Entrepreneurship_ is Topic 04_BBA 30.ppt

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1. DEVELOPING AN
EFFECTIVE
BUSINESS MODEL

2. WHAT IS A BUSINESS MODEL?
Business Model:
It is a firm’s plan or recipe for how it creates,
delivers, and captures value for its stakeholders.
The proper time to determine a company’s
business model is following the initial validation of
the business idea and prior to fleshing out the
details of how the firm will operate to provide its
product or service to customers.
A firm’s business model should not be completed
in isolation.

3. WHAT IS A BUSINESS MODEL?
Example of business model: Dropbox has what is
referred to as a freemium business model. It offers
its customers a free account with a set amount of
storage space; the firm earns money by selling
premium accounts with more capacity
Proper Time to Determine a Company’s Business Model

4. BUSINESS MODELS AND THEIR
IMPORTANCE
Barringer/Ireland Business Model Template:

A firm’s business model represents the core
aspects of its business.

It also describes how the core aspects fit together
and support one another.

There are three important elements of a firm’s
business model:
1.Its target market,
2.Its basis for differentiation, and
3.Its key assets.

5. BUSINESS MODELS AND THEIR
IMPORTANCE
Barringer
/Ireland
Business
Model
Template

6. GENERAL CATEGORIES OF BUSINESS
MODELS
1. Standard Business Models.
They depict existing plans or recipes firms can
use to determine how they will create, deliver,
and capture value for their stakeholders.
 There is no perfect business model.
 A firm’s business model takes it beyond its
own boundaries.
 New companies should guard themselves
against thinking, one particular business model
is a “homerun” regardless of circumstances

7. COMMON STANDARD BUSINESS MODELS

8. GENERAL CATEGORIES OF BUSINESS
MODELS
2. Standard Business Models (Cont'd)
They are models that do not fit the profile of a
standard business model, and are impactful
enough that they disrupt or change the way
business is conducted in an industry or an
important niche within an industry.
 There are two types of disruptive models:
1.New Market Disruption.
2.Low-end Market Disruption

9. FOUR DISRUPTIVE BUSINESS MODELS

10. GENERAL CATEGORIES OF BUSINESS
MODELS
1. New Market Disruption
 This addresses a market that previously wasn’t
served.
 E.g. Google and its AdWords program.
2. Low-End Market Disruption
 Firms continue to improve products/services to
the point where they are actually better than a
sizable portion of their clientele’s needs/desires.
 Creates a vacuum that provides an opportunity
for simple, typically low-cost business models to
exist
 E.g. Southwest Airlines (USA); Ryanair
(Europe).

11. BARRINGER/IRELAND BUSINESS MODEL
TEMPLATE
One widely-used business model framework is the
Business Model Canvas, popularized by
Alexander Osterwalder and Yves Pigneur.
The Barringer/Ireland Business Model Template
consists of four major categories and twelve
individual parts.
 This allows an entrepreneur to describe, project,
revise, and pivot a business model until all 12
parts are decided upon.
 The four categories are: (1) Core strategies;
(2) Resources; (3) Financials; and (4)
Operations.

12. CORE STRATEGY
 Core Strategy
Describes how the firm plans to compete relative
to its
competitors.
 The primary elements of a core strategy:
1.The business mission,
2.Basis of differentiation,
3.Target market, and
4.Product/Market scope.

13. CORE STRATEGY

Business Mission
Describes why does the firm exist, and what it’s
business model is supposed to accomplish.
Can articulate a business’ overarching
priorities and act as its financial and moral
compass.
At a very broad level,
a mission statement
indicates how a firm
intends to create value
for its stakeholders.

14. CORE STRATEGY

Business Mission (Cont'd)
A business’ mission statement should:
•Define its “reason for being”.
•Describe what makes the company different.
•Be risky and challenging but achievable.
•Use a tone that represents the company’s
culture and values.
•Convey passion and stick in the mind of the
reader.
•Be honest and not claim to be something that
the company “isn’t”.

15. CORE STRATEGY

Basis of Differentiation
It causes consumers to pick one company’s
products over another company’s; it solves a
problem or satisfies a customer need.
It is best to limit the description of the basis of
differentiation to two to three points, and to
make sure that the value of the points is easy
to see and understand.
Points of differentiation that focus on features
are less compelling than those that focus on
benefits.

16. CORE STRATEGY

Target Market
It is a segment within a larger market that
represents a narrower group of customers with
similar interests.
A firm’s target market should be made explicit on
the business model template.
Awareness of a firm’s intended market, and the
people who are the most likely to respond
positively to a firm’s product or service, is helpful
in fleshing out all the elements of a firm’s
business model.

17. CORE STRATEGY

Product/Market Scope
It defines the products and markets on which it will
concentrate.
Most firms start narrow; they pursue adjacent
product and market opportunities as the
company grows and becomes financially
secure.
A company should be very clear about its initial
product/market scope and project 3–5 years
into the future in terms of anticipated
expansion.

18. RESOURCES
Resources
The inputs a firm uses to produce, sell, distribute,
and service a product or service.
–At a basic level, the firm must have a sufficient
amount of resources to enable its business model
to work.
–At a deeper level, a firm’s most important
resources, both tangible and intangible, must be
both difficult to imitate and hard to find a
substitute for in order for the company’s business
model to be competitive over the long term.

19. RESOURCES
Resources (Cont'd)
Are developed and accumulated over a period of
time.
Though the current resources a company
possesses should be the resources that are noted,
aspirational resources should be kept in mind.
Core Competency:

It is a specific factor or capability that supports a
firm’s business model and sets it apart from its
rivals.

20. RESOURCES
Resources (Cont'd)
Core Competency (Cont'd):
•It is a specific factor or capability that supports a
firm’s business model and sets it apart from its
rivals.
•A core competency can be: technical know-how,
an efficient process, a trusting relationship with
customers, expertise in product design, and so
forth.
•Most start-ups will list 2-3 core competencies on
the business model template

21. RESOURCES
Resources (Cont'd)
Key Assets
These are the assets that a firm owns that enable
its business model to work.
•The assets can be physical (physical space,
equipment, vehicles, and distribution networks),
financial (cash, lines of credit, and
commitments from investors), intellectual
(patents, trademarks, copyrights, and trade
secrets, along with a company’s brand and its
reputation), or human (company’s
founder/founders, key employees, and its
advisors).

22. RESOURCES
Resources (Cont'd)
Key Assets (Cont'd)
•Firms vary regarding the key assets they
prioritize and accumulate.
Retailers (E.g. Whole Foods Markets and
Amazon.com) rely heavily on physical asset
Companies such as Airbnb rely almost
exclusively on intellectual assets.
•Different key resources are needed depending
on the business model that a firm conceives.

23. FINANCIALS
Revenue Streams
A firm’s revenue streams describe the ways in
which it makes money.

Some businesses have a single revenue stream,
while others have several.

The nature of the way businesses make money
also varies.

The number and nature of a business’s revenue
streams has a direct impact on the other elements
of its business model.

24. MOST COMMON REVENUE STREAMS

25. FINANCIALS
Cost Structure
Describes the most important costs incurred to
support a firm's business model.

The goal for part of a firm’s business model
template is threefold:
1.Identify whether the business is a cost-driven
or value-driven one;
2.Identify the nature of the business’s costs; and
3.Identify the business’ major cost categories.

26. FINANCIALS
Cost Structure (Cont'd)

First, it's to be identified whether the business is a
cost-driven (who focus on minimizing costs) or
value-driven (who offers a high-quality product or
experience and personalized service) business.

Second, it’s important to identify the nature of a
business’ costs:
Fixed costs are costs that remain the same
despite the volume of goods/services provided.
Variable costs vary proportionally with the
volume of goods or services produced.

27. FINANCIALS
Cost Structure (Cont'd)

Thirdly, the business’ major cost categories have
to be identified.
 This type of breakdown helps a firm
understand where its major costs will be
incurred.
 It will provide anyone looking at the business
model template a sense of the major cost
items that a company’s business model relies
on.

28. FINANCIALS
Financing/Funding.

Many business models rely on a certain amount
of financing/funding to bring their business model
to life.

Some entrepreneurs are able to draw from
personal resources to fund their business.

The business model template should indicate the
approximate amount of funding that will be
needed and from where the money is most likely
to come.

29. FINANCIALS
Financing/Funding (Cont'd).

At the business model stage, projections do not
need to be completed to determine exact amount
of money that is needed.

Three categories of costs to consider:
1.Capital costs (Real estate, buildings,
equipment, vehicles, furniture, fixtures, and
similar capital purchases);
2.One-time expenses (Legal expenses to launch
the business, website design, initial inventory
procurement, similar onetime expenses/fees;

30. FINANCIALS
Financing/Funding (Cont'd).

Three categories of costs to consider (Cont'd):
3.Provisions for Ramp-up Expenses.
Many businesses require a ramp-up period in
which they lose money until they are fully up to
speed and reach profitability.

31. OPERATIONS
Operations

It has three primary elements: (1) Product (or
service) production, (2) Channels, and (3) Key
partners.
1.Product (or service) production:
Focuses on how a firm’s products and/or
services are produced.
If a firm sells physical products, the products
can be manufactured or produced in-house, by
a contract manufacturer, or via an outsource
provider.

32. OPERATIONS
Operations
1.Product (or service) production:

If the firm opts to produce in-house, it needs to:
Develop core competencies in manufacturing;
Procure key assets related to the production
process; and
Require substantial up-front investment.
•If a firm to use a contract manufacturer or an
outsource provider, then a critical aspect of its
business model is its ability to locate a suitable
contract manufacturer or outsource provider

33. OPERATIONS
Operations (Cont'd)
2.Channels:
•A company’s channels describe how it delivers
its product or service to its customers.
•Many businesses sell direct, through a
storefront and/or online.
•A firm’s selection of channels affects other
aspects of its business model.
•Some firms employ a sales force that calls on
potential customers to try to close sales.

34. OPERATIONS
Operations (Cont'd)
3.Key Partners:
•A supplier (or vendor) is a company that provides
parts or services to another company.
–Firms are developing more cooperative
relationships with suppliers.
–Rising focus is on supply chain management
(coordination of the flow of all information,
money, and material that moves through a
product’s supply chain).
•Firms partner with other companies to make their
business models work.

35. OPERATIONS