Changing business model takes creativity, courage

Readers fail their organizations when they stick to a business model that is breaking, if not already broken.

One of the best indicators of a broken business model is getting stuck in the quicksand of price-based competition without any cost advantages. In this situation, reinventing your business model is the only way out of the muck and onto more profitable ground.

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Every organization has a business model, whether it is articulated or not. Four core strategy questions define it: What business are you in? Who is your target market? What promise will make customers choose you? And, why can you deliver on this promise better than competitors? New answers create new models.

Finfrock Industries' business model was definitely broken. Headquartered in Orlando, Fla., the company sold custom-made, precast, prestressed concrete components to general contractors. The components fit together, like blocks, creating the underlying structure of parking decks, office parks and other commercial buildings.

General contractors often use a bid process that pits pre-qualified subcontractors against one another to force price competition.

Finfrock Industries survived bidding wars only because its engineers could redesign precast components without going broke. Only in upturns, when demand exceeded supply, did Finfrock Industries earn an acceptable return.

"I was increasingly discouraged with our redesign fire drill," owner Robert Finfrock said. "When the redesigns we shared with architects to prove they should specify precast over steel started showing up in contractors' bid packages, we lost any cost advantage."

In a move tantamount to leaving one flying trapeze to move to another, with a stress-filled pregnant pause in between, Finfrock Industries decided to change its target market. "We decided to sell to building owners. They alone would fully value our cost-saving design skills and, unlike architects, owners can control the purchasing decisions. We swallowed hard because owners buy completed buildings, not components. A lot of change was ahead of us," Finfrock said.

Finfrock Industries' new business model required it to morph from a subcontractor selling to general contractors to a design-manufacture-construct firm selling finished buildings to owners and developers. "We started in parking structures, as precast components were a high percent of the total cost. We promised to deliver an on-time, on-budget parking structure with more parking spaces per dollar spent," Finfrock said.

By hiring architects as employees, Finfrock Industries would have inherent advantages over teams of architects and engineers, precasters and general contractors from separate companies. With all the parts in one company, Finfrock Industries could optimize the use of precast in the design so as to offer more value to the owner in the form of lower prices, faster delivery and higher quality.

With success in parking, Finfrock Industries moved into commercial offices, college dorms and mixed retail-parking structures. They also expanded beyond central Florida. Great execution, which included learning how to work with all the construction sub-trades, created stupendous success. After eight years, two in an economic downturn, net profits have exceeded previous revenue levels, despite being in a mature industry.

"I believe everyone goes into business to thrive," Finfrock said. "We are finally thriving, and I assure you, it's a lot more fun than competing on price."

Is your business thriving? If not, find the courage to change your business model.

Four previous columns, each exploring one of the four core strategy questions, are available at www.madison.com/crbj