4.

2 Develop the Business Model

 What is a Business Model?

is a design for the successful

operation of a business,
identifying revenue sources,
customer base, products, and
details of financing.
 What is a Business Model?

defines how the enterprise

delivers value to customers, gets
them to pay for that value, and
converts those payments to profit.
 According to Don Deebelak in his article “Developing a
Great Business Model”
“the entrepreneur must adapt the dynamic of traffic lights
in developing the business model”.
How to Develop a successful Business
Model?
Great business models depend on
developing
"green lights,"
and avoiding

"red lights"
What do we mean by Green Lights?
refers to the positive signals or
qualities that can help
entrepreneurs develop ideal
business models and eventually
succeed.
 Factors in determining whether your model
meets each Green Lights
1. Target or Acquire high-value customers.
They are someone who:
 is easy to locate/find
 allow you to charge a profitable price
 is willing to try your product after minimal marketing
expenses (least marketing effort).
 Can generate enough business to meet your sales and
profit objectives.
 Factors in determining whether your model
meets each Green Lights
2. Offer products or service with great value to customers.
 Unique advantages in features and benefits
 Better distribution through retail or distribution
 More complete customer solutions through alliances with other
companies
 Lower pricing due to manufacturing efficiencies or pricing
options
 Faster delivery, broader product line or more customization
options
 Factors in determining whether your model
meets each Green Lights
3. Offer products or service with reasonable profits.
2 ways in achieving reasonable profits.
1. increasing markup
2. decreasing operational cost
To do this entrepreneur should:
 Use a more efficient distribution channel.
 Lessen unnecessary manpower efforts an much as possible.
 Apply industry-leading lean manufacturing process.
 Offer more auxiliary products or other opportunities for revenue without
increasing cost.
 What do we mean by Red Lights?
refers to the negative or signals
qualities that can derail/wreck a
business.
Factors in determining whether your model
avoids each Red Lights
1. Satisfying the customers becomes too costly
and irrational.
 High warranty costs
 After sale cost
Extensive technical support
Extensive installation requirement
Extensive customer service
Interface problems with other equipment
 Factors in determining whether your model
avoids each Red Lights
2. Maintain market position – Being a market leader is
difficult to sustain.
Signs that it will be difficult to sustain:
 Two or three major customers buy most of your product.

 Major potential competitors control the distribution network.

 Technology changes rapidly and requires high-risk product

development.
 There are alternative technologies being developed to meet the

same need.
 You have well-funded potential competitors who could quickly

move into your market.

Factors in determining whether your model
avoids each Red Lights
3. Return of Investment (ROI) takes too long and too
small
 ROI is less than 25% in the first three years.
 additonal production of products or services requires
substantial additional investments.
 Fewer than 50% of the investment required will be used in
revenue producing areas, such as sales and production.
 Investments have to be made prior to sales commitments.
 Industry as a whole has unacceptable ROI or poor profitability.
  Four basic types of Business Model
1.  Manufacturer
A manufacturer takes raw materials and creates
a product, or assembles pre-made components
into a product (E.g car manufacturers). A
manufacturer may sell its products directly to its
customers, or it can outsource sales to another
company.
  Four basic types of Business Model
2. Distributor

A distributor is any business that purchases

products directly from a manufacturer for resale
either to retail outlets, or directly to the public.
For example, a car dealership would purchase
vehicles directly from the manufacturer and sell
them to the general public.
  Four basic types of Business Model
3. Retailer

A retailer purchases product from a distributor

or wholesaler, and then sells those products to
the public. A retailer usually has a physical
location, but may also be an online retailer such
as Amazon or Kalahari.
  Four basic types of Business Model
4. Franchise

A franchise can be a manufacturer, distributor

or retailer, depending on what type of franchise
you purchase. Here the franchisee adopts the
business model of that franchise.
 Assignment
1. Which 2 (two) companies or businesses for
you have the best or ideal business model in
your locality?
2. Do you think these companies or businesses
complied with the green lights and avoided the
red lights? Why do you say so?
4.3 Forecast the Revenue of the
Business
 FORECASTING
is the use of historic data to determine the
direction of future trends. Businesses utilize
forecasting to determine how to allocate their 
budgets or plan for anticipated expenses for an
upcoming period of time. This is typically based on
the projected demand for the goods and services
they offer.

Read more: Forecasting https://www.investopedia.com/terms/f/forecasting.asp#ixzz55fkn48ib  
 Forecast Revenue
What is Revenue?

It refers the the total of all money that a

company receives from people paying for
its products or services
 How to Forecast the Revenue?
1. Start with expenses, not revenues
• Fixed Costs/Overhead
Rent
Utility bills
Phone bills/communication
costs
Accounting/bookkeeping
Legal/insurance/licensing fees
Postage
Technology
Advertising & marketing
Salaries
• Variable Costs
• Cost of Goods Sold
Materials and supplies
Packaging
• Direct Labor Costs
Customer service
Direct sales
Direct marketing
 How to Forecast the Revenue?
2. Forecast revenues using both a conservative case & an aggressive case.
 How to Forecast the Revenue?
3. Check the key ratios to make sure your projections are sound.