Business Model & Business Plan
Giuliano Noci, Dipartimento di Ingegneria Gestionale
Politecnico di Milano
Agenda
THE BUSINESS MODEL
•
The importance of modeling
•
Definition
•
The business model canvas
•
Examples
•
Exercise
THE BUSINESS PLAN
•
Introduction
•
Main sections
2
THE BUSINESS MODEL
3
The importance of modeling
4
Place and role of business models
✦
✦
✦
✦
New information and
communication technologies
Shorter product life cycles
Global markets
Tougher competition
Competitive, rapidly changing and increasingly uncertain
economic environment that makes business decisions
complex and difficult
5
Place and role of business models
✦
Firms should be able to manage multiple distribution channels, complicated
supply chains, expensive IT implementations, strategic partnership and still
stay flexible enough to react market changes
✦
Every good manager and entrepreneur does have an intuitive understanding
of how his business works and how value is created, but in many cases she or
he isn’t able to communicate it in a clear and simple way
✦
Business models are a set of tools that allow business people to understand
what their business is and what essential elements it’s composed of, and to let
them communicate these elements to others, is foundamental
6
Place and role of business models
Covid-19 pandemic has shown the vulnerabilities of firms operating in manufacturing, in traditional
retail and of companies which base their competitive advantage on the ownership of unique physical
assets
Companies operating as ecosystems (such as Alibaba), which base their competitive advantage on the
network, are more flexible in adapting their offering to changing customer needs.
They can benefit from the “ecosystem advantage”: dynamic revenue diversification, attract new
customers through cross-selling, flexibility in facing change.
In the short term, companies may face crisis and fast-changing environments by:
- Build a network of partners
- Maximise learning and digital communication with partners
- Share resources which may be useful for the partners
- Implement real-time market intelligence
- Analyze the new customer needs
- Develop new solutions with Company partners
Source: HBR (2020)
In a Crisis, Ecosystem Businesses Have a Competitive Advantage
7
Definition
8
What actually is a business model
The term business models intuitively suggests it has
something to do with business and it has something to do
with models
business: the activity of
buying and selling goods
and services, or a particular
company that does this, or
work you do to earn money
model: a representation of
something, either as a
physical object which is
usually smaller than the real
object, or as a simple
description of the object
which might be used in
calculations
Cambridge Learner’s Dictionary, 2003
By combining the two it’s simple to get that a business
model is a representation of how a company buys and
sells goods and services and earns money
9
The business model canvas
10
General description
✦
It’s a visual chart with elements describing a firm’s value
proposition, infrastructure, customers and finances
✦
The Business Model Canvas was proposed by Alexander
Osterwalder and Yves Pigneur in 2010, based on
Osterwalder’s earlier work on Business Model Ontology
✦
It’s composed by
9 building blocks
11
Customer segments
For whom are we creating value? Who are our most important
customers?
12
Value proposition
What value do we deliver to the customer?
Which one of our customer’s problems are we helping to solve? Which
customer needs are we satisfying?
What bundles of products and services are we offering to each
Customer Segment?
13
Channels
Through which Channels do our Customer Segments want to be
reached? How are we reaching them now? How are our Channels
integrated? Which one work best? Which ones are most costefficient? How are we integrating them with customer routines?
14
Customer relationships
What type of relationship does each of our Customer Segments expect us
to establish and maintain with them? Which ones have we established?
How costly are they? How are they integrated with the rest of our
business model?
15
Revenue streams
For what value are our customers really willing to pay? For what do they
currently pay? How are they currently paying? How would they prefer
to pay? How much does each Revenue Stream contribute to overall
revenues?
16
Key resources
What Key Resources do our Value Proposition require? Our Distribution
Channels? Customer Relationships? Revenue Streams?
17
Key activities
What Key Activities do our Value Proposition require? Our Distribution
Channels? Customer Relationships? Revenue Streams?
18
Key partners
Who are our Key Partners? Who are our Key Suppliers? Which Key
Resources are we acquiring from partners? Which Key Activities do
partners perform?
19
Cost structure
What are the most important costs inherent in our business model?
Which Key Resources are most expensive? Which Key Activities are
most expensive?
20
The final framework
21
The final framework
22
Examples
23
Lego: the long tail
✦
The Danish toy company LEGO started manufacturing its famous
interlocking bricks in 1949, entertaining generations of children
✦
But over time intensifying competition in the toy industry forced
LEGO to seek innovative new paths of growth: in 2005 it started
experimenting with user-generating content, turning passive users
into active participants in the LEGO design experiences
✦
It introduced LEGO Factory, which allows customers to assemble
online (Lego Digital Designer) their very own LEGO kits and order them
online too
✦
In terms of a business model, LEGO took a step beyond mass
customization by entering Long Tail territory
24
Lego: the long tail
25
Lego: the long tail
Niche content
providers
Platform
management
& promotion
Large scope of
niche
content
Many niche
segments
Service
provisioning
User generated
content
Content
production
tools
Platform
Platform management &
development
Niche content
providers
Internet
Selling less of more
26
Lego is exploiting the “long tail”
What is the Long Tail?
a shift in the media business (but not only media)
…from selling a small number of “hit” items in large volumes…
…toward selling a very large number of niche items, each in
relatively small quantities.
Many infrequent sales can produce aggregate revenues equivalent
to or even exceeding revenues produced by focusing on “hit”
products.
27
The Long Tail
28
The Long Tail
What is driving the “long tail” phenomenon?
1. Democratization of tools of production
Falling technology costs gave individuals access to tools that were
prohibitively expensive just a few years ago. Think about the “makers”,
Arduino, 3D printing, etc
2. Democratization of distribution
The Internet has made digital content distribution a commodity, and
dramatically lowered inventory, commu- nications, and transaction costs,
opening up new markets for niche products.
3. Falling search costs to connect supply and demand
The real challenge of selling niche content is finding interested potential
buyers. Powerful search and recommendation engines, user ratings, and
communities of interest have made this
much easier.
29
Google case
✦
The heart of Google’s business model is its Value Proposition of
providing extremely targeted text advertising globally over the Web
✦
The model only works if many people use Google’s search engine: the
more people Google reaches, the more ads it can display and the
greater the value created for advertisers
✦
Therefore Google caters to this second group of consumer customers
with a powerful search engine and a growing number of tools (Gmail,
Google maps, Picasa, etc)
✦
To extend its reach even further, Google designed a third service that
enables its ads to be displayed on other, non-Google Web sites: this
service, called AdSense, allows third parties to earn a portion of
Google’s advertising revenue by showing Google ads on their own
sites
30
Google case
✦
Different Value
Propositions to three
different Customer
Segments
✦
Just one main
revenue stream
31
Skype: the freemium model
✦
Skype offers an innovative pattern that disrupted the
telecommunication service by enabling free calling services via the
Internet
✦
Skype can offer this because its Cost Structure is completely
different from that of a telecom carrier: Skype does not have to
manage its own network like a telco and incurs only minor costs to
support additional users
✦
Users pay only for calling landlines and mobile phones through a
premium service called SkypeOut, which offers very low cost rates
32
Skype: the freemium model
✦
Over 90% of Skype users subscribe to free service
✦
Paid SkypeOut calls account for less then 10% of total usage
…nevertheless…
…revenues of $550 million revenues (2008)
33
Exercise
34
Imagine you’re a
shepherd from
Sardinia …
…you’ve got just one
sheep and you want
to create your own
business with it…
…how can you maximise
the value you get
from your “asset”?
35
36
Class Discussion
37
THE BUSINESS PLAN
41
Introduction
Business Plan - Introduction
Business Plan: what
A written document that describes in detail how a new business is
going to achieve its goals.
A business plan will lay out a written plan from a marketing, financial
and operational viewpoint.
43
Business Plan - Introduction
Business Plan: when
Established Company
Startup
Launching a new project, new
At launch
product, opening a new market,
a new branch, …
➢ Business plan is not just to plan new activities, but to control the
ongoing business.
➢ It is not done once for all, but must be kept updated, to verify how
things have gone, and how far from forecast.
➢ It is a difficult exercise, because it is both a program of future
activities, and a forecast of the future itself, about variables that no
one can control (the market, the customer’ preferences, future
technology developments, etc.)
44
Business Plan - Introduction
Business Plan: who (targets)
• Decision makers
• Investors
• Shareholders
• Yourself
•…
Everyone who is responsible of an organization should create a business
plan. The business plan is a tool to understand the present, make hypothesis
about the future, plan the activities, coordinate people, and control costs
and cash flows.
It is a document that must be presented to someone else, and thus should
be easily communicable
45
Business Plan - Introduction
Business Plan: why (objectives)
Planning
• Evaluate an investment opportunity
• Evaluate feasibility / profitability
• Find resources and funds
• Assess Risks and Opportunities
• Control
Communication
• Internal: team, boss
• External: shareholders, stakeholders, investors, etc.
46
Business Plan - Data
Types and Sources of Data
When you add data, be sure to indicate what is the source of information.
Basically, you have three types of data:
1. Your historical data → if you have historical data, that’s the best!
2. Market data → cite the source
3. Your assumptions → if you don’t have data, make and motivate your
assumptions
47
Business plan sections
Business Plan - Sections
Main sections
1.
2.
3.
4.
5.
6.
7.
Executive Summary: Synopsis of the whole plan
Products & Services: presentation of main features and characteristics
Strategic Plan: design of the competitive environment and strategy; set strategic objectives
Marketing Plan: translate strategic Objectives into Marketing Objectives and Plan
Operating Plan: translate strategic objectives into a series of actions
Financial Plan: measure sales, costs, cash flow related with the activities performed
Risk Analysis: assess the risk of the venture
49
Business Plan - Sections
2. Business Plan Sections
Chapter 1: Executive Summary
50
Business Plan – Executive Summary
Executive Summary
The Executive Summary is a synopsis of the whole business plan: it
contains fundamental information discussed deeper in each section.
It’s a way to give in few pages (2-3 maximum) an overview of the venture.
Interested readers will go deeper reading following sections.
Main topics are:
• Company Introduction: present the company, date of foundation, state of
art, stage in the history of the company, seats, plants, type of ownership,
governance, etc.
• Business idea: describe what are the products/services and what are the
value propositions for clients
• Market Opportunity: describes what are the untapped opportunities and
the characteristics of the market in term of attractiveness
51
Business Plan – Executive Summary
Executive Summary
Information to include
• Start with the objective
• Management Team (key people to make the business to succeed)
• Products or services (why are they special?)
• Market (what’s your niche? What are your unique factors?)
• Assets, strengths, advantages, and competences
• Strategy to succeed
• Key Financial Data
• Funding required and its use
52
Business Plan – Products and Services
2. Business Plan Sections
Chapter 2: Products & Services
53
Business Plan – Products & Services
Products & Services: description
In this section, the reader is introduced to the products and/or services
offered by the company. The description not only from a physical or
technical point of view, but in term of the value for the client.
• Physical / Technical Description (Features, Values for clients)
• Types of usage
• Product Positioning Map
•
•
•
•
•
•
Cost
Quality
Features
Values
Service
Image
• Product lifecycle stage
54
Business Plan – Products & Services
Product Positioning Map
Feature 2
high
Product F
Product A
Feature 1
Product B
Product D
low
high
Product H
Product E
Product C
Product I
Product G
low
55
Business Plan – Products & Services
Sales / Profits
Product Lifecycle
Time
56
Business Plan - Products & Services
Example: digital platform
• Describe the platform: its purpose and its main functionalities
• Describe the technological infrastructure (database, systems in use, style of
the implementation, etc.)
• Define main components
• State clearly what you have already implemented and is online, what is
going to be published, what you are developing, and what are future
functionalities and improvements
• Include screenshot, sketches, etc.
57
Business Plan – Strategic Plan
2. Business Plan Sections
Chapter 3: Strategic Plan
58
Business Plan – Strategic Plan
Strategic Plan – main sections
The strategic plan is divided into 3 main sections
1. Values, Vision, Mission, Objectives
2. Strategic Analysis (Internal vs External)
3. Strategy
59
Business Plan – Strategic Plan
1. Values, Vision, Mission, Objectives
Values: in what you believe
Vision: where you want to be on the long term: it reflects values and
corporate culture
Mission: how to reach the ideal stated in the vision
Objectives: results aligned with Values-Vision-Mission;
S.M.A.R.T.: Specific – Measurable – Attainable – Realistic (Relevant) –
Time-related
60
Business Plan - Strategic Plan
2. Strategic analysis (internal vs external)
External Analysis
Internal Analysis
The Social and Economic
Context
Values, Vision, Mission
The Industry
Competences and
Resources
The Competition
Competitive Advantage
S.W.O.T. Analysis
The strategic analysis describe the environment and the
characteristics of the company that influence the
establishment of a long lasting competitive advantage
61
Business Plan – Strategic Plan
3. Strategy
You need to detail:
• Competitive Strategy
• Organization Strategy
• Production Strategy
• Financial and Economic Strategy
• Communication Strategy
The goal of the strategy is to reach the strategic objectives and to guide the definition of
the products/services’ features, marketing positioning and activities, and finally activities
in each function or business unit.
The unique set of activities and the unique ways in which they are related make every
company different from the others.
The strategy is reflected in the way a company source, produce, organize people, go to
market, communicate, define prices, manage financial sources, and invest.
62
Business Plan – Strategic Plan
Example: fashion ecommerce
Strategic Positioning
Wardroba positions itself into the market as a digital showroom.
Wardroba is the partner of independent brands and designers, edgy
retailers around the world, and unique seekers as final clients.
The digital showroom offers extraordinary products to a community
formed only by a selected audience. This mechanism leverages the desire
of people of distinguish themselves. Some people have the desire to
become influencers and trendsetters. This type of desire is what
Wardroba wants to leverage and exploit.
63
Business Plan – Strategic Plan
Example: fashion ecommerce
Strategy of IT Development
The strategy for the development of digital platforms, interfaces,
technological infrastructures and functionalities has the objective to
internalize all the core competences and to govern the whole process,
and to externalize the development of components with lower added
value or so specific to require an external and separated project, which is
easier and faster to realize externally. [continue]
64
Business Plan – Strategic Plan
Example: fashion ecommerce
Strategy of Fund Raising
Wardroba is fully financed by the capital of the shareholders. Founders
have financed the first phase of the development and growth till doing
first invoicing. In the following months, new shareholders will enter the
company, invested fresh capital to boost Wardroba development.
[continue]
65
Business Plan – Strategic Plan
7 Criteria to Evaluate a Strategy
1.
2.
3.
4.
5.
6.
7.
ROI – Return on investment
Risk of loosing the investment
Ownership and control
Potential for growth
Stability of employment and earnings
Prestige
Social Responsibility
The strategy can be evaluated from different points of view that depend
on the corporate objectives and the market conditions.
66
Business Plan – Marketing Plan
2. Business Plan Sections
Chapter 4: Marketing Plan
67
Business Plan – Marketing Plan
Marketing Plan: 4 Steps
Segmentation
Targeting
Positioning
Mktg mix
68
Business Plan – Marketing Plan
Segmentation
Example in fashion ecommerce
Segment A. Opportunistic Client. This type of client is interested in the quality of
the products and knows that online you can find good stuff at lower price respect
with the physical channel. They have a high propensity to search for the best
possible offer, searching through different types of single brand stores,
multibranded platforms, digital and physical channels. They are not loyal…
Segment B. Branded Client. This client is eager to own specific brands, and
evaluates products as status symbols. He can mix mainstream and luxury objects,
providing that the brand is strong and shows his status and purchasing power…
Segment C. Unique Seeker. This client loves design and appreciates the quality of
material, the originality of the shape, the reference to historical model, etc. He can
mix branded and unbranded items…
69
Business Plan – Marketing Plan
Targeting
Example in fashion ecommerce
The clients targeted are a portion of the unique seekers. Our hypothesis is
that, in Italy, they represent no more than 10% of the total. The
expectation is that Italian fashion shoppers will reach soon 20 million,
that’s why 2 million in Italy seems a realistic target. The target is
considered reachable through the communication activities we have
forecasted and can be expanded beyond Italian borders just after the
release (June 2016) of the international shopping platform.
The goal is to distribute around 2 thousand brands in 5 years.
70
Business Plan – Marketing Plan
Positioning
Competitive Analysis in fashion ecommerce
Asos Marketplace
Asos Marketplace is dedicated to emerging brands and designers and is a
branch of the main Asos platform, dedicated to mainstream collections.
The separation suggests that even Asos recognize the peculiarity of that
segment. On the other hand, even if powerful, Asos can’t focus the attention
on this segment beyond a certain level. Strenghts: Asos platforms, volumes,
technological and logistic skills, bargaining power.
Weaknesses: the lack of focus. Some brands could see Asos as interesting
only because of sales, surely this is not a matter of differentiation and
positioning. In addition, not being focus on, Asos cannot offer independent
brands the same customized and personal service we offer.
71
Business Plan – Marketing Plan
Positioning & Competition in fashion ecommerce
72
Business Plan – Marketing Plan
Marketing mix
1. Product
•Physical / Technical Description (Features, Values for clients)
• Types of usage
• Product Positioning Map
•
•
•
•
•
•
Cost
Quality
Features
Values
Service
Image
• Product lifecycle stage
73
Business Plan – Marketing Plan
2. Price
Definition of price (in a wider sense: not only monetary cost)
Definition of:
•Discounts, Sales
•Special Offers
•Events, …
In this part of the plan, there is the description of the choices and the
activities to promote the products.
74
Business Plan – Marketing Plan
3. Channels / Points of Sale
• Sales channels
• Distribution channels
• Commercial effort
75
Business Plan – Marketing Plan
4. Communication
• Outbound Marketing (Adv, Press Campaigns)
• Inbound Marketing (Social Media, Newsletters, Website, SEO, …)
76
Business Plan – Operating Plan
2. Business Plan Sections
Chapter 5: Operating Plan
77
Business Plan – Operating Plan
Operating Plan: what we do now
The operating plan is the translation of the strategic plan into a set of activities.
.
Operating Plan: example
Activities Management: Agile & customer development
Operations are managed and organized according with the agile
development framework, lean startup methodologies to test the
market reactions.
We have adopted lean project management, defining the work
breakdown, milestones, priorities, and budgets. We pay high
attention to control of costs and cash burn rate.
In order to manage team’s activities, we have adopted Redbooth, a
cloud project management tool, through which each member of the
team can share his project advancement with other team members.
78
Business Plan – Financial Statements
2. Business Plan Sections
Chapter 6: Financial Statements
79
Business Plan – Financial Statements
Financial Plan
The quantitative section of the business plan
80
Business Plan - Financial Statements
Profit & Loss Statement
Revenues
- Cost of Goods Sold (direct labor and raw material)
= Gross Margin
- Operative Costs
•
Marketing costs
•
Sales
•
Administration / Legal / etc
- Cost of indirect labor
= EBITDA
- Yearly depreciation
= EBIT
- Interests
- Taxes
= Net Profit
81
Business Plan - Index
Step 5. Balance Sheet
It is especially important to assess what are the assets owned by the company and to
whom the company owes money.
82
Business Plan – Risk Analysis
2. Business Plan Sections
Chapter 7: Risk Analysis
83
Business Plan - Risk Analysis
Methodologies
• Financial Ratios (Liquidity ratio, profitability ratio, cash flow
indicators etc..)
• Break-even analysis
• What-if analysis
• Worst-case analysis
• NPV (Net Present Value)
• Distribution of observations (mean, standard deviation,
skewness)
84