Investor's Business Daily

Lead Into New Segments 

By Cord Cooper

Some of America's top firms have conquered new markets by changing their business models. Some have involved top-down overhauls, such as IBM's (IBM) shift to service.

Others have made bold moves to new niches — like Apple's (AAPL) leap into the music and phone segments.

Consider doing the same, says strategist Mark Johnson, author of the forthcoming book "Seizing the White Space: Business Model Innovation for Growth and Renewal."

Before launching:

• Score it. List "the assumptions critical to the success of (the new model) and then test them in a targeted" way, Johnson said. "At this stage, creative problem solving" is crucial.

Testing all aspects of the model is essential — whether the company is new or established.

No one knows this better than Scott Cook, founder of accounting software firm Intuit (INTU).

"For every one of our failures, we had spreadsheets that looked awesome," he once said.

"Cook learned through experience the value of focused testing," Johnson said. "Typically, new business initiatives fail because the people responsible for them take assumptions to be fact."

His advice: "Test early, test cheaply and test often."

• Slice it. "Identify a foothold market, a small geographic region or customer group that will serve as the low-cost laboratory," Johnson said.

Established firms need to keep the testing "free of interference from the (business's) core and the way it operates," he said.

Bold ideas can't thrive with a business-as-usual approach.

• Know the endgame. In addition to testing assumptions, correctly define what success will look like "and how you'll measure it," Johnson said. "Some of the best-conceived initiatives have gone down in flames from such common errors as an overeager push (to scale up) and lack of patience with a process that needs time."

Clear goals and a solid framework for success help avoid such pitfalls.

• Shift gears. Once the testing's been done, move to market quickly.

That doesn't mean flooring the gas pedal. It means accelerating in stages to control risks.

• Let them advertise. After launching the new model with a product rollout, bring top potential buyers into your guerilla-marketing campaigns, says strategist Patricia Seybold, author of "Outside Innovation: How Your Customers Will Co-Design Your Company's Future."

Also give them input on formal ad campaigns and marketing slogans.

• Buy it. Acquiring firms is another way to change business models.

Cisco (CSCO) has done it through scores of targeted buys, and in several cases it's kept the acquired firms separate.

"All too often, attempts to fold an acquired business into the core can kill what made it unique in the first place," Johnson said.

Another mistake: Many acquiring firms are more concerned with the front-end buy, not the back end — after the deal is done, according to a study by consulting agency A.T. Kearney.

The survey studied 115 mergers worldwide.

At nearly 80% of the firms, workers said management failed to create a clear vision after the merger was complete.

Solution? Target priorities upfront; ensure that they drive a well-planned strategy. 

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