developing a business model. business model innovation. types of business model. How Business Models Emerge. Components of a Business Model. core strategy, strategic resources

1. Muhammad Shafiq
forshaf@gmail.com
http://www.slideshare.net/forshaf

2. Entrepreneurship and small business
Developing an Effective Business Model
Lecture-11
References:
• Entrepreneurship by Bruce R. Barringer
•Entrepreneurship by Hisrich
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This lecturer gives a basic knowledge about
the business model and explains why it’s
important for a new venture to develop a
business model early in its life.

4. What is a Business Model?
 A business model describes that how an organization creates,
delivers, and captures value.
 A firm’s business model is its plan or diagram 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 generates.
 The term “business model” is used to include all the activities that
define how a firm competes in the marketplace.

5.  It’s important to understand that a firm’s business
model takes it beyond its own boundaries. Almost all
firms partner with others to make their business models
work.
 An example is Apple and in particular the Apple App Store. As of
May 2015, more than 500,000 apps were available through the
Apple App Store, created by over 50,000 developers. It’s a win-
win situation for both Apple and the developers.
 When partners abandon a company the opposite can
happen to its business model and future prospects.
 For example, the newspaper industry is suffering from the shift in
readership from print to online, which has caused a number of the
industry’s advertisers and partners to shift their advertising dollars
to digital news providers and aggregators.
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6. Business Models
 There is no standard business model, no hard-and-fast
rules that dictate how a firm in a particular industry
should compete.
 In fact, it’s dangerous for the entrepreneur launching a new venture to
assume that the venture can be successful by simply copying the
business model of another firm—even if that other firm is the industry
leader. This is true for two reasons.
o First, it is difficult to precisely understand all of the components
of another firm’s business model.
o Second, a firm’s business model is inherently dependent on the
collection of resources it controls and the capabilities it
possesses.
o However, over time, the most successful business
models in an industry predominate.

7.  To achieve long-term success though, all business
models need to be modified across time. The reason
for this is that competitors can eventually learn how
to duplicate the benefits a particular firm is able to
create through its business model.
In the late 2000s, for example, financial returns
suggested that competitors such as Hewlett-Packard had
learned how to successfully duplicate the benefits of Dell
Inc.’s “build-to-order” (BTO) business model.
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Business Models

8. business model innovation
 A business model innovation, refers to a
business model that revolutionizes how a
product is produced, sold, or supported after
the sale.
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9. Dell’s Business Model
Dell’s Approach to Selling PCs versus Traditional Manufacturers

10. Business Models
 A firm’s business model is developed after the
feasibility analysis stage of launching a new
venture.
o The business model stage addresses;
 how to surround it with a core strategy,
 a partnership model,
 a customer interface,
 distinctive resources,
 and an approach to creating value that represents a viable
business.

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12. How Business Models Emerge
 The Value Chain
 A value chain is a set of activities that a firm operating in a
specific industry performs in order to deliver a valuable product or
service for the market.
 The value chain is the string of activities that moves a product
from the raw material stage, through manufacturing and
distribution, and ultimately to the end user.
 By studying a product’s or service’s value chain, an organization
can identify ways to create additional value and assess whether it
has the means to do so.
 Value chain analysis is also helpful in identifying opportunities
for new businesses and in understanding how business models
emerge.

13. TheValueChain

14. How Business Models Emerge
 The Value Chain
 Entrepreneurs look at the value chain of a product or a
service to pinpoint where the value chain can be made more
effective or to spot where additional “value” can be added.
 This type of analysis may focus on:
 A single primary activity such as marketing and
sales.
 The interface between one stage of the value chain
and another, such as the interface between
operations and outgoing logistics.
 One of the support activities, such as human
resource management.

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17. Components of a Business Model
Four Components of a Business Model

18. Core Strategy
 Core Strategy
 The first component of a business model is the core
strategy, which describes how a firm competes relative to
its competitors.
 Primary Elements of Core Strategy
 Mission statement.
 Product/market scope.
 Basis for differentiation.

19. Core Strategy
Primary Elements of Core Strategy
Mission
Statement
Product/Market
Scope
A company’s product/market scope defines the
products and markets on which it will
concentrate.
A firm’s mission, or mission statement,
describes why it exists and what its business
model is suppose to accomplish.

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21. Core Strategy
Primary Elements of Core Strategy
Basis of
Differentiation
It is important that a new venture
differentiate itself from its competitors in
some way that is important to its customers.
If a new firm’s products or services aren’t
different from those of its competitors, why
should anyone try them?

22. Strategic Resources
 Strategic Resources
 A firm is not able to implement a strategy without resources,
so the resources a firm has affects its business model
substantially.
 For a new venture, its strategic resources may initially
be limited to the competencies of its founders, the
opportunity they have identified, and the unique way
they plan to serve their market.
 The two most important strategic resources are:
 A firm’s core competencies.
 Strategic assets.

23. Strategic Resources
Primary Elements of Strategic Resources
Core
Competencies
Strategic
Assets
A core competency is a resource or capability that
serves as a source of a firm’s competitive advantage.
Examples include Sony’s competence in
miniaturization and Dell’s competence in supply
chain management.
Strategic assets are anything rare and valuable that a
firm owns. They include plant and equipment,
location, brands, patents, customer data, a highly
qualified staff, and distinctive partnerships.

24. Strategic Resources
 Importance of Strategic Resources
 New ventures ultimately try to combine their core
competencies and strategic assets to create a sustainable
competitive advantage.
 This factor is one that investors pay close attention when
evaluating a business.
 A sustainable competitive advantage is achieved by
implementing a value-creating strategy that is unique and
not easy to imitate.
 This type of advantage is achievable when a firm has strategic
resources and the ability to use them.

25. Partnership Network
 Partnership Network
 A firm’s partnership network is the third component of a
business model. New ventures, in particular, typically do
not have the resources to perform key roles.
In most cases, a business does not want to do
everything itself because the majority of tasks
needed to build a product or deliver a service are
not core to a company’s competitive advantage.
 A firm’s partnership network includes:
 Suppliers.
 Other key relationships.

26. Partnership Network
Primary Elements of Partnership Network
Suppliers
Other Key
Relationships
A supplier is a company that provides parts or
services to another company. Intel is Dell’s primary
suppler for computer chips, for example.
Firms partner with other companies to make their
business models work. An entrepreneur’s ability to
launch a firm that achieves a competitive
advantage may hinge as much on the skills of the
partners as on the skills within the firm itself.

27. The Most Common Types of Business Partnerships

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30. The Open Handset Alliance (OHA) is a consortium of 84 firms to
develop open standards for mobile devices. The OHA was established on
5 November 2007, led by Google. OHA members are contractually
forbidden from producing devices that are based on incompatible forks
of Android.
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31. Customer Interface
 Customer Interface
 The way a firm interacts with its customer hinges on how it
chooses to compete.
 For example, Amazon.com sells books over the Internet
while Barnes & Noble sells through its traditional
bookstores and online.
 The three elements of a company’s customer interface are:
 Target customer.
 Fulfillment and support.
 Pricing model.

32. Customer Interface
Primary Elements of Customer Interface
Target
Market
Fulfillment
and Support
A firm’s target market is the limited group of
individuals or businesses that it goes after or tries to
appeal to.
Fulfillment and support describes the way a firm’s
product or service reaches it customers. It also refers
to the channels a company uses and what level of
customer support it provides.

33. Customer Interface
Primary Elements of Customer Interface
Pricing
Structure
The third element of a company’s customer
interface is its pricing structure. Pricing models
vary, depending on a firm’s target market and its
pricing philosophy.

34.  Walk into a trendy Soho boutique in New York City and you
might see high-fashion T-shirts selling for $250. Go into an
H&M clothing store and you can see a version of the same style
for $25.
 Hennes & Mauritz (H&M) is a Swedish multinational retail-
clothing company, known for its fast-fashion clothing for men,
women, teenagers and children.
 H&M exists in 57 countries with over 3,500 stores and as of
2015 employed around 132,000 people. The first store was
opened on the high street of Västerås, Sweden in 1947.
"Our business concept is to give the customer
unbeatable value by offering fashion and
quality at the best price,"

35.  It is ranked the second largest global clothing retailer, just
behind Spain-based Inditex (parent company of ZARA), and
leads over third largest global clothing retailer, United States
based GAP Inc.
 The reason H&M has reached this point while so many other
stores—is that the company has a clear mission and the creative
marketing strategies and concrete plans with which to carry it
out. H&M is able to put products out quickly and inexpensively
by:
 having few middlemen, owning no factories and buying
large volumes
 having a great knowledge of which goods should be bought
from which markets
 having efficient distribution systems
 being cost-conscious at every stage

36. Recap: The Importance of Business Models
 Business Models
 It is very useful for a new venture to look at itself in a holistic
manner and understand that it must construct an effective
“business model” to be successful.
 Everyone that does business with a firm, from its customers to
its partners, does so on a voluntary basis. As a result, a firm
must motivate its customers and its partners to play along.
 Close attention to each of the primary elements of a firm’s
business model is essential for a new venture’s success.

37. Disintermediation Business Model
 Disintermediation is the
removal of intermediaries in a
supply chain, or "cutting out
the middleman". Instead of
going through traditional
distribution channels, which
had some type of intermediate,
companies may now deal with
customers directly. One
important factor is a drop in
the cost of servicing customers
directly.
Types of Business Model

38. Dell’s Business Model
•Almost all firms partner with
others to make their business
models work.
• In Dell’s case, it needs the
cooperation of its suppliers,
customers, and many others to
make its business model
possible.

39. Bricks and Mortar Business Model
 Bricks and mortar: “Traditional”
organizations that have physical
operations and locations and don’t
provide their services exclusively
through the Internet.
Bricks and Clicks Business Model
Bricks and clicks: Organizations that have
hybrid operations. Also known as click and
mortar
Pure play: Firms with no stores, providing their services
exclusively through the Internet.
Pure Play Business Model

40. Bait and Hook Model
 The bait and hook business model
(also called razor and blades
business model) is founded on the
premise that a company can
stimulate consumer excitement and
interest by giving away freebies, or
offering a basic product or service
at a very low price (the bait), and
then taking profit on recurrent sales
of refills or associated products or
services (the hook).

41. Subscription Business Model
 The subscription business model is
a business model where a customer
must pay a subscription price to have
access to the product/service. The
model was pioneered
bymagazines and newspapers, but is
now used by many businesses and
websites.
 Freemium is a pricing strategy by
which a product or service is
provided free of charge,
but money (premium) is charged
for advanced features or functionality.

42.  Franchising is the practice of selling
the right to use a firm's successful
business model.
 the franchise is an alternative to
building "chain stores" to distribute
goods that avoids the investments and
liability of a chain..
 A parent company allows
entrepreneurs to use the company's
strategies and trademarks; in
exchange, the franchisee pays an
initial fee and royalties based on
revenues.
Franchising
The parent
company also
provides the
franchisee with
support, including
advertising and
training, as part of
the franchising
agreement.

43. Brokerage Business Model
 The brokerage business model is used by companies
that act as third parties or "middle men" between the
seller and the purchaser of the product. This model
is actively used in the real estate business, stock
market trading and business-to-business trading like
mergers and acquisitions.
Manufacturer/Merchant Model
 This is one of the oldest and most common business models
in existence. In this model, a manufacturer simply sells the
goods he creates directly to consumers or sells them to a
merchant who then offers them to consumers for a slightly
higher price, thereby collecting a profit.

44. Category Killer
 A product, service, brand, or company etc.,
that dominates a merchandise or service category
and has almost no competition.these have such a
distinct sustainable competitive advantage
through their business model that competing firms
find it almost impossible to operate profitably in
that industry (or in the same local area).

45. Business Model Innovation
When the game gets tough, change the game.
 Business model innovation (BMI) refers to a
business's attempt to reinvent itself in order to
obtain a competitive edge and stimulate company
growth.

47. Business Model Innovation
Netflix is an example of
a business model
innovator.

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