To survive in today’s fast-changing marketplace, every business--large or small, startup or long-established--must be capable of a continual process of transformation and renewal. Surveys show that most executives agree, and in fact, many believe that business model innovation is even more critical to their company’s success than product or service innovation. But other studies have determined that no more than 10% of innovation investments at established companies are focused on creating transformative business models.

This is not surprising. Most successful new business models come from startups. Despite the talent and resources at their disposal, business model success stories from well-established companies are relatively rare. “Building a great business and operating it well no longer guarantees you’ll be around in a hundred years, or even twenty,” notes business model expert Mark Johnson in his new book, Reinvent Your Business Model.

Examples abound. In the 1970s, Xerox PARC famously developed but didn’t commercialize, some of the critical innovations of the PC era, including the graphical user interface, the mouse and local area networks. In 2010, Blockbuster filed for bankruptcy, a victim of Netflix Inc.’s new business models. New technology alone, no matter how transformative, is not enough to propel a business into the future. Nor, for that matter, can past success justify existing business models. The business model wrapped around the technology is the key to its success or failure, argues Mr. Johnson, senior partner at Innosight, the strategy consulting firm he co-founded with Harvard Business School professor Clayton Christensen.

Why are so few big companies engaged in business model innovation? What prevents them from embracing innovative, transformational opportunities? Mr. Johnson’s book aims to answer these questions. Familiar as the term is, there’s no clear definition of what a business model is and what it isn’t. Few companies have a clear understanding of their existing business model, its strengths and limitations when it’s time to embrace a new model and how to go about creating one. In addition, successful companies are often risk-averse and reluctant to go into uncharted white spaces that might require new strengths and whole new business models.

What is a business model?

“A business model, in essence, is a representation of how a business creates and delivers value for a customer while also capturing value for itself, doing so in a repeatable way,” writes Mr. Johnson.

He proposes a business model framework based on four interdependent elements: customer value proposition, profit formula, key resources, and key processes.
• Customer value proposition. This is, by far, the key element to get right. A successful business model identifies an important, unsatisfied customer job-to-be-done or problem-to-be-solved and proposes an offering--a product, service or combination--that does the job or solves the problem at an affordable price.
• Profit formula. How the company creates value for itself and its shareholders while providing value to its customers. It includes a revenue model, how much each transaction should net to achieve profitability and resource velocity.
• Key resources. What’s needed to deliver the value proposition to the targeted customers profitably. It includes people, technology, facilities, equipment, information, channels, brand, and partnerships and alliances.
• Key processes. The means organizations develop to produce and deliver their offerings in repeatable, scalable and sustainable ways. It includes business rules, behavioral norms, and performance metrics.

“The power of this deceptively simple framework lies in the complex interdependencies of its parts. Successful businesses devise a relatively stable system in which these elements interact inconsistent and complementary ways. A change to any one of the four affects all the others and the system as a whole. Incongruities or conflicts between elements, even seemingly inconsequential ones, can bring about its downfall.”

White spaces

What does it take to go after a white space, that is, a brand new business opportunity? It all depends on the nature of the opportunity and on the nature of the customers being served. It’s best explained by contrasting core, adjacent, and white space opportunities.

Core operating space: Every company has a core sphere of operation; a set of skills and capabilities that enable it to serve its customers and make a profit in return. Over time, a successful company becomes very good at stretching its existing business model to extract the most value from its core activities.

Adjacent spaces: New business opportunities that fit quite well within the company’s existing business model and capabilities.

White spaces: New opportunities that cannot be well served within the existing business model and organizational structure. Such opportunities lie outside the company’s core spaces and beyond its adjacent ones. Going after them may require going way outside a firm’s usual way of working, including a whole new business model.

Technology-enabled business models

“While any technology without a viable business model can lead to a commercial dead end, digital technologies do drive the formation of certain kinds of business models, creating value in broadly predictable ways,&8221; notes Mr. Johnson. The business models they enable fall under four broad categories: E-commerce. They include B-to-C models like Warby Parker’s, which offers designer eyeglasses to online consumers, and B-to-B models like Dow Corning Xiameter's, which sells silicone-based products to manufacturers. Digital platforms. Their business models are generally based on network effects: the more products or services a platform offers, the more users it will attract, helping it then attract more offerings, which in turn brings in more users, which then makes the platform even more valuable. Models that turn data into assets. Business models that derive value from their ownership and analysis of large volumes of data. Automation-enabled services. Business models that harness sophisticated software to do jobs that were formerly carried out by people, such as online machine translation, intelligent bot services, robotic warehouse systems.

“Business model innovation efforts should be focused on the pursuit of something grand - changing the game in an existing market, creating a whole new market, transforming an entire industry,” Mr. Johnson writes in the book’s final chapter. “Business model innovators should be hunters of big game and leave the harvesting of core assets to others.”

“A lot of people underestimated the cost of operating bike-sharing services. As you scale up and bikes age, you start having all sorts of problems that add to the complexity,” said Jixun Foo, managing partner of GGV Capital, which invested in Ofo competitor Hellobike. from The Information One investor who has spoken with Bird, an electric scooter startup that has raised more than $100 million in recent months, said he was “terrified by the operational complexity and capital intensity of all these businesses.” Among the problems, according to the investor and several other industry watchers: Scooters break down or lose battery power quickly. Riders are bound to get into scary, or deadly, accidents with cars. And it is unlikely people will use them if vehicles aren’t predictably available. Bird plans to launch its scooters in 50 U.S. markets by the end of this year and is trying to improve its hardware by making scooters usable in rain and snow.

Electric scooters and e-bikes have become relatively cheap to build, thanks to the rise of electric vehicles globally, which have brought down the cost of lithium-ion batteries; growth in drones, which lowered the cost of small motors; and smartphones, which made it cheaper to buy small cellular radios and other sensors that are necessary to connect bikes and scooters to an on-demand service.

The S-curve generally shows growth over time and can be broken down into three (or maybe four) key parts. Early growth is slow with modest gains in the earliest part. Once the effort or activity gains momentum, there is a period of substantial and increasing growth. This is maintained until certain limits are reached, and growth begins to slow in the third part. Finally, in the last part serious upper limits are researched, and growth stops where consistent inputs maintain a high level of output but no additional output. Curves that Matter

One of the fundamental lessons of successful social networks is that they must first appeal to people when they have few users. Typically this is done through some form of single-user utility. This is the classic cold start problem of social networks. The answer to the traditional chicken-and-egg question is actually answerable: what comes first is a single chicken, and then another chicken, and then another chicken, and so on. The harder version of the question is why the first chicken came and stayed when no other chickens were around, and why the others followed. The second fundamental lessons is that social networks must have strong network effects so that as more and more users come aboard, the network enters a positive flywheel of growth, a compounding value from positive network effects that leads to hockey stick growth that puts dollar signs in the eyes of investors and employees alike. “Come for the tool, stay for the network” wrote Chris Dixon, in perhaps the most memorable maxim for how this works.

What ties many of these explanations together is social capital theory, and how we analyze social networks should include a study of a social network's accumulation of social capital assets and the nature and structure of its status games. In other words, how do such companies capitalize, either consciously or not, on the fact that people are status-seeking monkeys, always trying to seek more of it in the most efficient way possible?

Value is tied to scarcity, and scarcity on social networks derives from proof of work. Status isn't worth much if there's no skill and effort required to mine it. It's not that a social network that makes it easy for lots of users to perform well can't be a useful one, but competition for relative status still motivates humans. Recall our first tenet: humans are status-seeking monkeys. Status is a relative ladder. By definition, if everyone can achieve a particular type of status, it’s no status at all, it’s a participation trophy. From Eugene Wei's blog Status as a service that explains the growth seen in some social media businesses. But social status is not only observed in metrics for likes and retweets. Some products provide the same feeling. Memberships, luxury automobiles, and food that tastes better at four-star restaurants. The strategy for extending product life and increasing profits has to be developed in stage one and two.

Since going public in 2007 lululemon's value has risen steadily increased. How? By managing product scarcity and delivering value. Instead of ccategorizing leggings by style or sport, each store’s “pants wall” is now broken down by sensation. “Engineered sensation,” Iamartino says with a sweet self-assurance. Today she is wearing “the Align style” leggings in black, with an oversized grey cable knit sweater and studded black booties. The Align leggings — designed to fit close to the body without feeling tight — are made of a velvety 81 percent Nylon, 19 percent Lycra mix and meant to offer a “naked” sensation.

There are now five sensations on offer: Relaxed (away from the body), Naked (close to the body but not restrictive), Held-In (a bit tighter), Hugged (even tighter) and Tight (full compression). “People value experiences more than they value stuff,” says Joseph Pine, co-author of The Experience Economy, along with James Gilmore. The two describe product innovation in consumer markets as a five-staged “progression of economic value” from commodities to goods to services to experiences to personal transformations, such as yoga classes, where the participant-customer undergoes a positive change.

lululemon athletica inc., an athletic apparel company, together with its subsidiaries, designs, distributes and retails athletic apparel and accessories for women, men, and female youth. It operates through two segments, Company-Operated Stores and Direct to Consumer. The company offers pants, shorts, tops, and jackets for a healthy lifestyle and athletic activities, such as yoga, running, and training, as well as other sweaty pursuits; and athletic wear for female youth. It also provides fitness-related accessories, including bags, socks, underwear, yoga mats and equipment, and water bottles. The company sells its products through a chain of company-operated stores; outlets and warehouse sales; a network of wholesale accounts, such as yoga studios, health clubs, and fitness centers; temporary locations, including seasonal stores; license and supply arrangements; and showrooms, as well as directly to consumer through mobile apps, and lululemon.com and ivivva.com e-commerce sites.