I have written many articles about innovation. I believe that as an individual and a business, one must constantly innovate in order to continuously grow and evolve. Many of my past articles have focused on product innovation – a crucial element for differentiating a consumer product and the ultimate success of the company.
As I make my way through “Not For Free” by Saul J. Berman I have noticed an expansion in my thinking. True, product innovation is important, but it appears that it is only the beginning. Berman’s work has expanded my mind to consider not only innovating the product, but the business model, and now the revenue path within the business model. Here is why the revenue innovation matters as stated in “Not For Free”:
1. Relative simplicity. Industry innovation, enterprise innovation, and revenue innovation are all complex and difficult to achieve, but each is less complex than the one before. For industries and firms that are struggling with stagnant or declining revenue, there is an urgent need to stem, if not stop, the bleeding. Revenue innovation offers the fastest business model innovation path to new revenue streams, certainly far faster and less expensive than the effort required for industry and enterprise innovation.
2. Transformational solution. In situations where industries are being radically transformed or firms are facing bankruptcy or collapse and more extensive business model innovation is required, revenue innovation can often provide several vital benefits: (a) generate funding from more extensive innovation efforts by locating new sources of revenue from existing assets; (b) provide needed insight into how customers and markets are changing, which will guide further innovation; and (c) give a reeling company a few short-term wins and, with them, the confidence it needs to drive more extensive change. Revenue innovation can be a powerful antidote to the fourth stage of decline documented by Jim Collins in “How The Mighty Fall”, where companies often cast wildly about trying to find salvation.
3. Short-term experimentation. Revenue innovation allows for smaller-scale, shorter-term experiments. These efforts help firms identify key talent and unexpected barriers to innovation, and they allow them to derive lessons to apply to more intensive innovation efforts.
In hindsight I have experienced firsthand the benefits of revenue innovation, albeit on a smaller scale. After productizing, key challenges are distribution and pricing, both of which require some degree of experimentation with the revenue model. I suspect that just as with product innovation, revenue model innovation will be an ongoing evolution as the business scales.
1. Jim Collins. How The Mighty Fall:
2. J.R. Sedivy. Business Model Innovation Approaches:
3. Saul J. Berman. Not For Free: