Kill Your Business Model Before It Kills You

October 4, 2012 Editor 0

About a year ago the U.S. Postal Service ran an ad campaign warning about the dangers of email and proposed paper-mail as a safer and more reliable alternative. When I saw this ad, I thought that I had accidentally switched to a comedy station. But it wasn’t a joke. This was a serious (and misguided) attempt by the U.S. Postal Service to stay in business.

Fast forward to last week, when Postmaster General Patrick Donahoe revealed the mail agency will default on its second payment of $5 billion to the US Treasury. Still the agency drags on with its year-old push to end Saturday delivery, the most powerful innovation they can muster — which to be implemented would still take 2 years.

This vignette raises a key leadership question: Why do leaders wait too long to modify or abandon their business models? The Postal Service, even with the constraints of its government mandate, has known for years that its traditional model was coming apart; Kodak realized that film was being replaced by digital media long before it changed its investment strategy; AOL knew that dial-up subscriptions were fading years before it took action. Even a company as sophisticated as GE waited too long to reorient its lighting business away from incandescent bulbs.

On the other hand, some firms seem to tackle business model changes head on even before anyone else realizes there’s an issue. When IBM sold its PC division to Lenovo in 2005, many people questioned the wisdom of divesting a successful business, especially one that IBM had worked so hard to create. Yet in retrospect it was far better to exit early rather than struggle (as Dell and HP have) with pricing pressures, commoditization, and supply chain issues. Similarly, Intuit realized over a decade ago that it could not continue to grow as simply a financial software firm and began to consciously create, acquire, and incubate new businesses. These businesses now make up more than half the company.

Of course, none of these shifts are easy. IBM’s stock (and reputation) did not take off immediately, and many people questioned the wisdom of becoming a services and knowledge business. Intuit had many failures as part of their innovation process. Yet leaders of both companies persevered despite these headwinds, setbacks, and challenges.

From these cases, and others over the years, it seems to me that there are two keys for getting ahead of the business model curve, both of which apply to managers at all levels:

First is to remember that no business model lasts forever. The most dangerous trap that any manager can fall into is complacency. Peter Drucker reportedly once said that the biggest curse for any business was twenty years of success. Markets, environments, and technology can change so quickly that no amount of profit today guarantees success tomorrow. Years ago, during the dot-com boom, Jack Welch required each of his businesses to go through an exercise that he called “Destroy Your Business.com” in which he asked them how dot.com competitors could possibly put them out of business. In other words, long-term success is more likely when we welcome the anxiety of competition instead of avoiding it.

The second key is to continually and actively be on the lookout for new business opportunities that can potentially replace the current model. If you only invest in refining today’s business model you’ll get locked into it. Testing, incubating, and investing in alternative models hedges against that possibility. Sure there will be failures, but with enough persistence and creativity, some viable alternatives will emerge.

Nobody wants to be in the position of the U.S. Postal Service, trying to defend a business model that has little runway left. So instead of assuming that it can’t happen to your business, take the lead in looking for alternatives — long before the competition leaves you in the dust.

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Categories: Business Model, HBR, Insights

Tags: Business model, Postal Service