Protecting Broken Business Models

While Apple has been a disruptive force in multiple industries for the past decade, Tesla is poised to be the disruptive force for the next decade.  I have written on some of the reasons I believe that Tesla is disruptive in the past including the fact that it has innovative technology, their approach to the media and a pioneering leader who isn't afraid to invest everything he has into his ideas and convictions.

So when I read this recent article in Fast Company it re-affirmed my belief that Tesla isn't just a pioneering company but they are a disruptive force.  It might seem odd that this article would be the impetus for these impressions given that the headline has a general negative tone.  The phrase 'Tesla hits another speedbump" doesn't exactly scream 'disruptive force'.  However, when you dig a little deeper you begin to see how disruptive they are.

The nexus of the article is that as many as five states now have or are in the process of limiting Tesla's direct sales model.  No franchised middle men means they control the entire experience and the entire cost structure of the car.  The problem is that there are many people getting rich being the middle men in the car buying process and in 2013 new car dealers (excludes used cars) generated sales of $592 billion and employed nearly 1 million people.

 This despite evidence from the Department of Justice's antitrust research group, which found in 2009 that state bans on manufacturer direct sales of vehicles are unequivocally bad for fueling economic engines such as competition and innovation.

When you see governments stepping in to protect broken business models you know something powerful is happening.  And I think we can all agree that the current car dealer model is broken.  The constant haggling, salespeople who are seemingly un-empowered and need to check with their manager hiding in a backroom, large markups, hidden fees and limited options are all hallmarks of the current car buying process.

This isn't the first time that a company has entered a market dominated by middlemen with a direct sales model and bested everyone in market share.  You need to look no further than Geico in the insurance market to see how this game plays out.  In the mid-90's they went all-in on a direct model that included a massive advertising blitz and they tripled their market share during that period to become the third largest car insurance company, taking a significant chunk of the market share from leaders State Farm and Allstate.



A hallmark of brave companies is understanding who they are and even in the face of government action and competitive forces sticking to a business model that is true to their identity and brand.  Tesla is doing just that.  Despite being locked out of some of the top markets in the nation (the entire states of Virginia, Texas, Arizona, Colorado, and now New Jersey) that together represent nearly 1/5 of the nation's population they would rather stick to a model that they can control and that best represents their product and brand in the best way than to modify how they sell and succumb to a broken business model.