Business Model Threats: How to Assess the Risk You Face

The world is changing. Industries are being disrupted at a faster rate than at any point since the early industrial revolution. Disruption means that your business model will stop working. Customers will disappear, their needs will change, competitors will come out of nowhere and fight in ways that your sales, operations and manufacturing teams cannot hope to match. Business model threats abound. Millions of companies will disappear, so will the jobs of hundreds of millions of people.

That’s the bad news.

The good news is that this creates vast numbers of opportunities. Where you were once locked in intractable competition and saw margins become wafer thin there are now new paths to profitability. The clearest example of this is in the stock market where companies who have dominated the listings for decades are being replaced by companies that have grown at staggering rates for mere years.

And this is the Good News

The good news is that you can do something about it, change your strategy and take a share of growth that comes with all this change.

In this blog post I’m going to give you a set of questions that help you assess the business model threats that your company faces. Often it is easy to keep doing the same thing every day and, like a frog in ever warming water, get boiled alive before you realise it. These questions will help you avoid that threat, or bring it into stark perspective so that you can start looking at how to change your business model before it is too late.

In the list below I’ve asked 33 questions about business model threats suggesting ways that your company, your industry, your market and your customers can be disrupted. They all mean that things won’t carry on as they have before. They’ve all happened to someone else already. I’ve given examples for every single one. With your different perspective I’m sure you can provide even more. Let me know if you think I’ve missed some great questions or better examples. Let’s have a look at some business model threats

Value Proposition Threats

Are there substitute products and services available for what you provide?
- E.g. ride sharing is killing the economics of public transport in many lage cities
Are you seeing more substitutes appearing?
- E.g. Mobile phones destroyed fixed line telecom businesses
Are you seeing lots of substitutes arising?
- E.g. Fintech is creativing thousands of competitors to the banking system
Where are you seeing competitors concentrating – price or value?
- E.g. German discount chains are concentrating on price in the UK
Where are you seeing the new entrants concentrating – price or value?
- E.g. Food delivery companies disrupt on both price and value (depending on their model)

Cost & Revenue Threats

How much are your margins threatened by your direct competitors?
- E.g. Amazon threatening everythign retail
How much are margins threatened by new technology?
- E.g. 4G destroying the margins on calls and SMS and making them virtually free
How much of your success is dependent on a single revenue stream?
- E.g. Borders depending on the sale of books
Which of your revenue streams is most likley to disappear in the next five years? Why?
- E.g. the internal combustion engine (in a slightly longer timescale) for most car manufacturers
Which of your revenue streams is most likley to persist for decades? Why is it so safe?
- E.g. the Hoover Dam – Really? How will it be affected by the switch to renewables and micro generation?
Which of your costs are likley to become most unpredictable?
- E.g. Oil and plastic costs as we move toward a post oil world
Which of your costs have the biggest risk of growing faster than the revenues they generate?
- E.g. debt costs for banks as QE is unwound and interest rates rise (or not)

Infrastructure Threats

Which of your suppliers are most likley to be disrupted? What will that mean to you?
- E.g. Intel being displaced by an increasing number of specialist chip design companies with niche strategies
How is the quality of your key resources going to change? Is that going to have more impact on you, your competitors or your disruptors?
- E.g. inaccessibility of cobalt mines in Congo meaning poorer quality batteries for electric vehicle manufacturers
Which of your key activities might be disrupted?
- E.g. drones bypassing the highway system for package delivery and making last mile logistic companies irrelevant
Which key activities are going to become harder to deliver? How will this change your competitive advantage?
- E.g. data provision to advertisers as regulators enforce data privacy and rights to your own data
Which of your key partners is going to be disrupted first?
- E.g. Moratorium on palm oil imports and use increases the cost of beauty and health products
What happens if your key partners change their business model to respond to threats? how will that affect your business?
- E.g. If car manufacturers go electric what happens to all your gas stations?
How can your competitors collaborate with your key partners?
- E.g. all analytics data comes from Facebook or Google giving all marketing agencies the same data to play with
What categories or classes of supplier are going to be disrupted?
- E.g. All steel mills as China increased production 6 times in 10 years in the decade to 2012

Customer Focused Threats

Which groups of customers are disappearing or changing?
- E.g. Children in South Korea
How saturated is your market and how is this changing?
- E.g. the SME CRM market 2012+ saw thousands of new entrants
How are competitors threatening market share?
- E.g. Uber offering cheaper, better and faster services than traditional taxis
How loyal are customers? How quickly will they defect if offered better price or quality?
- Eg Altavista until 1998
How many customers will you lose if a new entrant offers your product or service at half your price? At double your quality?
- E.g. Salesforce compared to Oracle (as a new entrant).
How will your competitors respond to disruption?
- E.g. Google and Facebook buying any startups in the valley of death
How will competition intensify in your market?
- E.g. Electricity prices in the UK after deregulation
Which of your channels are most vulnerable to your competitors?
- E.g. Hollywood losing both cable channels and cinema with the rise of Netflix
Which of your channels are most vulnerable to new entrants?
- E.g. Magazine adverts for beauty products to YouTube beauty influencers
Which channels are being abandoned by customers?
- E.g. Newspapers in favour of online news
Which customer relationships are deteriorating?
- E.g. Ad agencies with client as FMCG buy ads direct from Google or Facebook