Understanding How ‘Business Model Friction’ Affects Your Growth Rate!

At New Normal Group, we build exponential ventures, and the design and execution of their business models are deeply rooted in our foundation. Earlier, I have written about the secrets behind exponential business models and why organic customer acquisition is key for exponential growth. As the third pillar in this trifecta, I feel it’s time to share some insight on how friction in your business model can either slow your growth or be optimized to accelerate it. 

In physics, friction is the force resisting the relative motion between two different physical elements. In business, friction is the force of resistance to the value-creating processes related to executing your business model. Thus, we call this ‘business model friction’.

What’s important to note is that ‘business model friction’ could, by design, either be built into your business model or is a result of the execution of your business model. 

Mapping out a customer’s journey is a tool often used in growth marketing. It entails mapping the different steps a customer goes through, from first contact to renewing, upgrading or even leaving. Its purpose is to help gain an understanding of the customer lifetime processes. In the case of business model friction, customer journey maps can help identify friction points by focusing on the hurdles and challenges during this process.

A great example of a step that often stands as a (big) hurdle is legal contracts. Having spent more than 20 years selling enterprise software, I have personally experienced how friction leads to delays. In one instance, the closing of a deal was three months delayed because of a never-ending, excruciatingly detailed legal review that insisted on covering every legal point in a contract. 

While this might work or be necessary when you have a few huge deals a year, longer sales cycles are not suitable for growth. This is especially true when you have a product-led growth strategy. Because if you want your customers to instantly sign up for your service and start to use it, a cumbersome legal process can be a showstopper for scaling your business.  

At Crystallize, a headless eCommerce service, reducing friction has been a key focus from the very beginning. We challenged a leading license lawyer, Kristian Foss, to create the most frictionless terms of service in existence. To this day, it remains a key part of the frictionless customer journey of Crystallize. You can read more about this process in their blog.

Your value proposition is at the core of your business model. It defines the value you create for your customers and the problems you are helping them solve. 

For example, let’s say you run a cloud service. The service helps enterprises with faster online payments, saving them time and gaining better cash control. In this business model, time is a key part of your value proposition, stretching from the user experience to the effectuation of payments, as well as the receipts of transfers done. 

In this case, by removing friction, you can have faster services, which creates more value for your customers, affecting the growth of your business.

How you build your value chain often changes over time, from start-up and through the scale-up stages. You might use several external expert partners in the early stage, which are often replaced by internal hires as you grow. At the same time, other partnerships open up, and the key activities you do inside vs outside your company change.

Different set-ups of your value chain will affect the friction, and thus the speed, scalability, and growth of your business. For example, while hiring an external expert adds speed and helps quickly you gain expertise in the early stage, it might have the opposite effect as you grow larger. In this case, internalizing resources become pretty sensible. 

Keep in mind that other companies make it work the other way around: when you are small in scale, you combine R&D and production internally. Yet as you scale, you externalize production to a larger industry partner.

Snowball Digital is an excellent example of a service company that helps ambitious high growth companies with product design, engineering and marketing. They typically become an extended expert part of the team, helping design, develop, launch, and grow new products. Their optimized speed, execution success, and knowledge transfer are valuable in the early growth stages. 

While you mostly see growth when friction is reduced, there are also cases where introducing positive friction points can increase growth. 

A good example is the sign-up process for a digital service. By adding a step that involves the user to do an action, you can create additional customer engagement that increases conversion rates or long-term customer value. 

Another example is to introduce manual touchpoints, with the flexibility to solve problems at specific steps of customer contact. While it might cause a less automatic process, it can secure essential customer relationships. 

Often, it is not the most intuitive answer that gives the best results. This is why being data-driven is key to understanding and optimizing the friction points of your business. This way, you systematically use data to maximize growth rates by tuning your business model's design and execution.

Any entrepreneur, venture investor, product/project manager, or advisor to high growth companies should look to understand business model friction. Because how you design and execute your business model can significantly alter friction and ultimately affect your growth rate. 

Remember, business model friction could be by design or execution. And, it can be found in the customer journey, in the value creation, and in the value chain. Many times, reducing friction improves growth rates, but not in every case. That is why it is essential to look to data, as it is not always your intuitive reflection that stands to be correct.