Competition Archives - Entrepreneurs with Denis Oakley

Entrepreneurs with Denis Oakley

I HELP BOLD LEADERS TRANSFORM THEIR BUSINESSES AND THE INDUSTRIES THEY COMPETE IN

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Building Feedback Loops into Your Business Model

Now that we have spent some time thinking about other business models in the market place let’s start developing this one. Today we are going to look at key resources in the business model, and how feedback loops make your business model more powerful.

A good place to start next is to look at the key resources that you have or need. These are the building blocks that you use to create the value proposition. In other words, it’s what you know (in this case), the factories you have, the skilled staff, the patents and processes.

Business Model Key Resources

In our example, my key resource is ‘Denis Oakley’ as all the IP is contained within my head. Well, most of it. A lot of it can be found on this website (like this article) and other social media websites. Let’s separate this out.

  • IP
  • Brand & reputation
  • Platforms – website & social media accounts
Business model key resources - these are what you need in order to create the value that is going to solve your customers problem
Business model key resources – these are what you need in order to create the value that is going to solve your customers’ problem

We can phrase that in several different ways, I could break down IP into experience and processes for example. This is a good starter and lets us start exploring how we can develop the business model.

This key resources approach works better when you have an existing business. You want to leverage existing assets. Some may be relevant and useful. Others you may not want to use.

Key Resources in New Ventures

If you are creating a business model from scratch the approach here is to ask – what do I need to build the value proposition. If I was a new venture in car hire I could start by asking, what are the different types of key resources that I could use to create my value proposition.

Here are a few

  • I buy lots of cars
  • I lease lots of cars from a car leasor or manufacturer
  • I resell cars from an existing car rental company
  • I get consumers to lease me (or other consumers) the cars.

Straight off there are 4 different ways of getting the key resources. 1 asset-heavy. the others asset-light.

Business Model Feedback Loops

Let’s now have a look and check out the logic model that we are building for consulting. Experience and IP (key resources) enable me to deliver the value proposition. That solves the customer’s problem, and as I do that it generates more experience and IP making it easier to deliver better results as we keep doing this.

Business model feedback loop - here is an example of a feedback loop, where the better the business model works, the better it will work in future.
Business model feedback loop – here is an example of a feedback loop, where the better the business model works, the better it will work in future.

What we have now is a feedback loop.

These feedback loops are critical. What they do is they bring the different parts of the business model together. The better they are the tighter all the pieces are tied together. The tighter the pieces are tied together the strong and more powerful the business model is as a system for generating money and disrupting competitors.

Spend time to identify all your feedback loops

As we design the business model we will keep identifying them. I’m not going to do all of them as we go through each step. It is something that you should be doing. The value in the exercise is not the few minutes you spend writing on the paper. It’s the time that you spend suckling your pencil as you start seeing how things work.

As a rule of thumb – every component of the business model should be in one or more feedback loops. If you have written something down on the canvas and it is not in a feedback loop, then why is it there.

The feedback loops show how each component is critical to generating value or profit. If something is in the model and you can’t create a logical argument (feedback loop) for it to create value… cut it out.

As you look for feedback loops, sometimes you are going to spot gaps. Sometimes you will see that you need something else to make the feedback loop work. Fill that gap, and play with the new structure.

Uber Feedback Loop Example

Here’s an example that I have abstracted out of the canvas for Uber.

Uber business model feedback loops showing the power of driver acquisition
Uber business model feedback loops showing the power of driver acquisition

As they get more drivers they get more coverage. That means that Uber can do faster pickups, which delights customers, and so Uber is used more, and that creates more demand for drivers.

At the same time as coverage increases, drivers get more trips, which allows uber to offer lower prices (spreading fixed costs over more trips) which again generates more demand.

Use Feedback Loops to improve your business model

As you start seeing feedback loops like these arising from your business model it does a number of things.

You start to:

optimise the feedback loops

look for and design in feedback loops

These are critical ways to transform the way that you compete with other companies in the space.

What next?

If you don’t want to come back to the blog every day click this link to get posts in your inbox – http://go.denis-oakley.com/newsletter .

Do explore these links to get more insights on how to build better business models

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Don’t Copy Business Models

You have customers, value to offer them and a real problem that you are solving. That’s the core of your business model. A lot of entrepreneurs and business leaders get this far. It’s not rocket science. You can make some awful mistakes (not solving a problem). Once you know what the big mistakes are they are avoidable.

Don’t Copy Other People’s Business Models

What comes next isn’t rocket science either. It’s a simple insight that changes everything for a lot of those who hear it. Most startups and businesses at this point take the first business model that comes into their head and use it. This is a mistake. A bad one.

For example, if you are making a widget, your first thought may be, outsource to a factory in china and sell using Fulfilled by Amazon. Not a bad idea… but how many other people have done exactly the same? One reason why it came to mind so quickly.

Copying competitors business models can work in mature markets, but will generally lead to tough competition. Done unthinkingly it is a quick road to underperformance.
Copying competitors business models can work in mature markets, but will generally lead to tough competition. Done unthinkingly it is a quick road to underperformance.

Diversify or Differentiate Your Business Model

The insight that you need to get is this. If your business model is the same as everyone else you are at the mercy of the market. If the market grows fast, you will. If the market is brutal competition, you will suffer it. If the market tanks, you will sink with it.

Choosing a standard business model, not thinking about how you will get your value proposition to market will make everything so much harder. That wastes your time and your energy.

How do we make life easier for you?

Choose what your business model should look like

We pause at this stage and think about what the rest of the model should look like. You have choices. Lots of choices. Choosing to do something different here, makes you different and that can give you a huge competitive advantage.

When I work with clients I don’t let them go beyond this stage without doing a very simple exercise. I ask them for a list of their biggest competitors. Let’s say there are 3 of them.

Sketch Competitors Business Models

The first step is to draw out a business model canvas for each. Draw out that business model with what you can see on their website, off Glassdoor, google search ‘company name + business model’ and put it together.

If they are all the same, then doing the same thing is a bad idea a lot of the time. You need to do something different. If they are all very different your business model needs to be designed to exploit their weaknesses and break them.

Assume that they are all the same. The next step is to look at a number of big ideas about how you can pull your business model together.

Get a set of ideas

Let’s go back to the example that we have been working with, a consulting company that helps businesses that need to change their business models because they face too much competition, or their market is dying.

Once you have your value proposition in place and know your customs, pause, don't copy other business models, but start thinking about how you will choose your business model.
Once you have your value proposition in place and know your customs, pause, don’t copy other business models, but start thinking about how you will choose your business model.

What are some big ideas that we can play around with here?

Traditional consulting. I wine and dine clients to build relationships so I can get big contracts. I deliver these using bright young graduates (McKinsey/BCG model)

Thought leadership: I use the Philip Morgan colosseum model for independent consultants – develop amazing expertise and then create a number of products to upsell people who buy into the idea I am selling.

Silver bullet solutions – I target smaller customers with a high-pressure automated sales process. This is designed to upsell products, constantly maximising ticket prices.

Famous Author – I write a book and build a social media machine. This helps me become a new Gary V or Simon Sinek. I make money from speaking and high ticket consulting.

I’m going to leave it there. With another hour of thought, I’d have come up with another 10-20 ways of delivering the value that we identified in the previous post.

These are all business models that work and critically have lots of other people using them to deliver a similar value set.

Easy Approach: Niche

The simplest way of designing a business model is to niche. Choose a specific pain, solution and audience and use a standard business model. Are there enough people out there with the pain? Is the niche small enough that competitors won’t flock to it? Yes? Then that may be a good enough point for your business model innovation.

That’s what is taught in MBA courses. If someone else muscles in on you, your only defence is to be operationally better than they are.

If you want a better business model than that you have to put more thought in. That is what we are going to cover next time.

What next?

If you don’t want to come back to the blog every day click this link to get posts in your inbox – http://go.denis-oakley.com/newsletter .

Do explore these links to get more insights on how to build better business models

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Business Model Innovation in Entrepreneurship

Business model innovation in entrepreneurship is designed to kill other startups and help you unlock value from incumbents

Do you need business model innovation as an entrepreneur? Do you need to come up with a shiny new business model? Is all the extra effort required to think about business models even worth it? I’m biased, but even with that bias, the answer is still yes. If entrepreneurs don’t do business model innovation they are probably doomed.

There are two reasons why entrepreneurs need to spend a lot of time on business model innovation. One is defensive. one is offensive

Cull the herd

First the defensive one.

Business model innovation in entrepreneurship: Part 1 - Use BMI to fight off the startup swarm and get a larger share of TAM
Business model innovation in entrepreneurship: Part 1 – Use BMI to fight off the startup swarm and get a larger share of TAM

Entrepreneurs swarm to an opportunity like flies to a rotting corpse. You never just see one fly on a dead animal. Entrepreneurs who only see their business and no other competition are normally delusional. They can’t see the other flies or the corpse isn’t there to start with. That’s a rule of thumb, if it doesn’t seem true to you get an advisor to ask you tough questions and listen to hir’s advice.

Don’t rely on luck

In almost every opportunity there will be a lot of new entrants going after the same opportunity as you. With similar resources, skills and market access there are normally two differentiators. Luck and business model.

Luck is by far the most important thing for entrepreneurs. It probably accounts for as much as 90% of individual success. Did you meet the right VC at the right time? Did you enter the market at the goldilocks point? Did the right technical tools exist? Had someone else done much of the hard work of educating the market?

What you can control though is the business model. Whilst most startups focus obsessively on the product (and somewhat fewer on the customer) few think that much about business models. From 10,000 feet this means most startups are pretty identical in a market. A horde of lemmings.

In the market shakeout

Markets shake out and of a thousand startups chasing an opportunity, 5-10 will have substantial market share after a decade or so. the rest will be dead, eaten, rotten, or desiccated corpses by the roadside.

In 1900 there were about 1300 manufacturers of cars in the US alone. two decades later there were only three of any note – Ford, GM and Chrysler.

You need a business model that helps you win

So for a startup to survive that long they need a business model that helps them fend off and eat the other startups. It’s that simple. If you don’t have any competitive advantage over them, then you are relying on luck and the odds don’t favour you.

You need to design your, business model, to be cutting down and thinning out the horde of competitors. Yes, you need to grow bigger and fatter. At the same time, you need to be killing them off quickly. That’s the job of your business model to enable that.

Take down incumbents

The offensive play is equally aggressive.

Business model innovation in entrepreneurship: Part 2 - Unlock value by using BMI to disrupt and kill incumbents
Business model innovation in entrepreneurship: Part 2 – Unlock value by using BMI to disrupt and kill incumbents

Entrepreneurial swarms happen in two closely related areas of the business cycle. When a new technology opens up a new market – for example, blockchain, crypto, self-driving cars, or even automobiles to use an example from earlier.

Incumbents own value that belongs to you

A second swarming happens when an existing successful business model starts to fail. Good examples from the last few years are publishing, music, banking, law. The incumbents are deeply entrenched and have a great deal of cash and resources. They are also troubled. They can’t give up on the existing franchise which still generates lots of cash, but they see the problems facing them.

There is a huge amount of market share here to be taken.

Product design only gets you so far

Now you can design an awesome product or service and go head to head and slowly win market share. You might even get bought in a lucrative private sale that sets you up for life. To make real money you have designed your business model to exploit the weaknesses of the incumbents.

Going back to the nature analogy a bunny rabbit isn’t going to take down a mammoth. A sabre tooth tiger with long fangs will.

Use business models to change the game

A good example here is how Apple systematically designed features into its business model(s) that enabled it to take down the camera film industry, the digital camera industry and the music industry in the 2007-2013 period. That’s 4-5 fortune 100 companies that it gutted and captured the value from.

Competing at a product level works in favour of incumbents. Competing at a business model level works in favour of the disruptors. Salesforce in the period 2000-2015 competed at a business model level against the big software providers – Oracle and SAP with its no software – SaaS model. By 2015 or so the incumbents had caught up and Salesforce was forced to then compete on the product level going into a very different competitive environment.

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What is sustainable business model innovation?

Sustainable business model innovation is the process of designing or creating new business models that increase sustainability.

Many traditional business models have negative impacts on the world and our environment and the creation of sustainable business models helps to reduce or improve the impact that they make.

When we look at sustainable business model innovation the process is much the same as for more traditional business model innovation.

Differences between BMI and Sustainable BMI

Sustainable business model innovation creates business models that disrupt markets, fertilise value propositions (rocket-powered acceleration is unsustainable) and create positive change
Sustainable business model innovation creates business models that disrupt markets, fertilise value propositions (rocket-powered acceleration is unsustainable) and create positive change

The substantial differences are that:

  • The why changes. We are no longer purely concerned with economic outputs.
  • The goals of business model innovation change from accelerating the the value proposition and disrupting competition to include having a positive sustainable impact.
  • In the revenue box in the business model canvas, we also capture the sustainable impact that we are making.
  • As we go through the process of business model design we are constrained in the sets of choices that we can make

What doesn’t change is

  • Analysis and understanding of competitors business models – though this can be usefully broadened to include more stakeholders, especially when complex supply chains are involved.
  • Consideration of the balance point within the model. Where are the key feedback loops in the business model going to be centred.
  • The process of drafting multiple business models to identify and capture insights.,
  • The need for a perceptual shift – seeing the world differently so that you don’t replicate what competitors are doing.
  • The test and validation process where new business models are repeatedely trested at greater scale to reduce the risk profile as quickly as possible.

Need to Disrupt Not to Replace

As I think about it more a sustainable business model has to disrupt existing non-sustainable business models. It has to provide a better alternative to existing business models and the products and services they make. It has to make it a lot harder to sell or manufacture those products.

If it doesn’t it’s not creating the change that we need.

So for example, if you are looking at creating a business model in the packaging industry it is relatively easy to come up with a product that is more sustainable than competitors selling single-use plastic solutions.

The sustainable business model innovation process needs to explore how non-sustainable competitors can be disrupted and single-use plastics taken out of the supply chain.

Greenwashing

When we are creating sustainable business models the goal is to create substantial positive environmental or social change. We are not creating the impression of change. Put another way – laying out green plastic grass on your patio is not a real change. Ripping up the patio and replacing it with a mix of grass to create a mini wildflower meadow is.

This comes back to the heart of business model innovation. If you aren’t making substantial changes that disrupt your industry then the changes you are making are part of normal business. A standard, limited, response to competitive pressures. Thinking small without creating impact doesn’t change anything.

Economic vs Sustainable Business Models

Many people will say that a sustainable business model is less profitable than an economic business model. This relies on several false assumptions.

It doesn’t accurately capture the future costs and risks of non-sustainable models

The value created by the business model is not measured by profits alone – wrong frame of reference

It doesn’t reflect the changing nature of the competitive marketplace – it’s not profits OR sustainability. It is profits AND sustainability.

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Business Model Competitors Analysis

When I first started designing business models I focused on the business model that we were designing. This gave great results. However, when I started off analysing competitors business models we started to create business models with more impact.

When we do a traditional SWOT analysis a lot of the focus is on the outcomes. We have this strength. They have this weakness. Then strategy is the consideration of the sum of the strengths, weaknesses, opportunities and threats. You try and thread a needle through the gaps that you see.

Analysing Business Model Competitors

What I discovered is that if you sit down and map out the business models of competitors you generate significantly more, and better, insights.

The best thing is that this is fairly easy to do.

Beyond this, there is something so critical, that if you don’t do it, you can significantly reduce the growth potential of your business.

My key law of business model innovation is

The business model must accelerate the value proposition AND disrupt competitors business models

Denis Oakley
business model innovation is all about moving from a place of tough competitrion to one where you can grow rapidly as your competition is disrupted and your value propositon is far more powerful
Business model innovation moves you from tough competition to a world where your competitors are disrupted and your value proposition is enhanced

If your new business model leaves your competitors fat and happy, harvesting profits as before, then you are giving them the resources and time to develop a counter to what you are doing. They will do this – through copying, modification or completely new innovation.

So your new business model has to make their old business model ineffective and make it harder for them to counter you.

A classic example is Tesla. Electric cars are nice, but by switching to a direct to consumer distribution model, Tesla is disrupting the car industries traditional sales model.

By looking at competitors business models, in this way you generate the insights to be able to make your business model design far more disruptive.

How do you do it?

For the first run through chose a number of your direct competitors. These are the companies that you are going head to head with.

Direct Competitors

Get a blank business model canvas, look at their website and using your domain knowledge map out the canvas. Try and see it from their point of view. When I do this with clients I occasionally get someone who ‘knows’ what the competitor does. He/She writes this down, but it doesn’t really correspond to what they are actually doing now. It’s a pastiche of anecdote, prejudice and wishful thinking. Best to sit down and pretend that you are a prospective CEO preparing for an interview.

One of the first things that clients find is that your and your key competitors often share a similar business model. That’s very normal and is predicted by the theory of business model lifecycles. It’s also an aha moment as you realise that the reason you can’t get ahead is that none of you has any sustainable competitive advantage.

The same model, similar staff, similar resources, similar cash generally gives similar results. Anything that you better tends to return to the mean over time.

Indirect Competitors

Once you have done the direct ones spread the net a bit. Start looking for indirect competitors. If you’ve done an MBA and remember Michael Porter, think substitutes. Are you solving mobility problems by selling cars? Then look at bicycle, train, taxi, rideshare and other mobility business models.

Do a business model canvas for each. Do it yourself. It’s one of those things. It can be a bit boring. A lot of the time you think you know how the business models work, then discover that you don’t really.

What you are learning to do here is see business model patterns. You are starting to see what works, what doesn’t work, and then different angles. Inevitably you start seeing possibilities in the patterns.

These help you in two ways.

Insights that you can use immediately in marketing and sales campaigns to get a tactical advantage.

Understandings of how the market works to create entirely new types of business model that are more effective.

This is exactly what Herb Kelleher did with South West Airlines in the 1970s. He changed both the way the airline treated customers and how it operated operationally to come up with a business model that had almost 50 years of consecutive profitability.

Unexpected Competitors

That’s the obvious stuff done. Now head out into startup land. Start looking at startups (and corporate ventures) in your market that have new or unusual business models. This can be a bit of a grind. It’s best done by regularly scanning the literature and then doing a canvas as a startup catches your eye. Most new entrants won’t have distinctive business models (one of the reasons why they die like flies).

Unrelated business models

The final set of business models that you need to review are those of entirely unrelated companies. Here you are looking for companies solving similar classes of problems. Are you moving people from A to B? Look at how fruit, cattle and oil are moved? What insights can you get from their business models?

Are you helping people to live happier and more successful lives? Look a properties churches in Nigeria, the Mormons, witch doctors in southern Africa and neo-monastic communities. Far out? Most won’t give you that insight that you need. But they will increase the diversity of your thinking and lack of diversity in business models increases competition (and efficiency)

How many do you look at?

Looking at a variety of competitors helps you see business model patterns - and these give you the insights to create something awesome
You review direct and indirect competitors business models to look for patterns that you can exploit with your new business model

I once looked at 400+ business models for a client in the automotive sector. That caused death by overload. There were way too many

Direct Competitors – 3 – 5 – This gives you a baseline

Indirect Competitors – 5 – 7 – make sure that they are all different

Unexpected Competitors 3 -5 is a good number

Unrelated Business Models – 3. Just enough to get a mental reset and achieve perspective.

What do you do with all this?

So you have a stack of 15 – 30 business model canvases on your desk. Far more importantly you have a mental map in your head of all the different business models in your market and how they work.

You’ve just analysed the market in an entirely different way than your competitors. Because you see it differently you have got different insights.

That is going to take you in different strategic and tactical directions. If you are the sort of person who likes doing what everyone else is doing, this is the point where you put everything in a drawer and forget about it. Your insights will take you away from the herd. (If they take you towards the herd – then it’s likely that your industry’s business model lifecycle is in the growth or maturity phases and it’s not the right time for business model innovation).

So it is time to be bold. Time to be making different decisions. Right now from this simple exercise, you should have insights that you can take straight back to your business. You can use them to make it more competitive.

Because you understand competitors business models far better, often than they do, you will be able to see their weaknesses and exploit them.

The next step

If you are going all-in on business model innovation this is only the first step. You have a lot of insights, a lot of excitement, and hundreds of ideas. These will give your business incremental growth. To get the step-change growth that business model innovation delivers you need to work through the rest of the process.

You can read about the rest of the process here

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Competior Business Model FAQ

Does it matter how many competitors business models I analyse?

After 3 – 4 direct competitors business models you’ll start feeling you aren’t learning anything new. Stop at that point. You are trying to generate insights.

I’ve never done a business model canvas before, does that matter?

Not really. You aren’t trying to get a perfect business model for the competitor. That’s something only their management team knows. You are trying to think about it in a structured way. It is the process that generates the insights, not what you put down on paper

How do I find information on competitors business models?

I look at their websites. For this exercise, 90% of the information that you need will be there. Linkedin and GlassDoor give you great insights into how the company works through job titles.

Do I need to look at unrelated business models?

Of course not. Everything I say is advisory, but that said, I’ve found that most of the best business models that I have worked on coming from mashing up very different ideas.

Do I need to do all the analysis myself?

It helps if you do it yourself. The reason is that we are using our unconscious to generate a lot of insights. Everyone knows the obvious stuff. We have to be trickier to find the new stuff. That said if you get someone to do it for you, then o through their work, and perhaps talk it through at length. If you do it this way, process them over a couple of glasses of wine when you have plenty of time, or think them through on a long country walk.

What happens if I get no insights?

Not a problem. You’ve got a lot more understanding. You will discover that when you start to create new business models for your business that they are a lot more powerful for having done this.

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Business Model Competitors Analysis