How to Know When to Change Your Business Model
Ideally, the time for a pivot isn't when you're in trouble, but when your business is humming along smoothly.
Batteries Plus Bulbs CEO Russ Reynolds would know. The 26-year-old company recently added light bulbs to its lineup, as well as device repair--the former a major initiative requiring two years to implement, and the latter an easier score which will only take six months to roll out.
He points to McDonald's as a prime example of a company that proactively sought transformative growth when it added barista bars to its 14,000 U.S. stores in 2008, during a time when the fast food chain was entering its sixth year of a turnaround. The Wall Street Journal at the time said the program was predicted to add $1 billion to McDonald's annual sales.
It was a major shift. "There's a whole labor component that didn't exist in their stores when they used to have to turn around and just pour you a cup of coffee and put a lid on it," Reynolds says.
But how do you know when to make such a gamble? Reynolds says you need to ask a couple of key questions.
Will the customer give us permission to play?
"Meaning, is it something that over time we can develop some share of mind awareness as a destination or is it something that's going to be too much of a leap?" he says. "For us, opportunities like light bulbs as we did some research, tested in some stores it became very clear that we were going to have permission to play."
Do we have the capacity to play?
The time for changing your business model isn't when you're already overhauling your IT infrastructure or undertaking some other huge initiative. "We would have not gone into light bulbs if we were going through an ERP implementation and changing our point-of-sale system at the same time," he says. "You don't land all the planes at once."
To determine the kind of time, energy and money would go into adding light bulbs and device repair, Batteries Plus Bulbs used a four-box analysis with effort and risk to implement on the X axis, and size of the prize from low to high on the Y axis.
"There are things you can do in a business that are low risk that may be low reward but are very worth doing because they're easy," he says.
Considering the significant industry changes--the move away from incandescent light bulbs to the more expensive bulbs grocery stores and dollar stores don't carry--Batteries Plus Bulbs determined the prize it would garner by adding light bulbs would be significant, as would the time, energy and money it would take to rebrand all of its 650 stores.
Device repair was a smaller prize, Reynolds says, but much easier to implement, considering the company already tests and analyzes batteries, installs replacement batteries in smartphones,as well as builds tool and battery packs for customers.
The bottom line: It's important to do this kind of analysis proactively when your business is thriving.
"That's tough to do because when things are going well you're always busy," he says. "It's a discipline if you force yourself to figure out how you're going to grow in new and different ways [and] you're doing it when the times are good as opposed to trying to react when the times are bad."