The First Executive Imperative – Build the Right Business Model – What Google Has to Tell Us
What does an effective executive do? In my experience, effectiveness as an executive comes down to doing three things well: building the right business model, executing it, and rapidly leading learning to close the gap when the business model or execution is not where it needs to be. In this second article of a four part series, I’ll outline the necessity of building the right business model.
While it may seem hard to imagine, Google is only ten years old as a company. Can you imagine life without Google or even remember the time “P.G.” – Pre-Google? Today, Google has become a verb – it is not just a company, but it is something we do multiple times per day. We “Google” people to learn about them on the Internet and to search out all kinds of information on every subject under the sun. If you have installed a Google toolbar in your Internet browser, think about how ingrained Google has become to your daily life at home and at work. Google is now one of the most valuable brands on the planet.
What is behind Google’s rise to power? Some would say that they developed an innovative technology for searching the Internet. True, but new technology by itself did not get Google where it is today.
Google’s power lies in the power of its business model. By combining a technology innovation with a business model based on pay-per-click advertising, they have created tremendous wealth. In less than ten years, Google has grown from revenues of zero to over sixteen billion dollars. (Yes, that is billion, with a “b”).
Google’s impact has been so significant that all of the major technology companies are frantically reevaluating their strategy for how to compete. Even the mighty Microsoft spent the first part of 2008 attempting to purchase Yahoo! so that they could better compete in the changing environment. Yahoo!, which once dominated the Internet, is now struggling to adapt to the Google-dominated world. In roughly the same time span, Google’s fortunes rose while Yahoo!’s fell.
But it is not just the technology giants who are impacted by Google. Google is using their power, reach, and financial muscle to innovate in cell phones, health care, and energy.
And this isn’t just about big companies. This is about small businesses too. Google is impacting everyone’s business. Think about how you search for products or services. Where do you go first? Now think about how your customers, prospects, employees, and investors find out about your company. By making information so instantly accessible, everyone is affected.
If you are a travel agent, a real estate agent, a financial planner, a chiropractor, a distributor of industrial parts, a life coach – you participate in a business ecosystem where changes by big players and new players impact your business. Think about how your customers find you and how you seek information. Google’s impact on businesses of all types is immeasurable.
In the same ten year period of Google’s rise, we have seen numerous other examples of business model shifts across industries:
- The Apple iPod and iTunes music store have reshaped the music industry.
- Traditional newspapers continue to see their audiences and classified advertising revenue vanish as online alternatives for news (blogs) and advertising (e.g. Craiglist, eBay) have emerged.
- The network television model has changed dramatically due to developments such as reality TV shows (e.g. Survivor, American Idol), proliferation of cable channels, and digital video recorders like Tivo.
- Blockbuster and other traditional video rental businesses have faced the new threat posed by Netflix, which completely shifts the nature of video rental.
- The airlines and automakers have struggled to remain viable under the threat of rising oil prices, labor costs, and pension liabilities.
- The business model for the entire financial sector of our economy is in question and it is not clear what will emerge.
Even if you think your business model is sound today, consider two recent studies on the rate of change that companies must deal with today:
- In a 2004 cross-industry survey of senior executives conducted by Bain & Company, over 80% indicated that “the productive lives of their strategies were getting shorter” and over 70% said they expected to have significant new competitors within the next five years.
- By 2020, the average lifespan of a corporation on the S&P 500 index will shorten to 10 years, down from 50 years in the 1950’s as companies are created and destroyed more quickly. (Source: Creative Destruction, Richard Foster and Sarah Kaplan, 2001)
As the Google story and these studies suggest, no business is immune from change that will eventually threaten the core business. Even good business models eventually come under attack.
These realities lead me to the first imperative of the effective executive:
As the leader of the business, your first imperative is to make sure that you have the right business model to survive and thrive in a constantly changing environment. Even if your business model works today, you cannot operate as if your business model will work indefinitely. You must prepare yourself and your organization to shift your business model before it becomes necessary.
Do you have the right business model? If not, what are you doing about it?
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