique and valuable assets
and capabilities.
Unique and potentially disruptive ideas, inventions, or business models that dont
fit neatly into planned products or innovation initiatives are sometimes forgotten
if at all seen. Customer priorities directly affect decision making, internal project
prioritization, ability to attract attention within the company, identification of
value within a project or organization, the definition of what a valuable invention
is, collaboration decisions, deciding which inventions to patent or abandon, etc.
Companies are designed to execute the existing business model efficiently for a
linear world. When organizations start using external resources and capabilities
for various purposes, things are no longer as linear.
Isnt this taking focus from the core business?
It is known that companies with a few highly focused core businesses historically
have accounted for the majority of sustained growth companies. Spin-offs
usually create more focus and value, something private equity companies know,
often achieving their greatest success by buying orphan businesses from
scattered conglomerates. Also, an undeniable lesson from observed transactions
in the past is the higher success rate of acquisitions made for the purpose of
expanding scale, than acquisitions to diversify and expand scope.

44

But what is your core business? Perhaps its not what you deliver but how you
deliver it that makes people buy? Perhaps you should deliver something else as
well given your superior way of delivering things? Perhaps its not the gadget
you sell but the software interface that people like? Could other gadget
manufacturers need your superior software interfaces? Perhaps the reason
someone wants to collaborate with you is not your own qualities, but your
existing customer relationships? Could other companies be interested in
getting access to the same customers?
My point here is not to diffuse company activities and focus, but to illustrate
hidden value within your existing organization that is often overlooked, and
which could be a source for business model innovation. What you choose do with
the new insights, with newly identified valuable assets and capabilities, is
something completely different. You may choose to do nothing, change your core
business model, spin-out new companies, create external business development
groups, out-license technology and patents, have visitors on your webpage
browse and access your assets to find areas for collaborations, create joint
ventures in new business areas, etc. What I ask you to do is to consider
available options and make informed decisions.
Business model innovation based on value for non-customers
There are many great concepts and tools for business model innovation starting
from existing or potential customers such as analyzing the jobs to be done, the
outliers using products and services in unintended ways, customers who use the
non-premium market offerings in search of better solutions, potential customers
who find the offerings unacceptable or beyond their means. Although analyzing
existing and potential customers is often a great way to gain a focused
competitive advantage and increase the share of the existing market, it is not
the only starting point for business model innovation.

45

Business model innovation can take its starting point in external factors such as
trends in technology, society, culture, or from responses to actions by suppliers,
partners, customers, or competitors. It can begin in the existing business model,
starting with what-if questions such as: what if we segmented our customers
in this way, what if we offered this for free, or what if we delivered our products
and services in this way instead? However, as Ive demonstrated here, business
model innovation can also take its starting point in looking at creating value for
non-customers, and in this way your firm can uncover hidden value, enter new
markets, or simply support and maintain your existing core business.
IKEA realized the value of its customers to non-customers. P&G created a jointventure with a rival firm based on their new technology, R&D and branding
capabilities. Amazon realized it could provide the backbone for other companies
activities on the Internet.
Is there something your company should realize?

Innovative

and Cost-Effective

Ways

to Market

a New

Business
There are many distinct, inventive, and inexpensive ways that many new
business

owners

use

to

promote

their

companies.

Compared

to

the

conventional methods of direct mail advertising, telemarketing, and the use of


broadcast media, business owners are now relying upon novel approaches to
market their goods. Guerilla and subliminal marketing are used by many
companies as a fast and effective means to gain publicity and to sell their
products and services. In addition, the use of podcasts, blogs, and social
networking sites have also become popular alternatives to traditional means.
Whatever the method, business owners are able to successfully establish
recognition, credibility, profitability, and a wide consumer base.
Guerilla marketing
This term is used to describe unique, imaginative, and cost-efficient ways to

46

advertise a product or service. Often times, small business owners will resort
to this form of marketing because it is cheaper and sometimes more successful
than traditional marketing strategies. The purpose is to creatively attract
customers to buy a given product or service. An example of guerilla marketing
can be found in most restaurants. Many restaurant pagers will advertise their
drink and/or meal special on the devise. People become more aware of the
restaurants special deals as they are waiting to be seated and because of the
ad, they will often buy the foods that are advertised.
Another example of guerilla marketing is hot air balloon ads. During county fairs,
marathons, and other outdoor social gatherings fast food chains, telephone
companies, gas and electric companies, and automobile dealerships will
advertise their logo on hot air balloons that appear in the sky overhead. The
purpose is to simply raise awareness to their business. Many companies have
found this type of advertisement effective since everyone is able to view their
logo.
Subliminal advertising
subliminal advertising is a form of marketing where a message is deliberately
embedded within an image or sound. Many people may not be consciously aware
they are being exposed to such implications, but will often change their actions
and attitudes after viewing or listening to the advertisement. A successful
subliminal advertisement is one that inconspicuously entices consumers to buy
and use various products and services. For example, in the 1980s, Camel
Cigarettes were known to use hidden sexual images within their campaign ads.
What may look like a regular cigarette advertisement actually contained
embedded phallic images. The ads implication was that it was sexy to smoke;
therefore, many people were prompted to smoke the Camel brand because they
were unconsciously affected by the advertisement.

47

Other examples of subliminal advertisements are in-store air-borne aromas and


other product visual manipulations that have been scientifically proven to create
consumer impulse spending. Some retail clothing stores may even embed hidden
phrases within their overhead music in order to keep the customer within their
store for longer periods of time. The longer that a customer stays within a store,
the more likely they will find something they like. Most often, these customers
end up purchasing the item(s). For example, during the holidays many candle
stores will light their entire store and storefront with many holiday-related
scents, such as cinnamon, vanilla, gingerbread, etc. Many people who are buying
gifts for relatives and friends are easily attracted to the scents and are lured
inside. Often times, they may be convinced to purchase candles and other
scented items from the store because they are highly influenced by the delightful
aroma of Christmas time.
Subliminal

advertisements

are

not

limited

to

just

visual

and

auditory

manipulations. Car sales representatives and even pharmaceutical companies


may use a dissociation technique, which is a form of mental manipulation. They
have carefully set questions to convince the consumer to buy something, even if
they do not need or cannot afford it.
Podcasting
One innovative way to market a new business is through the use of podcasts.
Podcasting is a technological term in which digital media (audio and video) can
be transmitted from online to ones own personal computer or portable media
device. Podcasts serve as a fast and convenient way in which many new
businesses can use the online community to reach their targeted audiences. The
advantage of utilizing podcasts is that prospective customers who are interested
in a business proposal can simply click and download the desired podcast. This
digital information can be shared instantly with anyone at any time. In addition,
podcasts can be distributed through many different channels on the internet,

48

greatly increasing consumer awareness and sales. It is no wonder that podcast


marketing serves as an effective way to generate online traffic and to increase
the amount of transactions and consumer base.
For example, many automobile companies use podcasts as a branding,
marketing, and sales tool. Their podcasts may provide information regarding the
launch of a new automobile model or other different topics such as tips on
roadside traveling and vacation destinations. In addition, many popular resorts
also use podcasts regularly to entice consumers. The podcasts can include any
upcoming special events that may take place at the resort, behind-the-scene
interviews and tours, as well as news about new exhibits and expeditions. For
the most part, podcasts need to be highly appealing for the target audience in
order for them to view the business and consider buying its products and
services.
Blogs/forums
Another novel approach to marketing is the use of forums and blogs. Just as
podcasting attracts online audiences, blogs and forums also serve as an excellent
and simple way to bring attention to a new business. A recent study conducted
reveals that there is an increasing number of blogs than in previous years. Since
blogging is the online equivalent to a verbal discussion, an entrepreneur needs
to make sure that their blog is interesting to read, informative, and friendly to
their online audience. The advantage of blogging in entrepreneur marketing is
that it allows the business owner to conduct a dialogue with the potential
customer. On most blog and forum sites, customers can post their questions or
comments, and the new business owner will reply to all inquiries.
For example, a premier pharmaceutical company can write a blog about a new
medication that will lower cholesterol. They can mention the possible side effects
of the drug and even post the results of a recent clinical trial that demonstrated
their medication was far superior than the leading competitors. Many people who

49

suffer from hypercholesterolemia can post inquiries regarding the medication and
learn more information based on the feedback of other readers. If promising,
they may ask their physicians to write a prescription for the new medication if
they have been unsuccessful with their previous regimen. This consumer can
easily tell their friends, especially if they have had positive results. The
pharmaceutical company, in turn, can easily distribute this medication to
physician offices and medical facilities when requested.
Profiles on social networking sites
initially created for dating, peer-related activities, family reunions, and
communal announcements, social networking sites can also serve as a
professional platform in which entrepreneurs can advertise their small
businesses. It is an excellent way for business owners to find people, references,
and companies they may not otherwise have access to. And because most
membership is free of charge, many businesses take advantage of this
opportunity to build their online connections while advertising their products and
services. Many small businesses agree that social networking sites such as
MySpace and Facebook are beneficial in gaining recognition as well as customer
support. For example, a business owner can create an online profile of their local
diner on Facebook. In addition, they can post a menu and even showcase
frequent celebrity patrons. Many people who are familiar with this popular
establishment can simply dine there on a regular basis and even recruit new
members by word of mouth. Recognition of the diner can spread among the
network and is a good way to gain business.
Political candidates have also used social networking sites to gain campaign
support. For example, contenders of the upcoming 2008 U.S. Election all have
feature profiles for public view on many of the leading online social networks.
Their profiles usually feature a brief biography about themselves and up-to-date
information concerning their fundraising campaigns and political views. Many

50

people who are not familiar with political figures and their crusades can merely
educate themselves by reading the candidates profile content and decide who
they should vote for based on the profile information. The popularity of social
networking sites, to gain support, is just one of many effective online tools used
by individuals, businesses, and political figures/campaigns who want publicity.
New enterprises, especially small establishments, have to continuously fight
among competitors to get the recognition they deserve. Over the past several
years, new business owners have used innovative tactics to improve the overall
market visibility and sales of their company with little or no risk to their existing
budgets. Guerilla marketing is the latest technique among new business
owners in which an advertisement is placed in unique locations such as
automobile doors or restaurant glassware. Subliminal advertising can be seen
anywhere,

from

billboards

to

magazine

ads,

which

convey

deliberate,

unconscious, messages that easily influence consumer spending. There are also
podcasts, which allow individuals to view anything from business proposals to
featured items to infomercials at their own convenience. In addition, blogs not
only help promote a new business but also encourages online community
conversation and feedback. Lastly, social networking sites have been proven to
raise the profile of an individual, company, or group. All of these mentioned
examples offer the entrepreneur new ways to successfully reach the target
audience effectively without the risk of spending money for traditional means of
advertising.

The service sector now accounts for more than 70% of economic activity in
developed economies. Many of these services are complex to design and deliver,
involving business-to-business collaborations and networks. Besides business-tobusiness services, we also see many manufacturing firms looking to services as a
way of increasing their product range.

51

This Webinar will see Prof. Andy Neely, director of the Cambridge Service
Alliance, introduce new research from the alliance with the pending publication of
a new paper entitled Service Business Model Innovation in the 21st Century.
This upcoming white paper will present the latest findings from research
completed by the Cambridge Service Alliance, exploring the how, what, and why
of service business model innovation. Drawing on case studies from a wide range
of public and private sector organizations, the Cambridge Service Alliance
research team has been:

Identifying why and how firms are innovating their service business
models.

Exploring the barriers to successful business model innovation and the


key enablers of success.

Discovering how the service eco-system within which firms operate


influences the evolution of business models.

Following this, BAE/IBM (TBC) will provide an industrial perspective on how


service has driven them to research and develop new innovative business
models. Delegates will hear views on:

What is service business model innovation and why does it matter?

How can service business model innovation be driven?

What are the key success factors for service business model innovation?

What are the key challenges that exist when implementing new business?

52

High Level Summary of a Business Model

53

The new and Innovative business idea of (CS)2


This is a most innovative and a conceptually new business model that is
to be launched such that it provides complete and comprehensive society
solution.
Could be termed as (CS)2as our patented, copyrighted and a business
trademarked entity.
A complete and a End to end solution for one and all kind of needs and
necessities.
A portal or maybe a door to door service to each of the members in a
society may be small, big or large whereby, the housing society wouldnt
need a treasury, cashier , secretary or even a chairman.
With this as an adoption with respect to the service all the trouble, work,
services, is at Finger Tip.

54

Needs and Want List


S

Future

r
#

Item Particulars

Previo

Presen

Forecastin

Potential

us bill

t amt

Savings

Power Bills

700

600

100

Mobile bills

1000

1100

100

D2H bills

400

400

CC Bills

2000

1500

1000

Gas/Petrol/Diesel
5

Refuelling

2000

2000

2500

500

car/bike maintenance

1000

1000

Driver Service

3000

3000

Car/bike Insurance

800

800

800

Personal Insurance

2000

2000

2000

55

1
0

Health Insurance

500

500

700

200

Groceries

3000

3500

3500

500

society maintainence

1000

1000

1000

800

800

800

50

50

7000

7000

7000

1000

1000

15000

15000

15000

2000

2000

1500

1500

1500

Clothing and dressing

500

500

500

House keeping

500

500

500

1
1
1
2
1
3

Water Charges

1
4

security Service

1
5

Kids education

1
6

Kids Marriage

1
7

Savings for new Home

1
8

Savings for new property

Festival/vacation/Holiday/

touring and touting

2
0
2
1

56

2
2

Cooking Services

Laundry Services

400

400

400

42100

40600

41750

6450

2
3

Total

57

If all of the above needs are plotted into a graph would appear something like the way as
shown below.

58

Business Model of (CS)2


Typically the model of this business if depicted pictorially would be described with the help of
the schematic diagram as shown below.

59

More elaboration on this business model of (CS)2


As shown from the graph and the table depicted from the table as shown most of the times
what exactly happens is that the potential savings gets ignored and disregarded.
The forecasted expenditure is met. Potential savings target gets met hardly at any time.
That gets procrastinated, or even missed at times. This is a major loss that cannot be
replaced. With this as a new model there will be a manpower deployed door to door across
the society towards each of the members of the place informing them of the potential saving
and also forecasted expenditure.
There wouldnt be a e-mail, SMS, fax of other communication however there will surely be a
manpower guiding each and every member of the society for all their needs.
The team will comprise of good professionals with the help of which there wouldnt be need
for a society secretary, chairman or even a treasurer. All task gets clubbed within the team in
charge.
All kind of tax return filling submission grocery needs bill payments festival collections are all
something that could be made on a EMI, Quarterly, Monthly or on half Yearly basis.
There will only and only be profit coming out of the customers but nowhere else will there be
a profit centre.
Ultimately the charges have to be borne by the customer and the consumer which is why
there cant be any seller providing any goods for sale until the charges are borne by the
consumer.

60

Towards the beginning the accounting and other actions are also made easier with the
pricing model going inclined towards the end consumer. Else there are chances of failure in
the model as a whole.
There have been several failures in case of business model however it happens only towards
the beginning. A successful model rarely fails after successful execution.
The project Work doesnt show in particular the capital or the investment sources since this is
just in stage of conceptualization.

61

Benefits with the model of (CS)2

The benefits are the fact that each one of the society member could be
not worried about any of their needs and requirements.
All of the needs, and worries and requirements are covered by just a SMS
or even a missed call.
The member or the end user just has to eat, sleep and rest of services
each of it gets taken care by the expertise and the staff of CS
There is no need for a physical space even with a small office or a cabin
this could get worked.

Limitations with the model of (CS)2


There are several limitations to this however each of it wouldnt be
highlighted since if this is to be materialized it wouldnt happen if more
emphases are given on the limitation.
The limitation is the fact that the required manpower cannot be made
available.
There is no clarity or clear vision on the source of capital inflow or
investment.
If there is an external body ready to be invested not sure of the source
where this could be utilized.

62

Not even sure of customers or society would agree to this as a service even if agreed how
hard or how easy would it be with the available resources is not clear since there is no effort
estimation that is carried out on this.

With this as our detailed study we would conclude with the thesis we have made for the
Innovative business model of (CS)2

Hoping and praying success for this to be materialized for the sake of the
benefit of the society as a whole.

63