Can BIG FoodCo Think! Act & Adapt like a Startup?

Concept of small business running fast!

Is it just us or does it seem today that the small food companies are moving faster than ever before and the big companies are moving more slowly when it comes to innovation in our local food industry?  Perhaps you and I are not alone in our thinking? The literature and newswires in the US have been awash with stories of “the war on big food” (Kowitt, 2015) with big bold claims like “big food is under attack from the rise of startup granola!”

Changes are not only taking place abroad in the US supermarket aisles where shoppers are cruising the periphery of the store seeking out new and trendy, authentic and unique chilled, fresh, natural and healthier food options.  The same trends are evident in Australia and plain as daylight for all to see on the high street where the Fast Food Evolution has seen global super brands like McDonalds, KFC, Subway, Pizza Hut and Burger King scrambling to reinvent themselves against the rising tide of ‘fast, casual dining chains’ like Grill’d, Nando’s and Mad Mex (Brown & Han, 2015).  Let’s not even start a conversation about the global food truck trend that could be today’s incumbent fast food operators tomorrow’s ‘disruptor’.

VIDEO: Can big food and beverage think like a startup?

16 Dec 2015 published at Food&Drink Business

Big food companies will need to rethink their business models if they want to innovate like startups, according to Dermott Dowling, managing director of innovation and international business consultancy Creatovate.

Speaking recently at the Food & Drink Business Disruptive Innovation LIVE forum, he explained why this is growing in importance, and how some of the world’s largest food and beverage companies are responding.

According to Dowling, the top 25 food businesses in the US lost at least $4bn in market share last year as consumers skipped the core food aisles in favour of the fresh segments, and increasingly sought out innovative products from smaller companies.

In this video clip, Dowling describes how some of the world’s largest companies, including Nestle and Coca-Cola, are responding to the movement, and he shares some examples of local companies that are having a go at digital disruption in the food space. See the full clip here.

Why is this happening all of a sudden?  Is it another off-shoot of the start-up tech trend finally finding its way into the food industry? Like most complex issues of business today it is a symptom of a number of factors and key influences colliding to create the perfect storm for “disruptive innovators” in the food industry.  Let us start with the trends underlying today’s shopping decisions consumers are making today with their wallets – after all is it not the shopper who ultimately controls the marketplace nowadays?

1. Shoppers and consumers are looking for ‘authenticity’ and ‘realness’ more than ever before. Their trust in global multinationals is at an all-time low and most major food companies operating in Australia are global multinationals http://www.slideshare.net/dowlmott/going-global-in-food-grocery-retailing-business . With a smart phone in every shoppers pocket the truth is out there on Facebook, Instagram and Twitter and consumers trust their friends and followers and influencers’ more than super brands blasting the old mass media airwaves. Hirschberg (2015), founder of Stoneyfield Organic Farms sums it up when he says “There’s enormous doubt and scepticism about whether large companies can deliver naturality and authenticity.”  As a result consumers are more connected with small and medium size family owned or startup food businesses and brands.  They feel a closer affinity with the founders than the boardrooms and polished CEO communicators of “Big FoodCo”.  They connect through their social media accounts, love the storytelling of startup founders and the authenticity of the founder(s) stories up all night packing boxes in their garage or cooking new prototypes on their stovetop before racing to the local farmer’s market or grocery shop on their way to fame and fortune.

2. Mintel (2015) Trends report highlights front, bold and centre Trend #3 Less processed foods, more natural as consumers continue to be concerned with eating natural and ‘less processed’ food products.

3. Consumers and shoppers are more affluent than ever before and yet more sporadic in their shopping and buying behaviour. They fill their trolleys with private label staples and shop at Aldi and CostCo to save on essentials and then simultaneously splash out on their indulgent luxury food treats. They love sharing their discoveries at their local high end speciality independent grocery store or Asian specialty shops with friends and taking something a little unique and special over to their neighbours or friends place for dinner to start a ‘foodie’ conversation.  Again here the shopper leans towards the ‘smaller, more real, and authentic’ food brands.

There are also a few key influences in the background from broader business theory on innovation that are impacting the ability of the smaller and medium size companies to grow faster than ever before and hindering the larger elephants from dancing the same jig when it comes to innovation.

Customer Development Model (Blank & Dorf, 2012)

1. Small and medium size companies by their very nature are ‘searching for growth’ ‘new business models’ and ‘repeatable and scalable business models’ and most importantly they are actively seeking out ‘new customers’. As they seek out new growth pathways for their businesses they discover unmet customer needs and wants, gaps in the market and they scurry back to the lab or pilot plant or co-manufacturer and whip something up quickly in the ever desperate search for sales and a repeatable scalable business model. With those real sales comes learned experience what’s working, what’s not, what needs fixing and so the cycle continues at pace – Build, Measure, Learn or as we like to say @creatovate “earn & learn”.  Less time in research more time spent doing, making, talking to customers and consumers with real prototypes, failing, learning, earning, and eventually success! $:-)

Business Model Iteration (Blank & Dorf, 2012)

2. Being smaller by nature you are in fact at a strategic advantage when it comes to innovation. Less $/people/time makes you smarter in your choices, you look for fast hacks forward, cut corners and try to make more from less without the bureaucracy of Stages and Gates and internal meeting after internal meeting and research after research spending valuable $/people/time but earning nothing, spending a lot and often learning very little about real customer and consumer problems in the marketplace.

3. Small and medium size companies lack middle management aka ‘ the innovation police’ who are stringently guided and controlled by budgets, plans, processes, performance reviews and the need for ‘incremental’ over ‘transformational’ growth and innovation. The middle manager’s role is to shepherd the workforce on the annually set KPIs, Manage Budgets and stop people seeking out opportunities off the strategic plan no matter how promising those opportunities might look or feel to the front line.

Resource Dependency Model

 

4. Stakeholder dependency theory (Hillman, et al 2009) suggests any organisation is interdependent on its ecosystem and the biggest interdependencies on any organisation are its ‘customers’ and its ‘shareholders’. Think about who the dominant customers are of a small or medium size food enterprise in Australia vs. a large one? Think about what investors are seeking in small and medium size business? Fast growth? Exits? Vs. Large stable food businesses? Safe and consistent returns?

Technology and capital are influencers in the background and technology enables the small and medium companies to better connect with their consumers, levels the playing field in terms of ability to interact professionally with customers (retailers) and trade partners.  Capital seeks growth opportunities and will look for the opportunity to enter and exit as quickly as possible where the opportunity for disruption exists.  Are we likely to see the small and medium growth food companies grow faster into the future – most definitely Yes! Will the large incumbents sit back and watch the ants eat their cake?  That remains to be seen and we are in for an exciting food future ahead.

Dermott Dowling is Managing Director @Creatovate, Innovation & International Business consultancy. Creatovate help businesses create, innovate and growth through sustainable innovation processes and spreading their wings outside their home base.

References:

Blank, Steve & Dorf, Bob (2012) The Startup Owner’s Manual K&S Ranch Inc, California, US. First Edition.

Dowling, D (2015) Think! Act! Adapt & Innovate $ like a Startup! http://www.linkedin.com/pulse/think-act-adapt-innovate-like-startup-dermott-dowling?trk=prof-post LinkedIn, Aug 19, retrieved on 05-Nov-15.

Dowling, D (2015) Putting “I” first in Insight to Innovation http://www.linkedin.com/pulse/putting-i-first-insight-innovation-dermott-dowling?trk=prof-post LinkedIn, Feb 25, Retrieved on 5-Nov-15.

Dowling, D (2012) Globalisation of Food & Beverages http://www.slideshare.net/dowlmott/going-global-in-food-grocery-retailing-business Slideshare, Retrieved on 5-Nov-15

IRI Worldwide (2012) The Pacesetters Report http://www.iriworldwide.com/iri/media/iri-clients/4-17-13T_T%20April%202013%20NPP%20vFinal.pdf  viewed on 5-Nov-15.

Kowitt, Ben (2015) The War on Big Food http://fortune.com/2015/05/21/the-war-on-big-food/ Fortune Online 21 May, retrieved on 5 Nov. 15

Brown, R & Han, E (2015) Fast Food Evolution – Global Super brands are having to reinvent themselves to keep up The Sydney Morning Herald online 11 January   http://www.smh.com.au/nsw/fast-food-evolution–global-superbrands-are-having-to-reinvent-themselves-to-keep-up-20150106-12j7mc.html  retrieved on 05-Nov-15

Australian Food News (2015) Top Global Food and Drink Trends for 2015 http://ausfoodnews.com.au/2015/10/21/top-global-food-and-drink-trends-for-2016.html October 21, retrieved on 05-Nov-15.

Amy J. Hillman, Michael C. Withers and Brian J. Collins R (2009) Resource Dependency Theory: A Review Journal of Management 2009 35: 1404 originally published online 23 September 2009 https://www.unifr.ch/intman/assets/files/Teaching/Network_2014/Additional%20Readings/Hillman-Withers-Collins%202009%20-%20Resource%20Dependence%20Theory.pdf retrieved on 5-nov-15

Sue Mitchell (2015) Here’s Why Consumers are Choosing Aldi over Woolworths and Coles http://www.smh.com.au/business/heres-why-consumers-are-choosing-aldi-over-woolworths-and-coles-20150714-gicgix.html July 15 retrieved on 04-Jan-16.

Think, Act, Adapt and Innovate like a Startup!

Large companies’ size and culture make disruptive innovation extremely difficult (Blank, 2010). Despite this challenge many large food businesses today recognise the need to be disruptive innovators and test new business models in the digital world.

 

Why change? Because the bat is coming…

Change is coming, it’s here now and there are many ways businesses can react to change.  They can duck and hide and hope the flying baseball bat misses them and takes out the competition.  They can look the other way and collect the full force of change to the face like the poor gentleman below at the Red Sox game or they can be brave anticipate the changes that are coming and reach out for the bat like the guy just out of shot.  Often its the startup that is just out of shot or sight of the incumbents.  Backed by passionate founders and astute investors they anticipate change, react to it positively and use innovative new business models and new technologies to literally land the baseball bat in the face of the incumbents and harvest the glory of fast growth in a new economy.

In this keynote address given at Food&Drink Business Live! Disruptive Innovation, Creatovate – Managing Director, Dermott Dowling takes the audience through some practical learning steps and lessons from local digitally focused food innovators leading the way in this exciting new land of opportunity.

Think!

Thinking is the first step in any business innovation. Alas, it’s hard in isolation. You sit and stare and scribble on the blank sheet of paper in front of you.  However, people as social beings need each other and our collective mind power to come up with breakthrough ideas to innovate. More often than not we scan the environment for what’s out there already and working? Alternatively, we look for problems – what’s bugging our current customers or potential new customers? We then map the value chain from inputs to outputs looking for – what can we take out? Where can we fit in? How we can create value for customers and ultimately our own business?

 

Act!

Next step in the process of building an exciting startup or disruptive innovation is design & rapid prototyping our ideas into Minimal Viable Prototypes or MVPs. Rough and ready is fine here, what’s most important is we start testing & experimenting our hypotheses on existing and new customers ASAP.   Gone are the days we spend weeks and months in kitchens, pilot plants and focus groups with consumers.  The market demands we move at ‘tech speed’ now!  I can not wait as your customer or your boss for months while you toil and spend $$$ without any real customer or consumer feedback!  By that I mean people reaching into their pockets and paying for the food and beverage products, not just talking about how cool it is or whether they might like to buy it when it hits the shelf in 12-18 months time!  As we act, we simultaneously align as a team adapt to the changing customer feedback. We also measure & monitor early results for signs of customer acceptance and readiness to scale our new business model.

Startups are not small versions of large companies. They need different tools for thinking and acting. Its important you create a common language in your company if you venture down the path of creating intrapreneurial startups inside your large organisation, so people are talking on the same page and not hearing Blah! Blah! Blah! when we mention new terms like Business Models. For this reason at Creatovate, we recommend a common approach to our clients hypotheses generation like the Business Model Canvas (Osterwalder, 2012).  This is an excellent thinking tool to get the team ‘on the same page’ in terms of understanding of terms, hypothesising ideas and creating a new Business Model for real market testing.

Adapt!

Once you have thought and aligned on your initial business model hypotheses “get out of the building” and ask potential users, purchasers, and partners for feedback on all elements of the new business model, including product features, pricing, distribution channels, and affordable customer acquisition strategies. If we accept that startups are engaged in the search for a new business model, we recognize that radical shifts in a startup’s business model are the norm, rather than the exception. For this reason rather than fire the executive team when the normal approaches to go-to-market are not working, we pivot and change tack (Blank, 2013).  Pivots are a completely normal part of the startup process as you first discover customers who will pay an acceptable price for your product and validate your minimal viable prototypes fit their needs and are worthy of scaling.  Venture Capital and astute investors understand pivots as an essential part of building a startup.  The question is does established incumbent business leaders understand they need to treat startups in their own company very differently to the normal go to market new product development that may go through an existing business process like Stage-Gate to existing customers using existing norms.  If you are going to create a breakthrough innovation and business model in the digital economy its highly likely you will be doing things very differently.  As such leaders need to be aware of a different set of behaviours and skills to encourage the startup founders and intrapreneurs to boldly push on and not be afraid to pivot as they learn and lean left and right to find the right business model and validate their multiple hypotheses.

Innovate $

Private equity and venture capital are investing in disruptive startups in the food industry right around the world.  The top 25 U.S. food and beverage companies have lost an equivalent of $18 billion in market share since 2009. Some analysts are describing ‘big businesses in food’ nowadays as being like melting icebergs, every year they become a little less relevant to customers and consumers (Kowitt, 2015).

Major packaged-food companies lost $4 billion in market share last year alone, much of it to smaller, more health-conscious companies.  Venture capital firms are taking notice. Over the past five years, they have invested nearly $570 million in food companies. Famous Australian VC/PE funded food businesses include Rafferty’s Garden (Anacacia Capital’s sale of baby food maker Rafferty’s Garden to PZ Cussons for over A$80m).  Notable trade sales recently of established food businesses that have been reinvented include Pacific Equity Partners’ sale of Peters Ice Cream to UK-based ice cream maker R&R (AVCAL Handbook, 2014).

Large multinational food companies are not taking the changes in their markets lying down.  Nestle founded Inventages in 2002 and has invested EUR$150m in 38 companies across a breadth of categories from consumer health sciences to CRM to supply chain to innovative packaging solutions.  Tate & Lyle established Tate & Lyle Ventures in 2006 initially with a £25M VC fund & currently has another active £30 million fund investing £1-2 million per tranche in each investment.  Coca-Cola Founders program was established in 2011 and already has 19 co-founders, across 10 countries, with 9 startups partnering with Coca Cola to provide much needed scalability to the startups and their co-founders.

Large businesses need startups and vice versa. Is there some magic in the middle and what can incumbents do to learn to be lean and act and adapt and innovate like a startup! Established businesses are in danger of not being able to adapt quickly enough, while nimble start-ups fail due to their inability to scale. Tomorrow’s business winners will be the ones who know how to combine the two (David Butler, VP Innovation & Entrepreneurship, Coca-Cola).

Learn & Lean

Australia is seeing signs of life now in the land of digital disruption with several new startups from both existing food companies and new entrants.  Some digital disruption innovation leaders interviewed for this key note include Dish’d    Kogan Pantry and Marley Spoon  MDs & Founders.  Each business plays to its own unique space in this exciting new field of play, but there are several key common learning shared by their leaders for any business thinking about entering the exciting and highly disruptive digital innovation landscape in food.

Challenges

Challenges of starting a new food business in the online world today in Australia include:

Sub-culture of a startup within a large business can be hard to swallow for staff and senior leaders alike in established traditional food businesses.  Patience is essential alongside persistence with payback horizons very long and initial sales may fall well short of what can be expected from taking NPD to market through traditional go to market retail channels.  Consumers want whole of shop/meal solutions rather than parts of the pantry stocked from several different eTailers, and they are looking for suppliers to make their lives easier, not harder when it comes to shopping online and/or cooking meals at home.  Inventory / demand / supply chain management is even more challenging in the online with demand for hot specials either going viral and off the charts or product being unappealing and not moving at all.  Never underestimate the response from incumbents who will fight back extremely hard with loss leading specials and pressure exerted on their existing suppliers to restrict supply of goods and inputs to the new entrants.  Go in eyes wide open – the online world requires the same effort if not more than a business in the bricks and mortar world of food and beverage manufacture, supply, distribution and marketing.

Why do it?

We get asked this question a lot from our clients!   Our first response, is to remember that whatever innovation or change you make it must create economic value to you and your business.  Change for changes sake is not innovation, it might be creative but its not innovation until it delivers economic return to your business.  This may not happen for significant time when testing new business models or startup strategy but we also ask our clients what are the possible consequences of doing nothing?  Going backwards? Getting hit in the face by a baseball bat?  You may be chasing additional demand and/or contributing back to your online community if you are already an established online entity.  You might be looking to engage and interact with existing and new consumers if you currently exist in the traditional bricks and mortal retail led food industry.  You may be seeking to grow into adjacent verticals. Whatever your strategic reasons, for action they need to be strong enough to survive the bumps in the road ahead as there will be many!

Advantages!

Some of the key advantages from entering the online world of food and beverage eTailing are the longer term potential scale advantage that can come quickly if you are successful.  Likewise the plethora of instantaneous data analytics like Google Analytics that can help you pivot and test and adapt much more quickly than through traditional customer/retailer feedback networks.   Recognise that Australian eCommerce market maturity could be as much as 5 to 10 years behind the US and our Australian eCommerce supply chain maturity has some considerable road to run especially in the area of chilled B2C food or meals solutions delivery to consumers doorsteps.  These are significant challenges and can not be underestimated but the early entrants will learn faster and be further down the field as new enabling technologies like drone deliveries or driverless vehicles become very real solutions to today’s very high cost of service to the Australian consumers doorstep.

Omni-Channel

Omni-channel could be a red herring – beware!  The economics are vastly different between off-line and online retail in Australia, however for incumbent off-line retailers who have online eTail offers the commercial incentives are quite simply not there to lower their online prices for their eTail offers such that it would cannibalise their healthy real world margins in bricks n mortar retail.  Let us not forget the significant sunk costs the incumbents have in ‘land banked’ property investments, the enormous number of staff on their books in their shops who would cost $$$ to layoff if their online services took off!

Food Supply to Disruptors

Food manufacturers, wholesalers and suppliers are aware of the current industry trends and have a strong willingness to supply new food focused digital startups.  That being said beware the earlier caution about incumbent retailers pressure to stop supply to new entrants.

Price Leadership

Price leadership is of paramount importance online and that could be in part due to the fact that Australian consumers have been trained to expect deals online.  Brands matter online and deep cut discounts bring traffic!

 

Groceries look like the last to take-off in the land of digital commerce.  Online suits small, expensive, commodity driven categories hence why it has disrupted so intensely in travel, music and electrical goods.  Wastage is an important driver in eCommerce in food. Consumers care about their household (average 20%) and supermarket waste (average 35%). This can be a compelling emotive and commercial value proposition for digital disruptors.  Consumers also expect their food in the same condition they find it in store when they get home and see it at their doorstep.

Clearly, we have a long way to go in terms of digital disruption and disruptive innovation in the food industry in Australia and what is around the corner is the million dollar question for startups and incumbents alike.  When an intelligent member of the audience from Nestle Australia asked “what’s the next big thing in terms of disruptive innovation in the food industry in Australia?” to the panel of experts on the stage she got 6 very different answers ranging from predictions of drone and driverless vehicle meals and drinks delivery to consumers demanding a direct interaction with their favourite food producers not only in the social media landscape but in terms of direct purchase and order-to-delivery-to-doorstep.

One thing is certain, the businesses that can have the foresight to anticipate change and react positively to it will be the ones who avoid the baseball bat to the face and will seize the opportunity our new tomorrow brings to us all.  The multi-million dollar business question is which of the incumbents or venture backed startups has both a) the foresight and b) the resilience and bravery to not only see the bat coming but to calmly stand up, reach out and catch it!  When everyone breathes the collective sigh of relief and the startup sits back down in the stands, they will have banked the profits on the table and will be the new incumbent. Go Gators!

References & Bibliography:

http://businessmodelalchemist.com/tools

AVCAL (2014) Australian Private Equity & Venture Capital Association Ltd

Blank, Steve (2010) Crisis Management by Firing Executives – There’s A Better Way Nov, 18. http://steveblank.com/category/customer-development-manifesto/page/2/

Blank, Steve (2013) Why the Lean Start-Up Changes Everything, May, Harvard Business Review

Danielle Gould (2014) Food & Ag Investment Sources Explode in 2013  http://www.foodtechconnect.com/2014/01/02/food-ag-investment-sources-explode-2013/ viewed on 11/8/2015

Kowitt, B (2015) Special Report: The War on Big Food Fortune May 21.

Montgomery, M. (2015) How The Tools Of Venture Capital Are Revolutionizing Food July 14 Forbes

Osterwalder, A. Pigneur, Y. Bernarda, G. Smith, A. (2014) Value Proposition Design Wiley.

Osterwalder, A (2013) A Better Way to Think about Your Business Model

Phillips, E. (2015) Food ‘Accelerators’ and the $10 Bag of Pasta The Wall Street Journal Jan 6.

Kolodny, L (2014) Will Investors Still Back Food Startups As Competition Heats Up?

Wall Street Journal July 25.

http://coca-colafounders.com/

http://www.coca-colacompany.com/innovation/

http://www.iamdigital.com.au/2015/02/coles-woolies-vs-kogan-pantry.html

Why are 74% of all new products flopping in Asia Pacific?

One of the best ways to overcome price pressure is through new products and still almost three quarters of all new products miss their profit targets according to a recent study of 1,600 managers across 40 countries in Asia Pacific (Tacke, et al, 2014).  We all know we need to focus more of our $, people and time on innovation but how much are we spending solely on new products and product performance vs. the other types of innovation?

Our challenge in the Australian Food Industry right now is to think and act more broadly in your innovation effort to truly disrupt your industry and create a sustainable competitive advantage.  Several years ago Doblin Inc. took three thousand things generally agreed to be innovative and compared them mostly to each other and did that with enough cluster analytics to discover 10 distinct types of innovation (Keeley, 2013).

Product Performance innovation address the value, features, and quality of a company’s offering.  This type of innovation involves entirely new products as well as updates and line extensions that add substantial value. It is only one of the Ten Types of Innovation, and it’s often the easiest for competitors to copy.

Often people mistake Product Performance for the sum of innovation. It is certainly important, but it is always worth remembering that it is only one of the Ten Types of Innovation, and it is often the easiest for competitors to copy. Think about any product or feature war you have witnessed—whether torque and toughness in trucks, toothbrushes that are easier to hold and use, even with baby strollers. Too quickly, it all devolves into an expensive mad dash to parity. Product Performance innovations that deliver long-term competitive advantage are the exception rather than the rule.

The far right delivery types of innovation around Channel, Brand and Customer Experience are more important amplifiers of innovation as are Business Model Innovation and Networking (Partnering).  If you can combine 4, 5 or 6 or more specifically chosen ten types of innovation choosing the ones that others ignore in your industry you will get ‘disruptive’ innovation (Keeley, 2013).

How about we spend more time on the other types of innovation and focus some of our attention to the might higher returns from business model innovation?  What is business model innovation?  Most simply “A business model is nothing else than a representation of how an organization makes (or intends to make) money” Peter Drucker.

More specifically in constructing a new business model you will need to answer three distinct questions:

1. Why would someone want to buy something from you?
2. How will you make money selling it?
3. What, exactly, are the important things you need to do to pull off the plan? (Johnson, 2010).

Most importantly in your own organisation you will need to create a common language and definition for business model innovation.  Use of visualisation and pictorial storytelling can help with that business model definition and design.  The Business Model Canvas is one diagrammatic framework tool that has gained a lot of attraction and usage to design, refine and build new business models (Osterwalder & Pigneur, 2010).  There are 9 key elements to constructing a business model canvas and the following short YouTube clip details these very succinctly.

There are clearly demonstrated examples in the food industry in Australia, China and globally of companies thinking and acting differently in how they take innovation to market and using business model innovation.  An example close to home here in Australia is www.dishd.com.au

Here a well-established food business saw an opportunity to use technology to disrupt traditional business models and their go to market strategy for new products.  Setting up a small team with key principles of agility & access to leaders the team @dish’ d set about building platforms from which multiple products could be ‘lifted and launched’ sourced from around the world direct to diners doors in Melbourne and Sydney.  Utilising existing partners in logistics the company was able to launch 220 new lines ‘lifted & launched’ in less than 12 months, none of which they had to manufacture themselves, creating a brand new Brand, business, Channel, and customer relationship management model connecting themselves directly with their consumers.  Dish’d saw a gap in the market, trusted their consumer insight and understanding that shoppers were prepared to pay more for good food delivered to their door and went for it with conviction.

Further away in China a boom in e-Tailing and e-Commerce has been occurring for some time and a recent example caught my attention.  SF Best launched in June 2014 is another good example of business model innovation.  Selling everything from Chinese organic fresh milk to ice cream and fresh meat and vegetables SF Best from SF Express even delivered cold beer during Soccer World Cup 2014 to thirsty fans doors in 11 cities across China from an App on consumer’s phones.

SF was born in Shunde, Guangdong in 1993.  They are like China’s FedEx and now operate in China, Hong Kong, Macao, Taiwan, US, Japan, Korea, Singapore, Malaysia, Thailand, Vietnam, Australia with 290,000 staff globally. SF Best Fresh Home delivery services launched in June 2014 to 11 cities in China – now number 27!  SF has leveraged their core process competency in logistics into an adjacent industry – eTailing and appears to have hit the ground running!

Last, but not least is a global example of business model innovation from Nestle with their hugely successful Nespresso

Founded in 1986, Nespresso is an autonomous globally managed business of the Nestlé Group, now present in almost 60 countries with more than 9,500 employees worldwide, compared to 331 in 2000 with over 70% of employees in the markets in direct contact with consumers.  50% of new Club Members experience Nespresso for the first time through friends and family.  Nespresso has over 3 million Facebook fans and 180,000 unique customers visit our online boutique every day.  George Clooney, Nespresso brand ambassador since 2005, was chosen by Nespresso Club Members.

Nespresso exemplifies business model innovation from partnering through to customer relationship management and channel innovation with their mail order, call centre, Nespresso.com and Nespresso stores.  All elements of the business model canvas are worked hard and in concert and the business has benefited from 10+ years of 30% Year on Year growth to become a CHF3b business on its own today for Nestle.

Business model innovation is not easy and your thoughts probably turn to ‘how do we start doing this?’  You can start by following some simple tips to design, refine and test your new business models using ‘lean’ teams and start up like activity within your own businesses.

Remember the 2 Pizzas Rule: Small Focused Teams who can be fed on no more than 2 pizzas.  Every team should number not more than 7 people as every person in addition to the 7^th member of the team is a 10% decline in team productivity to the point where if you have 17 people on the team you have 0% productivity and a team talking to themselves (Jeff Bezos, Amazon.com; Scott Anthony ,2013).

Push to learn in market “Get out of the building!”  Here is a litmus test to gauge the degree to which you are following the approach described. Ask the team the ratio of their time spent preparing materials for management (or conducting desk research to feed into materials for management) versus time spent with customers, developing products, or talking to potential partners. If the ratio is higher than 1:3, you have a problem (Scott Anthony, 2013).

Measure learning, not results.  We are in new territory here exploring new ways of working and doing business, looking for customers, asking them about what problems they have, etc.  You need to be asking your teams “What did you learn? What do you still not know?”  Venture fund the team with sufficient funding to address critical uncertainties.  If they answer those uncertainties fund them to the next gate of decision making but do not automatically fund projects into infinity.  Be prepared to decide and act fast, pivot, lean and learn is your modus operandi.

Lastly make sure the decision makers with the right experience guide the team.  The role of the business leaders is more coach and mentor or venture capitalist as opposed to Go / Kill gatekeepers.  Early team mentoring sessions could be answering and solving problems / opportunity like ‘who is our customer?’ ‘what are their problems that remain unsolved?’ ‘what are their unmet needs’ and ‘who can we partner with to move faster?’

No one said innovation would be easy least of all when you are working on multiple types of innovation all in the same project at the same time.  You need to be doing that to make a real impact in your industry and disrupt your competitors and create sustainable competitive advantage.  We all share the same information on global NPD and research and can ‘copycat’ faster than ever the latest new product. To pull away from the pack you are going to have to work smarter not harder on how you take innovation to market and working with innovation partners to guide you into unchartered waters is one way to help you stay honest to your objectives to think and act differently.  After all if all we continue to do is keep launching new products through the same channels expecting a different result, are we simple insane?  We know 74% of all new products flop so why not invest some of your valuable $, people and time in other types of innovation as well as product performance.

Dermott Dowling is Managing Director @Creatovate, Innovation & International Business consultancy. Creatovate help businesses create innovate and grow through improved idea-to-innovation process. Contact Dermott if your business needs help improving your innovation processes or expanding your business internationally.

References:

Scott Anthony (2013) Five Ways to Innovate Faster http://blogs.hbr.org/2013/07/how-to-innovate-faster/ July 30 retrieved on 14/10/2014

Mark W. Johnson (2010). A New Framework for Business Models January 21, HBR Blogs

Larry Keeley, Bansi Nagji, Helen Walters (2013). Ten Types of Innovation: The Discipline of Building Breakthroughs, John Wiley & Sons.

Larry Keeley (2013) Ten Types of Innovation, YouTube, published 12 July http://youtu.be/vJ5Jq3MyXAk viewed on 14th Oct 2014

Alexander Osterwalder & Yves Pigneur (2010) Business Model Generation John Wiley & Sons, Inc. New Jersey

Alexander Osterwalder (2013) A Better Way to Think About Your Business Model May 6, http://blogs.hbr.org/2013/05/a-better-way-to-think-about-yo/ retrieved on 13.10.14

ALEXANDER OSTERWALDER (2010) COMBINING BUSINESS MODEL PROTOTYPING, CUSTOMER DEVELOPMENT, AND SOCIAL ENTREPRENEURSHIP AUGUST 05, http://businessmodelalchemist.com/blog/2010/08/combining-business-model-prototyping-customer-development-and-social-entrepreneurship.html viewed on 15/10/2014

http://www.nestle.com/csv/case-studies/AllCaseStudies/Ecolaboration-Nespresso-platform-sustainable-innovation viewed on 13th Oct 2014

http://www.nestle-nespresso.com/about-us/facts-and-figures viewed on 13th Oct 2014

George Tacke, Jochen Krauss, Fan Chen & Jan Haemer (2014) http://www.simon-kucher.com/sites/default/files/simon-kucher_global_pricing_study_2014_apac.pdf retrieved on 6th Nov 2014

http://www.sf-express.com/cn/en/news/SF-Best-Creates-the-Ultimate-Cold-Chain-Service-Door-to-Door-Distribution-of-Imported-Cold-Beers-During-FIFA-World-Cup-Brazil/ retrieved on 6^th Nov 2014.