Blogroll / Business models

It’s better to kill your current business model by yourself, than waiting to be netfliexed

When will you know if you are being netfliexed? You don’t know. But you are. The larger you are, the more successful you are, the more chances exist you are being netfliexed. What can you do? If the leadership of your organization is aware of that somehow invisible threat, that’s a very good first step to avoid being netflixed. In that case you may even use netlixing to your own advantage.

Let’s start with a definition. Saul Kaplan, author of the book Business Model Innovation Factory has proposed netflixed as a verb and its definition:

+ netflix, netfliexed
verb

  1. to cause disruption or turmoil to an existing business model
  2. to destroy a previously successful business model
  3. to displace the way value is currently created, delivered and captured
  4. to be disrupted, destroyed, or displaced by a new business model

Where does the story begin actually? Netflix is an American provider of on-demand Internet streaming media available to viewers in North and South America, and the Caribbean. It’s supposed to come to Europe – to France, Germany, Austria, Switzerland, Belgium and Luxembourg in late 2014. So what is so special about that service that it would even deserve its own verb?

The story in short starts with Blockbuster, actually. Blockbuster’s value proposition was to enable customers to watch hit movies in the comfort of their homes. They had a smart business model, with a centre point of no upfront fee to buy the videos, but instead they had a revenue-sharing model with the movie studios. They started in 1985, quickly grew to 5.000 stores, and 6.000 employees. Kaplan reports that they had a market capitalization of $5 billion in 2002. Yes, $5 billion. In 2010 they filed for bankruptcy. They were being netflixed. How?

Netflix introduced a real business model innovation in 1999 when they started offering a subscription model where customers paid a flat fee for unlimited movie rentals without due dates, late fees, or shipping and handling fees. See all the movies you can, for the flat monthly fee. It already sounds really simple. The new mail order movie rental business model was progressive for that times and it was a huge success. In the first year after the introduction it went from $1 million to $5 million in sales. They reached $1 billion in sales within eight years. There is some evidence that Blockbuster thought of Netflix as a sort of a niche business in that beginings. Ignoring the disruptive threat. Blockbuster stayed in the brick and mortar business model, also because of some stubborn investors demanding it and changing the leadership of the company. It was a complete disaster for once worshipped and successful brand.

To avoid being netflixed leaders and all sorts of organizations must learn how to do research and development for new business models. Experience shows that business model innovation must be led from the top. Evidence in the literature is proving that business model innovation is strategic and is not possible to happen bottom up. It will also not happen through well-intended efforts by mid-level managers with a passion for innovation. It will not happen by creating a culture of innovation throughout the organization that is focused on strengthening the current business model.

They say, it’s easy to be a general after the battle. But still. What is the lesson learned from the Blockbuster case? Kaplan says, that if Blockbuster would have done “the design, prototyping, and testing of a mail-order movie business before Netflix arrived on the scene they would have been in a better position to run a separate mail-order business unit, spin off a new business, retaining a stake, replace a brick and mortar model, or at the least they would have had a much better understanding of the corporate threat.”

FIGURE: THE KNOWLEDGE FUNNEL IN THE DESIGN OF YOUR BUSINESS [MODEL]

Source: Roger Martin - in the book The Design of Business

Source: Roger Martin – in the book The Design of Business

Learn the new language of business design, for example by attending one of our workshops. Learn how to prototype new business models by using business model canvas. Remember. The power lies in designing your business and your business models. And design truly is a contact sport (video, 6:48 minutes). Design new pilot projects to learn by experience, establish the cycle —Prototype—Fail—Learn—, and as Saul Kaplan says, take your leadership responsibility and change your business models, while pedalling the bicycle of the current business model or you are going to be netflixed. Good luck.

Marko Savić
I’m raising awareness of the connection of business model innovation with design thinking. Have just published a book on business models design. You may wish to meet me in person at my next event or interact with me on Twitter.

Sources:
Saul Kaplan: The Business Model Innovation Factory: How to Stay Relevant When The World is Changing. 2012. Wiley.
Roger L. Martin: The Design of Business: Why Design Thinking is the Next Competitive Advantage. 2009. Harvard Business Review Press

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