SESSION #2

Business
Understanding

Makarand Kaprekar
Integrated MBA E & FB Class 20-21
 VALUE CREATION

“The best businesses in the

world are the ones that create
the most value for other
people.”
 IRON LAW OF THE MARKET
UNDERSTANDING THE MARKET/DEMAND

“If no one wants to buy your

product/service your business
will fail.”
E.g. Segway

Any Examples?
5 CORE HUMAN
DRIVES +1
1. Drive to Acquire 4. Drive to Defend

Desire to collect material and immaterial Desire to protect ourselves, our loved ones
things, like a car, or influence. and our property.

2. Drive to Bond 5. Drive to Feel

Desire to be loved and feel valued in our Desire for emotional experiences like
relationships with others. pleasure or excitement.

3. Drive to Learn 6. Status Seeking

Desire to satisfy our curiosity People will typically choose the option with
the highest perceived status

Any Examples?
 WATCH OUT

NOT JUST FOR NOT JUST A

MONEY DREAM
MERCENARY CRUSADER
10 WAYS TO EVALUATE
THE MARKET
1. Urgency 4. Cost of Customer Acquisition

2. Market Size 5. Cost of Value-Delivery

3. Pricing Potential
10 WAYS TO EVALUATE
THE MARKET
6. Uniqueness of Offer 9. Up-Sell Potential

7. Speed to Market 10. Evergreen Potential

8. Up-Front Investment

<50
Score 0-10 for each MOVE ON TO ANOTHER
IDEA
 HIDDEN BENEFIT OF COMPETITION
THERE ARE PAYING CUSTOMERS

“When any two markets are equally attractive in

other respects, you’re better off choosing to enter the
one with competition. Here’s why: it means you know
from the start there’s a market of paying customers
for this idea, eliminating your biggest risk.”

Any Examples?
 PRODUCT

Create a single tangible item or entity, then sell and deliver it

for more than what it cost to make.

12 Forms SERVICE

Value
Provide help or assistance then charge a fee for the benefits
rendered.

SHARED RESOURCE

Create a durable asset that can be used by many people,

then charge for access.
 SUBSCRIPTION

Offer a benefit on an ongoing basis, and charge a recurring

fee.

12 Forms RESALE

Value
Acquire an asset from a wholesaler, then sell that asset to a
retail buyer at a higher price.

LEASE

Acquire an asset, then allow another person to use that asset

for a pre-defined amount of time in exchange for a fee.
 AGENCY

Market and sell an asset or service you don’t own on behalf of

a third-party, then collect a percentage of the transaction
price as a fee.

12 Forms AUDIENCE AGGREGATION

Get the attention of a group of people with certain

Value characteristics, then sell access in the form of advertising to

another business looking to reach that audience.

LOAN

Lend a certain amount of money, then collect payments over

a pre-defined period of time equal to the original loan plus a
pre-defined interest rate.
 OPTION

Offer the ability to take a pre-defined action for a fixed period

of time in exchange for a fee.

INSURANCE

12 Forms Take on the risk of some specific bad thing happening to the
policy holder in exchange for a pre-defined series of

Value payments, then pay out claims only when the bad thing
actually happens.

CAPITAL

Purchase an ownership stake in a business, then collect a

corresponding portion of the profit as a one-time payout or
ongoing dividend.
 Form of Value #1: Product

A Product is a tangible form of value.

To run a product-oriented business, you must:

• Create some sort of tangible item that people
want.
• Produce that item as inexpensively as possible
while maintaining an acceptable level of quality.
• Sell as many units as possible for as high a price
as the market will bear.
• Keep enough inventory of finished product
available to fulfill orders as they come in.
Any Examples?
 Form of Value #2:
Service

A Service involves helping or assisting someone, in

exchange for a fee.

To run a Service-oriented business, you must:

• Have employees capable of a skill or ability other
people require but can’t, won’t, or don’t want to do
themselves.
• Ensure that the service is provided with
consistently high quality.
• Attract and retain paying customers.

Any Examples?
 Form of Value #3: Shared
Resource

A Shared Resource is a durable asset that you create

once, and then charge the customers for using it many
times.

To create a shared resource, you must:

• Create an asset people want to have access to.
• Serve as many users as you can without affecting
the quality of each user’s experience.
• Charge enough to maintain and improve the
shared resource over time.

Any Examples?
 Form of Value #4: Subscription
Predefined benefits on an ongoing basis in exchange for a
recurring fee.
Benefits provided can be tangible or intangible—the key
differences are:
• the expectation of additional value to be provided in the
future, and…
• that fees will be collected until the subscription is canceled.

To create a successful subscription, you must:

• Provide significant value to each subscriber on a regular
basis.
• Build a subscriber base, and continually attract new
subscribers to compensate for attrition.
• Bill customers on a recurring basis.
• Retain each subscriber as long as possible.

Any Examples?
 Form of Value #5: Resale
Resale is the acquisition of an asset from a wholesale
seller, followed by the sale of that asset to a retail
buyer at a higher price.

To provide value as a reseller, you must:

• Purchase a product as inexpensively as possible,
usually in bulk.
• Keep the product in good condition until sale—
damaged goods can’t be sold.
• Find potential purchasers of the product as quickly
as possible to keep inventory costs low.
• Sell the product for as high a markup as possible,
preferably a multiple of the purchase price.
Any Examples?
 Form of Value #6: Lease

A Lease involves the acquisition of an asset, followed by

allowing another person to use that asset for a
predefined amount of time in exchange for a fee.

To provide value via a lease, you must:

• Acquire an asset people want to use.
• Lease the asset to a paying customer on favorable
terms.
• Protect yourself from unexpected or adverse events,
including the loss or damage of the leased asset.

Any Examples?
 Evaluate which of the 6
values your business fulfills