ES 19: TECHNOPRENEURSHIP 101 FOR ENGINEERS

introduction to
business model

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 how you plan to
make money
BUSINESS MODEL

• Business model easily defined as “how you plan to make money”

• Business model as “the story that explains how an enterprise works”

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 logic of the company
Shows how it operates, creates, and captures value for
stakeholders in a competitive marketplace

• Shows how it operates and creates and captures value for stakeholders in a
competitive marketplace
• Outlines the design of revenues, costs, and profits associated with the
business enterprise delivering that value.
• Defines how the enterprise creates and delivers value to customers, and
then converts payments received to profits.

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• Business model analogous to a car
• Different car designs have different functions creating different value for drivers
• The way the car is built places constraints on what the driver can do and it
determines which tactics the driver can use.
• A small car would be more valuable to a person who wants to drive through
narrow streets than a large car would, in which the task would be impossible
• Imagine that the driver could modify the features of the car: shape, power, fuel
consumption, seats.
• Such modifications would not be tactical; they would constitute strategies because
they would entail changing the machine (the “business model”) itself.
• In sum, strategy is designing and building the car, the business model is the car,
and tactics are how you drive the car.

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Business model answers:
1. Who is your customer?
2. What does the customer value?
3. How do you deliver value at an appropriate cost?

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 Business model development
• Cyclical, continuous process of conceptualizing value through
various activities
• Constant experimentation and adjustment to changing market
environments
• Transitional phase between invention and innovation stage

• The process of business model development appeared as a cyclical, continuous

process of:
• conceptualizing value through the activities of market segmentation, value
proposition and revenue modelling,
• organizing for value creation involving cost and revenue estimation,
• finding equipment, resources and partners to permit collaborative
innovation.
• business model development as constant experimentation and adjustment to
changing market environments
• process of business model development as a transitional phase between the
invention and the innovation stage,
• thereby implying that the process of business model development for the
commercialization of innovations is a fundamental aspect within the
innovation process.

• By rethinking and reconfiguring these elements, the technological entrepreneur

may be able to identify a new approach that can provide the basis for a new model
that confers a competitive advantage
• business model approach is all about outlining an approach but changing that

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approach throughout if or when you discover that your assumptions and educated
guesses were wrong.
• For each new iteration, or version, the entrepreneur makes a minor change
to the current business model to better capitalize on market opportunities.

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 Business model parts
1. Everything it takes to make something
• Design, raw materials, manufacturing, labor
2. Everything it takes to make something
• Marketing, distribution, delivering a service, sale processing
3. How and what the customer pays
• Pricing strategy, payment methods, payment timing

In their simplest forms, business models can be broken into three parts:
1.Everything it takes to make something: design, raw materials, manufacturing,
labor, and so on.
2.Everything it takes to sell that thing: marketing, distribution, delivering a service,
and processing the sale.
3.How and what the customer pays: pricing strategy, payment methods, payment
timing, and so on.

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 Business model types
Type Description Example

Direct model Users becoming your customers Coffee shop, retail store

Users and customers are usually

Multisided model PayPal, Facebook
different people

Two different customer segments of

Marketplace model eBay, Airbnb
buyers and sellers

• Direct businesses are the most common and involve onesided actors—that is,
users—becoming your customers.
• A coffee shop is a classic example; other examples include retail stores,
software as a service (SaaS), many mobile apps, hardware stores, and
stores that sell physical goods.
• In multisided models, users and customers—multi-actors—are usually different
people.
• Adbased models, big data, and enterprise are common examples where the
products are free to users, and their value is monetized by a different
customer base.
• Marketplace models are a more complex variant of multisided models made up of
two different customer segments of buyers and sellers.
• eBay and Airbnb are well-known examples of marketplace models.

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Business model
basic forms

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Business model
basic forms

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Business model
basic forms

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 Profit! SUCCESSFUL BUSINESS MODEL

• A successful business model just needs to collect more money from customers
than it costs to make the product. This is your profit—simple as that.
• Developing a successful business model is insufficient to assure competitive
advantage as imitation is often easy
• a differentiated (and hard to imitate)- yet effective and efficient- business model
is more likely to yield profits.

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INTRODUCTION TO BUSINESS MODEL

business model canvas

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 visual framework for describing
the different elements of how a
business works
BUSINESS MODEL CANVAS

• BMC reated by Alexander Osterwalder

• It describes the rationale of how an organization creates, delivers, and captures
value.
• It illustrates what the business does, for and with whom, the resources it
needs to do that and how money flows in and out of the business.

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 tool used in developing new or
existing business models
BUSINESS MODEL CANVAS

• It explains business model in a straight-forward, structured way.

• An organized way to lay out your assumptions to see if you’ve missed anything
important and to compare your model to others

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 non- linear process
Allows alterations for a clearer and easier way to
change current or potential models

• Allows for the effects of alterations in one area to be clear, making it

easier to play around with changes to current or potential models.

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Business
model
canvas
elements

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 1. Value proposition
• Innovation, service, or feature intended to make a company or
product attractive to customers
• Addresses specific customers’ ‘pains’ and offers ‘gains’ by
meeting a need
• Answers:
• What are you offering them?
• What difference do we make and to whom?
• Do the customers care?

• For many cultural organizations a natural starting point is the Value

Proposition.
• It is based on a review and analysis of the benefits, costs, and value that an
organization can deliver to its customer.
• It is the reason why customers turn to one company over another.
• Something to keep in mind is your value propositions can change, as you gather
more data from customer interviews.

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 2. Customer segments
• Defines the target groups of people or organization
• Demographic information of your customers
• Important: find out what customers would and are willing to
give up
• E.g. time to use product, switch from current product

• Every company needs profitable customers in order to survive. Using the BMC, you
will determine what your customer segment(s) will be.
• Demographic information: The information you may want to predict and
test for this section could include age, gender, time spent working, etc.

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 3. Key partners
• List of people or organizations needed in order to carry out the
activities and reach the customers
• E.g. people from formal or informal alliances, collaborations,
partnerships or joint ventures; suppliers.
• May provide things to achieve key resources and key activities
• Important: know key partners’ roles and “added value”

• Key resources: e.g. provides workshop spaces

• Key activities: e.g. distributing books you publish
• Be clear where you can structure them into your business model and
where doing so might bring risks

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 4. Key activities
• Most important activities in executing a company’s value
proposition
• Answers:
• What do you need to do to deliver your value proposition?
• What do you need to do to develop the customer relationships you
want?
• What do you need to do to bring in revenue streams?

• In some ways this is one of the most obvious parts of the canvas.
• If you’re assessing a current business model and a Key Activity doesn’t
especially connect to those areas you may need to adjust your model.

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 5. Customer relationships
• Describes the kind of relationships customers want or expect
with you and the type of relationships you want to make with
them
• Relates to the values of your organization and how you see
your organization working in practice

• If, for example, your values include collaboration and equality you might
want to establish relationships based on co-creation, listening and
community input.
• Define extent to which different Customer Segments can influence what you
do and how you do it.
• There is no right or wrong answer but the answer can vary from
organization to organization

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 6. Key resources
• Describes what you need to have and maintain to deliver your
Value Proposition, Customer Relationships and Revenue
Streams
• Tangible resources: financial reserves, buildings, equipment,
people
• Intangible assets: brand, trust, data, intellectual property.

• Tangible resources: financial reserves, buildings, equipment and people

• Intangible assets: brand, trust, data and intellectual property.
• If there are resources you need in an ideal world but can’t get immediately
can your Key Partners supply these? Do you really need all things you list
here or could others provide them?

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7. Channels
• Ways on reaching the Customer Segments
• E.g. word of mouth, advertising, social media, community or business
networks
• Play a role in raising product or service awareness among
customers and delivering your value propositions to them

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 8. Cost structure
• Identifies all the costs associated with operating the business
model
• Answers:
• What do you need to pay for?
• What will it cost to deliver your value proposition via the key
resources and activities?

• It is useful to cluster types of costs so you can see the proportions spent on
staffing, program, fundraising and other common areas.

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 9. Revenue streams
• Sources from which a company generates money by selling
their product or service to the customers
• Describe how you will earn revenue from your value
propositions
• Answers:
• What activities do you do that bring in different revenue streams?

• You can also assess the importance of each element of cost by seeing how
it delivers revenue income.
• What activities do you do that bring in different revenue streams?
• Income from particular customers may be worth noting if they represent a
significant proportion of overall income, such as local authority funding.
• You will need to pay particular attention to what you need to do to maintain
that income and assess how secure it is in the future.

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References
1. Chaston, I. (2017). Technological entrepreneurship: Technology-driven vs market-
driven innovation. Springer. pp 163-164
2. Laverty, M., & Littel, C. (2020). [eTextbook] Entrepreneurship. p 445
3. Ovans, A. (2015). Harvard Business Review: What is a business model. Retrieved on
May 9, 2021 from https://hbr.org/2015/01/what-is-a-business-model
4. Robinson, M., Lock, S. (2016). Introducing the Business Model Canvas. Retrieved on
May 9, 2021 from https://www.culturehive.co.uk/wp-
content/uploads/2020/10/Introducing-the-Business-Model-Canvas-2.pdf
5. Teece, D. J. (2010). Business models, business strategy and innovation. Long range
planning, 43(2-3), 172-194.

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