Business Model Innovation
Economists credit the production advances achieved during the Second Industrial Revolution for the most significant period of economic expansion in western civilization. Despite two devastating world wars, this century witnessed economic growth that improved living standards, brought geopolitical stability, and allowed millions to emerge from poverty.
Pessimists have claimed that these advances signal an unavoidable stagnation in the 21st Century, yet there are areas ripe for disruption that were both made possible by and necessitated by the previous century’s advances—specifically to manage complex interactions, waste, redundant intermediaries created by new technologies and limited access to them. To disrupt in these areas would require more than a product or service evolution, but rather a complete business model innovation that challenges existing paradigms and perception of the possible. Successful innovators have embraced different techniques, including asset sharing, personalization, closed-loop models, usage-based pricing, collaboration, open innovation, and agility to upgrade outdated practices. These transformations can augment the financial performance and resilience of businesses while creating robust societal and environmental benefits.[i]
Lesson#1: Seek Difficult Problems. Innovators are not deterred by market failures, but rather seek out ways to overcome the challenges inherent in an industry. The very constraints of limited budget and resources spurred the innovations that propelled the future success of SpaceX and Healx. NASA’s shrinking budget and the pharmaceutical industry’s failure to address a vast market allowed SpaceX and Healx the runway to reinvent their respective industries. These limitations spurred unique business model innovations that lowered input costs, dramatically opening up new markets. Thanks to SpaceX, government bodies and businesses are now sending satellites to space to provide unique services and to deliver cargo to the ISS. With further cost reductions, SpaceX should have even more customers in other industries. Healx has accessed an initial customer base of 350 million patients who were unaddressed by existing services. Meanwhile, it has the potential to ameliorate the condition of anyone receiving drug treatment through personalized medicine.
Lesson #2: Leverage Outsider Status to Rethink Everything. Both leaders were inexperienced in the specific industry but brought deep scientific understanding and a new perspective to the problem. Although Musk had undergraduate degrees in economics and physics, he had never worked in the aerospace industry when founding SpaceX. Guilliams, had a Ph.D. in Biophysical Neuroscience, but had always worked within policy or academia when seeking to upturn the pharmaceutical industry. This outsider status facilitated an inquisitive approach that held no “sacred cows.” For example, Musk radically challenged the idea that complexity was preferable in the design of rockets. Guilliams proved there was an ethical way to circumvent the lengthy and expensive drug approval process.
Lesson #3: Leadership is Key. Both Musk and Guilliams had a personal connection to the initiative and strong desire to solve a unique problem. They each brought a personal passion and dogmatic interest that allowed them to persist amidst obstacles that would deter most entrepreneurs. Musk has the audacious goal of colonizing Mars, while Guilliams has dedicated all his efforts to rare disease, working at the Cambridge Rare Disease Network in his spare time.
Lesson #4: Strong Leaders Alone are Insufficient. Collaboration and teamwork were required to scale the businesses. Musk and Guilliams each found supportive networks (NASA and Silicon Valley entrepreneurs and the Cambridge Rare Disease Network, respectively) around a center of innovation (Stanford University and the University of Cambridge, respectively). Then, each entrepreneur brought in a team of the most knowledgeable and committed leaders in the field to reach their objectives.
Lesson #5: Perseverance. Disruptive ideas are not always profitable at least in the short run. It took Musk many years to develop a pipeline of profitable business. Guilliams has only recently achieved revenues, but his technology holds significant promise in a highly profitable industry.
[i] "Business Model Innovation.” SustainAbility, http://10458-presscdn-0-33.pagely.netdna-cdn.com/wp-content/uploads/2017/08/SA-ServiceSheets-Strategy-BusinessModelInnovation.pdf.