Rescuing A Guitar Icon
“Most companies are built to execute today’s business model, not discover tomorrow’s.”
If someone asked you to name a famous guitar brand, the chances are you would mention the name Fender.
Founded in 1946 in Fullerton, California, the company is synonymous with six-stringed instruments and has been endorsed by musicians including Eric Clapton, Jeff Beck, David Gilmour and Jimi Hendrix.
Despite its past success, the company found itself in challenging circumstances not so long ago.
Guitar-based music had been steadily losing popularity to newer genres like hip-hop and electronic music.
As a result, fewer people were buying guitars forcing Fender to shut down many of its retail stores.
The company's finances suffered, and CEO Andy Mooney faced a tough challenge: how could he revive the company's flagging fortunes?
The answer was online guitar lessons.
On 6th July 2017, Mooney launched Fender Play, a subscription service teaching people how to play. It was an instant hit; within two years, the company had over 100,000 subscribers.
Interestingly, it’s not just been young people taking up the service. Half of the people taking on a subscription have been older people.
More than that, it also led to an increase in sales of Fender guitars. How’s that for irony?
Jokes aside, what’s the lesson here?
Well, Mooney credits his success with two things.
Firstly, a desire to think big and be brave. This characteristic nearly got him fired in the past but has also been the source of his most successful ideas.
Secondly, not being afraid to change the business model.
This is something often overlooked by companies. The temptation is to launch a new derivative of an existing product rather than thinking of new ways to sell.
And Fender isn’t the only company switching up its business model.
Take Hilti, a manufacturer of products for the construction industry, for example. Until the mid-2000s, they made their money in a conventional way: by selling equipment to customers.
Then, one day, a key client came to them requesting a ‘holistic tool management system’. In non-business jargon, they wanted to lease the tools, not purchase them outright.
In other words, they were happy to pay a monthly fee, and in exchange, Hilti would provide the tools they needed and service them when required.
For Hilti, this meant shifting to a new ‘product as a service’ business model. As with any business transformation, this was not a straightforward endeavour.
There were several teething problems, but the result was positive: Hilti saw a dramatic 30% jump in revenue during an economic downturn.
And then there’s the aircraft engine maker Rolls-Royce.
The company used to sell jet engines for around $10 million apiece.
However, even if you had the financial means to buy one, you wouldn’t be able to anymore. Instead, Rolls-Royce will sell you ‘power by the hour’.
In other words, the airline effectively ‘leases’ engine operating hours. This new business model is a win-win for the supplier and the customer.
Rolls-Royce benefits in the following ways:
They can remotely monitor engines to check their health. If something goes wrong, they can immediately initiate action.
They gain customer data allowing them to offer products specific to the customer’s needs.
They generate long-term revenues due to a long-term service contract.
And life is made easier for the airline because:
They don’t need to worry about the maintenance of turbines (fewer risks).
They can make use of the tracked data.
They don’t need to fork out large sums upfront to purchase the engines outright.
Like Fender, Hilti and Rolls-Royce, other companies are innovating successfully by applying new business models.
Let’s take a look at six different types below:
1. Subscription Model
You pay a monthly or annual amount to gain access to the product or service. SaaS (Software-as-a-Service) companies frequently employ this model.
E.g. Spotify, Netflix and Readly
2. Product as a Service
You essentially rent the product without the responsibility of repairing, replacing or disposing of it.
E.g. Rolls-Royce and Hilti
3. Freemium to Premium
Offering a proprietary product or service free of charge but charging a premium for advanced features, functionality or virtual goods.
E.g. YouTube, Dropbox and YouSendIt
4. Franchise
You allow independent business owners (a franchisee) to licence your name, product, operating systems, business model, branding etc., in exchange for a fee known as a royalty.
E.g. McDonald’s, UPS, Subway
5. Cooperative Ownership
Cooperative ownership describes companies owned and managed by their members, often considering broader stakeholder concerns, including employees, customers, suppliers, the local community and, in some cases, the environment.
E.g. Co-op Supermarkets, LittleSun and John Lewis
6. Product on Demand
Producing a product only when consumer demand has been quantified and confirmed.
Many e-commerce sites operate using this model. When someone makes a purchase on their site, it triggers an order with the relevant manufacturer to make and ship the product to the customer.
E.g. Wayfair, Shein, and Kickstarter
Resolving your users’ problems with a great product or service is critical to success. But identifying which business model to take your product to market can be equally important.
Think about your company’s current business model.
Could customer needs be better met by changing the way it does business?
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