Entrepreneurs with Denis Oakley
I HELP BOLD LEADERS TRANSFORM THEIR BUSINESSES AND THE INDUSTRIES THEY COMPETE IN
What is IBM’s business model? In this video, I use the business model canvas to answer that question.
The IBM business model is based around providing software that allows large corporations to connect their disparate software systems and improve their IT performance.
I have created an IBM business model canvas which explains the IBM business model using 9 key components that apply to any business.
In this video I answer the question “What is Netflix’s business model?” To do so I use the Netflix business model canvas. I describe each of the 9 key areas of Netflix’s business model (and also talk about why generating content is so important to it)
This video is perfect for anyone wanting to understand Netflix’s business model, looking for a good example of how the business model canvas works in real life or is curious about the business models of large technology companies work
Netflix is a B2C company targeting mass-market consumers. As of October 2018, it had about 140 million subscribers
In today’s business environment few businesses can expect to be doing the same as they did last year and increase sales and profits. On every front there are major changes and these affect almost every aspect of your business model. In this article I discuss the major business threats that companies face today
Technological innovation is a major business threat. We are in the heart of a business revolution as profound as the agricultural or industrial revolutions. The way that people work is changing faster and more radically than it has since people left the fields and headed to factories for the first time.
The reason is that with computers and the software developed in the 80’s and 90’s we are now able to start using information to transform the way that we work, manage and automate systems and processes.
If something can be turned into data or shows a pattern there are companies that are trying to extract new information, design new systems and automate entire types of work out of existence. As they do this they create incredibly valuable companies and existing business models have to change or fail
Technological innovation is the business threat that creates the most valuable new companies and dismisses once giant companies to inconsequentiality.
As markets change many companies see their own market becoming a red ocean of competition. It is hard to generate decent profits doing what they have always done. So they set out in search of new opportunity. So do thousands up thousands of new start-ups riding the technology wave.
In many cases they are entering your market. They are not all entrepreneurs. Amazon has entered the pharmacy and supermarket sectors. With a billion dollar budget a new entrant can be profoundly disruptive. At the same time start-ups can now do for $5,000 what they needed $500,000 a decade or two ago.
Small and apparently inconsequential they are niche focused and their numbers mean you can die by a thousand small cuts – even if they don’t grow as much as the entrepreneurs hope.
New entrants are the business threat that many established companies dread most
Governments, States and Cities are slow to keep up with all the change. They do respond and each year they create more rules and regulations. These are designed to protect incumbents, protect the state, protect citizens and protect the environment.
There are many many battles are pressure groups and lobbies seek to influence the outcome of regulation. Laws can curtail or open markets. The alcohol market in the US was closed under prohibition. The Cannabis market is now opening up. Uber disrupted Taxi regulations and is not finding it is becoming ever more regulated as the status of it’s own drivers becomes fixed.
Where there is a problem with many people or businesses being hurt or disrupted regulations start to trickle through -many being a threat to the way that you work.
New regulations are a business threat that large companies can take in their stride, with lower margins, but which can act as huge barriers to entry for smaller companies
Societies seem monolithic and unchanging. In reality they and the subgroups that make them up are in a constant state of change and flux as they respond to the world around them.
Women can drive cars and go to the cinema in Saudi Arabia. In the US they may lose the right to have an abortion. In Ireland they have just achieved hat. In Holland people have the right to die and in Singapore they march for Gay Pride.
In Turkey they become more conservative and in the Ukraine more corrupt. In Israel Arabs become disenfranchised and in Egypt increasing bars on religious belief.
Look back a few decades and see how your beliefs and your friends beliefs have change What did you tolerate and now accept. What was once tolerated that is now banned?
Social change is a business threat to every company as consumer behaviour changes making your value propositions less attractive
Are your markets getting older or younger? Does that matter to you? In Japan there are huge numbers of pensioners – and they don’t spend as much as younger people do., In the US the baby boomers are seen as a huge market full of potential as they spend their retirement savings.
In China a male-female imbalance caused by the one child policy distorts the millenials and no one can make families go back to having 2 children – a demographic disaster in decades to come.
In Africa and many developing countries almost 50% of the country can be under eighteen providing huge opportunities for education and cheap labour. In the US lack of skilled workers is pushing factories to spend ever more on automation
Demographic change is a business threat to everyone as entire sectors grow and shrink.
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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
As you know I am a big fan of the business model canvas. It’s a super flexible tool. It can be used to design your business model. It can also be used to stress test and analyse how well your business model is working. Think of it as a complete company strength audit in 40 questions. Without further ado here’s how to test your business model. (if you haven’t created a business model canvas yet – go here!)
What we have is a few questions for each segment of the business model canvas. The best way to test your business model is to have your latest iteration in front of you and look at each section in turn. For each question consider both the positive and negative side. So for example – if we look at the first question
How well do your value propositions align with customer needs?
Are they well aligned or poorly aligned? Are some value propositions better aligned than others? When I do this exercise with customers in a workshop we consider each value proposition in turn. Sometimes it becomes clear that there is a great deal of meat waiting to be discussed.
What we are doing at this initial stage is identifying the areas of the business model where you think you have problems. We’re doing it in a structured way. At this stage the point is to identify issues, then return and discuss them in more depth. If you schedule 5 minutes per question you can easily hit 2 1/2 hours which is exhausting for everyone.
An alternative approach is to put the questions into a Likert Scale and then have all key stakeholders fill that out as a questionnaire pre-workshop. If done like that the workshop can spend it’s time diving deep into the areas where the management team’s views differ rather than thinking too much about areas where there is consensus (unless there is a need to challenge)
One risk with this approach is that it’s possible to make value judgements about some of the questions
Do you have synergies between your products and services?
You may have a presumption that synergies are a good thing and want to answer – yes – of course. The answers aren’t objectively true. They are useful only as they are relevant to your business model. So when you test your business model it may be entirely appropriate that your products and services have no synergies. That is ok. Many diversified conglomerates in India have no synergies for example but there are great, non-synergistic reasons why their business models are successful.
What is important is that you use the questions as a trigger to reassess the health of your company. You can then use the answers to help you form the basis of a revised and more effective strategy.
Answer each question with a score between +5 and -5. If appropriate write a single sentence answer
The outcome of this test of your business model is that you have completed a quick and systematic strategic review. You will have identified a number of areas of the model where you feel that you are weak, or where there is possibility for improvement. This is one of the ways that you can use the business model canvas to become more competitive
The next step is to decide what you need to change and how you need to do it
If you’d like me to help you test your business model or planning a workshop please reachout. I also have an excel version which I am happy to share. Do send me an email.
This videos is about Google’s business model and its business strategy. I explain the Google business model using Alexander Osterwalder’s business model canvas and explain how Google makes its money
I review who Google’s key customers are and how it delivers value to them via search and advertising. We then cover Google’s key partnerships which are the secret sauce of it’s success and how it continues to maintain market dominance.
Based on this we look at how Google looks after it’s customers and the marketing channels that it uses to acquire them. Finally, we cover the key resources that Google needs to deliver all this and its critical day to activities.
The result is a great explanation of not only Google’s business model but good insights into its business strategy and the defensive moat that it has constructed around its advertising cash cow
There are three important groups of customers for Google. The most important for its business model are the millions and millions of websites that provide Google with information for free. They allow or invite, Google to go through the information on their website and index it. Without this raw data, Google does not have a business. Website owners allow this because they benefit from the additional readers of their content. You don’t write a book for nobody to read it.
Google then processes this information so that when people undertake a search it can use it’s index to deliver high quality, relevant search results. This is the value proposition for all the free users who use its services. They can find what they want. Google then looks to see what these people are searching for and then sells advertisers the ability to put adverts in front of all search results.
Google needs content – which gives it searches – which give it advertising revenue.
The Google business model depends on the free access to content that it can index
I haven’t really distinguished between Google and YouTube (Click the link to see the YouTube business model) in the video. This is because I see the business models as being very similar. The difference is that with YouTube Google owns the entire platform where the content is hosted. Put in another way it is as if every website in the world was hosted by Google. That’s a scary thought! Once the content – video – is on the YouTube platform then it is processed and marketed to advertisers in just the same way.
Google has three key resources
The index is Google’s database of all the content freely available to it’s spiders as they crawl across the web. The faster and the more reliably that the index can be updated then the more accurately that search results can be delivered.
The algorithms (lots of them) determine what pages in the index should appear in search results and in what position. These are focused on several things – maximising relevance and value for users; minimising poor quality results (keyword-stuffed pages or off-topic pages) and maximising performance for advertisers
Finally the computing power delivers all this. I see the computing power as being a mix of the physical assets, software assets and the people who create the software. The physical assets include the cables, data centres and the Google VPN. The software assets include the codebase and the websites, whilst the people create and optimise the code. These are the key resources in the Google business model canvas.
The rest of Google isn’t really relevant to the Google business model described above. 95% of Google revenue comes from Adwords. The other 5% is not material. Google does own a number of other web properties such as Drive, Docs, Gmail, Waze, Maps, Flickr and more. The purpose of owning these is to ‘buy’ additional information that it uses to help refine the targeting data that it sells to advertisers.
It also helps to create a large defensive moat around Google to protect its core money generating machine. Any platform that attracts large numbers of people who are looking for information or exchanging it provides a potential pathway for competitors to sell ads. To continue the mediaeval castle analogy Google clears the forest for miles around its castle so no one else can get close.
Are you copying a business model?
Are you creating a new one?
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