Chapter 5 Understanding your Business Model & Developing Strategy Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Your first steps are to… Select a business model Determine a basic strategy category Differentiation Low cost Niche Bygrave & Zacharakis, Entrepreneurship, New York:New Wiley, 2014 © 2017© Zacharakis, Bygrave & Corbett, Entrepreneurship, York: Wiley, 2 What’s Your Business Model— economic components-a simplified illustration Revenue Model Sources of Revenue $ IN (Show me the Money!) Business Model Cost Model (You spent on what?) Cost of Goods Sold Operating Expenses Profit? Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © $ OUT $ KEPT Understand (one of) Amazon’s Retail Business Models Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © 5 Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Amazon’s Revenue Model-One More Perspective 6 Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Amazon Cost Structure Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © 8 Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © 9 Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © 10 Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © 11 Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © 12 Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © 13 Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Amazon vs. Walmart Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © The value of doing your homework… Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © The value of doing your homework…cont. Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Don’t confuse revenue with profit Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © To Succeed as a First Mover, Entrepreneurs Must… Be First (or very early) into the Market Quickly Capture a Large % of the Market Create Switching Costs First movers rarely win and its an expensive strategy to take Bygrave & Zacharakis, Entrepreneurship, New York:New Wiley, 2014 © 2017© Zacharakis, Bygrave & Corbett, Entrepreneurship, York: Wiley, 1 First Mover’s are Often Surpassed Industry First Mover Current Leader Social Networking Friendster Facebook Video Games Atari Microsoft X Box Web Browser Mosaic Google Chrome Internet Search Engine Excite Google Word Processing Software WordStar Microsoft Word Personal Computer Altair Lenovo Email Juno Google Gmail Diet Soda No-Cal Diet Coke Presentation Software Harvard Graphics Microsoft PowerPoint Online Bookseller Book Stacks Unlimited Amazon ATM Machines Docutel Diebold Bygrave & Zacharakis, Entrepreneurship, New York:New Wiley, 2014 © 2017© Zacharakis, Bygrave & Corbett, Entrepreneurship, York: Wiley, 1 To win, your strategy must be to be one, or more, of these… Cheaper Faster Better Bygrave & Zacharakis, Entrepreneurship, New York:New Wiley, 2014 © 2017© Zacharakis, Bygrave & Corbett, Entrepreneurship, York: Wiley, 20 Your People are your Advantage Values Selection Structure Founders need to create a culture and align the employees they select with the values and structure of the company Bygrave & Zacharakis, Entrepreneurship, New York:New Wiley, 2014 © 2017© Zacharakis, Bygrave & Corbett, Entrepreneurship, York: Wiley, 21 Develop your Entry Strategy Benchmark Devise Initial Market Test Create a Platform Bygrave & Zacharakis, Entrepreneurship, New York:New Wiley, 2014 © 2017© Zacharakis, Bygrave & Corbett, Entrepreneurship, York: Wiley, 2 Benchmark your Competition: Bygrave & Zacharakis, Entrepreneurship, New York:New Wiley, 2014 © 2017© Zacharakis, Bygrave & Corbett, Entrepreneurship, York: Wiley, 2 Growth Strategy Product Franchising Mix Expansion Geographic Expansion Growth New ventures should focus on testing the market and refining the business model; however, it is never too early to start thinking about growth. Bygrave & Zacharakis, Entrepreneurship, New York:New Wiley, 2014 © 2017© Zacharakis, Bygrave & Corbett, Entrepreneurship, York: Wiley, 24 Franchising has 3 main benefits Replicability Established and proven methods New sources of revenue Royalties and fees from franchisees New capital to fund growth Franchising works best with service businesses that are easy to replicate. Be sure to monitor franchisees to maintain brand purity. Bygrave & Zacharakis, Entrepreneurship, New York:New Wiley, 2014 © 2017© Zacharakis, Bygrave & Corbett, Entrepreneurship, York: Wiley, 2 Top 10 US Franchisors Perform Well # Chain Franchise Sales (US Stores, Total ) Franchise (US Units) Sales per store (US) 1 McDonald’s $35.4 billion 12,836 $2,500,000 2 Starbucks $12.7 billion 4,769 $2,660,000 3 Subway $11.9 billion 27,205 $475,000 4 Burger King $8.6 billion 7,090 $1,210,000 5 Wendy’s $8.5 billion 4,895 $1,594,000 6 Taco Bell $8.2 billion 4,995 $1,441,000 7 Dunkin Donuts $7.22 billion 8,047 $911,000 8 Chick-Fil-A $5.8 billion 1,837 $3,064,000 9 Pizza Hut $5.5 billion 7,337 $843,000 10 Panera Bread $4.5 billion 955 $2,500,000 Source: The 20 most successful Fast Food Chains in America, Business Insider, August 8, 2015 Bygrave & Zacharakis, Entrepreneurship, New York:New Wiley, 2014 © 2017© Zacharakis, Bygrave & Corbett, Entrepreneurship, York: Wiley, 2 Drive Growth with Product Mix Tangential & Adjacent Products What new products make sense with your current offerings? Current customers? Spread Existing Costs over Larger Product Base Accelerate Revenue Faster than Increase in Costs Leverage your Firm’s Experience Distribution Channels Supplier Relationships Customer Relationships Bygrave & Zacharakis, Entrepreneurship, New York:New Wiley, 2014 © 2017© Zacharakis, Bygrave & Corbett, Entrepreneurship, York: Wiley, 2 Consider these 3 topics before expanding geographically: Customers Vendors Go where they are Mimic proven success strategies Can you use the same vendors? Any new costs? Leverage volume for better pricing Distribution Same channels? Leverage volume Bygrave & Zacharakis, Entrepreneurship, New York:New Wiley, 2014 © 2017© Zacharakis, Bygrave & Corbett, Entrepreneurship, York: Wiley, 2 There are 8 basic ways to expanded internationally Bygrave & Zacharakis, Entrepreneurship, New York:New Wiley, 2014 © 2017© Zacharakis, Bygrave & Corbett, Entrepreneurship, York: Wiley, 2 International expansion has risks Means Pros Cons Technology Transfer - Reduces entry costs - Risk of losing the technology Technology Licensing - Creates revenue, conserves resources, controls risk - Doesn’t extend the brand Outsourcing - Cost-saving - Managing partners Exporting - Cheap and easy - Extra sales and transport costs - Moral hazard; adverse selection Foreign Direct Investment - Physical presence - Control of assets - Franchising - Licenses an operational system - Risk of damaging the brand Venture Financing - Enabling and enacting mechanism - Can lead to mergers and acquisitions with foreign companies Mergers & Acquisitions - Established infrastructure - Company can grow quickly - Very expensive Bygrave & Zacharakis, Entrepreneurship, New York:New Wiley, 2014 © 2017© Zacharakis, Bygrave & Corbett, Entrepreneurship, York: Wiley, Expensive 3 Recap Determine revenue and cost structure Choose a strategy Create a culture Seek and select people who fit culture and goals Plan entry approach, including benchmarks Plan growth drivers Bygrave & Zacharakis, Entrepreneurship, New York:New Wiley, 2014 © 2017© Zacharakis, Bygrave & Corbett, Entrepreneurship, York: Wiley, 3