SOLUTION MANUAL FOR LAUNCHING NEW

VENTURES AN ENTREPRENEURIAL APPROACH 7TH

EDITION ALLEN 1305102509 9781305102507
Full download link at:
Solution manual: https://testbankpack.com/p/solution-manual-for-launching-new-
ventures-an-entrepreneurial-approach-7th-edition-allen-1305102509-
9781305102507/
Test bank: https://testbankpack.com/p/test-bank-for-launching-new-ventures-an-
entrepreneurial-approach-7th-edition-allen-1305102509-9781305102507/
CHAPTER 5
Developing and Testing a Business Model

SUMMARY AND AUTHOR’S NOTE

One of the most critical stages of the entrepreneurial process is the development of a
business model. A business model is a company creates and captures value; therefore, it
addresses all the areas of the business: value proposition, customer segments, d istribution
changes, business activities and resources, strategic partners, revenue sources, and cost
drivers. This chapter explains how to turn an idea into an effective concept for a new business,
through the development and testing of a business model that creates value for the customer and
enables the entrepreneur to capture that value through a monetization plan.

It is important to spend sufficient time to make sure the students understand the components of
the business model, in particular, the customer definition and the benefit to the customer. The
easiest way to help the students understand the customer is to tell them that the customer is “the
one who pays you.” That way they can better differentiate between a customer and an end-user.
For example, a concept that involves manufacturing a product and selling it through a distributor
to a retailer means that if the entrepreneur is the manufacturer, his or her customer is the
distributor, so the benefits the entrepreneur must provide have to be benefits that the distributor
wants, such as great margins. Students will argue that their product must meet the needs of the
end-user (sometimes a consumer), and they are right—they need to consider the benefits to the
end-user and the retailer as well so that they can convince the distributor to carry their product by
proving that there is sell-through on the other end. But the primary customer they need to satisfy
is the distributor.
I have found that asking students to distill their business concept into two concise sentences that
express four elements: 1) what’s the problem and who has it; 2) how we are solving it; 3) why
you should care (is it a big market?); and 4) how we will win (what’s our sustainable competitive
advantage. Then I ask them to present the two sentences in front of the class to see whether the
Chapter 4: Developing a Business Model 17

class understands the concept completely. After a few questions like “Who is the customer?” and
“What is the benefit?” students come away with a new appreciation for how difficult it is to
develop a clear and compelling business concept.

CHAPTER OBJECTIVES
After reading this chapter, students will be able to:
 Explain what a business model is and what it accomplishes.
 Discuss the process for developing and testing a business model.
 Explore how to innovate a business model.

CHAPTER OUTLINE
Profile 5.1 Amazon: Business Model Innovator

5.1 Understanding the Business Model

5.1a Value Proposition
5.1b Customer Segments
5.1c Distribution Channels
5.1d Strategic Partners
5.1e Business Activities and Resource Requirements
5.1f Revenue Sources
5.1g Cost Drivers
5.1h Why Business Models Fail
5.1I When Business models Change

5.2 Testing and Validating Business Model Feasibility

5.2a Developing and Testing Hypotheses
5.2b Considering the Impact of the Macro Environment

5.2 Innovating with Business Models

5.3a When the Customer Doesn’t Want to Pay
5.3b Facing Dominant Players

Global Insights: Business Models for the Developing World

5.4 Drawing Conclusions from Feasibility Analysis

RELEVANT CASE STUDIES

Case 4: Command Audio
Case 5: Corporate Entrepreneurship and Innovation in Silicon Valley: The Case of Google Inc.
18 Chapter 4: Developing a Business Model

ANSWERS TO QUESTIONS ON KEY ISSUES

1. What is the purpose of the business model and why do business models typically fail?
The business model addresses the issues of how the company will make money and how it
will create and capture value for its shareholders, investors, customers, and value chain
partners. An effective business model also provides a competitive advantage. Business
models typically fail because they lack a compelling story, they are not carefully
conceived, the numbers don’t make sense, or they are not executed well.
2. What are the characteristics of an effective business model?
An effective business model will convey a compelling story about how the company will
make money, will demonstrate a real value proposition for stakeholders, will contain
financial projections that make sense, and will create a competitive advantage for the
company.
3. What is the purpose of feasibility analysis?
Feasibility analysis enables the entrepreneur to reduce some of the risk of the unknown in
starting a business. It helps the entrepreneur think through the business and test the concept
in the market to insure that there are customers who will be interested in what the business
is offering.
4. What are some ways to innovate in a business model?
Four ways to innovate are eliminate something that the industry has traditionally done, reduce
something below the industry standard, raise something above the industry standard, or create
something the industry has never done. Every component of the business model is open to
innovation.

SUGGESTIONS FOR EXPERIENCING ENTREPRENEURSHIP

1. Compare and contrast the business models of two early-stage companies. How are their
business models sources of innovation?
Students will likely want to compare two companies in the same industry. It would be important
that they choose companies with very different business models. More interesting might be to
compare business models from two different industries. Then they could answer the question,
“could the business model from industry A work in industry B?” Applying a business model from
one industry to another is one form of innovation.
2. Suppose you intend to start a theme restaurant that can be replicated and franchised. Based
on an analysis of some existing theme restaurants, what types of revenue streams could this
business generate?
Students will come up with a variety of typical revenue sources: catering, selling gift items,
holding cooking classes, developing a branded line of foods. Encourage them to think
beyond the traditional revenue sources to find a niche that is not being served.