In the early 19th century most people lit their homes with lamps that burned whale oil. In mid-century a Canadian physician and geologist named Abraham Gesner developed kerosene, a cleaner-burning alternative made from a newly plentiful resource, crude oil, and founded what became the modern petroleum industry. Whaling, which had been a major world industry, ceased. Then Thomas Edison threw a light switch, and the world changed again. No one wanted the foul smell and dangerous flame of kerosene lanterns in their homes when they could have clean and easy electric light. Demand for fossil fuels plummeted, and they rose again only when Henry Ford came along and made the new technology of automobiles affordable for the masses. Today the ramifications of global warming threaten the automobile, electric power and oil industries.
The history of business is full of such stories, and they can strike fear into anyone who innovates to try to keep up with, or ahead of, markets. The idea that unpredictable, revolutionary forces that lie outside those markets can sweep away entire industries is terrifying. Even within an industry an agile disrupter can come along and overturn everything for those who were there before. And then there are those larger non-technological discontinuities such as the 9/11 attacks or the global financial crisis of 2008.
How can a business meet such unexpected threats? In my forthcoming book, Seizing the White Space: Business Model Innovation for Growth and Renewal, to be published by Harvard Business Press in February, I talk about how businesses can innovate their existing business models in response to radically changing conditions or develop new units with different business models entirely.
The key to innovating your business model in the face of discontinuity is to look for the opportunities in the threat itself. You have to try to understand how the new circumstances will change the jobs customers need to get done or give rise to entirely new jobs they need to do. Understanding powerful external forces in this way can make the suddenly overwhelming far more manageable. Instead of hunkering down and waiting out the storm or freezing your current business model like a deer in headlights, you can transform and renew your company by building better models that take advantage of the shifting environment.
No one I know of is working more creatively to turn a threat into an opportunity than Better Place, the electric car company founded by Shai Agassi, a former SAP ( SAP - news - people ) executive turned green-tech entrepreneur. What could seem less promising than going head-to-head with an entrenched worldwide oil infrastructure using an immature alternative technology targeted at an ambivalent customer base? Yet what challenge could be more important than the shift from gasoline-based transportation to reliance on renewable energy through the wholesale adoption of electric cars?
As big as the challenge is, the tools Agassi is using to meet it are really no different from the ones any company should use to meet the challenge of disruptive change. Perhaps most important, Agassi began as all entrepreneurs and all companies embarking on business model innovation should. He systematically and carefully examined what jobs consumers were getting done when they bought a car. On one level, this was so blindingly self-evident that all the existing automakers might forgivably think they already knew it all. Not surprisingly, for instance, he determined that cars do the job of making people both independent and flexible. To do so, cars have to be affordable to buy, own and operate.
As any automaker or buyer will tell you, there's almost always a strong emotional element in owning a car, too. People want their automobiles to be fun to drive and pleasing, if not downright cool, to be seen in. Perhaps no less obvious, Agassi found that people pay more attention to the cost of buying and maintaining a car than of fuel. Digging a bit deeper, he confirmed what U.S. automakers have long contended, that people are usually not willing to sacrifice passenger capacity for economy. Most cars need to be big enough to carry five people comfortably long distances no matter how infrequently they'll be called on to do so.
Gathering all that insight, he was able to clearly identify his challenge: to make electric cars even more convenient and affordable than the already effective gas-powered alternative, even though they'd have to rely on batteries that can't yet remotely match the range of a gasoline engine. What's more, to truly make the world a better place, he'd needed to make a vehicle that could compete not only with the 50 million new cars sold every year but also with the 700 million used ones that consume the lion's share of fuel.
Bold challenges require bold solutions, and by concentrating on the jobs that cars do rather than on the cars themselves, Agassi came up with one: He would focus on selling not cars themselves but the underlying job, moving people over miles. He would replace oil-fueled miles with electricity-fueled miles in something like the way telecom companies sell cellphones. Two economic facts on his side: Electricity is cheaper than oil, mile per mile, particularly if drawn out of an innovatively managed grid, and government tax policies can help bring down the initial costs of electric cars before economies of scale can be achieved.
Refining this thinking further led Agassi to design the systems-level experiment he is currently running in Israel. Better Place is building a complete alternative clean-tech infrastructure there, a massive network of charging spots to hook up the electric grid to the parking infrastructure. To extend a car's range, its battery will no longer be an installed part of the automobile but will instead be part of the energy infrastructure. You'll be able to charge your battery at a charging station or, on a longer trip, simply swap it out for another one, in a process as quick and easy as filling the tank with gas is now.
So far Agassi has raised at least $400 million from VantagePoint Venture Partners, Israel Corporation (which holds 33% ownership) and other investors and has a partnership with Renault ( RNSDY.PK - news - people )-Nissan ( NSANY - news - people ), which is building the car. He expects to have nearly 100,000 vehicles on the road in Israel by the end of 2011, and his vision is expanding. He has added new investors and partnerships in Denmark, Japan, Australia, Canada, Hawaii and San Francisco.
There is more to his business model, but the bottom line is that Better Place is an important experiment to watch regardless of its outcome. This kind of business model innovation--fearlessly focusing on the customer's jobs-to-be-done in the face of revolutionary change, and crafting a customer value proposition that can make money in entirely new ways--is exactly what it takes to find the opportunity in discontinuity.
Mark W. Johnson is chairman and co-founder of Innosight, an innovation consulting and research firm. He is the author of Seizing the White Space: Business Model Innovation for Transformative Growth and Renewal, to be published in February 2010 by Harvard Business Press, and is a co-author of The Innovator's Guide to Growth. via forbes.com
