Competing on Business Models — Not products
A case study of TESLA
Many companies fill the Business Model Canvas out as a checklist and pay no attention to how it is evolving. What you really want to understand is what is your business model story and is it superior to your competitors’? A business model is only a snapshot of your company’s current situation and businesses should constantly evolve and adjust it.
TESLA have managed to compete beyond products and compete on business models instead, which have made them the fastest growing car brand of all time. Initially TESLA’s key activity was product innovation, where they had a great focus on combining the performance of German cars like BMW and Mercedes-Benz with sustainable energy. TESLA didn’t have anywhere near the same financial muscles and economies of scale as the companies they wanted to compete against, so to get of ground they licensed their powertrains to other car manufactures. That way they had a B2B and a B2C business model in the beginning but once the company had matured, they stopped licensing the powertrains.
Business models aren’t static, they are a living organism evolving and dying faster than ever before.
TESLA has become such a well-known brand in a short period of time, but what makes TESLA so successful? Besides constantly adjusting their business model according to their environment and financial situation, TESLA have managed to eliminate one of their customers’ core anxieties.
TESLA invested in their own charging stations which cost a ton of money, but it relieved the customers’ anxiety of running dry and not being able to recharge their car. This initiative dealt with one of the opposing forces of change and made it easier for customers to adopt this new car. They are not just buying the car for its design or its performance, but also because of the charging station network. The charging stations are a part of the value proposition and functions as a channel as well. TESLA interacts with their customers on a regular basis because of these charging stations which no other car brand does — BMW and Mercedes-Benz don’t have their own gas stations for instance.
Even though TESLA has phased out free unlimited access to its supercharger network to some extent, the service was free for all of TESLA’s customers in the beginning. This was a pull-factor since it would save the customer some money in the long run, but at the same time it made up with the anxiety of not being able to find the equivalent to a gas station.
To sum it up, what many people might fail to understand in this case is that TESLA’s product wasn’t and isn’t just the cars, it’s the supercharger network as well.
Adopting a dual culture
In 2016 TESLA presold 350,000 Model 3 cars in just one week, their key activity then shifted from product innovation to delivery. They had to manufacture and deliver all these cars. They matured faster than any other company and their business model changed from a world class innovator start-up to compete against the worlds biggest car companies, not just theoretically but they had to deliver. The dichotomy between improving an existing business model and inventing new business models is extremely hard for large institutions and for startups that transforms into large institutions as well, but they need to adopt a dual culture and play on both strings to be competitive.
TESLA like many other car manufactures runs an ambidextrous organization, where they have to deliver and be operational in the present, but also focus on innovation and always keep an eye on the future. If other car brands like BMW and Volkswagen didn’t innovate and respond to the increasing demand for electric vehicles, they would suffer a tremendous set back regarding their market share in the future. It isn’t enough to just squeeze another dime out of an existing business model, you need to adopt a dual culture and innovate as well.