Here’s an example of how it works. For many years, I was a serial gym member. I was sucked in by offers of three free months’ membership if you joined for a year, or low weekly automatic payments that cleverly disguised the exorbitant annual total. The offers were usually made by willowy young women wearing t-shirts and track pants two or three sizes too small for them. I looked at them and then looked at myself, and thought, “I have seriously got to get in shape.” Invariably I joined on the spot, only to find when I went along to the gym that it wasn’t open or if it was, there were three hundred people waiting to use the rowing machine I wanted to use. My record was six visits to the gym over the course of an annual membership. When I finally did the maths and worked out that this was costing me over $200 per visit, I gave up on gyms altogether and resigned myself that my shape was always going to be out-of-shape. Until a new kind of gym (I’ll call it Anytime Fitness) opened nearby that offered no contracts, genuinely low fees, 24/7 access and worldwide coverage. I was hooked. I may even go there one day.

 

The fact that Anytime and Jetts are popping up everywhere while the “traditional” gyms seem to be fading away indicates that the new gyms’ business model is shaking up the industry. That is, it’s a “disruptive” model which is creating, delivering and capturing value in ways that no one had thought of before.

With new and disruptive business models popping up as frequently as the new gyms, in industries you’d never expect them to, it has become essential for all business owners to constantly ask themselves, “Is my business model in trouble?”

 

Believe it or not, Google started with no business model at all. After trying out all sorts of ideas, most of which were unprofitable, they hit on the simple idea of allowing businesses to advertise to people using their search engine. Hey presto, Adwords was born, last year earning a staggering USD$42.5 billion in revenue, about one-quarter of New Zealand’s total GDP for 2012.

Apple was struggling in 1997 when, in an act of desperation, they brought Steve Jobs back. Jobs refocused the company on doing what it does best, creating beautiful consumer electronics and serving the graphics, video editing and digital production markets. The rest is history.

Technology companies aren’t the only ones which need to change their business models to survive. Like department stores throughout the world, New Zealand's iconic Farmers Trading Company has morphed several times during the last thirty years to cope with competition from shopping malls and power retail centres, taking an “if you can’t beat ‘em, join ‘em” approach by going into the shopping malls and power centres.

Franchising businesses have often been slower to change because, unlike managed businesses, they first need to obtain the buy-in of franchisees. As we’ve observed in a previous article, McDonald’s was able to leverage their strong relationship with franchisees to make substantial and expensive changes to their menus and store formats in the noughties. This was a return to form for McDonald’s which, after all, was founded on three disruptive business models – fast food, franchising and property leasing.