November 8, 2022
What do Netflix, Dollar Shave Club, Apple, and Cirque du Soleil all have in common?
According to William Kilmer, author of Transformative, these companies all did something none of their competitors could: transformed their business model to create entirely new markets while making their competitors struggle to keep up.
It’s the holy grail for a company. To become so successful their customers can’t live without their product, and certainly wouldn’t want to. But how do they get to that point? There are oodles of stories about companies breaking away from their archrivals with an innovative product or service, only to quickly fail. Remember Colgate lasagna?
In his new book, William lays out what he believes makes companies truly transformative. Then, how to make that transformation stick. I reached out and asked a few questions about the relationship between transformation, innovation, and delivering value to customers.
Why write this book now? What’s changed in the market that you felt it was time to write about innovation and transformative companies?
We are in a period of continued technological change. As I lay out in the book, so much of it is helpful for leaders to adopt, but too often we lose track of our goal to significantly improve the customer’s outcome. This book is designed to help leaders learn how to take advantage of changes and new trends and identify opportunities they can build and scale to create new markets they can win. Transformative helps leaders center themselves in doing that by focusing on how to innovate to build new markets and align their organization to achieve it.
In the book, you mention your 3-step process for creating transformative companies.
1) Build a game-changing innovation strategy
2) Innovate to win
3) Retool your organization for success
In step one of that process “build a game-changing innovation strategy”, you tell folks to become obsessed with their customers and change their focus from “how efficiently can we make a product or service” to “how closely we can solve the customers’ problems”. Why is that the key to being transformative?
The key is to focus first and foremost on changing the customer outcome—bringing them something so new, that it changes the dynamics of the market. Often, it brings new consumers who are underserved or not served first, but eventually the majority of the market moves towards the solution, literally shifting the market to your favor.
That sounds like a bold move, but often it is as easy as adding something different to the customer outcome. One excellent example in the book is Dollar Shave Club. On one level you can view them as mail delivery of razor blades; at another level they succeeded by building a community of individuals who cared about their grooming and were seeking advice and the full suite of products to help them. It’s still giving the customer what they want, razors, but the sense of community, convenience, and personalization shifted the market so much that they built a billion-dollar business out of it.
You also mention the four principles of transformative framework:
1) Game-changing innovation is founded on building different and better outcomes
2) Structural innovation improves outcome innovation and delivers distinct strategic advantages
3) It’s easiest to enter and lead markets that are shifting and expanding
4) Organizational culture sustains ongoing innovation and adaptation
Principle two of that framework asks folks to rethink and reframe traditional strengths and weaknesses, then flip them on their head. One example you give in the book is Dollar Shave Club flipping the business model that Gillette and Schick had dominated for years. Can you say more about that? How were they able to enter an already saturated and established market and turn traditional strengths into weaknesses?
Both the strength and weakness of incumbent businesses is that they have set themselves up to optimize for the efficient delivery of a solution. That’s a strength because they have built the competencies, but it’s a weakness because it’s hard to move from what they do well. As a challenger, if you introduce a new product that incumbents can reproduce based on their own capabilities and strengths, it’s unlikely you will win. If however, it requires new capabilities, they will hardly ever respond in time.
When we look back at Netflix taking on Blockbuster Video back in the early 2000s, the fact that Netflix was providing DVDs by mail wasn’t so much of an issue as it was that Blockbuster had already invested in more than 9,000 stores to fulfill movies locally. It just wasn’t what they did well. Likewise, when Apple took on Nokia and Motorola for the smartphone market, Apple’s advantage was in software, while they were largely hardware companies. They had to change who they were and what capabilities they had just to compete. That is what I call the power of structural innovation.
You also give a fantastic list of the five traits of outcome innovators, or the companies that are truly transformative.
1) Take ownership of the customer outcome
2) Work backward
3) Flip the script
4) Change consumption models
5) Master flow
One great example you give for changing consumption models (where, how, and how often a customer consumes the product/service) is Netflix and how they eventually killed Blockbuster by changing how people consume movies. Even in all three versions they’ve gone through! (DVD subscriptions by mail, video streaming, and creating their own shows and content) How was Netflix able to create a new consumption model? What did they understand about the customer that Blockbuster missed?
What Netflix understood that Blockbuster didn’t was that Netflix was giving people a fundamentally different customer outcome. It was essentially offering a subscription library of DVDs that gave consumers a long tail of movies they could choose from–documentaries, TV series, obscure movies. That was something that Blockbuster would have a hard time fulfilling from their stores. Netflix CEO Reed Hastings understood this when he said, “the real problem we are trying to solve is, ‘How do you transform movie selection so that consumers can find a steady stream of movies they love?’”
And a new consumption model came because of it—slowly consuming that long tail of movies. By the way, that same question has led Netflix through those three iterations you mentioned: DVD subscription, video streaming, and creating their own content. And with each there has been a new consumption model (long tail, streaming on demand, and now binge watching).
Finally, what’s the first thing you encourage readers to do after they read your book?
I would encourage them to have their team read Transformative as well and sit down together and ask, “How can this apply to our organization?” In particular, I’d encourage them to think about how they can change their customer outcomes to create new opportunities.
Most CEOs believe their next big competitor is going to come from outside their industry. I would hope they can use Transformative to think about how they will transform their own industry before someone else does.
For more on William and his book, Transformative, check out his website williamkilmer.com
Want to know more about how to transform your business? Check out:
Len Herstein on Staying Vigilant in Business
