Business Model Innovation

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Implementing Lean Marketing Systems

The Innovation Junkie Guest was Saul Kaplan

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An Innovation Junkie Interviewed Copyright Business901

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Implementing Lean Marketing Systems Saul Kaplan is the founder and chief catalyst of the Business Innovation Factory (BIF), a real-world laboratory for exploring and testing new business models and social systems. BIF has attracted a global community of over 5,000 innovators and organizes the internationally renowned BIF Collaborative Innovation Summit. Saul shares his innovation musings on Twitter (@skap5) and his blog (It’s Saul Connected), and as regular contributor to the Harvard Business Review, Fortune, and Bloomberg Businessweek.

Business models don’t last as long as they used to. Historically executives have managed a single business model over their entire careers. Today companies must be capable of designing, prototyping, and experimenting with new business models. Executives will have to launch two to three new business models over their careers. They are not prepared, and corporate innovation efforts focus only on improving performance of existing business models.

This book provides all executives with the tools and survival skills to create a pipeline of new business models in the face of disruptive markets and competition. It will provide an actionable roadmap for executives and workers at all levels to avoid being “netflixed” by doing R&D for new business models.

Transcription of the Podcast An Innovation Junkie Interviewed Copyright Business901

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Implementing Lean Marketing Systems Joe Dager: Welcome everyone. This is Joe Dager, the host of Business901 Podcast. With me today is Saul Kaplan. He is the founder and chief catalyst of the Business Innovation Factory, a real-world laboratory for exploring and testing business models and social systems. Saul, I would like to start the conversation by talking about your book and maybe what caused you to write it, "The Business Model Innovation Factory."

Saul Kaplan: Well, Joe, first of all, thank you for having me. It's great to be with you today. It's a joy to be out talking about the book. It's a lot more fun than writing it. It's really been a labor of love. I'm really just an innovation junkie. I believe there's always a better way in arranging from small nuisance things to a very large social system changes that I think we need here in the 21st century.

"Business Model Innovation Factory" is a book that describes my experience and the experience of an incredible team, here at BIF, the Business Innovation Factory, the nonprofit that I founded. We help people, organizations, and communities that want to go from tweaks to transformations. We're good at tweaks.

We're good at making incremental changes and improving the efficiency of the way things work today, and that's great, but it's nowhere near enough of what I call "market making."

Going from share taking to market making, and that's what the book is really about.

Joe: Can you expand on it and tell me what market making means?

Saul: I'm a passionate market maker, and I differentiate it from share taking. Most people and organizations focus on well-defined markets and the competitive day to day struggle of taking one more share point. That's an important activity and one that most organizations An Innovation Junkie Interviewed Copyright Business901

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Implementing Lean Marketing Systems focus on. But there's nowhere near enough capacity for doing what I call "market making."

Not competing for one more share point in an existing market but actually creating new markets. Or entirely new ways to create, deliver, and capture value. I'm fascinated by the market makers out there, the approach that you can take as an individual, as a leader, in an organization, or as a leader in your community to creating new markets or new approaches. I believe in the 21st century, that our era screams for transformation, and we need to all get better at what that means, and rolling up our sleeves and getting on with it.

Joe: What differentiates this thought from the "Blue ocean" strategy?

Saul: There are a lot of similarities actually in the "Blue ocean" strategy. It's a very compelling approach. The approach that I focus on is on business model innovation. Most know how to improve the performance of a current business model, and there are a ton of books, a ton of consultants and a ton of leaders out there that can help advise us on ways to make incremental improvements in our current business model. To me, a business model is just a story of how any organization creates, delivers, and captures value. What we're not good at is re-inventing our business model, or experimenting with new business models. I talk in the book about the example Blockbuster and Netflix. I turned it into a verb and say our goal in the 21st century is to avoid being "Netflixed," or to be disrupted by a leader or organization that goes about the marketplace in a very, very different way, leaving us blindsided, and like in the Blockbuster story; they're completely befuddled in terms of the fact that they're just stuck in their existing bricks and mortar business model.

They needed to figure out how to experiment with different approaches and Netflix came along and completely disrupted them.

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Implementing Lean Marketing Systems Saul: No, that's a really important question. I don't think it's an, either or. I think the challenge of leaders in the 21st century is "and." We have to be able to scale and improve the efficiencies of our current business models. That's where a lot of the continuous improvement and L approaches have been very, very helpful. Those are very important activities. But I think in a world where you're vulnerable to being disrupted, you're going to have to do those things, and in addition to that, you're going to need to create platforms and tools that will enable you to experiment with completely new business models. T is the hard part, even those that might disrupt the current ones. T tools are very different from the tools that we use when we're trying to improve the efficiency of the way our organizations work today. You need to do both.

I use the label of The Business Model Innovation Factory, or creating a sandbox, where you're able to play with the design, the prototyping, and testing of entirely new business models. I think you have to do both. Most leaders know how to do the efficiency piece -- to continue to pedal the bicycle of the way the business works today. Very few know how to set up a Business Model Innovation Factory or a sandbox for experimentation of entirely new business models. That's what I focus on in the book.

Joe: Will this take a co-creation platform or co-producing platform, is that where we are headed?

Saul: I think that's part of it. I think one of the principles that any business model innovator shares this notion it's bigger than any one of us. We need to learn to combine and re-combine capabilities in completely new and different ways. I often say that business model innovation doesn't require you to invent anything new. Too many people conflate An Innovation Junkie Interviewed Copyright Business901

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Implementing Lean Marketing Systems invention and innovation. I think they're different. I'm thrilled that we celebrate a culture of invention in this country, but to me, it's not an innovation until it actually solves a problem in the real world, until it actually delivers value. I define innovation as a better way to deliver value. So it's really important to differentiate those two.

One of the tools that any innovator uses is what I call "collaborative innovation," knowing that they don't have all the capabilities necessary within the company, and oftentimes, we need to look for capabilities outside of the organization. I is about playing with the parts.

It's about combining and re-combining them to figure out new ways to solve a customer problem and new ways to deliver value.

The problem a lot of organizations have is they think they're stuck with just the parts that are within the four walls of the company, and those parts are usually very, very busy trying to deliver value the way the company currently operates, which is why Blockbuster couldn't figure out how to experiment with the Netflix business model. That's why Netflix is struggling today even at risk of being Netflix themselves, because there's a new set of technologies that enable us to get movies in an entirely new and different way. They're trying to figure out what the right business model is for them.

I think all leaders need to learn how to do R&D for new business models while they're still pedaling the bicycle of the current one. That's the leadership challenge of the 21st century.

Joe: It sounds very close similar to the Lean S and Alex Osterwalder's "Business Model Generation." What makes your thoughts different?

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Implementing Lean Marketing Systems Saul: A lot of us that focus on business model innovation are all actively trying to put these ideas into the marketplace and into the hands of leaders. Alex is a good friend; "Business Model Generation" is a fantastic book. I use the business model canvas as a template in my book, "Business Model Innovation Factory." This is the new strategic imperative, and there aren't enough of us talking about and focusing on business model innovation as a strategic weapon. Too many of us are focused on efficiencies and improvement within the current business model, and we need to open up this area of exploration, create a new set of tools, and then help leaders -- companies, governments of non-profits and for--profits -- figure out how they can do more ongoing experimentation.

I think we're just at the beginning of this wave, and I'm glad that there are other voices out there, because it's bigger than any one of us.

The principle you just mentioned is really important. It's about our customers; it's about human behavior and the needs of the customers whom we are trying to serve. The tool that we use to ignite business model innovation is to try to change the conversation from thinking about the world to lengths of your current company or organization, which we are all wired to do, and changing that conversation to think about it through the lens or from the perspective of the end user or customer.

It's then and only then that we can start to understand and begin to conceive out entirely new ways to deliver value. That is what business model innovation is all about. That's how you get from making tweaks to the current business model, which is about making the current way you go to market more effective and understanding the customer, what they value, what their current experience is. Then designing ways to improve their experience, An Innovation Junkie Interviewed Copyright Business901

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Implementing Lean Marketing Systems or to solve the problems or jobs that they are trying to do, and to conceive new approaches to do that are not constrained by the current business model. Because if you don't think through those alternative models, even the ones that might disrupt the way you work today, someone else will and then the 21st century the half-life of of these business models is declining.

So you are very vulnerable to being Netflixed, or being disrupted, if you don't figure out how to move more quickly from new business model ideas that live on a white board, and getting them into the real world where we can explore and test them.

Joe: I look at business model innovation; I think about it, for a standard company, is it really realistic to be changing from building business model after business model?

Saul: We need to try more stuff, so I think we need to do more rapid cycles, from ideas to prototypes to testing them in the real world. So no, we are not going to scale them all, but we can test them, we can find the conditions in the real world that will allow us to explore new business models, and we can do it cheaply, and we can do it quickly. I love watching the way the millennial generation is experimenting with business models, particularly digital ones. We are dinosaurs; we spend months and months and months analyzing and thinking about it and having team meetings before we even get comfortable building some type of prototype of something, particularly new business models that are enabled online.

Millennials are back 24 hours later and they have got a mock-up of a website, with a transaction engine attached to it, and they are actually experimenting with whether the business model works or not, while we are still sitting around in conference rooms and meetings.

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Implementing Lean Marketing Systems We are going to have to get much better at experimenting all the time, learning how to fail faster with ideas that don't make sense and can't scale and learning how to harvest those that do.

Joe: Can a mature company afford to take that risk, with their brand to do that type of experimentation out there and be transparent with the customer?

Saul: I would put a counter argument out. Can a mature company afford not to? How many "mature companies" are incredibly vulnerable to being Netflixed to having somebody new come into their space that does not compete in the traditional industry the way they define it, that is not interested in taking a share of point away from them, but is interested in completely redefining the market and how value is delivered to a customer. If you are a leader, and you are watching this activity go on today, and you don't have the capacity to understand it, to do some experimentation of the various models might work, you are going to be disrupted.

I tell the story in the book, about Sony Corporation. Here is a company that is in a world of hurt right now. They watched the entire music business get swept away from them by Steve Jobs and Apple. Should that really have happened to Sony? Think about it, they had a huge division that was in the music business, had under contract some of the world's greatest star performing artists, and had another huge division that made the coolest products and new technologies. It even brought us the Walkman for heaven's sake. I am old enough to have had one.

Everybody had one. What happened to Sony? They had all the parts, all the capability that they needed to change the way music was enjoyed, and delivered to consumers. But they An Innovation Junkie Interviewed Copyright Business901

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Implementing Lean Marketing Systems were so stuck in their current business model, and the political infighting between the divisions, that they couldn't do experiments that recombined the parts to do what Steve Jobs ultimately did. Companies the size of Sony, they want to stay competitive, are going to have to create the platforms and the sandboxes to do that experimentation, and put resources in there to be able to play with new business models, because if they don't, someone is going to come along like Apple did, and take them down. This is not going to be the exception in the 21st century; this is going to be the rule.

How do you do that is what I outlined in the book. We don't have all the answers, but we have a lot of experience, tell and share a lot of stories about how you go from tweaks to transformation, and we are beginning a conversation with like-minded innovation junkies, to be able to explore those ideas and put them into practice.

Joe: How do you work with people? How does BIF work with people?

Saul: BIF is a nonprofit, with a mission, to enable a transformation, business models and our complex social systems, little things like education, healthcare, energy and entrepreneurship. These are all systems level challenges, and the only way we are going to make progress in my view is if we learn to experiment with new systems level solutions.

BIF has been building a community of innovation junkies. They come from every industry, from every part of our society, and they have been connecting to each other and to our platform for the last eight years. We hold a very, very cool collaborative summit, which is a celebration of the work that we do every year.

This year, it's September 19th and 20th, here in Providence, Rhode Island. About 400, like--minded innovation junkies will come to Providence for two days of total immersion in An Innovation Junkie Interviewed Copyright Business901

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Implementing Lean Marketing Systems some of the most compelling and inspiring stories of transformation that you have ever heard. It's the most inspiring two days. I look forward to it every year. We end up filling a very cool theater, and it's just a remarkable couple of days, so anybody listening should check out BIF-8, this is our 8th year of doing it. You could find the information about it on our website businessinovationfactory.com.

We hold events like that. We have a series of labs; we call them experience labs, where we do our project work. Our projects are all sponsored projects by organizations within our community that want to go up this learning curve, business model innovation and systems level change, and we learn every day, and we share what we learn back with the organizations that sponsor our work, and participate in our community. It is a very exiting community that is; I think, working to co-create our future and helping us all go up that steep learning curve.

Joe: It sounds very interesting. What would you tell a small business guy? This sounds good for the startup guy to be able to do this because I got a blank slate to deal with. I can just start doing this; a bigger company can allocate resources to be able to do it. We get to a smaller company or a mid-sized company, and there are not that many resources to go around. I know I have to commit to it, but how would I organize something like this within a small company?

Saul: Small companies obviously have the advantage, because they are not as entrenched in a single business model. In fact, we learn a lot from entrepreneurs. One of our labs is called the Entrepreneur Experience Lab. It's a partnership with Babson College, one of the best entrepreneurial education centers in the world. What we learn from talking An Innovation Junkie Interviewed Copyright Business901

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Implementing Lean Marketing Systems with entrepreneurs all over the country, and all over the world, is exactly what we have been talking about. No entrepreneur ever gets it right on the first try. If you talk to most entrepreneurs, it takes three, four, five attempts to get to the right business model.

Business plans are just put together because that's what investors want to see, but they're no semblance to the way that the business model evolves in the real world.

So we can learn a lot about business model innovation from entrepreneurs. Now, the trick, of course, is, once you land on a business model that works and has the promise to scale, then you've got to be able to do both things. You've got to be able to scale that business model and at the same time you're going to have to be thinking about potential new ones because the business model isn't going to last as long as they used to, and that's the trick -- the balancing act between scaling and making the current business model efficient and contemplating, experimenting and testing with new ones.

Joe: How would I keep that alive? I'm sitting here scaling their company, but I want to keep that innovation alive. Do I have to, let's say turn that over or do I hire someone to scale it like a Sculley? That may be the wrong example. And leave me to innovate on the side? How do you do something like that?

Saul: If we stay focused on business model innovation, right? There's a whole other part of the innovation continuum which is about how I innovate within the current business model. How do I add new products, new services? How do I improve the capabilities?

That's where a lot of the work that you, and your network folks has done Lean and other tools. It really is useful. They're important so I don't want to dismiss those. But for the

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Implementing Lean Marketing Systems sake of this conversation, talking about transformational business model change, I think you have to create a sandbox.

I often talk about it as a connected adjacency. I think the sandbox has to have enough autonomy to be able to wrap its cycle and test new business models. It has to have the resources. It requires senior management to run interference and to handle potential conflicts. Because the minute that team wants to explore anything that even smells like it might be disruptive, all the line managers in the core model are going to resist it, some subtly and some not so subtly. So it requires some strong leadership from the top.

It also needs to be connected to the core business model. It needs to be able to borrow capabilities, rather than reinvent them so that it can do its business model experiments. It should be a way to move people in and across the platform. People should be free to dip their toe in the water of the innovation platforms. It shouldn't be an isolated unit.

I think people should move back and forth, as they are moving up the career ladder, to work alternatively on ways to scale the existing business model and to be thinking about and experimenting with the next one.

We should move people back and forth so it doesn't become a deep silo with big walls between it that we can't move capabilities and ideas fluidly back and forth.

Of course, this is easier for me to say than it is to do and that's why I wrote the book. To begin to put that down on paper and to begin to have the conversation with leaders about, what does it really take to create a Business Model Innovation Factory and how do I balance both of those important activities?

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Implementing Lean Marketing Systems Joe: I think you really hit the nail on the head. Because when you look at Apple, for example, you have the iPod and the iTunes but the iPhone still was connected to the iPod, a lot of similarities, and a lot of overlapping features. Then when you go to the iPad, it's the same thing. There are a lot of overlapping features, a lot of things that are all connected. The interesting thing about Apple is that you can lay all of their products, practically, on one table.

Saul: Yeah. The story I love to tell, and I told in the book is how they created the Apple Store which completely changed the customer experience. It's a great story. If you read the Steve Jobs book by Eisenberg, he talks about it there, as well.

Imagine this. Imagine the day that Steve Jobs came in and said to the entire team that, "We're going to create an Apple Store and sell directly to our end customer." Now, at the time, their business model was to sell all of their products through value added resellers, like Sears and CompUSA. Imagine all the layers of management, all the incentives, and everything lined up to maximize the leverage of those channels, all the customer relationships.

So, Steve Jobs comes in and says, "We're going to create and open an Apple Store." Now, imagine what all of those line managers thought and said.

But Steve Jobs knew how to balance both of those activities. "You keep doing what you're doing now, to deliver the near term operating objectives of the business. We're going to come over here, and we're going to completely redesign the customer experience."

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Implementing Lean Marketing Systems He literally built a store. He built a store and the way that Eisenberg tells it; he lived there for a year, literally lived there. He totally immersed in all the details of that customer experience.

They got very close to wanting to open the first store and one night, Steve Jobs in the middle of the night says, we're doing it all wrong. We've organized it around our product groupings, which is what most of the companies do because they see the world through the lens of their current business model.

But he said that's not how customers use our products and technology. We should completely redesign this store and the customer experience for the way customer's value and think about these technologies.

He literally went in there and they completely re-did it. I think they might have had 60 days left before the opening. They just completely re-did everything from the previous year, made their deadline, opened the store, and of course, now we all know how important the Apple Store is and that's where we go to see and touch and feel the products. Then they were online to buy them.

They completely changed their business model. They reinvented it while they were pedaling the bicycle of the old one. Then when the time was right, they moved to the new one that completely changed the way we think about and buy Apple products.

It's a great example of creating a Business Model Innovation Factory that knows how to do both of those things. We can all learn from that.

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Implementing Lean Marketing Systems Joe: I find a lot of humor in what you said there when I think of the remarkable channels that they were going through before, the CompUSA and Sears.

Saul: No, but think about it. You can take almost any mature business, right? I mean, you can think about any mature business; it has a very well--honed way to go to market. The way it creates, delivers, and captures value. That's a good thing and there's nothing wrong with that. Now, we do a lot of things to improve the efficiency of that. But none of that is going to prevent that mature business from being disrupted by someone who comes at it from a completely different way. We have to learn how to disrupt ourselves, rather than waiting for someone or another organization to disrupt us.

I think this is true for us as individuals. I think it's true certainly for organizations, and I think it's also true for our communities. We're not going to have the 21st century that we all want until we learn how to be more experimental and how to carve out the conditions in the real world to try more stuff.

Joe: Well, it sounds great. Steve Jobs can pull this off. Saul Kaplan can pull this off. But can Joe Dager, this normal guy with his normal company, pull something like this off?

Saul: Even putting my name in the same sentence with Steve Jobs, I think I'm a lot closer to you Joe than to Steve. I'm a dinosaur; I've had to scratch and claw my way up that learning curve. I think it starts with recognizing that the way things have worked is not the way that things are going to work going forward. It starts with being more than just a little worried about being disrupted or being displaced as an individual or as a company. Then it starts by being willing to learn and to explore and connecting with others that are.

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Implementing Lean Marketing Systems I think the imperative for all of us is to get better faster. We have to take advantage of every day where we can learn a new set of skills and gain a new experience if we want to stay relevant.

I don't think there is any magic bullet here. I think that there's just recognition that we need to get better faster and then beginning to put ourselves into places and connecting with people and events that can help us do that.

Joe: Is there anything that you would like to add that maybe I didn't ask you? A parting thought here.

Saul: First of all, it's a great conversation, and I enjoyed the questionings. I really appreciate the opportunity to share some of these thoughts. Obviously, I'd like a lot of people to read the "Business Model Innovation Factory" and share their thoughts and ideas with me. If you're interested please check out the Business Innovation Factory, BIF. Take a look at what we're doing.

There's lot of different ways to connect with us, including the BIF-8, the summit that I talked about earlier in the conversation.

I just look forward to continuing the conversation and connecting with logs of new, like minded innovation junkies so that we can get on with co-creating a better future.

Joe: Could you repeat your website?

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Implementing Lean Marketing Systems Saul: For the book, if you want to check that out, it is bmifbook.com. There you can download the introduction to the book and learn a bit more about it. You can see where I am talking about the book. The website for BIF is businessinnovationfactory.com.

Joe: I'd like to thank you very much. This Podcast will be available in the Business901 blog site and also the Business 901 iTunes site. Thanks again.

Saul: Joe, thanks so much for taking the time. I appreciate it. Good conversation.

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Implementing Lean Marketing Systems Joseph T. Dager Lean Marketing Systems Ph: 260-438-0411 Fax: 260-818-2022 Email: jtdager@business901.com Web/Blog: http://www.business901.com Twitter: @business901 What others say: In the past 20 years, Joe and I have collaborated on many difficult issues. Joe's ability to combine his expertise with "out of the box" thinking is unsurpassed. He has always delivered quickly, cost effectively and with ingenuity. A brilliant mind that is always a pleasure to work with." James R. Joe Dager is President of Business901, a progressive company providing direction in areas such as Lean Marketing, Product Marketing, Product Launches and Re-Launches. As a Lean Six Sigma Black Belt, Business901 provides and implements marketing, project and performance planning methodologies in small businesses. The simplicity of a single flexible model will create clarity for your staff and as a result better execution. My goal is to allow you spend your time on the need versus the plan.

An example of how we may work: Business901 could start with a consulting style utilizing an individual from your organization or a virtual assistance that is well versed in our principles. We have capabilities to plug virtually any marketing function into your process immediately. As proficiencies develop, Business901 moves into a coach’s role supporting the process as needed. The goal of implementing a system is that the processes will become a habit and not an event.

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