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Entrepreneurs with Denis Oakley

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

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Designing Business Models

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Business Model Epicentres

When a superhero picks up a car and throws it they intuitively figure out where the car’s centre of mass is. This is important as it means the car doesn’t spin or tumble, and makes better TV. When we are creating business models it is useful to have something similar. Alexander Osterwalder calls it the epicentre.

The epicentre, in an earthquake, is the point on the earth’s surface that is vertically above the focus of the earthquake. It’s where it is all happening. In business model innovation it’s useful to think about business models having epicentres.

By this what we mean is what is the core of your business model? What is the type of business model that you are trying to create?

What are business model epicentres?

The first step is to ask where do you think you will find the biggest source of competitive advantage.

We can divide the business model canvas up into 4 areas.

  1. Customers – on the right side of the business model. This includes marketing, and customer relationships
  2. Creation – on the left side of the business model canvas. This includes key resources, key activities and key partners.
  3. Finance – at the bottom – where you make money and how you spend it.
  4. Value – in the centre – your key resources, activities, relationships and marketing as well as the value proposition.
  • Business Model Epicentres
  • Business Model Epicentres
  • Business Model Epicentres
  • Business Model Epicentres
The different generic epicentres where you can focus your thought when designing innovative business models

How do you use epicentres to compete?

The first question you have to answer is where shall we compete?

  • Do we focus on satisfying customers?
  • Do we focus on creating out product or service better, faster or cheaper?
  • Do we focus on innovative ways to generate revenue or save costs?
  • Do We focus on new ways of creating value?

You can answer this, as quickly as you have read the previous paragraph.

Alternatively, you can go back to your competitor analysis, and ask where existing competitors, substitutes, new entrants and out there competitors are finding the source of their strength.

Business Model Epicentres
Mapping out competitor business models helps to discover the source of their strength and their epicentres

In many mature businesses, most players will have adopted very similar epicentres. Most oil firms focus on the creation epicentre. Most clothing retailers focus on the customer epicentre.

Should you use the same business model picentres as everybody else?

Those may be the right choices. At this point when you still have a blank canvas in front of you, it’s great to ask?

Shall I follow the same path as everyone else?

When we are doing business model innovation we’re not trying to copy other people. We’re trying to develop business models that are disruptive and different.

What you should do is consider where most existing players have their current epicentre. Then choose a different one. This is a contrarian play. It’s choosing a different path, and by thinking about how you can take high-quality clothes and stack them high like a discount supermarket, unlike Gap or Zara, you end up with a profitable business model like Primark.

How do you find advantage by seeing things differently?

We keep coming back to this. How do you see things differently than the rest of the market? Where can you find your disruptive insight? So every time we have a choice of doing what they do or going our own way, we go our own way.

All we have done at this point is to choose a place on the business model canvas to start thinking about our future business model.

As you go forward through the design process it’s easy to move from one to the other. It’s easy to combine different epicentres.

What happens if we compete on the basis of finance and customers? How does that play out compared to creation and value? or against creation and customers vs value?

Working this way you can develop a much strong set of business models as a first draft for where you are going to take your business

Business Model Epicentre FAQ

Do I need to use epicentres?

Nope. it’s voluntary, but my experience is that 1. it adds more value to the discussion, 2. generates more valuable insights, 3. helps you create more robust business models

Which is the best epicentre?

That’s totally context-dependent. Different industries have very different preferences. In most industries, there is clearly a ‘right’ epicentre which often means that there are nuggets of gold hidden in other approaches.

Am I committed if I chose one epicentre?

No. The business model design process is iterative. If it doesn’t work or add value that’s ok. choose another one. Remember what we are doing is as much a search and discovery process as a building one.

Does it matter if the team disagree about epicentres?

Not really. It’s easy to fork your approach and see what new ideas are developed.

Where can I get more examples?

Alexander Osterwalder’s book Business Model Generation has a page full of examples.

What is a business model epicentre?

It’s an area of fundamental focus in your business model that helps to derive your strategy approach

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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