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
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?
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
Competior Business Model FAQ
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.
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
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.
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.
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.
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.
