Call me crazy for asking, but is business model innovation really anything new? Hasn’t it always been that those willing to explore creative ways to create and collect value amassed more wealth than those who stuck to the obvious?
In the Middle Ages, for example, farmers made their living repeating simple transactions (e.g., trading vegetables for milk). But it was the king – who discovered a more creative business model, offering intangibles like safety and infrastructure in exchange for taxes and land rental payments – who really made out.
Business model innovation is a new term but not a new concept. It has always been true that those who play the game (who accept the existing business model) earn less on average than those who shape the game (who innovate their business model).
So, how do we do it?
To get some insight into this I spoke to Gregg Michaelson, CEO of Linkwell Health (www.linkwellhealth.com). I won’t play out his full career story here, but suffice it to say, he has a long, fascinating series of chapters that began with an entry-level role at Macy’s, passed through an MBA, stepped up to stints growing brands such as Men’s Health, Women’s Heath, Prevention, and Runner’s World and has landed, for now, with Linkwell, an innovative media and direct marketing company committed to “make Americans healthier,” which “has always been my mission,” Gregg shared with me.
This mission enabled Gregg to see potential in an unprofitable direct marketing company he was asked to lead. The company followed a simple business model. When you moved and you told the postal service you were doing so, this company would get your new address and send you coupons. The problem was, though they had 90 million people in their database, the direct marketing model did not allow them to turn a profit.
So Gregg thought, “If you can create a great magazine, people will come, they will buy it.” And based on the content he knew was out there from his experiences at Men’s Health and other titles, he thought, “Why don’t I just take the consumer publishing model and marry it with this coupon business?”
By adding the kind of content that “nudges” people to take action – think “5 Ways to Get Rock Hard Abs Before the Summer” titles – they could deliver content that consumers would actually want to read. With this insight, Gregg began to create new value. People started actually using the coupons. And as redemption rates grew, everyone benefited: healthier shoppers, happier investors who were finally earning a return, retailers who were selling more healthy food, and a healthier America.
The second step in designing an innovative business model is even more interesting. This is when you ask, “Who will pay for this?”
Greg and his team saw that health plan providers like Aetna, Humana, and WellPoint – who are all now clients, by the way (WellPoint is also an investor) – would also benefit by being involved. If they were seen as sending their members engaging content and meaningful discounts that nudged them into living healthier lives, that would improve their brand image. Linkwell can now prove that a health plan’s brand favorability rating improves when they use the Linkwell service.
Today, as a result of these two inquiries – how do we create more value and from whom do we collect it – Linkwell has designed a radically different business model that is profitable and growing. A sort of health/self-help magazine meets digital coupon service, available online or on your mobile device, that comes from your health plan in order to help you live a healthier life.
There are countless examples like this of simple business models that were transformed into more robust and complex ones. They elevate above the simple transaction and start shaping an ecosystem that creates more value and wealth. We can break it down into three steps:
- Create more value: Look at the stakeholders around your business and think about who and what you could add that would dramatically increase the value of your work. Linkwell added a compelling mission (make Americans healthier) and compelling content (inspiring, actionable stories like you might find in Men’s Health). Think about that rock soup fable in which a man walks into a town with a rock and a pot, then convinces people to contribute the right ingredients – someone throws in carrots, another chicken bones – until the mix is delicious.
- Collect more value: Think through each of the stakeholders and assess how much value are they getting versus giving and what is their ability to pay. Then look for those who net a lot of value and have an ability to pay more. Set up a way for them to pay. Farmers paid taxes, for example, and health plan providers pay fees from their marketing budgets.
- Refine: Iterate between create and collect, adding people who you realize will benefit by your success, removing those that your business does not need, until you optimize the equation.
The result – who pays and what they pay for – is your “business model innovation.”
I’ve created a simple workbook to help you apply this exercise to your business, social mission or project. Click Linkwell bmodel innovaiton workbook (KS) for your copy.