Business Briefing: Bottom-Feeding for Blockbuster Businesses

Keywords: Disruptive Innovation, Business Model Innovation, Customer Segmentation, Unprofitable Customers, Competitive Strategy
Source: Harvard Business Review
Link: Read the full article on HBR.org
Authors: David Rosenblum, Doug Tomlinson, and Larry Scott
Published: March 2003
Est. Read Time (Original): ~30 minutes

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The Core Idea

The authors deliver a powerful counterargument to the conventional wisdom of firing unprofitable customers. They assert that the real problem is not the customer, but the business model, famously stating: "There are no unprofitable customer segments, only unprofitable business models."

The central thesis is that "bottom-feeder" companies like Paychex, Progressive Insurance, and WellPoint built blockbuster businesses by identifying the needs of supposedly unattractive customers and then radically redesigning their business models, with simplified offerings, lower costs, and different service models, to serve them profitably.

Why It Matters for Business Today

This article provides a foundational strategy for finding massive growth in markets that incumbents are structurally blind to.

• A Cure for "Business Model Myopia": The article identifies a critical blind spot of successful companies. Their very success reinforces their existing business model, making them incapable of seeing how a different model could profitably serve a segment they have written off.

• Innovation of the Model, Not Just the Product: The key takeaway is that the innovation is not in a single new product, but in redesigning the entire system. This includes stripping out features customers don't value, finding lower-cost channels, using technology judiciously, and even having more realistic financial targets.

• A Roadmap to Untapped Markets: By reframing "bad customers" as "untapped opportunities," the article provides a clear method for identifying and capturing new markets. It encourages leaders to stop asking "How can we shun these customers?" and start asking "How can we redesign our business to make money from them?"

The Strategic Question for Leaders

The authors argue that so-called "bad customers" are often just a signal of an inappropriate business model.

What supposedly "unprofitable" customer segment in your industry are you currently ignoring or actively shunning, and what fundamental assumptions would you have to break to redesign your business model to serve them profitably?

Share your perspective in the comments below.

Remember, by sharing your insights, you contribute to a unique "Enriched Briefing." {Jim Krider} will follow up to provide you with a powerful "Business Cold Start" document, combining our analysis with expert perspectives to equip your internal AI models with a more nuanced understanding of this topic.