Season 4, Episode 7: DO YOU NEED TO CHANGE YOUR BUSINESS MODEL?

We take a look at companies with successful business models and companies who successfully pivoted their business models. We share questions you can ask yourself as a leader if you think you need to make a pivot too? 

COMPANIES WITH SUCCESSFUL BUSINESS MODELS 

When they were founded, they didn’t have rivals. 

• Apple: Valuation in Trillions is 2.2 Founded in 1975. Function and design can co exist.
• Amazon: Valuation in Trillions is 1.7 Founded in 1994. Reliable delivery of any item you want.
• Facebook: Valuation in Trillions is .9 Founded in 2004. Worldwide connectivity.

WHAT DID THEY HAVE IN COMMON?

• They had recurring revenue streams (subscriptions) or recurring traffic
• They didn’t make a one time sale of a physical product. They build a long-term client relationship.
• They tailored solutions to create value for the customer and more profit for themselves.

Kathie's STORY: While working at WSJ, and then consulting with multiple companies, we concentrated on LTV (Life Time Value) for our customers. Segmenting out those customers who would bring added value, allow for increased products and services, allowed companies to positively contribute to the bottom line and grow their businesses competitively.

NETFLIX SUCCESSFULLY PIVOTED ITS BUSINESS MODEL

Mailing DVD’s to pivoting to an online streaming service

• What did it do for the customer?
  • Made it more convenient
  • Enabled impulse purchases
  • Enabled access to recent best sellers
  • Gave customers access to a large back catalog
  • VOD serves customers better than brick and mortar stores.  

Why Streaming Video Beat Rival Models:

• Monthly subscription fees = recurring revenue
• Lower cost to operate
• Cost to Customer (2007):
  • §  Streaming: $0.25
  • §  DVD by mail: $1.25
  • §  Video Stores: $2.24

QUESTIONS YOU CAN ASK YOURSELF ABOUT YOUR BUSINESS MODEL  

• Is what got you here, going to get you there?
• Are you agile?
• Does your team have the authority to experiment with new configurations?
• Are you investing in capabilities for the future?
• Don’t design a completely new competitive position. Can you support entrepreneurial activity in house?
• Rather than fix the current operation, can you undergo a one time change-management process to execute a different strategy.
• How do the elements impact each other? How are you testing the hypothesis, experimenting, learning, and taking action? The faster a firm cycles through the process, the more effective it will be in the marketplace.

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Transcript

Joya: 0:00

Kathie, it is Season Four, Episode Seven. We're already at Episode Seven of Drink Like a Lady and we have designed this podcast for any female leader who is looking to get a seat at the bar and a seat in the boardroom. And this entire season, we are focusing on how to think strategically, and very specifically for this episode, do you need to change your business model and how do we arrive at this, uh, an Episode Seven?

Kathie: 0:27

Well, you know, we've been really going through the cascading steps of what to do in strategy. And one of the components that is so critical is when you're in the middle of a business and all of a sudden the business model has to change. And we're going to talk about some of those examples today, and what's so important about doing that.

Joya: 0:44

So we're going to take a look at companies that have successful business models. Take a look at a company that's successfully pivoted their business model. And then if you are as a leader at that precipice where you need to make some kind of a pivot, what questions do you need to ask and how do you initiate this particular process? So let's start with the companies that have successful business models and what is the through line? What are the, of the three companies that we've identified?

Kathie: 1:12

But when we took a look back at where we are, we looked at Apple, which has a valuation is$2.2 trillion, Amazon, which is that has a valuation of$1.7 trillion and Facebook at, um,$0.9 trillion at this point. And we looked at them and we said, how did their business models actually change the landscape of their competition? And how did they move forward?

Joya: 1:37

But the through-line really is. At each juncture, each company met a need that was unmet, a need that was unexpressed, or the customer didn't even actually know that they needed an Apple phone before it became mainstream.

Kathie: 1:53

So they created a actually the demand through these needs that they thought were forward thinking and way before someone wouldn't even think about it. Think, you know, in fact, we were just talking about, you know, the phones, Apple phones, and, you know, taking pictures and now it becomes a multifunctional utilization component. People have bought less cameras unless they're high-end cameras. That's a whole different story, but Apple has really taken over functionality of our everyday life.

Joya: 2:21

I think about Apple as also a place where function and design can coexist with Amazon. I think about reliability. If I want to order anything, I know it'll get to me. And with Facebook, it's just mass adoption of something.

Kathie: 2:37

And with Amazon, the other key piece is, is about accessibility. Where do you go first now, before you buy anything else? And, and I, and I always go to Amazon first to see how quickly I can get it, because that's important because then I can check that off my list, but pretty much everything that we want is, is right there at our fingertips.

Joya: 2:57

And reliability again comes up. The other thing is they're creating a recurring revenue stream, a subscription model, if you will. Um, Apple TV has subscriptions to all kinds of things, many of which live on my phone. I now have subscriptions on Amazon. If I want to get, I don't know, protein shakes constantly delivered to my house every six weeks. And then they didn't decide that they were going to sell me a protein shake once. They're actually giving me the option to build a long-term relationship as did Netflix so that you can keep going back and visiting their treasure trove of content. And then they've also tailored solutions to create value for the customer and more profit for themselves. And I think about how much Netflix or an Amazon is now investing in their production services.

Kathie: 3:41

That really goes back to what we call lifetime value. So by creating these accessibilities these reliabilities, these connectivities, what they're doing is they're actually hooking us in right from the get-go. I love the fact that I, I have a lot of my, um, my vitamins on this subscription as well. They tell me when they're going to send it, I get to take a look at my inventory and it's a one-click yes or no, it works beautifully.

Joya: 4:08

So when they were founded, they didn't have any rivals. We've covered off on what they had in common, which is that they created a situation where you'd have to keep coming back. And now let's talk about, well, actually, before we do that, you have a story. Don't you from one of your days at Wall Street Journal?

Kathie: 4:23

We were actually looking at the wine business and you know, how do we create value? We knew we needed to do that, but we wanted to make sure it wasn't just acquisition one-time customers. How do we create long-term value? And we would actually measure that, um, monthly. In terms of what that customer base looked like and what that would bring us over the next five years based on our assortment and services. Once I got out of Wall Street Journal and I consulted more on a full-time basis, I would go into companies and I did the same thing. How do we take a look at what we can do with customers and create a longer term value, giving us much more profitability to the bottom line?

Joya: 5:00

Absolutely. You created what you said, I think was a lifestyle brand

Kathie: 5:03

Yes. A lifestyle brands and, and actually in businesses, we actually became the resource for, um, what they needed, whatever that product, um, might be.

Joya: 5:13

All right. So the company that successfully pivoted their business model is of course, Netflix just went from mailing us DVDs to creating an online streaming service. But what did it do for the customer?

Kathie: 5:25

Well, it made it much more convenient.. I mean, they really, you know, they started out saying that, you know, it's convenient, a touch of a button. Here you go. Um, impulse purchases, you know, you sit there at night and you're, what am I going to watch? And now you've got everything screened. Um, it also access to the best sellers much more quickly. We know that, you know, where there used to be months in between. You know, three to six months, we now look at things in six weeks intervals. Um, they gave it a larger catalog, you know, what are we all looking for? Sometimes I actually find myself a little frustrated, you know, there's so much too much to choose from, you know, you're sort of, you know, swirling through it and, um, it serves the customer better than some of our brick and mortar stores. We don't have to go out to get it. It's very convenient.

Joya: 6:13

I just, we watched a, when Harry Met Sally... and Something Borrowed, as I said, my boyfriend's been gone for three weeks. I got to go back and revisit all the girl--the"chick flicks" I used to like to watch when I was single.

Kathie: 6:25

Absolutely.

Joya: 6:27

So when you look at the monthly subscription fees that Netflix now gleans from us, it's a recurring revenue model. It's lower. Cost in order to operate versus having to mail me or mail you a DVD. And what was the cost to the consumer in 2007?

Kathie: 6:42

So when we looked at the business models and this is where you thinking strategically, you say, okay, what is streaming going to cost per customer? And it's actually$0.25 per customer, right? You took a look at the DVD by mail. That was a$1.25. And then you go into the video stores at$2.24. It becomes a no brainer in terms of where you're going to go. And how do you recreate that? What we call the portfolio of what you may be doing streaming, DVD, video stores. And of course it's an upside down triangle in terms of where the volume comes from.

Joya: 7:13

Yeah, of course we can't dismiss the fact that they are spending a ton of money right now in original content, but that's going to eventually yield its ROI and in a bit of a time. All right. So now questions, you can ask yourself about your business model, if you are thinking about a pivot. So where do we start?

Kathie: 7:33

Well, you're always want to look at operational efficiency. It's great if you have a business model, but if you're not continuously looking at the operational component of it, really, you're just going to be lagging in terms of where you're going to go in building it. Um, you want to make sure that you have things under control, you know, what can I control? What can't I control? What do I need to start controlling? And that is very important. Um, and just to continue. So looking at the business model and fine-tuning it.

Joya: 8:01

I think what's hardest for anybody who's got a legacy company or in my case, even that I've had something for 10 years. What got you here is not necessarily going to get you there. What got you from point a to point B isn't necessarily the toolkit that's going to get you from seeing.

Kathie: 8:17

And it's so important that you realize the value that you're creating over time and implementation. What does that look like? Um, you have to be agile. Um, I think we're looking at that next group of, of conversational points. We know also you have to make sure that the teams that are working your functional teams, you're giving them the authority to be creative and create new outputs and new solutions as well.

Joya: 8:41

I just read Dorie Clark's book last week about the long game. And she talks about how everyone should have built in like 20% time to be able to dedicate to innovation or dedicate to that next risk that you're going to put money in that could yield dividends. So it kind of reminds me of that. And then you also, as a leader, have to allow, give some, give some slack to your teams, right?

Kathie: 9:04

You need to get the, you know, slack alert, this wonderful word about slack. When you, when it's like having a rubber band and it's too tight, what happens? You really can't get anything new going on. So if you, if there's not enough slack in your system, in your efficiencies, in your thinking, what happens is then you're not able to grow. So you need to be always relooking at what the slack looks like and actually putting in it, it into your system and your business.

Joya: 9:31

So you gotta be innovating constantly yet teams the ability to innovate and think creatively. And then what, what happens when, you know, again, going back to, what's gotten you here, isn't going to get you there. How do you make that big one-time change?

Kathie: 9:47

What's really important is to make sure that all of the pieces pulled together. You, you know, you, you don't need to always redesign a completely new, competitive position, but what you need to be looking at all the system components of that. So you might want to execute, start execute a little bit on that, you know, that relooping of that strategy as well. Um, look at it the interdependency, we call it the interdependencies of the system of all of the elements. How are, how are they working together? Is there something that, you know, something has risen to the top, you know, do something else now need to start, um, having more focus as well?

Joya: 10:24

Yes, but by way of example, I've built a sales funnel for my public speaking masterclass and it's not working as, as well as I would like. Meanwhile, there's hundreds of dollars going out the door. And so, you know, we're constantly iterating. We're constantly looking at it. And finally, my coach said, you know, I think the nurture sequence is long enough. You want people to spend X amount of dollars, but they don't feel like they know enough about you yet in order to be able to make that conversion. So maybe it's not that we need to throw the baby out with the bath water, but we do need to maybe create a longer sequence for people to get to know you.

Kathie: 10:58

And I love that. I love that story. I just listened to a podcast this morning by Maria Forlea, and she was interviewing a, um, an actual football player who started doing the, uh, the 92nd podcast. And he would do it every night. And what he realized was after a year and a half, he only had about five followers. Then all of a sudden he said going in to like the third year, it all of a sudden built itself incrementally. So once again that, you know, he said he didn't even notice it. Um, in terms of not having all the followers, he just, it did it in order to have a discipline. So there you go. Let's hope, uh, you know, that actually takes hold for you as well.

Joya: 11:42

I hope so. Alright. Now we got to look at your competition and why is this a worthy exercise?

Kathie: 11:47

When you look at your competition, you take a look what's going on. What's their hot trends. What are they looking for? Make sure that you can, um, actually be able to see it and understand it. Um, but I'm not saying don't ever copy someone else. You cannot be someone else. You need to be who you are, but understand that there are trends going on as well. Um, what is the value you're creating? What's the potential, what's your business model able to create? Not just that you have haven't oh, I have this great business model, but is it creating increase incremental? Valuation for your company or your organization, um, value capture. What is the industry attractiveness? Um, I mean, is it a dying industry? If it's a dying industry, you know, the business model really should be to get out, um, as well, such as DVDs as, as well, and then your positioning and what's the competitor interaction are there co-branding opportunities that you can create for this implementation and the fifth one is outcome. What's your performance.

Joya: 12:46

And can you give me an example of how you kind of look at the competitive landscape and then decide on the last two implementation or outcomeperformance?

Kathie: 12:57

So let me think about this. I, I, you know, I, my really my foundation is in, has been in retail and wholesale. And what's interesting is I am finding that now in, uh, that manufacturers and brands are actually doing virtual showrooms in, you know, for their stores. And what this is doing is actually creating that safe. Um, interdependency that we're seeing was with streaming that we're seeing with on TV, et cetera, et cetera. And in fact, you know, I buy a lot of Ralph Lauren and, um, they just sent me something for the outlet store because I also become my, um, you know, a bargain hunter when it comes to the brands that I love. So that is okay. They're implementing someone. They're what, they're the part of the first few. And what does that mean for future brands? And then how does that help the performance of the company?

Joya: 13:46

Got it. So, one last question that if you are a legacy company or you're a mature company, what does that question that you could be asking yourself, if in fact you need to re-look at your business model and pivot?

Kathie: 14:00

You know, did your annual strategy process really generate a true breakthrough idea or was it just, you know, the same old, same old conversations? You know, take a look at ride sharing. You know, we went back to ride sharing, um, and mobile banking and streaming, like we discussed, that was a breakthrough idea that took off and really regenerated the industries. That is something that's a hard question, but you have to ask it, you know, are, and are you giving here's what I always say. Are you giving your talent, the ability to have those breakthrough ideas, instead of saying, say here's where we want to go, but don't always tell people how to get there.

Joya: 14:39

I think about that Harvard Business Review article that I love to quote about marketing myopia, how Hollywood only saw themselves as the movie industry instead of the entertainment industry. And look what happened during the pandemic and the railroad industry only saw them as the railroad industry, as opposed to the transportation industry, and then guess what trucks and cars and all the other stuff happened.

Kathie: 15:00

That all fell under that umbrella. You're absolutely right.

Joya: 15:02

So to recap, if you're going to assess whether or not a pivot is something, your business model needs, you got to have clear direction. You have to allow time for experimentation and innovation. In-house, you're going to have to dedicate some time to what that change in strategy is going to look like. It can't be an overnight process. I think I remember you saying it's can be three or four months to put a real strategy in place. Ear to the ground. What's working for the competition. What could work for you, be willing to be agile. And then also to be able to complete the strategy landscape, you want to look to what young CEOs are doing right, Kathie?

Kathie: 15:35

Well, I think that they're just much more creative. We get, we get, uh, I'm going to say we get stuck. It has to be this way. And I, and I have found this. What is so, uh, Amazing to me is the young minds that bring it. They may not know how to get there, but they know it's there. And I think we need to be tapping into that. All of them.

Joya: 15:54

What are we doing in the next episode here, Kathie?

Kathie: 15:57

We are going to consistently and continue to look at other companies in terms of what they're doing on their strategies, how we can actually show you that those examples are working. Um, and we want you to understand how you can create your own strategy by looking at those companies and those industries.

Joya: 16:13

And how oh, is it going to be a little bit different than what we just covered off in today's episode?

Kathie: 16:16

We're actually going to take three different companies. And we're going to talk about what their top line strategy is and how they look at the tactical components.

Joya: 16:25

I can't wait for that, Kathie. If anyone wants to work with you, how do they get in touch with you?

Kathie: 16:29

You can email me at stuartkathie@gmail.com And my S my cell number direct number is(609) 933-7600.

Joya: 16:38

And I am still filling for my public speaking masterclass for any man or woman who is looking to build a personal brand and needs to be able to figure out how to tell stories about their leadership. The next cohort starts on November 4th. And if you would like to work with me, you can always email me at joya@joyadass.com. All right, Kathie till next week.

Kathie: 16:58

Be well, take care.

Joya: 16:59

Bye.