BUSINESS MODELS

Business Model is a firm’s plan for how it competes,

uses its resources, structures its relationships,
interfaces with customers and creates value to
sustain itself on the basis of the profits it earns. In
a broader context, it includes all activities that
define how a firm competes in the market place.

1
 BUSINESS MODELS

• There is no standard business model for all

types of businesses because:
– 1. It is difficult to determine specifically what
another firm’s business model is;
– 2. Business model is inherently dependent on
collection of resources it controls and the
capabilities it possesses.

2
 BUSINESS MODELS

– Development of Business Model follows Feasibility

Analysis stage of launching a venture but before
completion of a Business Plan.
– Importance of Business Model:
• 1. Serves as an ongoing extension of feasibility analysis,
• 2. Focuses attention on how all elements of business fit
together,
• Describes why the network of participants needed to
make a business idea viable is willing to work.
• Articulates company’s core logic to all stakeholders,
including its employees.

3
 BUSINSSS MODELS

• Questions to test adequacy of a Business Model

– Does the Business Model make sense?
– Will the businesses I need as partners participate?
– If partners participate, how motivated would they be?
– Will it be worth the customers’ time to do business with my
company?
– If there will be customers, how motivated will they be?
– Can I motivate my partners and customers sufficiently to
cover my overhead and profit?
– How distinct will my business be and how vulnerable will it
be to take over by a competitor?
4
 BUSINESS MODELS

• How Business Models Emerge:

– Value Chain is the string of activities that moves a product
from raw materials stage through manufacturing
and distribution, and ultimately to customers.
Support Activities:
-Administration
-Human Resource Management
-Technological Development
-Resource Procurement

5
 BUSINESS MODEL

– Primary Activities:
-Inbound Logistics (receiving, storing, shipping);
-Operations (manufacturing);
-Outbound Logistics (warehousing, shipping finished
products);
-Marketing and Sales;
-Service.

6
 BUSINESS MODEL
• Potential Flaws of Business Models:
1. Misreading customers (e.g., Mobilestar Corp. , a pioneer in wireless
network system),
2. Utterly unsound economics (e.g. Iridium, a pioneer in satellite
telephone system).
Components of Effective Business Models:
1. Core strategy (How a firm competes),
2. Strategic Resources (How it acquires and use resources),
3. Partnership Network (How it structures and nurtures its network),
4. Customer interface (How it interfaces with customers).