Disrupt your Profit Formula

Why should you use this method?

• Adding value to an existing business model
• Identify ways to increase your company’s profit

How to disrupt a business model and add value?

There are three ways to disrupt a business model to general additional business value:

Frontstage Disruption: Unlocking new market potential by changing the target users and/or what and how value is delivered to them.

Backstage Disruption: Finding new ways to scale by changing how to create the value for your customers.

Profit formula disruption:

• Cost differentiators: Build a business model with a game-changing cost structure by doing things in disruptive new ways.

  • Eliminate the most costly and capital-intensive resources from the business model (Examples: Airbnb, Uber, Bharti Airtel)
  • Use technology in radically new ways (Examples: WhatsApp, Skype)
  • Combine activities, resources, and partners in new ways with disruptively low prices. (Examples: EasyJet, Ryanair, Trader Joe’s)

• Revenue differentiators: Find innovative ways to capture value, unlock previously unprofitable markets, and/or substantially increase revenues.

  • Generate recurring revenues from one-time sales. Advantages include compound revenue growth (new revenues stack up on top of existing revenues), lower cost of sales (sell once and earn recurrently), and predictability.
  • Lock customers in with a base product (razor) to generate recurring revenues from a consumable (blade) that customers need recurrently to benefit from the base product.
  • Offer basic products and services free of charge and premium services and advanced product features for a fee. The best freemium models acquire a large customer base and excel in converting a substantial percentage to paid users.
  • Offer the full value proposition for free or cheaply by subsidizing it through a strong alternative revenue stream. This differs from freemium, which only gives free access to a basic version of products and services.

• Margin masters: Achieve significantly higher margins than competitors by focusing on what customers are willing to pay for most while keeping your cost structure in check. Prioritize profitability over market share.

  • Significantly reduce costs and increase value at the same time. Eliminate the most costly resources, activities, and partners from your business model, even if that means limiting the value proposition. Instead, focus on features in the value proposition that a well-defined customer segment loves and is willing to pay for, but which are relatively cheap to provide. (Examples: CitizenM, Cirque de Soleil, Nintendo Wii)
  • Create products and services at the high end of the market spectrum for a broad range of high-end customers. Use these to maximize margins and avoid the small size and extreme cost structure of a luxury niche. (Example: iPhone)

How can you disrupt your profit formula?

There are three ways to disrupt a business model to general additional business value:

0. Before you start

Keep the existing business model canvas as a reference

1. Invite your team

Invite your team members for a short activity for brainstorming to create an alternate business model canvas

2. Fill the template

Using the questions in the template as prompts, fill in the answers you come up with during the brainstorming session. Focus on one question at a time!

3. Make changes

Make changes to the business model as per the ideas generated.

Additional resources:

• This categorization of business model disruption was introduced by the book “The invincible company.”
• Find inspiration on business model reconfiguration and profit formula structures on the website of the Business Model Navigator.