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Business Models Based on Other Companies

A business model that says, essentially, "I used to work for a company that did the same thing," is not something investors want to hear. This plan has a good and a bad aspect — the bad part is a successful company is already using this business model. Without significant change to the model, why bother?

The good part is a proven business model and management that understands the model. The critical question is, “What are you expecting from the business model?” If you’re looking to simply take a share of the former employer’s market, then go for it. If you want to build a business that’s bigger and better, you need a bigger and better business model.

The borrow-the-model plan has worked for some. The sub sandwich model has been copied and subdivided by surprisingly similar models. Subway, Blimpie, Jimmy John’s, Quiznos, Penn Station, and dozens more have carved out business models that place meat and cheese on bread. The world of construction has many businesses created from a key employee leaving to start his own HVAC contracting, plumbing, or home building company.

Generally, it’s a bad idea to simply copy the business model and start a similar business. If you want to copy a successful model, consider differentiating in one of these ways:

  • Move the model to a new geographical location: When John Hewitt sold Jackson Hewitt tax service, he didn’t have a non-compete agreement for Canada. Hewitt moved the business model to Canada, where it eventually became Liberty Tax, the third largest tax preparation service.

  • Capitalize on your talent: Talent is part of the business model. Superstar lawyers, architects, and doctors can copy a business model outright and still differentiate based upon their superior skills.

  • Move the model to a different industry: Wayne Huizenga created the Waste Management empire, and then took the core principles of that business model and built Blockbuster video. This is an excellent tactic compared to wholly copying a model. Huizenga’s success at Waste Management centered around consolidating a large number of mom-and-pop operators in an industry with no large national players. He used the same magic formula at Blockbuster.

Note: If the former employer went out of business or is struggling for a good reason, copying the model outright may be all right. These reasons may include financial mismanagement, embezzlement, flawed marketing, failed innovation, missed new market opportunities, and more. However, the list doesn’t include, “I think I can do it better.”

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