We’ve been looking at business models all wrong. Yes, they’re about making your company stand out from the competition and deliver value to customers — getting their jobs done. And leaders need the foundation of a solid business model to make crucial decisions when setting up and structuring their operations.
But the process of creating business models has encouraged a narrow, technocratic approach that’s geared to efficiency, and centered on making money for short-term investors. That wasn’t a good idea in the past, and it certainly isn’t sustainable now.
Instead, design your business with meaning that’s relevant for the long term. Before you crunch the numbers, you need to define why your company will matter — to all your stakeholders. That’s the only way to achieve a business that creates value over the long term for investors and is sustainable for customers and employees.
Adding Meaning to Your Model
In my experience, most business models cover the bases nicely: how the company will serve customers better than rivals. But they don’t really explain why the company matters. Why should anyone care that your company exists? Why should they walk past your rivals in order to reach you? What’s your real differentiation in the eyes of target customers?
Without good answers, you aren’t likely to stand out in the marketplace for long. Once the shine wears off, or rivals match your pricing, you’ll lose both customers and employees. That’s bad both for your long-term competitive position and for society.
Adding a larger meaning beyond the dollars makes sense for every constituent — investors, employees and the community. A successful business model connects with customers, employees, and investors, and builds a compelling vision for the long term. And the only way to do that is with empathy and imagination to gain a deep understanding of the needs of your target customer.
The longer I’m in business, the more I’m convinced that the world pays us not to do what others do, but to figure out where things are going and to be there when the future arrives. So the key is continued transformation.
That’s what happened with Au Bon Pain, a company I helped to take public in the early 1990s. By listening to customers, our team transformed a low-margin French bakery into a profitable French bakery café. All it took was recognizing that customers didn’t really want the bread and croissants — what they wanted was sandwiches, and the bread and croissants were a powerful point of authority in offering a better sandwich.
In the mid-‘90s, our intensive listening taught us that certain customers wanted something more than fast food. They wanted “real food,” served by people who respected them in environments that engaged them. And that learning turned the restaurant industry on its head. Instead of the currency of fast food — highly processed food for not a lot of money — we offered an experience that gave customers a greater sense of self-esteem, for just a bit more money. They wanted to go to a place where they could feel better about themselves.
We used that paradigm to transform Panera, which had been a small subsidiary of Au Bon Pain. That paradigm also fueled the fast-casual part of the broader restaurant industry, which grew into a $100 billion segment ($170 billion now) with Panera as a poster child. Then between 2012 and 2014, we transformed Panera yet again around loyalty, an omnichannel digital experience, and “clean food” — each a theme that became a driving force in the restaurant industry.
None of these transformations could have happened without listening to customers with empathy and clarity. By the time we sold Panera for $7.5 billion in 2017, it had been the best-performing stock in the restaurant industry for two decades — with annualized returns over 25%.
The key to all this was that we learned — and transformed based on those learnings. And we carried out the necessary changes only because our ownership structure and earlier success freed us from pressures to maximize short-term efficiency. Because we cared most about our meaning and relevance over the long term, we delivered what really mattered to our customers.
Getting Beyond the Numbers, to Concept Essence
I’ve been in the restaurant industry since the 1990s, and closely involved in developing three iconic restaurant brands: Au Bon Pain, Panera, and now Cava. Along the way I’ve encouraged our management teams to build their business model around what I call a “concept essence.” That’s a document explaining why guests should choose to visit your establishment. It’s a script for the live performance art that every restaurant requires. I see it as a purpose-driven go-to-market plan. The concept essence explains not only how the company will stand out for guests, but why it matters at all — and to all stakeholders, not just customers. It’s a key element of an effective business model for the long term.
When we developed Panera in the mid-1990s, we used the concept essence as our North Star. We didn’t begin with a detailed business plan, with estimates for capital, operating expenses, and likely revenue. Instead, we developed a concept essence centered on what we would do for our guests.
We began by focusing on the bread, which was to be “our passion, soul, and expertise.” We then wanted to ensure that our food was every bit as good as our bread. After all, we believed a lot of people were looking for more than a transactional, low-cost bakery café. We sought to “build trust through relationships with customers and communities.” Instead of a cold, commercial fast-food joint, we wanted “a club that allows our customers to feel good about themselves.” We emphasized that everyone associated with the bakery needed to be “of our customers and communities,” so “our bread can be trusted.” We also sought “an everyday oasis for our customers,” where they could linger to get work done, or hang out with friends.
Developing a clear concept essence in writing is essential, for two reasons. One is that writing it down forces you to get the specifics right. A vague or clichéd word will diminish the power of a strong statement — you need something clear and compelling. If it doesn’t excite you as a vision, it sure won’t excite people enough to visit your business.
Second, it provides a template for all further work, by giving clarity of direction. Not just for you, but also for your managers, employees, product developers, and designers. Everyone you hire to realize the vision can match their plans with the concept essence and adjust accordingly. It inspires the essential discipline to keep everyone’s eyes on the prize of delivering that unique and much-needed experience to customers. Without it, employees will revert to what they did before, and you’ll no longer stand out in the marketplace.
Like any good plan, it also forces you to make tradeoffs. These are inevitable in any plan that matters, so be sure to make tradeoffs you can respect. Regrets will undermine your work in the long run, because you won’t push the concept essence with the strength and determination it needs to actually happen in a coherent way.
Once you make your concept essence real, however, you have to remember that it is a go-to-market plan. The values, more than the specifics, are what matter. You need the concept essence to spark the empathetic imagination that keeps people curious. When your employees see multiple customers doing something unusual, they’ll think about what’s behind that behavior – such as when we introduced sandwiches because we saw customers bringing sandwich fixings to add to our bakery bread. They’ll keep discovering and innovating today what will matter tomorrow. A purpose-driven approach generates sustainable value by engaging stakeholders over the long run, to everyone’s benefit.
Our multi-decade commitment to concept essence fueled our authority and authenticity with customers. We created an experience that respected them, and which they respected. All those efforts made them come to us for what they’d been missing. And our concept essence gave stakeholders a purpose larger than themselves.
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There’s nothing wrong with analyzing a market, estimating revenues and expenses, and assessing the competition. You need to do that work along the way, and a technocratic approach still helps when you are seeking efficiency. But you won’t be effective without a business model that matters. You have to infuse your company with a larger meaning. Your customers, employees — and eventually your investors — will thank you.