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BUSINESS MODELS
AND BUSINESS DESIGN
IKHLAQ SIDHU
Founding Faculty Director
Sutardja Center for Entrepreneurship & Technolo...
Quick Review
Ready to execute?
1. Your High Concept 2. Your Target 3. Match with Your Team
A B
Observe
Environment
Skills and
Background of
Team
Stories
at work
Story/Pitch
Prototype
Validation
Execution: Work Backwar...
Now Lets Filter Out Common Mistakes
1 + 1 = 3
Market Size
Why should
you care?
Total Addressable:
TAM = No. of possible customers x purchase/year x price
Served Address...
What do you think of this business?
What is an ideal business?
Answer:
A mailbox where checks simply
come in.
Every other thing adds costs and
requires manage...
Can you quantify the Value Proposition?
Value Proposition:
Cost to
Produce
per unit
Selling
Price
Next Best
Alternative
Va...
Starbucks as a Business
Value Proposition for a cappucino:
Cost to Produce
per unit = $0.50
Selling Price
= $3.00
Next Bes...
Starbucks Business Model
Product and Value
Proposition
Segment 1 / Prod. Def
Segment 2 / Prod Def.
Customer Segment 1
Cust...
Business Model Canvas
Key
Partners
Key
Activities
Value
Proposition
Customer
Relationships
Customer
segments
Key
Resources...
Real Differentiation:
According to this chart, Fonera
2.0 would be the #1 Wi-Fi Ruter
Customer
Segments &
Influencers:
Decision
Making Unit
(DMU)
Customer Acquisition Cost and
Life Time Customer Value
3 weeks
You
Possible
Customer
3 weeks 12 weeks
・・・
Google Ad to
10,...
Building Your Revenue Model
CAC
GET
LTV KEEP GROW
Marketing
PR / News
Same Customers
New Products
(Up-sell, Cross-sell)
* ...
Is your vision diverging from reality?
Imbalance: Focus of Will vs Reality
Successful entrepreneurs can balance their atte...
Summary:
How to Get a Working Business Model
• Are you trying to do too much - focus on core competence
• Poor value propo...
END OF SECTION
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BMoE 3: Business Design and Business Models

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Business models, business design, and general advice.

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BMoE 3: Business Design and Business Models

  1. 1. BUSINESS MODELS AND BUSINESS DESIGN IKHLAQ SIDHU Founding Faculty Director Sutardja Center for Entrepreneurship & Technology IEOR Emerging Area Professor Department of Industrial Engineering & Operations Research UC Berkeley
  2. 2. Quick Review Ready to execute? 1. Your High Concept 2. Your Target 3. Match with Your Team A B
  3. 3. Observe Environment Skills and Background of Team Stories at work Story/Pitch Prototype Validation Execution: Work Backwards Sell First/ Build Later Market Traction Funding Scale/ Goal Business Model Forming Learning the Sales Cycle Business Model Clear Sales Process Clear Mindshare Awareness / PR Story / Brand
  4. 4. Now Lets Filter Out Common Mistakes 1 + 1 = 3
  5. 5. Market Size Why should you care? Total Addressable: TAM = No. of possible customers x purchase/year x price Served Addressable: SAM = TAM x fraction that would buy based on your primary market research Target Market: Who can you afford to sell to this year (your plan) For VCs: TAM > $1 Billion Suppose 20% adopt and your market share is 10% TAM = $50M ➡ Revenue = $1M (personal business with 5 employees) TAM = $1B ➡ Revenue = $20M
  6. 6. What do you think of this business?
  7. 7. What is an ideal business? Answer: A mailbox where checks simply come in. Every other thing adds costs and requires management. (Minimum Visible Business, not just MVP)
  8. 8. Can you quantify the Value Proposition? Value Proposition: Cost to Produce per unit Selling Price Next Best Alternative Value Captured Value Created • Quantitative (above) • Qualitative: a few words on why people will buy/adopt • Wider means more room for error
  9. 9. Starbucks as a Business Value Proposition for a cappucino: Cost to Produce per unit = $0.50 Selling Price = $3.00 Next Best Alternative = 5.00…? Value Captured = $2.50 Value Created And if this is the value proposition, what is the business model? Needs served: coffee, quality, addiction, convenience, social status…
  10. 10. Starbucks Business Model Product and Value Proposition Segment 1 / Prod. Def Segment 2 / Prod Def. Customer Segment 1 Customer Segment 2 Supplier Key Activities Cost Structures & Financial Model, Payment Streams Pricing Strategy & Revenue Streams Needed Resources Key Partners Customer Relationships, Communications Channels, Distribution, Fulfilment • Store / rent / furniture • Bakery supplier • Cups, coffee • Free Wi-Fi • Mobile application • Advertising 1. Many costs that are not charged 2. How would you make money 3. Does it hold water? 4. Business model’s change 12 3 4 5 6 7 8 9 10
  11. 11. Business Model Canvas Key Partners Key Activities Value Proposition Customer Relationships Customer segments Key Resources Channels Cost Structure Revenue Streams ?
  12. 12. Real Differentiation: According to this chart, Fonera 2.0 would be the #1 Wi-Fi Ruter
  13. 13. Customer Segments & Influencers: Decision Making Unit (DMU)
  14. 14. Customer Acquisition Cost and Life Time Customer Value 3 weeks You Possible Customer 3 weeks 12 weeks ・・・ Google Ad to 10,000 people $1000 Send 100 emails with YouTube link $1000 3 live meetings / customer $30,000 100 request more information 10 request sales call / trail 1 sale of $50,000 Rev = $50,000 COGS = $20,000 CAC = $32,000 Loss = $2,000 Sales Cycle = 18 weeks
  15. 15. Building Your Revenue Model CAC GET LTV KEEP GROW Marketing PR / News Same Customers New Products (Up-sell, Cross-sell) * Viral * Loyalty Program * Reference
  16. 16. Is your vision diverging from reality? Imbalance: Focus of Will vs Reality Successful entrepreneurs can balance their attention between execution and observing the environment Stories at work Story/Pitch Prototype Validation Information from industry news, environment, context Path of Execution
  17. 17. Summary: How to Get a Working Business Model • Are you trying to do too much - focus on core competence • Poor value proposition • Market too small • You are not really listening • No ability to differentiate and pull away • Who can do it better, you or them • Customers and DMUs • Marketing and sales - it’s not magic • Imbalance: focus of will vs reality
  18. 18. END OF SECTION

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