BUSINESS MODEL
REPORTED BY:
MARIA CECILIA D ALLERMO
Business Model
The term business model refers to a company's plan for making a profit. It
identifies the products or services the business plans to sell, its identified target
market, and any anticipated expenses. Business models are important for both
new and established businesses. They help new, developing companies attract
investment, recruit talent, and motivate management and staff. Established
businesses should regularly update their business plans or they'll fail to
anticipate trends and challenges ahead. Business plans help investors evaluate
companies that interest them
What are Business Models?
• Magretta (2002) described business models as “stories that explain how
enterprises work” (p. 87)
• Osterwalder, et al. (2010) said that they describe “the rationale of how an
organization creates, delivers, and captures value” (p. 14).
• Chatterjee (2013) said that “A business is about selling what you make for a
profit. A business model is a configuration (activity systems) of what the
business does (activities) and what it invests in (resources) based on the logic
that drives the profits for a specific business” (p. 97)
The Business Model Canvas
• The Business Model Canvas tool is based on the premise that a start-up is
something quite different than an ongoing venture. A start-up should not be
viewed as a smaller version of a company because starting-up a company
requires very different skills than operating one does. A start-up that is still a
start-up after some time—maybe after a couple of years for some kinds of
start-ups—is actually a failed enterprise since it hasn’t converted into an
ongoing venture (Osterwalder et al., 2010).
The Business Model Canvas
The business model canvas is made up of nine parts that, together, end up
describing the business model.
• Key partners
• Key activities
• Key resources
• Value propositions
• Customer relationships
The Business Model Canvas
• Customer segments
• Channels
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Awareness – How do we raise awareness about our company’s products and services?
Evaluation – How do we help customers evaluate our organization’s value proposition?
Purchase – How do we allow customers to purchase specific products and services?
Delivery – How do we deliver a value proposition to customers?
After sales – How do we provide post-purchase customer support?
• Revenue streams
• Cost structure
The Business Model Canvas
The idea is to keep adding descriptions or plans to the nine components to create
the initial business model and then to actually do the start-up activities and replace the
initial assumptions in each of the nine parts with newer and better information or
plans to let the business model evolve. This model is partly based on the idea that the
owner should be the one interacting with potential customers so he or she fully
understands what these potential customers want. These interactions should not only
be done by hired sales people, at least until the business model has evolved into one
that works, which can only happen when the venture owner is completely engaged
with the potential customers and the other business operations (Osterwalder et al.,
2010).
• A business plan shouldn’t be created until the above has been done because
you need to know what your business model is before you can really create a
business plan (Osterwalder et al., 2010).
• The Business Model Canvas tool is intended to be applied when business
operations can be started on a small scale and adjustments can continually be
made until the evolving business model ends up working in real life.
Lean Start-up
• Ries (2011) advanced the idea of the lean start-up. His definition of a startup
is “a human institution designed to create a new product or service under
conditions of extreme uncertainty”, and the lean start-up approach involves
releasing a minimal viable product to customers with the expectation that this
early prototype will change and evolve frequently and quickly in response to
customer feedback.
Ries’s (2011) five lean start-up principles
• start with the idea that entrepreneurs are everywhere and that anyone working in an environment where they
seek to create new products or services “under conditions of extreme uncertainty” (27) can use the lean
start-up approach.
• Second, a start-up is more than the product or service; it is an institution that must be managed in a new way
that promotes growth through innovation.
• Third, startups are about learning “how to build a sustainable business” (p. 8-9) by validating product or
service design through frequent prototyping that allows entrepreneurs to test the concepts.
• Forth, startups must follow this process or feedback loop: create products and services; measure how the
market reacts to them; and learn from that reaction to determine whether to pivot or to persevere with an
outcome the market accepts.
• Finally, Ries (2011) suggested that entrepreneurial outcomes and innovation initiatives need to be measured
through innovative accounting.
Growth Wheel
• decision-making tool for start-up and growth companies to help business
advisers and entrepreneurs focus, set agendas, make decisions, and take
action (GrowthWheel, 2015). It is effectively a more complex and detailed
tool than the Business Model Canvas for describing a business model. A web
search will yield a variety of tools, like the Business Model Canvas and the
GrowthWheel®, that can be used to describe business models.
Franchises
Business models developed by others (franchisors) that have been proven to work
in multiple contexts and that are sold to entrepreneurs (franchisees) who will
implement the business model in contexts that the franchisor believes will result in a
successful enterprise. Franchises apply various business models. Some are turnkey
franchises, like McDonald’s, where the entire business structure is set up from the design
of the stores to the supply system, and the franchisor sets up virtually everything for
the new franchisee. Other franchise models, like that defining Tap ‘N’ Pay Canada
(www.tapnpay.ca/)—a business that provides debit and credit card machines and point
of sale equipment—advertise relatively low fees charged to franchisees and quick setups in as little as two weeks
THANK YOU
AND
GODBLESS