Some of the most prominent startups on the planet are basically new ways to interface with old business models while some invent the new models that change the world. Which are you doing?
I had a day where for one reason or another I had to plan a trip on Expedia, book a train on Trainline and order takeout from JustEat (on account of being too busy to cook because of booking trips). I thought about how all of these companies are primarily better interfaces into old (sometimes ancient) business models rather than something entirely new.
JustEat is a layer over the takeaway business that makes ordering (and re-ordering) a better experience because I do not have to talk to anyone, feel guilty about the amount I am ordering or guess the menu. Their business model is that they take a fee for each order.
Trainline is a way to circumvent the god awful experience of booking a train ticket in the UK through a train operating company. It makes it easier to plan journeys, compare prices and keep my ticket on my phone rather than printing 100 pieces of paper to get from Birmingham to Coventry. Again, the business model is that they take a cut.
Expedia brings trip planning together so that I make better decisions on flights and accommodation rather than having a few thousand tabs open. The business model? A cut.
Trainline is a better way to buy tickets because anything is better than buying direct.
There’s nothing that innovative about the models of these companies. Yes, they create value, we would not use them otherwise. However, despite their combined valuation of $26,000,000,000 they are merely (and rightly) exploiting the lack of digital capability in cumbersome sectors and performing the role of the platform in exchange for a fee. They are filling the experience vacuum, and the same goes for countless others. What they are doing is what I would describe as front-end innovation.
On the other hand, some genuinely world-changing companies have built entirely new business models when you consider the likes of Google, Amazon, and Facebook (over $1,000,000,000,000 combined valuation). It is not a better interface into anything we already know. It is something we did not know we needed until we saw it.
You are doing front-end innovation (or FEI as absolutely nobody is calling it) if you are searching for better ways for customers to experience an existing product. Lately, some of the examples of FEI we have been working on are:
A better way for passengers to get to and from train stations
A better way for guests to pay for and use WiFi networks
A better way for teachers to get the books they need for class
BookLender is a better way for teachers and kids to get the books they need.
Aside from the fact that they all generate revenue because they are better experiences the commonality is just that. They are better ways to interface with old models. There’s nothing new about getting to the station, connecting to a WiFi network or getting school books and that is fine — we are just starting with the customer rather than the proposition.
Back-end innovation happens when an innovation team is focused on business R&D as well as solving common customer problems. Some of the BEI I’ve been working on are:
A business model and proposition for getting things delivered to your car
A business model and proposition for allowing remote home access
A business model and proposition for a new way to shave
These are all about developing the radically new. They are the kind of propositions that might initially take customers by surprise. Rather than starting with customer problems, they are beginning with customer jobs to be done, going away and figuring out entirely unfamiliar ways to get those jobs done with a wholly new product rather than a better route into an existing product.
One of these is not better than the other. The important thing is to have a balance of both focusing on solving customer problems as well as concentrating on inventing new propositions to test with them.
Some innovation solves problems in new ways — some solves problems in unprecedented ways.
Some companies are doing neither; some are doing one, and the best are doing both. I wish established companies were doing more of both (or any!) and capturing the value from better experiences and better business models.
The idea that supermarket companies are not doing front-end innovation to challenge the likes of Hello Fresh is bonkers. The notion that banks are not doing back-end innovation and fundamentally changing business models is also nuts (maybe they secretly are).