Souq Business Model
PayTM Business Model
What does it take to disrupt an industry or traditional business model?
To disrupt an industry or traditional business model you need a number of pre-conditions that include:
- technological innovations, that
- are widely known, and
- have thousands of new entrants building businesses, and
- one discovers a business (not technological) innovation that allows them to consolidate
David Seidman makes a good point referencing Michael Porter. We can make it an even simpler model.
Most markets exist in a state of equilibria or a slow changing state. How the players act remains roughly the same over a long period of time. Market share changes through mergers and acquisitions rather than through new offerings.
Market disruption when a force happens to move the equilibria from being relatively stable to quite unstable.
We see this most frequently when new technology is introduced.
The Waterwheel Disrupted Mediaeval Farming
Photo by Lydia Torrey on Unsplash
The watermill and the printing press both disrupted Europe massively. As peasants saw the possibility of water mills for processing grain and reducing their costs and labour there was a huge building boom. This was sufficient to slow the flow of some rivers as so much kinetic energy was being extracted.
The Printing Press
Photo by Hannes Wolf on Unsplash
Likewise the introduction of the printing press by Gutenberg et al disrupted the mediaeval copy shops who duplicated manuscripts by hand (whether monastic or secular).
If you look at both cases what are the similarities?
In both cases tens of thousands of entrepreneurs entered the market in the decade and the centuries after the invention/discovery. The disruption was caused in part by the technology, but to a much larger extent by the thousands and thousands of actors who realised the impact of the technology.
Let’s move a few centuries forward. We see similar massive changes to economies and societies with the invention of canals, railroads and oil.
The difference between the 19th century and the later mediaeval period was the evolution of the corporation and the ability to raise capital with less risk at a vastly larger scale.
Disruptive Canals
Photo by Boudewijn “Bo” Boer on Unsplash
Canals weren’t built by people. They were built by startups organised and funded for that purpose. In the UK, the canals disrupted the turnpike system and made it possible to economically move bulk materials long distances. This had been possible back in the time of Stonehenge and the Pyramids but at significant social and economic cost. Now you could move wrought iron from Coalbrookdale to Walsall in days, all for the cost of a reusable boat and the wages of a man and some mules.
Again England was not transformed by the technology. It was transformed by the flood (sorry) of new entrants building canals with something approaching mania across the country. Side note: My home town of Birmingham actually has significantly more miles of canals than Venice. It’s cheaper sn doesn;’t have so many tourists either!
Railway Disruption
Photo by Nick Fewings on Unsplash
Looking at railways you got a similar dimensional impact as canals. You could reduce travel times from days to hours and the capital cost of the infrastructure was vastly cheaper as it was easier to lay steel rails than pipe water (for example look at the immense efforts that the Chinese have had to apply to shipping water from the South and West to the North and west in recent decades).
Is this becoming repetitive, the technology wasn’t the disruptive force. It was the horde of new entrants creating railway companies, defrauding their investors and laying track at a stupendous rate.
This is where the corporation starts to have a significant role. Not only did it fund these investments, but as it was realised that many of the railways were subscale (there was a 2 1/2 mile long railway in Birmingham from Harborne to Monument Lane) there was increasing consolidation from thousands, to hundreds to the big four and to eventual nationalisation.
Oil and Disruptive Business Models
Photo by Zbynek Burival on Unsplash
Oil starts giving us a further understanding of how industry disruption works.
In all the cases so far the business model was simple. Invest in capital equipment and use it to deliver something faster and cheaper.
Watermills ground grain faster and cheaper freeing labour for additional crop raising
Printing presses copied books faster allowing more to be printed and knowledge and propaganda to be spread more easily.
Canals started the bulk movement of industrial good inland (coal had been shipped from Newcastle to London for centuries before this)
Railways moved people and goods even faster
Oil did lots of things. As an industry it was a lot more complicated. You had the oil wells, transporters, refiners and distributors.
Like the above industries it wasn’t the technology that was disruptive it was the thousands of new entrants who ripped up and polluted the US landscape.
Then you got the first really disruptive business model.
What happens if we integrate up and down the supply chain?
What happens if instead of just owning an oil well, of having a contract to move oil from A to B we expand our operations?
Let’s see if we can own everything?
And that is what Rockefeller and Standard Oil did. In 20 years he transformed the oil industry and the world. It was disruptive because he was seeing a different way of working. He had gone beyond the normal 5 forces in Porter. What he did was he took 4 copies of Porter’s diagram, one for each industry, stacked them on top of each other and created a new industry that no one else saw.
Let’s look at cars and hard disks?
Suprise suprise. It wasn’t the technology that cause the disruption. It was the thousands of new companies that piled in to what they saw as a new area.
Disrupting the Car Industry
Photo by Alex Blăjan on Unsplash
In the car industry Ford tried multiple times to create a car company that was profitable. He failed. There was just too much competition as thousands of other subscale operators tried to make cars.
His disruption was nothing to do with the car but how to make cars at scale and reduce their cost. It’s like he asked himself “How do I change the rules of the game?” Then he got out the business model canvas (not really) and pottered around a bit before coming up with the idea of mass production.
Disrupting Hard Disks
In hard disks what we saw was a wave of new entrants with every technological innovation. With every technological innovation the previous cohort of hard disk manufacturers was wiped out and it was only in the 4th or 5th generation that Western Digital and Seagate managed to achieve enough scale to avoid the same fate.
That’s a quick trip through history. There are plenty of other examples (Search, AI and ridesharing come to mind as well).
Winners Succeed with Business Innovation
In most cases the technology is clearly known and available to lots of actors. The actors then try with varying degrees of skill and luck to create big companies. The winners then are the ones who tend to succeed best at corporate innovation on a tactical level.
How do we do this better, faster, more effectively than anyone else?
Microsoft was one of many software startups at the time. It was the one that won with luck and good deal making.
What does it take to disrupt an industry or traditional business model?
If you want to disrupt a traditional industry you need:
- technological innovation, or
- significant social/cultural change, and
- widespread knowledge, and
- lots of new entrants, and
- innovative business practices that give you competitive advantage for long enough to scale.
The rules are different if you are disrupting at a smaller scale. A new medical device won’t disrupt the healthcare industry. It’s only disruptive if makes drugs, doctors or hospitals obsolete.
If that industry equilibrium is not challenged, if the roles of the players do not have to change radically it is not fundamentally disruptive.
That’s why Google and Uber are disruptive. Marketing agencies and taxi companies cannot continue to operate in the same way that they did before. Whatever happens to Google and Uber as companies that won’t change.
This is why I keep coming back to the Porterian idea of new entrants. A single disruptive company can be co opted by the existing market structure. Like a grain of sand the oyster of industry forms a pearl around it.
Disrupting an Industry Requires Mass Action
Disrupting an industry requires mass action. That’s why Schumpeter saw it as a wave. Individually all the new entrants are almost powerless. Together they have explosive power.
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What is some advice to prevent a startup from failing?
This is a story of a girl called Ann and how she almost destroyed her startup in 5 easy steps.
Ann (not her real name) did everything that she was meant to. She went out into the market and did her customer discovery. She realised that there was a need for her services. Let’s say she ran a kindergarten.
She opened the first one. It was soon packed. Children loved her. Parent loved her. Staff respected her. Soon she opened a second and a third branch. She realised that she was on to something and also that she didn’t have the skills that she needed to run a successful startup.
So she reached out to the government and went on a six month startup bootcamp that taught her the essentials of marketing and business strategy. She opened the fourth and fifth centre. Everything was rocketing along.
Six months later she was on the verge of bankruptcy. She didn’t have enough money to make payroll or the rents for centres. Parents were unhappy and kids didn’t want to go to school. Staff were resentful and apathetic. They left almost as soon as they were hired.
What went wrong?
Ann failed in five big areas
Management
One of the things that Ann was very good at was looking to see what had worked in her previous roles in education centres and from her training as a psychologist.
Everything was beautifully labelled. There were checklists and forms, procedures and processes. It was all hollow.
Everybody in the five centres worked directly for her. That’s 100 people were her direct reports. There were no layers of supervisory or junior management between her and the front line staff.
As a result she got overwhelmed and lost focus on what needed to be achieved and focused on the urgent issues of the day.
It was then surprisingly tough to bring in team leaders and centre managers to run and manage each house for her. Who could do things as well as she could? Who could be trusted? As we did so the number of fires that we had to deal with dropped dramatically.
Sure the people we hired didn’t do as good a job as Ann. At first they didn’t. Being only 80% as good to start with they still solved many of the problems that Ann ha had to solve before. That freed up her time to help them solve the remaining 20% and suddenly Ann was able to spend her time on the bigger issues not the minutiae of managing 100 staff.
Delegation
Ann is a wonderful warm and trusting person. This is what makes her so successful with the parents and children. It’s why she can fill her centres with no trouble,
Ann was somewhat naive when she assumed that if she hired people to do the job they would do the job. She wrote the SOPs, worked out how to do the jobs on the ground (actually it was the other way around) and then left the staff to do it.
The trouble was they didn’t do it. They did things differently. They did things their own way. They did things partially. They didn’t do things at all. The system that Ann thought she had built wasn’t a system at all.
What she’d done was that instead of delegating responsibilities she’d abandoned them. “I have someone to do that. I don’t need to do it any longer” was what she said to me on one of our early meetings. She’d absented herself from what was meant to happen and so the person failed in their role.
What she should have done is to have held each person that worked for her accountable and responsible.
One of the ways that we did this was to use Michael Gerber’s ideas of position agreements. This takes the traditional job description and shows how the position delivers value to the customer and the company and what needs to be done to deliver that value. Then manager and staff sign it.
For Ann part of this included the regular monitoring of how the staff were performing. As we rolled this out we got more and more compliance of staff with the procedures and the staff churn dramatically improved.
There was recently a childcare centre reported where staff tied up and gagged problem children and put them in a separate room. The just before home time they take them out and give them sweets so they were happy when parents picked them up. We never had those problems, but given the way that we had run the business we were lucky to have avoided them
Finance
Photo by Fabian Blank on Unsplash
When we first looked at the books…. Well there weren’t any. I asked Ann how much profit we were making. She said that we were making 10–12% margin but couldn’t really explain why she was chronically and acutely short of cash.
Once we gathered all the receipts and invoices and created some initial accounts it turned out that her margin was actually -7%.
Why was she so off?
She had no system for collating all the numbers and putting them into a form where she could quickly judge her financial performance. Setting up an accounting and bookkeeping system is too hard/difficult for many entrepreneurs. So long as they are making sales they feel that they are ok.
The problem was that the more sales that Ann made the faster she was losing money and she didn’t know this!
Performance as a business was judged on the number of seats she had and how many of those were filled. Performance was judged by the amount of cash that came in each month and the balance of her bank account.
Many entrepreneurs keep managing like that for months after they have started. Things are going well. They haven’t had any problems. They don’t see the need to leave the critical issues of sales and operations to focus on getting the accounts looking right.
If they have no problems everything must be ok.
In reality the iceberg is very close and ignorance is just a fog that hides how dangerous it is for even longer.
Culture
90% of the staff stayed with Ann’s company for 3 months or less. She had to replace every position 4 times a year.
Think about the time and effort that took. Think about the quality of service and customer satisfaction! When I chose kindergartens for my kids the key criteria (after lots of bad choices) was how long the teachers had been at the school.
“Why have we got this problem?” I asked. “We hire school leavers and they see it as a temporary job before they get a real job” Ann answered. “Why do you leave so often I asked some of the teachers?”
“Ann is nasty and mean and doesn’t pay us enough and we have to work too hard!”
There was a big disconnect. Ann had found a short term and temporary solution to get her business off the ground in the early days. Hire cheap workers to demonstrate the MVP and keep costs down.
It was another time bomb. As time went by it started causing increasing damage and Ann didn’t realise that a solution had morphed into a problem.
She fixed this with many of the actions in previous points. lso there was a concerted push to say this is who we are. This is what the people who are at my business are like. And this clear statement of purpose filled the void that had existed up to that point. The staff responded and churn slowly dropped.
Vision
“So what is the big vision?” I asked “What is the exit strategy?” Ann was clear and determined “I want to look after children.”
Hmmm. For a long time Ann couldn’t really articulate where the company was going. So it just headed in a semi random direction. We have some spare cash. Let’s open a new centre with it.
Why they should open a new centre, why more children coming in would be a good thing was never really considered.
Ann didn’t have much of a clue as to where she wanted the company to be in 5 years or even what it would look like when it was finished. Another friend of mine in the education sector started a school about 30 years ago. She said it was always very clear. I wanted to create a wonderful school on humanistic principles that would b as good as an English grammar school. And I wanted to create a local version of Cheltenham Ladies College. And she did exactly that.
Ann couldn’t articulate that vision and so we had a bunch of mismatched centres serving slightly different segments all with different pricing. What looked coherent from the outside was the result of hundreds of sub optimal ad hoc decisions that had no guiding principle.
Eventually “I want to create a great kindergarten that gives working class kids the same start in life that middle class kids have”. Once she figured that out lots of things changed fast as decisions reinforced and supported each other.
Leadership
Ann got many things wrong. Perhaps the worst was how she approached leadership. She’s a charismatic person. When you meet her in her element she has an aura about her that makes you feel that anything is possible.
The thing is her leadership, right now, is the hands on kind. She needs to be in the centre’s being a shining example.
As the business grew she though the role of a leader i her company was to move to head office and be a ‘big boss’. Honestly she wasn’t very good at that. A bureaucrat she is not.
She tried managing in a style that didn’t fit her or the company. Staff cold cold, formal edicts from her in her air conditioned office. She was unapproachable and aloof as she struggled to handle the administrative chaos.
“Where can you do most good?” I asked. “I need to solve these problems” she said. “Tax, legal claims, unfair dismissals, overdue rent, government inspections”
Those were problems she had to solve. Frankly they were management problems that could be solved by any general manager. Where could she do the most good to drive the company forward?
For her it was running the centres and building them into great places to work that were filled with happy and smiling children. She found ways to compensate for her managerial weaknesses and filled that hole. Someone else takes care of those problems now. Funnily enough there aren’t nearly so many.
What Can we Learn from Ann’s Story
This is the story of Ann. Some of the issues are generalizable to all entrepreneurs. Some are specific just to her.
Stepping back the real problems came because Ann tried to run her business as a startup. Once she had product market fit and that she could deliver value to her customers at a good price she needed to start the process of changing it from a startup to a small company.
When you have something that works you need to stop being a startup. Staying a startup will kill you.
A startup is a chaotic type of company as it is still trying to figure out the best way to make money and grow. Once you have figured that out it’s time to start putting on the suits and building the spreadsheets and SOPs.
Structure, order and consistency are what is needed to create a company that will keep growing profitably and happily.
The big mistake that most entrepreneurs make is no recognising the change that they need to make and then starting the process to leave entrepreneurism behind to business ownership and management.
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Business Strategy Workshop with the Business Model Canvas
How to Use Business Models To Dominate Your Industry
The Method
The Business Model Canvas developed by Alexander Osterwalder and Yves Pigand is a powerful tool for understanding your business model and then changing it to make your company more effective.
In this 3 session half day workshop we use the business model canvas to understand your company, division or unit’s current business model. We use traditional SWOT analysis on the business model to understand the pressures facing you. Then we generate alternatives to drive your future strategy forward.
This workshop is a fast and furious half day event designed to stimulate strategic discussions within the company using a common framework.
All the sessions are hands on. Everybody learns as they contributes. This helps develop strategic understand and a deep understanding of using the tool in practice.
The workshop can also be run as a full day or a two day session, or as part of a series where you review competitors business models and explicitly design strategies to counteract their strengths.
The Sessions
In Session 1 we create a business model canvas for your business or division. The 9 components of the business model canvas allow us to capture how a company of any size or complexity makes money and delivers value to its customers.
In this session we work through the canvas drawing input from your team to build a common understanding of the existing business model.
The goal here is to get a common agreement at a high level of who your customers are, the value you create for them and how you create that value in order to generate revenue
In some cases there may be disagreement within the team as to the shape of the business model. In these case we recommend having a full day or a 2 day workshop to allow adequate time to cover them.
In Session 2 we do a SWOT analysis that identifies the main pressures on your business and the reasons the business model may need to change.
This session is quite structured as we use a pool of 60 questions to address the 9 key components of the business model. These are contained in an accompanying workbook and in a typical workshop we will focus on 5 or 10 of them
In Session 3 we look at what we have learned in Session 1 and Session 2 and outline where we think the business model should change to counter environmental threats or take advantage of new opportunities.
This session is typically less structured and encourages participants to brainstorm alternative models, all of which are captured for later review and discussion
The Business Model Canvas
The Business Model Canvas is a simple tool that allows you to describe your business model and think through how it works in a consistent and systematic way.
By using 9 building blocks:
- Customers
- Value Proposition
- Customer Relationships
- Channels
- Revenue Streams
- Key Activities
- Key Resources
- Key Partners, and
- Costs
almost any business can be described simply and elegantly.
The canvas also allows us to easily describe how different parts of the business work together to deliver powerful synergies, core competencies and competitive advantage
Sample Business Model Review
Outputs
Session 1
Business Model Canvas
Session 2
SWOT Analysis
Session 3
Multiple Alternative Models
Who is it for?
- CEO & Senior Management Team
- Startups
- Investment committees
- Strategy teams
What are the Benefits?
- Visualize your existing business model
- See how threats and changes affect your business model
- Generate alternative business models
- Test them to see if they are a fit for your strategic direction
Combined these let you test and analyse strategic choices, make better decisions and move faster.
Why Do You Need it?
- The market is radically changing
- Major threats to the existing business model
- Existing strategy is stagnant
- Investing in a new market or sector
- Considering major changes to the business model
- Looking for insights into competitors strategy
Your Facilitator – Denis Oakley
Denis Oakley is a strategy consultant who focuses on helping tech companies develop powerful business models.
Denis has a Philosophy BA from the University of Bristol and an MBA from Warwick Business School.
After a career with engineering consultancy Mott MacDonald Denis came to Malaysia in 2007 with an oil and gas startup.
Denis helped me explore my current business strategy and opened my eyes to a great potential path to dramatically grow my business. Insightful and honest, he provided great perspective that’s sure enhance my business success.
Michael O’Connell – CodeSprouts
Denis has the unique ability to quickly give you not only a succinct strategy but the right one. He’s not only passionate about helping start-ups he is generous in giving both his time and knowledge. Would highly recommend to anyone needing strategy advice and actionable ideas that work.
Ronan Leonard – Eccountability
Denis’ someone that can be depended on to step up and deliver an idea, a complete solution or just some kind words of encouragement that can really work for you.
David Spence – Live More Events
Find Out More
and Change Your Future
Disrupting Money: Breaking the Banking Industry
Why do we need banks?
I’ve always taken banks for granted. Someone asked me a question about technological innovation in banking. This led me to question what banks are and thence how to disrupt money and the way we use it.
The classic argument for a bank is that if you keep your cash in your mattress it can be stolen or the value can be eroded by inflation.
Banks are also pretty good at helping you move money from place to place. They provide coins, notes, cards, BACS and SWIFT. Also letters of exchange and credit.
Finally they create money through fractional reserve banking. They take money in as deposits and lend more money out as loans. So they stimulate or contract the economy through the availability of money.
Let’s step back a bit and think about cash or money in the larger sense.
Why do we need Money?
It’s an efficient way of enabling us to satisfy our wants and needs. If we have cash some pretty outrageous desires can be satisfied. Equally without it we struggle to survive in an integrated economy that doesn’t have space for hunter gatherers.
We also need cash (and I am using it very broadly) as an insurance policy against an uncertain future. Instead of having a barn full of good food to see us (and the rats) through the winter we can have a fully loaded bank account.
The transaction costs of money
The traditional argument in favour of money is that solves the transaction problem of figuring out how many lemons my potatoes are worth. If I only grow lemons I have to manage hundreds or thousands of different exchange rates. lemons to potatoes, lemons to fertiliser, lemons to big macs…. Money makes this far easier. Trade velocity increases and everyone becomes far richer as a result.
Those are examples taken from centuries ago. Most people in developed countries or reading on Quora don’t create anything tangible. They create services through their use of time. They sell that time for a salary, for an hourly rate, for pieces of work.
You sell your time for money then you exchange the money for something that you want.
The transaction problem of money
During this transaction you have several problems
It’s not clear how well you price your time. Adjustments are infrequent. Salaries change only with a job or a pay rise. It averages out the value of your time or services over a period. So you are paid as much for the trip to the photocopier as for the insight in the meeting with the CEO that created a new $100 million business.
Put a different way: A bottle of water that I bought in a desert petrol station has the same price whether I have just staggered out of the desert or am in the air conditioned comfort of my Cadillac.
Pricing works on average and this averaging has a cost to everyone. Banks make a profit (including central banks as banks) on providing this service.
Is there a better way?
It seems to me that we are heading in the direction of being able to get rid of money.
Take a simple example. If I work for Tesla then I could be paid in cash. I could also be paid in Teslas. So 45,000 people work at Tesla. 83,000 Tesla’s produced in Q3 2018 That makes 0.61 Tesla’s per month per employee on an averaged basis. (But it wouldn’t be this much as the wages bill does not equal total revenue)
Obviously I don’t have much use for two thirds of a Tesla. It’s also pretty hard to sell two thirds of a car, especially when it is not obvious which car it is and which two thirds of a car I’m selling.
This is a problem that’s already been solved.
We already invest in fractional ownership of companies. Stocks and shares have been traded like this for centuries. Fractional ownership of products is increasingly possible as we have the ability to manage large datasets and establish value across different trades.
So imagine having an account into which your Tesla’s are deposited each day. Then when you go shopping the fractional Tesla’s are automatically converted into whole Apples in the form of phones. No money involved.
How can we make this happen?
The technology exists in part. There are markets, auction software, market making algorithms, databases and so on and so forth. It’s fairly easy to see that we could model a system like this on a micro level to see how it could work in reality. It needs some experiments to start paying people digitally in kind. Startups already do this with equity. Others make promises to investors to do so in the future with ICOs.
Is it Plausible or Practical to Disrupt Money
I don’t know enough economics to argue this well. Are the transaction costs of money high enough to support the tech infrastructure that would be needed to do this? Again no idea. It’s worth doing some experiments to see what happens.
What it is though is disruptive. Specifically it takes banking and money in a very different direction and that opens up lots of possibilities.
If you think about what we have done with money and the number of derivatives, products, options and futures that have been created think about the vaster possibilities that being paid in digitised products (like a Tesla) would create. Disrupting money will create vast opportunities for innovation.
Working for Andy Warhol or Damien Hirst? Saving some part of your fractional painting ownership as a potential pension fund with far bigger growth….If you don’t have the option to work for him then buy fractional ownership off the people who do (as they need to sell to buy other things to live)
The real value proposition and the death of money
A technological innovation like this could release vast amounts of value for both businesses and individuals. It would focus people on the value of what they were created and thus incentivise them to create the most value for the least effort.
Who’d want to be paid in fractions of an Edsel?
By disrupting the very concept of money at it’s roots we have the possibility to create entirely new industries that will grew out of the ruins of banking. We don’t need money. We need ways to transact. Money was an efficient solution to matching problems in Lydia in the 7th Century BC. Those matching problems are far less intractable now as we use technology to solve them.
So let’s leave money behind and get the benefits of better trades, transaction and exchange
I was originally asked this question on Quora What technological advance would you love to see in your lifetime in personal and business banking? I didn’t really expect the answer to go the way it did but I found it fascinating. Especially as so much is murky.
What I really like though is that the idea of disrupting money is testable and modelable.
I can pay my team in fractions of a business model. Or at least we can have the discussion and explore the idea and get a sense of how we would have to change the work in order for that to happen. There are interesting questions about fungibility. Is my business model as valuable as Andrew Chen’s? Would fungibility only be possible with products from larger brands or companies? Is fungibility dependent on the depth of the trading pool of each product or service? how much would it push the commodification of services?
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