Food Trucks = Business Model Innovation

The gourmet food truck craze sweeping the nation is a classic example of business model innovation.

And the response from brick and mortar restaurants is a classic example of how incumbent industry participants tend to respond – by using their political power to try and fend off the innovative new firms.

Business model innovation refers to taking a new approach to an existing business or industry. Targeting new customers, changing what is offered, or redefining how an offering is provided are all examples of business model innovation.  (see HBR’s Reinventing Your Business Model for a more detailed description).

Gourmet food trucks are using a variety of new business model approaches. The main one is the use of a low cost, flexible and agile delivery platform – the truck.  But there are others, including:

• a focus on high quality food at value prices
• alternative, unique and fast changing menu items
• social media to connect and communicate with customers
• a value proposition that includes fun and new experiences

Industry incumbents often struggle to respond to competitors using innovative business models. Harvard Business School professor Clayton Christensen coined the term The Innovator’s Dilemma to descibe this issue.  The problem is incumbents are often locked into their existing approach to doing business, especially if they’ve been successful.

One way incumbents can and do respond is via the political process. Industry incumbents tend to have the resources and expertise to influence policymakers and regulators against the disruption of their business model. 

This is currently happening as brick and mortar restaurants realize food trucks aren’t a fad, but potentially serious competition. Recent legal proceedings in San Francisco and food truck regulation hearings in Chicago illustrate the legal, political and regulatory battles taking place in many cities across the country.

In most of these proceedings, brick and mortar restaurant owners are claiming that food trucks compete unfairly because they don’t pay rent, property taxes and other expenses associated with traditional commercial space.  In other words, they are saying it’s unfair that food trucks are using a different business model than they are.

It seems obvious to me this is not a good argument.

More relevant and supportable is the view by restaurant owners that food trucks are subsidized by free-riding on public property — the street — as their place of business.  Here I think they have a point.

It will be interesting to see how this plays out.  Brick and mortar restaurants have a powerful card to play – they pay a lot more local taxes than food trucks do.  During these times of fiscal stress, few local governments aren’t going to be influenced by this.

Many other industries have tried to use political processes to fight off business model innovators. Few have succeeded.

Find the entire article by Steve King at smallbizlabs.com <here>