First, spot the similarities. Over time, the strategies of incumbents tend to converge. A useful exercise is to overlay the business models of companies in the same industry and then look for areas of overlap. Wherever you see competitors doing the same thing, ask yourself, “What’s the shared assumption behind this policy or practice?” and then, “What would happen if we challenged that belief?” For centuries, innkeepers assumed you had to own rooms to offer guests a bed for the night. Airbnb inverted this belief and now has more than six million listings across the world.

Second, focus on what hasn’t changed. What aspects of your strategy have remained stagnant for years or decades? Over time, legacy practices, like wallpaper, become invisible. Your job is to question whether those 12 13 taken-for-granted practices still make sense. For example, though it endured a lot of pushback from traditional carmakers, Tesla challenged the long-held practice of selling cars through independent dealers. The company’s sleek stores, often located in luxury shopping venues, offer customers a hassle-free buying process. Tesla understands that the best orthodoxies to challenge are those that degrade the customer experience.

Third, go to extremes. Pick some parameter of performance—price, choice, availability, speed—and ask what would happen if we aimed for a 10X improvement? Fifty years ago, a retired physician, Dr. Govindappa Venkataswamy, launched an epic quest to eradicate unnecessary blindness in India. Millions of his compatriots had cataracts but couldn’t afford corrective surgery. How, Dr. V. wondered, could he reduce the cost of surgery by 90 percent or more? For inspiration, he looked at the fast-food industry. “If McDonald’s can sell millions of burgers,” he thought, “why can’t [we] sell millions of sight-restoring operations?” Today, Dr. V.’s network of specialty hospitals, the Aravind Eye Care System, performs half a million cataract surgeries annually.

Industries with fewer rivals and with competitors that seek to serve different parts of the market with unique offerings are more attractive than those in which a number of competitors compete fiercely for the same consumers in the same way. P&G favored beauty and personal care, including feminine care, because these were industries with low capital cost in which highly fragmented rivals attempted to differentiate their products in unique ways.

In our work with companies that successfully withstand the onslaught of focused competitors, we've found that most organizations aren't terribly resilient in the face of the challenge. When a focused competitor comes into an industry, incumbents tend to suffer. And they often respond with a buying spree. Acquisitions mask many sins. You feel better because you're bigger, but it often means your company is weaker. That strategy only lasts so long.

Here's the trick for incumbents: the experiences we just described feel very different to consumers, but they share lots of back-end processes. The Best Buys and Armanis of the world can compete with players that are more focused, because the two companies gain certain advantages by linking multiple models together. In other words, each service model in the company somehow makes the other service model better off. In Best Buy's case, for example, two distinct models share one location (a very tricky thing to pull off), which achieves economies of scale on real estate.

In our work with companies that successfully withstand the onslaught of focused competitors, we've found that most organizations aren't terribly resilient in the face of the challenge. When a focused competitor comes into an industry, incumbents tend to suffer. And they often respond with a buying spree. Acquisitions mask many sins. You feel better because you're bigger, but it often means your company is weaker. That strategy only lasts so long.