Entrepreneurs with Denis Oakley
I HELP BOLD LEADERS TRANSFORM THEIR BUSINESSES AND THE INDUSTRIES THEY COMPETE IN
Business models drive strategy. These posts are all about how business models are the beating heart of modern corporate strategy. The focus is on the theory of business model strategy, not on how to design business models.
If you have the same business model as other businesses in your market you are stuck in competition. Your success is driven by luck and the semi-random variation in staff quality, product innovation and access to resources.
To compete successfully over the long run, and to create a sustainable competitive advantage, you must have a different business model.
The design of your business model thus influences the strategies that you adopt, where you choose to play, the culture that your business has and the types of products and services that you create for your customers.
If you want to win, you need a different business model. You need a better business model. These posts give you the strategy to create powerful new business models.
There are over 100 posts on business model strategy covering the business model lifecycle, how business models emerge and die. We look at normal business and revolutionary business drawing on ideas from Thomas Kuhn.
Large numbers of business models emerge at the start of an industry. An evolutionary process whittles these down. By maturity, few business models survive (often two or three families). As the environment changes these become vulnerable to disruption by new business models
I draw on modern and historical examples to illustrate my points, often going far beyond academic research. The theories and strategies that I describe are deeply rooted in my own entrepreneurial experience. They are supported by the work I have done over the last 20 years; coaching, mentoring, consulting and advising entrepreneurs and business leaders in dozens of industries and sectors.
The aim of all these posts is to help you learn how to explore new business models. You can then experiment and adopt new business models. My hope is that this will give birth to a huge flowering of diverse business models which will be critical to economic growth through the 21st and 22nd centuries.
In this video I talk about disruption and its impact on modern business with examples from my own consulting experience and all over the world.
It’s a good introduction as to why disruption is a threat to every business, what forms of disruption there are and some ways of changing your business so that they are less of a threat.
If you are interested in this you can find more statistics in my infographic – here and a worksheet to help you identify if your business is being disrupted here
When I look at customer’s business models there is often a disconnect between how unique they think their core products and services are and how easy customers think it is to substitute. A good example is dahmakan, a food delivery startup in Malaysia (who I once worked for). They provide meals to your office freshly cooked by a 5 star chef. It’s an unique service. No one else does anything similar in Malaysia. Except…. except that people bring their own lunch into work, go out to restaurants, order food deliveries, skip lunch or pig out on chocolate bars and crisps. Not so special. In this article I’m going to look at the threat of substitutes to your business model and why it is important to think widely.
When we test business models the first step is to go back to the drawing board and look at the problem or problems that the customer wants to solve. We use the problem as the foundation for identifying substitutes not your product or service. Why do we do this? We do it because most of the time the customer decides between different options based on his interests. He doesn’t look at products and services the same way what you. Your marketing, R&D and manufacturing teams do. She doesn’t look at them the same way that your competitors do.
Your customer has their own perspective. Sometimes they may be fuzzy about what exactly the problem is and how it should be solved. Even then they approach everything quite differently to you. So we start with the problem. Then, putting ourselves in the shoes of the customer we ask how can we solve this.
Because we are looking for substitutes, this after all is part of our threat analysis, we want to be open in our thinking and not close off potential avenues. The less we see the more risk we have. A brainstorming methodology works well here.
A good example is the problem of getting to work. Let’s imagine that we are a car maker whose main product line is a range of family saloon cars. We can call it Toyota.
What other ways are there to get to work other than by using a Toyota? To start with we can look at the range of other cars produced by competitors. Then we can add in the electric cars. Thats a distinct substitute product that will disrupt much of the manufacturing and supply chain. Whilst we are thinking about it let’s add in autonomous vehicles as they start to break the emotional bond between car and driver that marques have relied on for decades.
Then there are a range of substitute forms of transport – bicycles, buses, trains, metros. These can be incredibly powerful threats. When the channel tunnel rail link opened between London and Paris it destroyed the viability of the airline routes between the to cities.
Alternatively we have substitutes in the form of taxis, and increasingly in ride sharing services such as Uber and Grab or micro rental car ownership schemes.
Finally we have options where we don’t even move the person but we move her office into her home, such as in remote working. Alternatively we move the home to the office as people migrate back to city centres. With the dense networks of services there is little practical need for a car.
That gives you a wide range of substitute products and services that threaten core product lines. What do you do?
The next stage is to look at each of the substitutes and evaluate the threat to your business. This can be done using a standard risk assessment matrix.
For severity we can look at 
the loss of market share, for frequency we can use the likley timescale of the change. The length of the timescale depends on the industry. Some take longer to change than others.
That said change can often come far faster than expected. The music industry’s revenues from physical products dropped from $15billion in 1998 to $5billion in 2008. In 2004 not a single car survived the DARPA self driving car Grand Challenge in 2004. 15 years later autonomous vehicles are a reality on some roads in many countries.
For frequency (or likelihood) using a scale of
gives a reasonable approach.
One big problem here is that humans are not good at assessing risks. This is particularly true when we are assessing risks to something that we have a vested interest in. We can avoid thinking about or downgrade some possibilities because we do not want them to be true.
A good approach here is to look at the substitute threats that you rate low on either severity or likelihood. Then imagining that you are a company, or new entrant in that sector describe how you would rapidly grow the company.
Using the commuting example above let’s imagine that we’ve rated the likelihood and severity of people moving back into the city centre as a low threat to our core car manufacturing business. What is a story that would challenge that?
Here’s an example.
There are far more reasons why this won’t happen than why it will. The point is not to describe a plausible path but to stimulate insight so that threats are seen and recognised. Not ignored. It is that ignoring of threats that is one of the greatest risks to companies in the Commercial Revolution.
I hope that you have found this article on the threat of substitutes to your business model useful. Do shout out if you have any questions
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.
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.
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
If you’ve enjoyed this article on business model threats you may want to read this article on how to test your business model. Alternatively if you are worried about your business model being disrupted give me a call.
I started going to Toastmasters as few months ago to improve my public speaking skills. On Wednesday I won my first table topics contest. Table topics is when you are given a random topic to speak on for two minutes with no preparation. In this case I was given the title of “Transform into Greatness”.
Every journey, every ambition that we have starts with a single decision. Unless we make that decision we cannot change or start the journey to achieve our potential.
In this we are like a caterpillar. We go through life happily munching on our daily concerns. We have no really worries apart from our immediate circumstances. OUr focus, our sphere of interest is narrow. We may be excited by a slightly larger or a slightly greener leaf. Our horizons are limited – we cannot see even as far as the horizon.
One day something will happen. For some of us it may be an external event. For others it can be something triggered deep inside us. Our souls or psyche may rebel against the mundanity of our existence. We may have a trauma such as losing a job or a loved one. It may be as simple as a sense of ennui with the world
The human response is to withdraw into a cocoon. To the outerworld it looks as if we have withdrawn. It looks like we have put the hard shell of the chrysalis as a barrier between us and the world that hurts so much. In reality the shell gives us space to think, reflect and understand.
I wish I knew how long a transformation took. I wish I knew how to predict it’s length. Alas when I am in the grips of one it goes at it ‘s own pace. My ego, in all its anger cannot haste or delay it. Eventually though a day comes when the cocoon splits.
We emerge naked and vulnerable into the world again. It’s different now as we see it with jewelled eyes and iridescent wings. The horizon is clear and we can dance crazily along forest paths seeking our destiny. As we transform into a butterfly the way that we see the world shifts. It is this new frame of being that allows our transformation into greatness.
It is a journey that we can all make. We must all make. In the course of our lives we will feel the urge to withdraw away from the world and start a new transformation. This is a good and important thing. It is a wonderful part of being human.
Enjoy your transformations.
Last night was one of those nights. I’d finished late and by the time I unwound and switched off the light it was almost midnight. I started listening to my audiobook and at 00:30 I was still awake. I work up again at 2, at half three,just after four and then my alarm clock went at 5. When I woke my kids up at 6 my eldest daughter asked, seeing the bags under my eyes
How are you today Daddy?
I was so tempted to tell her exactly how I felt. Instead I said
It had the great virtue of being true and inspirational. True because whilst I was tired I knew I was going to spend the day doing what I love with people I care about deeply. Inspirational because as I said it it lifted me up from the self doubt and self pity that tempted to overwhelm me.
Then I started off on a pointless 200 km round trip to pick up a bank fob that I had meant to pickup when I’d done the same trip the day before and forgotten. Like I said life couldn’t be better. Just after dawn I was driving through beautiful jungle covered mountains, watching the white clouds cover their steep green slopes like the divet covered the form of my still sleeping wife.
As I drove I returned again and again to the question
What make me tick?
I thought about my life, my school, my childhood and tried to understand what makes me different. What was the path that led me to where I am today.
As I drove I had a moment of epiphany.
I love changing stuff. It’s not the process of creation per se. It is the breaking apart of old outdated, outmoded structures. I was never a punk with a desire to trash everything because it was traditional or authoritarian. No it was a rejection of anything that was accepted and inefficient.
If it worked well – great. I’d use it and be satisfied. if it didn’t work well or didn’t add value then it drove me nuts.
A great example was going to Chapel. We had to do this 2 – 3 times a week. Whilst I had no strong feelings about religion I did have strong feelings about being forced to go to church. This was especially true when I hadn’t been taught to pray effectively and as a consequences never got anything from God (Channeling teenage thoughts here – now my thoughts are more mature).
I put a huge amount of ingenuity into
I lost most rounds with my house master but that made the wins so much sweeter.
This pattern repeated and repeated. I found myself in organisation after organisation that was inefficient and woefully incapable of doing what it was meant to do. Naively I took the mission statements at face value and came up against the twin whirlpools of organisational culture and top down management. Can you imagine me being a yes man and climbing the greasy pole?
Nope. It didn’t happen.
What happened was that in the right organisations I was lucky enough to break things, disrupt the way that they worked and then build something much better. In the wrong organisations I was yet another victim of office politics.
This is the why of Denis Oakley. I love working with small businesses because I see the failures of most businesses. I also see the shadow of the New Jerusalem that they could be and that is what I reach for throughout my work.
There is also a wonderful subtext – when I work with startups and small businesses I get to set myself up against the corporate giants who stand in for the authoritarian church of my childhood. How can we beat Google? Can we break LinkedIn? How can we disrupt Apple’s business model? How can we change the world.?
Fuck Yeah!
What a life!
Its never been better
I am reading Simon Sinek’s Start With Why at the moment and it made me think about why I do strategy. Sometimes I’m not sure if strategy is the right word. So in this post I am going to explore what it is that I do and why I do it.
Some people ask “Why?” Others ask “How?” I am firmly in the first camp. Ever since I can remember I have asked:
Why does that happen?
Why does this work like this?
Can I change that?
The reason is that I like to know how things works. Even better, I am driven to understand how things work. Once I understand them I like to drive them.
In my very first job years ago I worked as an archivist looking after engineering records. The first few weeks were really frustrating for me as I couldn’t understand why anything was organised the way it was.
Signalling records for Crewe were associated with civil records for Crawley (and no it was not as simple as alphabetical organisation).
Gradually as I saw more and more of the archives I realised that no one understood how it was organised. The way that it worked was that everyone who started was taught the way that it worked. As new records arrived they were added according to a new schema that the staff member though appropriate. As far as I could tell this had been going on for decades.
I drove my boss mad.
Why is it like this? How are you going to make it better? Why can’t we find anything quickly?
Eventually in exasperation he said to me
Denis – since you are so clever how should we organise it?
I should have been prepared, but as I said I was young and naive. No matter a few hours later I had the answer and then the great organisation started.
It was awesome. The archive became a place of beauty and then it became absolutely boring as there were no more useful changes that could be made.
What I do is I see clearly why things are the way that there are and see where they should be.
Part of this is my philosophy degree (yep I’m one of those annoying logic choppers). I suspect that that improved my skills rather than created the desire.
The underlying desire is to understand and organise the structure of reality. That’s what Aristotle and Plato were really trying do. That’s the essence of philosophy.
Business strategy sells a lot better than Business philosophy.
What I’ve learnt is two things.
Clarity
Pathways
Clarity is the ability to see and understand how a business works under the surface. It’s like having X-Ray vision. The bones and joints show the way that the company has to move. Without the muscle, skin and clothes to hide them everything is so much clearer.
Pathways is being able to see not only how the skeleton can and does move. It means being able to see the osteoporosis and the healed fractures that inhibit movement. Even better it means being able to see what would happen if we start changing the bone structure and swapping them and the joints out.
That’s getting a bit Frankenstein’s monsterish! Definitely extended the analogy too far.
Let’s continue though as it can get beautifully weird.
A business is meant to achieve a goal. That may be mundane. As Simon Sinek put it – Dell makes computers to make money. There’s not a lot of why in that. Apple disrupts the status quo and it makes devices that do that. That’s a big powerful why.
A company that has a powerful why like that is like an animal designed by an intelligent designer. The intelligent designer understands the purpose of an animal – a crab lives to pick small pieces of food from the surf at the edge of the sea – and designs it so that the animal is just so. The crab is given a shell to protect it from the tumbling waves, eyes on stalks to let it see swooping gulls and tasty morsels.
Like an intelligent designer I swap claws for wings and eyes stalks for compound eyes to help my corporate beasties survive in the environments they find themselves in (whether it is a Red Sea or Blue Ocean).
This isn’t how evolution works. It is how corporate strategy works as we try and force the pace of evolution.
There is a vast amount of data that is fed back to us in terms of market conditions, customer response and employee productivity. This is the raw juice of corporate evolution. Little experiments allow us to mimic natural selection.
What works far better is when is when we see clearly and can accelerate the process. Farmers have done this for tens of thousands of years increasing the yields of crops and cows. I do strategy to enable businesses to do the same.
If the process was simple, if it was like natural selection if would be boring. Because we have the ability to change how things work it is an external delight
That’s why I do strategy. I do it because I can’t do anything else. I do it because it lets me spend all day every day understanding the world and imagining ways to change it
Some people see things as they are and ask why
I see things that never were and ask why not
I have a perfect design – just like the crab in the surf.
