Agility - Oct 20, 2017

From linear to exponential growth

Nine principles to transform your business model

The digital transformation of society is forcing business leaders of every size in every industry to re-examine what they know about growing successful companies.

For many executives, technological trends such as artificial intelligence (A.I.), automation and digitization are posing fundamental questions about the future of their established business models. New businesses — Uber, Netflix, Airbnb among dozens of others — have emerged that have not only disrupted entire industries, but demonstrated tremendous rates of growth.

The question on many leaders’ minds: Could their business be next?

“Welcome to uncertainty,” Peter van der Pijl, CEO of Business Models Inc., told a packed room at SingularityU Canada Summit, a three-day event held in Toronto in October. “Growth is very different from what we knew in the past.”

According to van der Pijl, the secret to identifying disruptive threats or opportunities in their business is to understand with new clarity the building blocks for how they create, capture and scale value for customers—in short, their business model—and how disruptive companies do it differently.

From pipes to platforms

Van der Pijl, who is based in Amsterdam, has studied patterns of business model innovation for more than a decade and advises companies on how to design better businesses in order to find new opportunities and become more resilient against competitors.

“The world used to be more predictable, and more linear,” said van der Pijl. He drew an analogy of businesses operating as pipes, connecting consumers in a tightly controlled way to a unique, single source of one product or IP. Growth occurred in relatively linear fashion, inputting more resources and/or delivering them more efficiently in order to increase profits or decrease costs by 10 percent. “Today, the world is very different,” he said, “but we still live with our old assumptions.”

"New non-linear business models are designed to generate 10X growth, not 10%. Often these exponential growth opportunities are based on platforms and approach the markets they serve in a completely new way."

“When companies start to work with non-linear business models, you have a mind shift,” said van der Pijl. Platforms create value not through controlling scarcity but through abundant interaction and connectivity. At BMW, he said, one executive thinks about it this way: If autonomous cars were available for hire at any time—if people did not need to buy cars or even drive them—what would its business model look like?

Patterns of innovation

Companies like Netflix, Uber and Spotify offer ideal case studies in exponential, non-linear business models. “I wanted to study these models,” said Van der Pijl, “and look into different patterns because I would like to understand how I, as an entrepreneur or working in a corporate company, could apply some of these techniques to see how I can change for myself.”

Van der Pijl used the Business Model Canvas, an ingeniously simple tool for revealing profound insights about businesses.

Source: Peter van der Pijl, Singularity Hub

Van der Pijl applied the Business Model Canvas to analyze the Top 100 Exponential Organizations, as identified by Canadian serial entrepreneur and technology strategist Salim Ismail, and noted multiple characteristics that the companies often had in common.

Nine principles for exponential transformation

In partnership with Lisa Kay Solomon, Faculty Chair for Transformational Practices at Singularity University, van der Pijl turned these features into nine design principles companies can use to rethink their own business models, each of which aligns to a segment of the business model canvas.

Source: Peter van der Pijl, Singularity Hub

Some characteristics are not surprising, like automated and scalable processes. Many exponential organizations had an algorithm at the core of how they drive their business. Some relied on a community of fans to self-propel growth.

Another key characteristic appeared to be working with partners. In a traditional model, companies try to control their supply chain and not involve anyone else. But increasingly, companies find partners that can add something else to their business model. “Who can help you be successful, while you help them be successful?” said van der Pijl.

Finding a digital value proposition

But perhaps the most important piece is the value proposition. Van der Pijl and Kay Solomon identified that business models with digital information-based services and platforms have been crucial for exponential growth.

“If you have a company and you don’t have a digital value proposition, you need to start to think about what it would look like.”

However, even the term “platform” has become an overused buzzword that is not fully understood. According to Kay Solomon, a platform is a mechanism that opens up exchanges of value. Airbnb’s platform re-imagined short-term accommodations, for instance, while Uber is another common example. Two or more customer segments—for Uber, drivers and passengers—depend on each other. One cannot grow without the other. “The value comes in the exchange between people, as opposed to the asset itself,” said Kay Solomon.

A business model for the future

For van der Pijl and Kay Solomon, innovation stems from looking at business models in new ways, and flipping assumptions on their head. “If you don’t know how you create, capture and scale value, and how it might be affected by all the trends around digitization, you need to double down on this area immediately,” said Kay Solomon.

“Innovation is about setting up experiments, taking small steps and learning big time,” said van der Pijl. “You have to embrace uncertainty.”

Rogers is a founding partner of SingularityU Canada Summit.