The Myth Of Business Models - Aditya Yadav

1. “Running an Agile Fortune 500 Company”
Aditya Yadav, aditya.yadav@gmail.com
in.linkedin.com/in/adityayadav76
*

2. *
*A Typical Global Company
*Fortune 500/1000
*200 Divisions
*40 Countries
*25000 Employees

3. @ Acme Inc.
*

4. *
*Original Question “What should our Business
Model for our new (Mobile/Appliance/…)
Division be?”
*The Correct Question - “Lets first understand
what exactly is a business model. A lot of
people are confused about that…Shall we?”

5. And The Philosophy Behind The Answer
*

6. *
* Management writer Joan Magretta defined a business model
as “the story that explains how an enterprise works”
* Peter Drucker described it as the answer to the questions:
Who is your customer, what does the customer value, and
how do you deliver value at an appropriate cost?
* Harvard Business School’s Clay Christensen suggests that a
business model should consist of four elements: a customer
value proposition, a profit formula, key resources, and key
processes
* Ramon & Joan talk about Choices & Consequences, virtuous
cycles that continuously strengthen the business model,
network effects and dynamics, competitive advantage…
*** Quoted from HBR

7. *
This is what
Steve Blank
says in
“Business
Model
Generation”

8. *
* Jane McGrath and Jacob Clifton and 99% of the rest of the world
Define’s Business Models as something like below
* Top 10 Influential Business Models
1. Name Your Price – Priceline
2. Offer Aggregation: Kayak, eBay, Amazon, Invisible Hand
3. One Day, One Deal: Woot, Groupon, LivingSocial, Moolala
4. Just In Time: Dell
5. Growth First: Amazon.com
6. The Modern Franchise: McDonald's Corporation
7. Software First: Microsoft
8. Lifestyle Takeover: Apple and Google
9. The Everything Store: Walmart
10. The P2P Revolution: Etsy, Kickstarter, Paypal, Craigslist

9. *
*Okaaaaaaaayyyyy!!!!!
*We are not V.C.’s defining Investment
Sectors/Areas
*Nor are we Liberal Arts Majors…
*We define a Business Model as a “Quantitative”
Model of a Business covering
*Inputs
*Choices & Their Variations
*Outputs
Inputs
Choices &
Their
Variations
Outputs

10. *
*We will Analyse it for Sensitivity, Risk, Changes,
Opportunity, Planning, Taking Decisions, Making
Choices, Projections, Strategy etc.
*Some people associate Innovation w/ Business
Models aka Business Model Innovation (!!!)
*Most people realise that Business Models
cannot be copied successfully in most cases,
and yet entire Clone Armies are engaged in
attempting to do just that. We will see why it
works and doesn’t!

11. *
* Michael Porter – Strategy is about Making Choices.
* Aditya said – Strategy is about the reason behind the choices and not about making choices per se. If
the reasons are crystal clear then the act of making choices is trivial.
* But coming back… to our Quantitative Business Model diagram
* If Choices -> Strategy
* Then the Strategy is applied to Inputs
* And Results in -> Outputs
* Laymen call a Catalog of Combination of Choices as Business Models… such catalogues are helpful to
understand what choices one might have…
* But they don’t actually help in making the choices for which we need Purpose, Values, Principles and
Practices and obviously Rationality and Critical Thinking
* Such Layman’s business models when copied out of context into another context don’t fit in with the
inputs and don’t deliver the same outputs…
* Allow me to rephrase – if the middle layer is about Choices, and their combinations, and Choices is
about Strategies, and Choice Catalogs are Layman’s Business Model(s) (!!!) then
* Copying Strategies & Business Models seldom works
* They can/will be inconsistent with the ‘Other’ choices you have already made
* Copying doesn’t lead to the same Output
* [And our Quantitative Business Model diagram shows why]

12. *
*Can we take internet bandwidth in bulk from Telecom
companies and repackage them along with content and
sell them as Media Bundles to end consumers?
*Layman – It sounds like a Great Business Model, our
choices and strategy is quite clear (i) Bulk Bandwidth
purchase (ii) Repackage along with content and (iii)
Sell Media Bundles….We have Passion lets do it…
(@$#%$@%&$^^@%#$)
*VC’s go Yay!!! Here is the money!!! ;-)
*Aditya – Lets do a (Quantitative) Business Modelling
exercise and see what comes up

13. *
*Red –> Derived
*Yellow -> Input
Telecom-Media Value Bundle Business Model/Simulation
Serial Parameter Value Std. Dev.
1Total Bandwidth Bought (GBs/Month) 1500,00,000 10.00
2WholeSale Bandwidth Rate (Rs/GB) 10 1.00
3Total Operational Cost(Rs) 15000,00,000 1477,50,167
4Media Bundle Size(GBs) 50 15.00
5Compression Efficiency (%) 60.00% 10.00%
6Compressed Media Bundle Size (GBs) 30 10
7#Hours Programming in 1 Media Bundle (HRs) 16 1
8#Proxy Servers (All Over India) 100000 1000
9Proxy/Caching Server @Tower #Fan-out/#Network-Clients 10 2
10#Consumers/Network-Client 100 15
11Bandwidth Consumed In Delivering 1 Media Bundle All Over India (GBs) 30,00,000 10,43,936
12Total # Consumers Served 1000,00,000 255,37,600
13#Media Bundles / Month 50 5
14Total Bandwidth Consumed (GBs/Month) 1500,00,000 545,92,757
15Revenue/Consumer/Month (Rs) 20 3
16Total Revenue/Month 20000,00,000 5990,20,693
17Total Profit/Month (Rs) 5000,00,000 6134,66,401
18Profit Margin (%) 33.33% 42.56%

14. *
*Make The Choices
*For Each Combination build the Business Model(s)
*=> Monte Carlo Simulation
Serial 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
1 150000000.8 7.156366 1.073E+09 57.93526 60.05% 34.79203 16.22197 100995.2 13.60773 101.5371 3513828 1.4E+08 51.96653 1.83E+08 22.77946 3.18E+09 2105282355 196.12%
2 150000001.4 10.06871 1.51E+09 22.04085 47.98% 10.57483 14.73111 99994.05 8.211297 120.0382 1057420 98561065 55.98937 59204265 19.33587 1.91E+09 395457019 26.18%
3 149999991.6 10.69288 1.604E+09 72.73872 38.21% 27.79423 17.21984 100064.8 11.23886 120.0855 2781225 1.35E+08 51.83634 1.44E+08 17.99337 2.43E+09 826071100 51.50%
4 150000012.9 10.61068 1.592E+09 23.63615 45.22% 10.6882 17.63872 98630.77 8.293338 85.08782 1054185 69599985 49.60722 52295183 21.15431 1.47E+09 -119261490 -7.49%
5 149999999.2 10.33219 1.55E+09 27.44971 47.15% 12.94336 14.36862 99503.25 9.668478 101.367 1287907 97519652 49.37506 63590470 13.77885 1.34E+09 -206119493 -13.30%
6 149999999.2 10.66255 1.599E+09 42.11089 45.76% 19.26874 15.74547 98857.3 14.73755 109.1728 1904855 1.59E+08 52.58856 1E+08 25.24425 4.02E+09 2415854329 151.05%
7 150000001.1 11.50855 1.726E+09 71.28336 45.28% 32.27774 14.56975 100631.8 8.205583 97.70505 3248166 80679202 51.64514 1.68E+08 19.66367 1.59E+09 -139833643 -8.10%
8 149999997.8 10.11373 1.517E+09 80.16265 54.65% 43.80913 15.95392 99606.48 10.39489 104.6262 4363673 1.08E+08 48.67091 2.12E+08 19.5204 2.11E+09 597582672 39.39%
9 149999997.6 9.466203 1.42E+09 50.5851 53.50% 27.06375 15.26221 98469.44 11.9364 83.1541 2664952 97736906 52.66633 1.4E+08 17.34335 1.7E+09 275155266 19.38%
10 149999984.6 8.201635 1.23E+09 36.79552 71.34% 26.25025 16.95364 101399.5 8.828209 67.6164 2661763 60528599 56.44758 1.5E+08 18.00145 1.09E+09 -140642398 -11.43%

15. *
*The simplest measure of Risk is Standard
Deviation
*Calculate 99% VaR to get ‘Minimum’ downside
risk in 0.01 extremity
*The Telecom Media Value Bundle – Business
Model was quite trivial and for illustrative
purposes only
*But even that said quite clearly that unless you
can handle the High Risks - you are $crewed!!!

16. *
Aditya!!!