Developing an Effective Business Model

What do we learn?

a.     What is business model and its importance.

Ø  What is business model?

·         Creates, delivers, and capture value.

·         Represents the core aspects of its business.

·         Describes how the core aspects fit together and support each other.

Ø  What makes business model important?

·         Serves as an ongoing extension of feasibility analysis.

·         how all the elements of a business fit together and constitute a working whole.

·         Articulates a company’s core logic to all stakeholders, including all employees.

b.    2 general types of business model.

1.      Standard business model

·         Depict existing plan or recipes firms.

·         Has inherent strengths and weaknesses.

·         The disadvantage of business model is churn. (churn refers to the number of the subscription the business loses each month)

2.      Disruptive business model

·         Do not fit the profile or standard of  a business model.

·         Impactful enough to disrupt  or change the way the business is conducted.

·         2 types of disruptive business model:

o   New market disruption: a market that previously wasn’t served.

o   Low- end market disruption: possible when the firm in an industry continue to improve products or services. (provides for simple, typical low- cost business models)

c.      Components of the Barringer/ Ireland Business Model Template.

Ø  Framework used in the business model canvas.

Ø  Tool that allows an entrepreneur to describe, project, revise, nad pivot business model.

Ø  Consist of 4 major categories and 12 individual part.

·         4 major categories:

1.      Core strategy

o   Describe how the firm plans to compete relative to its competitor.

o   4 primary elements:

1.      Business mission:

·         Describe why it exist and what its business model supposed to accomplish.

·          Articulate a business’s overarching priorities and act as its financial and moral compass.

·         Rules:

o   Define “reason for being”.

o   Describe the company difference.

o   Be risky and challenging but achievable.

o   Convey passion stick in the mind of the leader.

o   Be honest.

o   Use tone that represent the company’s culture and values.

2.      Basis of differentiation:

·         Articulate the points that differentiate its product or service.

·         Causes consumers to pick one company’s product.

3.      Target market

·         Place within a larger market segment that represent a narrower group of customer with similar interests.

·         Should be made explicit on the business model.

4.      Product/ market scoope

·         The products and markets on which it will concentrate.

2.      Resources

o   The input a firm uses to produce, sell, distribute, and service a product or service.

o   Developed and accumulated over a period of time.

o   2 primary elements:

1.      Core competencies

·         Specific factor or capabilitity that supports a firm’s business model and sets it apart from its rival.

2.      Key assets

·         Assets that a firm owns that enable its business model to work.

3.      Financials

o   Describe how it earns money.

o   3 primary elements:

1.      Revenue streams

·         Describe the way in which it makes money.

·         Many business have more than one revenue streams.

·         The number and nature of a business’s revenue streams has a direct impact on the other elements of its business model.

2.      Cost structure

·         Describes the most important costs incurred to support its business model.

·         To identify whether the business cost-driven or value driven business.

·         To determine the role of costs in a business.

·         Fixed costs: cost that remain the same despite the volume of goods or service provided.

·         Variable costs: vary proportionally with the volume of goods and services produced.

3.      Financing/ funding

·         Many business model rely on a certain amount of financing or funding to bring their business model to life.

4.      Operations

o   Both integral to a firm’s overall business model.

o   Represents the day-to-day heartbeat of a firm.

o   3 primary elements:

1.      Product (or a service) production

·         Focuses o how a firm’s product and/ or service are produced.

2.      Channels

·         Describe how it delivers its product or service to its customers.

3.      Key partners

·         The first partnership is with suppliers.

·         Supplier: a company that provides parts or services to another company.