Business Models

YOUR ROADMAP TO SUCCESS IN

VENTURE FORMATION
WHAT IS A BUSINESS MODEL
WHY IS IT NEEDED
A Business Model describes the
rational of how an organization
creates, delivers and captures value
The Nine Building Blocks
1. Customer Segments
2. Value Proposition
3. Channels
4. Customer Relations
5. Revenue Streams
6. Key Resources
7. Key Activities
8. Key Partnerships
9. Cost Structure
Customer segments
What are the different groups of people you are targeting (who are your customers?)
1. Mass market – one large group of customers (Car Buyers)
2. Niche markets – cater to specific Customer Segments (car parts for automobile
manufacturers)
3. Segmented markets – cater to certain customer groups (high end automobiles)
4. Diversified markets – serves unrelated Customer Segments (Amazon provides
“cloud computing” services to Web Companies, i.e. storage space and retail
products)
5. Multi-sided Platforms – credit card companies need large base of credit card
holders and large base of merchants who accept them.
Value propositions
What value do you deliver to customers?
• Why will a customer pick your product or service over another?
Which one of your customer’s problems are you helping to solve?
• Are you increasing performance? Offering a lower cost item?
Which customer needs are you satisfying?
• Does your customer even know they need your product or service?
What bundle of products and services are you offering to each
customer segment?
• How can you satisfy a number of your customers needs and wants?
channels
1. Awareness – How do you raise awareness about your companies
products or services?
2. Evaluation – How do you help customers evaluate your
organization’s Value Proposition?
3. Purchase – How do customers purchase your products and
services?
4. Delivery – How do you deliver a Value Proposition to your
customers?
5. After sales – after the sale is made, how do you provide post-
purchase customer support?
Customer relations
1. How do you attract customers?
 How do prospective customers know you exist?
 Can you offer value above what competitors are offering?
 Do customers know they need you?
2. How do you retain customers?
• The majority of sales for most enterprise comes from repeat customers
• Is it possible to create a community of customers? Networks are vital in retaining
customers.
3. How do you boost sales ? (get customers to buy more)
• Can you identify customer needs beyond what they are currently buying?
Revenue streams
Types of revenue streams
1. Transaction revenues – one-time customer payments
 Asset sales result from physical products (retail transactions)
 Usage fees are generated from the use of a particular service. The more a service is used
the more revenue generated.
2. Recurring revenue – ongoing payments for products or services.
 Subscription fees provide continuous access to a service (monthly gym fees)
 Lending/renting/leasing fees provide access to an asset for a specific time period.
 Licensing gives customers the right to use protected intellectual property in exchange
for licensing fees.
Key resources
Physical Resources – assets such as building facilities, machines and distribution
networks.

Intellectual resources – patents, copyrights, brands, proprietary knowledge and

customer databases.

Human resources – critical in knowledge intensive and creative industries. A large

and skilled sales force is a highly valued resource.

Financial resources – cash, lines of credit and stock options are key resources.
Key activities - the most important actions for success
Production – designing, making and delivering a superior product

Problem Solving – coming up with new solutions to customer problems. Knowledge

management and continuous training are included in problem solving.

Platform /network – networks, software and brands can function as a platform.

(eBay’s business model requires that the company continually develop and maintain
it’s platform the Web site at ebay.com)
Key partnerships -creating alliances to optimize business
models
Optimization – ways to reduce cost and leverage resources. Can involve outsourcing
or sharing resources.

Reduction of risk and uncertainty - partnerships can help reduce risk in

competitive environments. All partners must have positive outcomes for this to
work.

Acquisition of resources and activities – few companies own all of the resources
needed to deliver on the business model. Others might be able to perform certain
activities at a lower cost or at a higher level of quality.
Cost structure -
Cost driven business models – focus on minimizing cost whenever possible, the “low
price” value proposition.
Value driven business models – Premium Value Propositions where quality is the
focus.

Cost structures are based on the following:

Fixed Cost - costs that remain the same despite volume of goods or services sold
(salaries, facilities, etc.)
Variable Cost – cost that varies with volume
Economies of Scale – as output expands, cost comes down.
Economies of Scope – in large enterprise cost is distributed over larger scope of
operations
 Videos for Thought
https://www.youtube.com/watch?v=T-a1P8OD8oQ
 
https://www.youtube.com/watch?v=2xzBWpOKRhA