How to manage several business models at once?

Facing stiff competition from new business models, regardless if it's new or incumbent organizations, is a challenge for any company. Customer loyalty is jeopardized, profits and cost structures are under at risk and careers can go overboard. Developing new business models is a challenge of its own, but how should my organization respond to the challenge of a disrupting business model in conjunction with our existing way of doing business?


Netflix is an excellent example of a disruptive business model. It works in two ways; first it operates over the internet avoiding fixed costs and local administration, secondly it uses the collective intelligence of its customers to make recommendations based on past rentals. Combined Netflix offers their customers simple and easy movie rentals with much higher viewing experience. How to combat that for an existing video rental business?
Should we:

• Focus on the segment that wants local video rentals taking the risk that they eventually will switch over to the Netflix model?
• Setting up a new business that competes head-on with Netflix taking the risk that we never will be able to do it better than Netflix?
• Creating a completely new business that disrupts Netflix and thus puts us ahead of Netflix taking the risk that our current business will cease to exist?

The text book guide is to either focus on a smaller segments that are not interested in the Netflix model (Porter) or setup a completely separate business with its own value-chain attacking the disruptor (Christensen). 

My take on this problem is to analyse the basic need that the current business model caters for. Can we continue serving these customers so well that they will never switch? If that is the case then change the existing business into clearly market that value and let the other customers leave for the disruptor. Then we have a healthy business that clearly provides a stable customer value that will continue to be there. If not doing this radical step quickly you risk loosing so much money and credibility that there is no business worth restructuring.

Then launch a series of separate businesses as experimentation. You don't know if the disruptor will eventually succeed or if it will create new opportunity and need for other business models. These experiments should both compete head-on and disrupt the disruptor. What's important is that each of these businesses operate separately from the others with its own culture and value-chain where it is necessary according to the business model (customer value, revenue model, cost structure, partnerships and profits). Cooperate with the rest of the organization realizing economy-of-scale where the business model does not mandate it. 

When facing disruptive business models one must be clear that the disruptor is starting small and moves fast. When the disruptor becomes large enough to threaten your existing business it is generally too late. The best prescription against this is to continuously run business experiments in small scale in different locations involving parts of the organization. Then you will try out market opportunities, find better cost structures and be ready for disruption yourself.

Inspiration for the post is from MIT Sloan Management Review article What to do against disruptive business models?