A decade ago, in the era of Internet 2.0, We started to define digital strategy and later digital transformation for professionals, leaders and the companies they lead to champion a cultural transformation. Now as we enter the era of Industry 4.0 with digital technologies beyond the Internet such as Artificial Intelligence, Big Data Analytics, Robotics, IoT, Cloud, Blockchain, Cybersecurity … we believe that it is time for digital acceleration and disruption and that designing exponential business models is a discipline that all managers, leaders and entrepreneurs can learn.
What is an exponential business?
Business models define how value is created and delivered. It is an organized way of establishing assumptions about critical resources, partners and activities of a company’s value chain. Elements of these models include your value proposition, customer relationships, channels, customer segments, necessary talent, cost structures and revenue streams. But most business models are linear, usually designed to increase revenue or decrease costs by nominal percentage points.
An exponential business model contemplates the same critical areas as a traditional business model but has radically different objectives. With an exponential business model, you will think in terms of changes that should impact ten times the current value; The common abbreviation for this objective is “10X”.
The Business Model Canvas
The Business Model Canvas that you will use, as managers, describes the core elements of a business model in nine essential components, is an excellent tool to design exponential business models from a nominal percentage to 10X.
Transforming your business model from a nominal percentage to 10X is not merely about scaling; it is a unique perspective for looking at your business and markets, so it requires exponential imagination.
The best ideas come from outside people (the fringe) who offer new perspectives on how things are supposed to “work.” To build an exponential business model, you should try to study other successful and profitable business models.
To multiply your business model by 10
To multiply your business model by 10, you must create value for people (customers and employees) by leveraging digital technology in one or more key components, such as the value proposition, channels or critical resources.
Amazon, Facebook, Airbnb, Netflix, Uber are just some of the companies that have done it successfully.
Netflix, for example, in their first phase, digitized the request of the cinema product delivering DVDs at home. The value proposition here is comfort, convenience and an extensive catalogue. Netflix then digitized the consumer channels through television, increasing its value proposition to video on demand and today, you can finally launch movies directly on your digital platform globally together with hyper-personalization through the Data and algorithms of Artificial Intelligence.
Uber, which built a software platform to connect those who need personal transportation with those who have it. By combining existing technology with an alternative value proposition, they released a hugely underutilized resource and created a 10X value without having to own a single car.
Solve a problem for the masses.
Technology is allowing organizations to reach entirely new markets massively and virally. Exponential business models can help bridge the gap between the growing population and the resources they need. Many companies start with the main offer for customers to meet a single need, such as Uber and personal transportation, then expand their services to meet other requirements, such as UberEATS.
Information services and platforms
When an organization digitizes its products and services, they not only create new versions of their traditional offers but create new markets. The Airbnb platform re-imagines short-term accommodations; Slack digitizes collaboration and knowledge sharing; The 23andMe consumer genetics firm offers DNA sequencing to anyone for a reasonable price. All companies, regardless of industry, should explore how and what to digitize in their existing value proposition not only to better serve existing customers but also to open new value exchanges.
Build a community of fans
Working to obtain a 10X solution mainly involves knowing your customers in detail to integrate them, as well as employees, into a fan base and to collaborate with them. The customization of essential functions such as filters on Instagram or magnifying lenses on Snapchat allows users of their app to create unique and shareable creations through multiple contact points, acting as prescribers in a viral marketing network.
Digital and social
Many exponential companies are using social collaboration to improve the value of their main offer or service. The network amplifies the user-generated content, and the more people contribute to the platform, the more valuable the service becomes. Companies that accelerate their growth use this strategy as an engine for customer acquisition, commitment and lifetime value. The Wazetraffic application combined GPS data with user traffic input in real-time, using gamification methods to make the process fun and attractive.
Automate and scale the process
Technology platforms analyze and automate routine activities to bring disruption to traditional manufacturing or delivery methods. Amazon has long used robots to store and retrieve products from its stores and is getting closer to delivering its products through drones. He also realized that one of his most important strategic activities, the cloud and data storage, could become a valuable resource for others. Amazon Web Services (AWS), rented access to computer infrastructure, was launched in 2006. Ten years later, it contributed 56% of Amazon’s growth and is expected to be a 100 billion-dollar company in less than five years.
Lean approach and an Agile organization.
Why is GE increasingly exponential? They use an agile approach to all the essential functions of their business, emphasizing rapid cycles of experimentation and learning. By instituting read processes in all its tasks in an agile organization, it allows people to take risks and obtain data about their business from which they can study and learn.
Algorithm for the core business
The success of Google is based on an algorithm that ranks websites, which is then complemented by machine learning machine intelligence. StichFix is e-commerce for clothing, shoes and accessories that works as a personal shopper service. It is one of the fastest-growing companies in the US; its founder Katrine Lake inspired by Netflix’s automatic recommendation systems, added the human touch of personal stylists, a good example of hybrid intelligence. As a result, Stichfix has more than 65 data scientists and uses algorithms to direct almost all parts of your business.
Digital, agile and network culture
Employees must work in a network to socialize and share ideas and experiences in real-time. Empowering and enabling employees to do what they need in an open, connected, flexible, innovative and agile culture decentralizes and accelerates decision making, which opens up the possibility of a 10X business model. Zappos has been one of the first pioneers of building a liquid culture, eliminating professional management positions and empowering workers without additional bureaucracy. Companies like Microsoft are betting on social software to support spontaneous collaboration efforts, creating networks and social functionality in all of their new office suites.
Build “uncommon” relationships
Many exponential business models come from “uncommon partners”: different types of companies from various industries that work together to benefit from integrated value. Drone company Matternet and Mercedes-Benz recently joined to create the Vans & Drones project, an integrated parcel delivery solution designed to transform the way people receive products on-demand, at the time of the drone’s test to the roof of a van.
Think about whether you need to own all the resources of your business. This question applies to any capital intensive asset, including new and innovative equipment, talent or ideas. In conclusion, We tend to think that we must build internally and focus on identifying and scaling internal plans instead of spending time searching for partners or seeking resources externally. What unusual relationships will you make this year?