Five Models for Sustainable Growth
Part One of a Five-Part Series
We’ve been receiving more and more inquiries lately about business model innovation. Companies recognize that their current models are becoming less effective, and that new upstarts are changing the game. It’s a fact: the lifespan of business models is shrinking, and companies cannot afford to stand still.
The challenge is deciding what model(s) to adopt.
While there are templates and canvases to provide structure, there’s also a dizzying array of new business model archetypes to choose from. To sort the wheat from the chaff, we’ve researched what leaders are doing and which models are most impactful.
First, our definition of business model:
The differentiated way in which a company creates and receives value — both societal (customers, partners, investors, stakeholders) and financial (sales, margins, cash flow, return on investment, shareholder gains). Models encompass products, services, operations, processes, capabilities, assets, channels, alliances, supply chains, and logistics. They are systemic; changing one element will change the rest. To succeed, all the pieces must fit together synchronistically.
Business models are not one-size-fits-all; depending on your core strengths and future goals, the structure will vary. Models can be and often are combined; you can also have several models in place at once. The key is going beyond products and processes; beyond what you’re doing today. The unique way you construct your model and execute is what will give you sustainable competitive advantage.
That said, we’ve identified five primary model archetypes that embrace the full spectrum of value creation in today’s digitally-driven, intensely competitive business environment. These are:
- Accelerators and Incubators — “test and launch with customers”
- Premium, Personalized, and Service-focused – “cater to the customer”
- Platforms and Ecosystems – “connect the customer & marketplace”
- Subscription/Rental Model – “retain the customer”
- Digital/Physical, Omnichannel – “own the customer”
While each has its own value proposition and situational applicability – all are focused on the customer. A company will typically choose one primary play, based on core strengths and strategic objectives.
This five-part series will look at what these models are, who’s using them, what value they create, and what capabilities you’ll need to execute.
We kick off with model #1: Accelerators & Incubators.
An innovation accelerator is a program to develop, test and grow new business ideas in a short time span, outside of the company’s every day activities. Typically, accelerators are fixed-term, cohort-based, mentorship-driven, and culminate in a graduation, pitch, or “demo day.”
An incubator is a multi-tenant facility providing affordable space and an environment that promotes the growth of small companies. Corporate incubators provide entrepreneurs with training, idea prototyping, mentorship particularly during the development phase (including specific vertical industry expertise), partner networks (including Venture Capitalists) and facilities.
While similar in that both help startups get off the ground, there are some key differences. First, accelerators invest in their startups, typically $20-100K in each company, whereas incubators don’t. Second, accelerators support startups in groups, also referred to as cohorts, and classes, whereas incubators do so on-demand. A corporation can start with a startup incubation model and progress to an acceleration model.
Who’s doing it, and what value are they creating?
Accelerators and incubators are gaining particular momentum in the consumer packaged-goods (CPG) industry, where many legacy companies have suffered stagnation—along with declines in sales and market share—while being disrupted by entrepreneurs. To remedy this, CEOs are turning to startups and small companies for fresh products, ideas, and marketing approaches. In exchange, they offer resources, facilities, and scale-up capabilities.
- One example is PepsiCo. The Hatchery, a food and beverage incubator in Chicago, helps provide entrepreneurs with resources and gets input from them to help PepsiCo think differently and act more nimbly. A proprietary incubator, The Hive, is a new internal entity that focuses on accelerating small and emerging brands that are both inside and outside the company.
- Another example was announced in February by P&G Ventures, an internal startup studio within Procter & Gamble, and M13, a full-service venture firm. This collaboration will leverage expertise in P&G’s consumer-inspired innovation and M13’s brand expertise, incubation capabilities, and funding to help accelerate the growth of selected consumer businesses. The goal is incubate and develop products and/or services into sustainable businesses that eventually could be folded back into one of P&G’s six sector business units.
- Mars Inc. recently launched its Seeds of Change Accelerator, and is seeking six U.S. and four Australian companies for its first cohort, with an application deadline of May 31. The SEEDS of CHANGE™ brand was founded in 1989 with a mission to change the way we produce and eat food, from the ground up. The Accelerator represents the next step of that mission. It offers grants ($25,000 no-strings attached upon acceptance, with variable grants up to $25,000 to fast-track growth) plus a customized 4-month program for each company in their biggest need areas, delivered via hands-on mentorship from top leaders at Mars and its comprehensive external network of successful entrepreneurs, investors, and subject-experts.
- Nestlé is creating a Swiss R&D accelerator to bring together Nestlé scientists, students and start-ups with the ambition of accelerating the development of innovative products and systems. Internal, external or mixed teams will be eligible to use dedicated hot desks over a defined period of time and will be provided with access to Nestlé’s research expertise and infrastructure, including shared labs, kitchens, bench-scale and pilot scale equipment. Stefan Palzer, CTO of Nestlé, says this endeavor “will create an innovation power-house.”
- Last but not least, a more global approach is being taken by Givaudan. The company ispartnering with Israeli start-up incubator The Kitchen to “expand its innovation ecosystem” and connect with Israel-based food entrepreneurs. Givaudan gains access and visibility to one of the world’s leading food tech ecosystems while The Kitchen and its portfolio companies gain access to expertise, know-how and global markets.
These are just a few examples. Numerous programs are underway in CPG and other industries as well. Companies ranging from Dupont and Johnson & Johnson to Sam’s Club and Kroger are leveraging accelerators and incubators to jumpstart innovation.
Summary
The Accelerator/Incubator is a great way for both established firms and startups to test and launch new products – as well as new business models — rapidly. The environment is conducive to collaboration. These models also offer the opportunity to experiment with startup organizational approaches; to manage internal groups using startup company structures (flat management, open communication) which help develop high performance organizations. The ultimate value is in the successful launch of new businesses, though the value in the learning that takes place is also significant, regardless of outcome.
For more insight: Obtain a copy of our new briefing report 5 Business Models for Sustainable Growth (here) and keep following this blog series which builds on the report. We welcome your questions/challenges anytime; will either reply personally or address in future blog posts. Email me at cperkins@innovationedge.com or call 920-967-0460