Companies compete on four levels: product alone, using a business model checklist, designing coherent models that reinforce each other, or constantly inventing new ones. Apple and Amazon operate at the highest level, self-disrupting while successful. Nintendo Wii, Dell, and Nespresso show how coherent design drives lower costs and higher margins.
Chapters
Some of today's most successful companies understand that the competitive game is increasingly playing out between superior business models. In addition to the traditional battle between new products, technologies and services, let's analyze the four levels of business model strategy. The first level is what we call a level zero business model strategy. Companies that focus mainly on product, technology and related services are at level zero. The best of them build great value propositions with a strong product market fit. The companies that compete mainly on better products and value propositions are often oblivious to the fact that they could out compete others by combining their products with a better business model. Let's call this group the oblivious. Companies that just start to understand the importance of competing on business models usually perform level one business model strategies. They use the business model canvas to ask themselves which customers they're targeting, how they're reaching them, how they are acquiring them, how they are earning money from them, what resources, activities and partners they need to do that and what's the cost structure. Organizations at this level understand that they need to look at the entire business model and its components. But they use the business model canvas more like a checklist. Lets call these companies the beginners who understand that products and technology are not enough. They've taken their first step towards competing on business models. Companies that know how to build outstanding business models perform level two business model strategies. They know that it's not enough to just cover all the components of a business model. Companies competing at this level have business models with a story in which every single piece of the business model reinforces the others and contributes to the story. A great example is the Nintendo Wii. Beyond the introduction of an innovative product in the game console market, they built a business model with lower costs, more customers and superior profit margins. They out competed their competitors on the business model. An older example is Dell, which disrupted an entire PC market with its business model. Another excellent example is Nespresso. At the center of their business model is a machine that makes single portioned espresso. But what gets customers to pay six to eight times more for coffee, outperforms their competitors and produces insane profits is the configuration of their business model. These are true masters. But it gets even better. There are companies that compete on a level three business model strategy. They don't just compete on a superior business model, but they already think of new business models while they are successful. These organizations build new business models proactively before a crisis or an industry or technology change forces them to. Sometimes they even self disrupt or cannibalize their existing business model while they're still successful. These companies are very, very hard to beat. They are practically unstoppable. Examples are Apple and Amazon. They continuously innovate their business model despite their success. These are companies you could call the invincible. You decide where you want to compete. Level 0 strategies focusing solely on great products and value propositions is like competing on training wheels. Level three strategies are more like a Ducati monster motorcycle. Guess which one outcompetes the other.
