Winning Business Models: Innovation vs. Invention

Invention is the classic way to build a successful company. However, invention is much harder for a mature company or a mature technology. Business model innovation is an attractive option in many cases as a way to differentiate an offer, improve profitability or both. Below are five emerging business models.

# 1–Crowd-Sourcing
Threadless sells t-shirts in whole new way. People submit their own shirt designs–125 per day–and the Threadless community votes on which designs get produced. The result: the winning designs get sold at a premium and there are no duds. The winning designers get $2000 and Threadless gets a low-overhead design process. It might take some thinking, but the crowd-source concept can apply to nearly any consumer product.

#2–Community Support
If you are looking for a way to lower support costs while creating good influencer buzz, check out McAfee forums. They’ve co-opted customers to support each other, and sing their praises in the process. McAfee has figured out how to use this to reduce their support costs and facilitate real-life answers to real-life problems. Any doubts about the viability of this approach evaporate when you look at the number of daily posts, both for individuals and in aggregate. One person averages 17 posts a day.

#3–Customer Advocacy
Sierra Snowboard is a snowboard shop in Sacramento, CA. They’ve created a community of outdoor enthusiasts that act as online advocates. Think of them as unpaid sales associates. What McAfee has done for customer support, Sierra Snowboards has done for the sales process. A grandmother might post a question about what to buy her grandson, and the community suggests just the right thing. You don’t have to make the purchase at Sierra Snowboards, but why wouldn’t you? The net result is great evangelism of products and great brand.

#4–Community Localization
We all know about open source product development, but 37 Signals engages volunteers to localize their product into 100+ languages. This is no accident, but a core element of the 37 Signals business model. They deliberately developed their application so it is easy to localize. The result is that a five person company was able to generate global reach and tons more revenue than for an English-only application. They even manage to get their users to translate collateral and help create local enthusiasts.

The fundamental idea is to figure out how to get a vast “ecosystem” supporting your standard so that ultimately the whole ecosystem has to die for you to die. Big companies do this all the time: think Microsoft Windows, SAP R/3 or Intuit’s Quicken franchise. On a smaller scale,, Shutterfly, Second Life and others have built into business models around the platform concept.
Not all of these concepts work for every situation, but that’s not the point. The point is that innovative business models are powerful enablers.

Leave a reply

Leave a Reply