When the Model Stops Working: What Leaders Should Do First

Success can create a false sense of safety. When markets, regulations, and customer behaviors shift, even the strongest business models can falter. How can leaders recognize when stability has turned into stagnation?

Although it sounds counterintuitive, business models aren’t built to last forever. Business models are developed to perform within an existing environment, and when they stop working, leaders must act quickly. Declining growth, changing customer behaviors, margin erosion, and shifting market dynamics are all signs that the existing model may be reaching its limit. When this happens, clinging to what’s familiar or reacting too quickly can compound the long-term damage. This begs the question: what should leaders do first? 

Most executives dream of a business Utopia, where transformation unfolds smoothly, with the luxury of time and foresight. However, in reality, it often begins with urgency and imperfect information. The best leaders don’t always have all the answers, but they remain curious and ask better questions. They challenge what no longer fits to make room for what might. Very often, these are the qualities that enable them to see the fracture in business performance before it breaks. 

Joanna Srokowska, Associate Partner at Signium in Poland, weighs in, saying,

“When a business model begins to falter, leaders sometimes need to stop doing what made them successful in the first place. This is extremely difficult to accept, especially for legacy leaders. It takes the special qualities of courage, humility, and flexibility to say: This isn’t working anymore. How can we start again?” 

How to recognize the first fracture 

When performance weakens, it rarely announces itself with a single, catastrophic event. More often, it presents as a sequence of patterns. Customer acquisition slows, competitors gain ground, costs quietly climb, and once-reliable revenue streams become less predictable. Internally, teams may sense the strain, and in response, service quality declines, innovation stagnates, and a subtle fatigue sets in. 

By the time the executive team agrees that the model is under real pressure, it’s often late in the curve. This is why the ability to diagnose fast, without bureaucracy or bias, becomes so critical. 

Test what matters: The four core assumptions 

Instead of panicking or overcorrecting, leaders can ask the following questions to test the core assumptions that underpin most business models: 

1. Is our value proposition still relevant to customer needs? 

​​​McKinsey’s 2025 State of the Consumer report states that ‘old frameworks no longer apply’.​​ In the past, consumers tended to spend consistently within categories and make predictable, loyalty-driven choices. Today, they’re making unexpected trade-offs, mixing frugality with indulgence and demanding faster, more flexible service experiences.  

This highlights how customer needs increasingly outpace the rhythms of product cycles. If the original problem a product solved has changed, or if competitors are solving it more effectively, the model begins to lose relevance.  

2. Has customer behavior changed in ways we’ve failed to reflect in our model? 

Digital adoption, generational shifts, and post-pandemic lifestyle changes have transformed the way customers explore, buy, and engage with brands. When companies fail to adapt to these shifts, growth stalls even if the product remains strong. 

3. Is our revenue model aligned with both perceived and actual value? 

Research from firms such as ​​McKinsey, ​​Bain, and ​​PwC consistently shows that when pricing drifts out of step with perceived value, customer trust erodes quickly and margins decline just as fast. The most resilient businesses are those that regularly revisit their pricing logic, ensuring that what customers are asked to pay still aligns with what they believe they’re receiving. 

4. Has our cost-to-serve risen to an unsustainable level? 

Costs often creep upward quietly: logistics, compliance, or labor inflation may outpace pricing adjustments. Over time, even strong revenue growth can hide the fact that profit margins are shrinking. Regularly auditing cost-to-serve helps reveal whether the model still scales, or whether growth has become unprofitable. 

These questions can be answered swiftly, with minimal overhead. Speaking directly with top clients, checking how profitable each product or service really is, and reviewing how different sales channels are performing can quickly expose where the most significant gaps have formed. 

“One might not immediately uncover the full story,” says Srokowska. “But starting with these core assumptions helps reveal where the most friction lies. We can test them quickly and then, instead of sifting through a hundred possible flaws, leaders can focus their attention on the few that matter most.” 

Picking the right path: Should you fix, pivot, or explore? 

Once the nature of the disconnect is understood, the next step is to clarify the type of response needed. Every option demands a different mindset and degree of risk tolerance, but clarity on which to pursue can prevent wasted effort and confusion. 

• Fix  

In certain circumstances, tactical adjustments may improve performance within the current model. This could mean adjusting pricing, improving customer experience, or tightening distribution. Fixes work best when the core value proposition still holds up, but execution or efficiency has slipped. They buy time and help to rebuild confidence while larger shifts are considered. 

• Pivot 

Leaders may opt for a strategic redirection toward an adjacent model, such as targeting a new customer segment or changing how value is captured and delivered. Pivots require deeper rethinking but preserve parts of what already works. They’re most effective when the old model isn’t completely broken, just misaligned with where the market is heading. 

• Explore 

Exploration is where innovation lives. Through greenfield experiments, businesses can test entirely new paths on a smaller scale and safely learn what could define the company’s future without jeopardizing its present. These experiments allow teams to fail fast, learn faster, and identify where untapped opportunities exist. 

“This is where many companies stumble,” says Srokowska. “It’s not because leaders lack insight, but because fear of choosing the wrong path delays decision. To move forward, leaders must distinguish between what can be fixed, what must evolve, and where bold experimentation could create something new.” 

When leaders uncover multiple paths forward, the challenge is deciding what to act on first. A useful way to make that decision is to weigh each option by its potential impact and how quickly results will appear. Some actions deliver visible gains fast – quick wins that stabilize performance and rebuild confidence. Others take longer to mature but have the power to reshape the business fundamentally. 

By assessing initiatives through this lens, leaders can strike a balance between implementing one or two immediate improvements while testing a larger, longer-term shift that positions the company for continued growth. 

How did Nokia go from irrelevant to irreplaceable? 

The story of Nokia is often told as a cautionary tale of overnight irrelevance and digital disruption. Once the undisputed leader in mobile phones, Nokia’s decline after the rise of the smartphone was rapid and very public. Yet, few people are aware of what came next for Nokia, even though it’s a far more compelling chapter in the tech giant’s story. 

After selling its handset division to Microsoft in 2013, Nokia could have faded into insignificance. Instead, it made a series of deliberate strategic decisions that repositioned the business entirely. It pivoted away from consumer hardware and doubled down on telecommunications infrastructure, a market where it had historically held a strong position. 

The turning point came with its acquisition of Alcatel-Lucent in 2016, which solidified its place as a global leader in network technology. Today, Nokia plays a central role in the global 5G rollout. It continues to experience a steady growth in Network Infrastructure net sales – a clear sign of regained momentum and market demand. 

According to McKinsey, Nokia’s transformation succeeded because it acted quickly on what it knew. Nokia’s leaders were forced to accept that the company’s future didn’t lie in fighting for mobile market share or chasing the next shiny object, but in owning the networks those devices would depend on. 

Making ideas real from strategy to pilot 

Once a new direction is chosen, the next challenge is proving it works. Whether it’s a fix, a pivot, or a new exploration, leaders may feel compelled by circumstances to jump straight into large-scale implementation. This is often where the greatest risk lies. Srokowska comments, saying, “At this stage, the goal shouldn’t be full-scale strategy execution. The goal must be to gather evidence. Leaders should start small, designing short, focused pilots that put new strategies to the test in a controlled environment.” 

A well-structured pilot allows a company to learn fast, without committing full resources too soon. Strong pilots are built on these pillars:  

• Pilots are driven by purpose  

Implementing a pilot trial begins with asking a clear question related to the company’s purpose. For example, a business that wants to re-engage an estranged audience could ask, “If we offer our product as a subscription, will customers stay longer?”  

• They’re limited in scope 

A pilot should run for a short period, usually no more than a few weeks, and on a smaller scale. During this time, teams can measure results and make refinements based on the pilot’s performance, without committing vast resources to an experimental pathway.  

• A pilot is customer-facing 

Real users, like actual clients, are the ultimate test for any pilot. While leaders may be tempted to play it safe with internal troubleshooting, a real-world trial yields the most accurate feedback.  

• It is measurable and measured with intent 

Success and failure are defined up front. However the pilot performs, having a clear benchmark to begin with ensures there is no ambiguity about what to do next.  

How to balance innovation and investment 

Misaligned funding is one of the common failure points in model reinvention.  

“It’s all good and well to have a great idea,” says Srokowska. “Knowing how much to invest is key. Some leaders hold back too tightly, starving innovation before it has the chance to prove itself. Others do the opposite, pouring large sums into untested ideas that quickly drain company resources.” 

The solution lies in balance, and this can be practiced using a model known as “two-speed funding”. 

• Speed One: Protect the core 

Continue to fund and prioritize the areas of the business that generate steady revenue and keep the lights on. Stability is essential, and the core business must stay strong while change unfolds. 

• Speed Two: Invest in innovation, carefully and in stages 

New ideas shouldn’t receive full-scale funding at the outset. Instead, allocate smaller, incremental budgets tied to performance milestones. Each stage of investment should depend on clear evidence that the idea is gaining traction. 

This approach helps leaders maintain financial discipline while allowing flexibility to explore what’s next for the business. Regular leadership reviews ensure alignment, and at the end of each pilot review, executives can make informed decisions about what to scale and what to retire. 

“Two-speed funding is rooted in the sound business principles of counter-balancing risk with stability,” says Srokowska. “Two-speed funding protects today, while you reinvent tomorrow.” 

Courage and capability create continuity in times of change 

Reinvention begins with people. In times of disruption, the most resilient organizations are those that manage to create conditions for continuity even as they transform. When a business model reaches its limits, the real test lies in cultivating the leadership capability to carefully uncover the whole picture, one step at a time.  

This capability extends beyond technical skill. It embodies a range of intuitive skills, too: 

• Knowing how to reassign top performers to critical initiatives 

• The ability to close capability gaps swiftly shape teams that thrive in flux 

• Being ready to establish guardrails that guide experimentation without stifling it 

• Ensuring that decisions are transparent, well communicated, and aligned with purpose 

A business model may fail, but that need not define the business itself. What defines it is how leaders respond. Rebuilding takes courage – the willingness to make decisions amid uncertainty, to test new paths before they are proven, and to ​​lead with confidence even when the road ahead isn’t clear.  

Says Srokowska:

“We learn through iteration. The inventor Thomas Edison once said, I have not failed. I’ve just found 10,000 ways that don’t work. Leaders must learn to treat setbacks as data, rather than defeat. Successful pivots depend on those who can think fast and confront unexpected challenges with curiosity. At the heart of it, every innovation is the response to a new problem.”