slide1 n.
Skip this Video
Loading SlideShow in 5 Seconds..
Download Presentation

Loading in 2 Seconds...

play fullscreen
1 / 27


  • Uploaded on

4. DEVELOPING AND TESTING A BUSINESS MODEL. Learning Objectives. Explain what a business model is and what it accomplishes. Discuss the process for developing a business model. Explore the testing of a business model through feasibility analysis. The Business Model.

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
learning objectives
Learning Objectives
  • Explain what a business model is and what it accomplishes.
  • Discuss the process for developing a business model.
  • Explore the testing of a business model through feasibility analysis.
the business model
The Business Model
  • Peter Drucker’s 5 questions form the basis for development of the business model:
    • What is our mission?
    • Who is our customer?
    • What does our customer value?
    • What are our results?
    • What is our plan?
why business models fail
Why Business Models Fail
  • Flawed logic
  • Limited strategic choices
  • Imperfect value creation and capture assumptions
  • Incorrect assumptions about the value chain
developing a concept for a new business
Developing a Concept for a New Business
  • A business concept is a concise description of an opportunity that contains four essential elements:
    • The customer definition
    • The value proposition
    • The product/service
    • The distribution channel
the value proposition
The Value Proposition
  • The benefit that the customer derives from the product or service
    • It is often intangible.
  • Entrepreneur needs to identify the need or “pain” the customer is experiencing
the customer definition
The Customer Definition
  • The customer is the one who pays for the solution.
    • This may or may not be the end user of the product or service being offered
  • The customer determines all the other components:
    • What the entrepreneur will offer
    • What the value proposition is
    • How the benefit will be delivered to the customer
the solution being offered
The Solution Being Offered
  • A solution to the problem the customer is facing
    • Most businesses produce both products and services.
the distribution channel
The Distribution Channel
  • How do you deliver the benefit to the customer?
  • Must create a clear and concise concept statement (or “elevator pitch”)
    • Not difficult but requires ability to parse words
the entrepreneur s story
The Entrepreneur's Story
  • A compelling story has a beginning, middle, and end.
    • How they identified or created the opportunity
    • Challenges they overcame
    • Where they are now
building a business model
Building a Business Model
  • What are the size and importance of the revenue streams that the business model can generate?
  • What costs most affect the model, and what is their size and importance to the model? In other words, what are the cost drivers for the business?
  • How much capital is required to execute the business model and what is the timing of the cash needs?
  • What are the critical success factors to achieving the goals of the business model?
building a business model cont d
Building a Business Model (cont’d)
  • Changes may occur in several ways:
    • Incrementally expand the existing model
    • Revitalize an established model
    • Take an existing model into new areas
    • Add new models via acquisition
    • Use existing core competencies to build new business models
    • Reinvent the business model
building a business model stages
Building a Business Model—Stages
  • Stage 1: Identify position in value chain
    • The value chain consists of all the companies that contribute to the development and distribution of a good.
    • Upstream is the top of the value chain and upstream from manufacturers (e.g. supplier/producer of raw materials).
    • Downstream refers to the intermediaries such as distribution and retailers, and are “downstream” from the manufacturers and assemblers.
    • Location of the company within the value chain normally reflects the entrepreneur’s capabilities and risk-taking propensity.
building a business model stages cont d
Building a Business Model—Stages (cont’d)
  • Stage 2: Calculate how to create value for the customer
    • Rely on market research
  • Stage 3: Identify revenue sources
    • Subscription or membership
    • Volume or unit-based
    • Licensing and syndication
    • Transaction fee
    • Advertising
building a business model stages cont d1
Building a Business Model—Stages (cont’d)
  • Stage 4: Determining expenses and cost drivers
    • Marketing or advertising cost structure
    • Inventory cost structure
    • Office or retail space cost structure
    • Support centered cost structure
    • Direct cost structure
building a business model stages cont d2
Building a Business Model—Stages (cont’d)
  • Stage 5: Develop the competitive strategy
    • Effective competitive strategy either:
    • Differentiates the new venture from existing ventures
    • Creates a niche in the market that other companies are not serving
    • Has access to other resources that others in the industry do not
  • Stage 6: Test the model through feasibility analysis
analyzing the feasibility of a business model
Analyzing the Feasibility of a Business Model
  • All opportunities involve uncertainty, which is characterized by varying degrees of risk.
  • Risks to be reduced are associated with:
    • Customer, size of the market, technical feasibility of the product, and ability of the founding team to successfully execute the venture
  • Risks can be identified and dealt with.
  • Uncertainty means outcomes are unknown so subjective probabilities must be applied.
feasibility and the business plan
Feasibility and the Business Plan
  • Split view amongst entrepreneurs on the value of the business plan.
  • Investors moving away from written business plans of past to brief, well-constructed executive summary or an effective pitch.
the outcomes of feasibility analysis
The Outcomes of Feasibility Analysis
    • Determination of whether the business model appears feasible
  • Entrepreneur looks at the forecasted outcomes in four ways:
    • What is the probability a change in the forecast will occur
    • What is the magnitude of the change if it occurs
    • What is the impact of the change on the business
    • What can be done to mitigate the change or reduce the impact substantially
preparing for feasibility analysis
Preparing for Feasibility Analysis
  • Three critical success factors:
    • Is there a customer and market of sufficient size to make the concept viable and able to grow?
    • Do the capital requirements to start and operate to a positive cash flow make sense?
    • Can an appropriate startup or founding team be assembled to effectively execute the concept?
the feasibility tests
The Feasibility Tests
  • Areas to be analyzed:
    • Industry and market/customer
    • Product/service
    • Founding team
    • Financial needs assessment

*Refer to Table 4.3 for a complete list of questions to be asked in each area.

quick screen for multiple options
Quick Screen for Multiple Options
  • Quick screen ideas before undertaking a thorough feasibility study on any one of the concepts:
    • Start with a concept statement
    • Examine the industry
    • Identify the market – customer & competitors
    • Identify how the product/service benefits the customer
    • Examine founding/management team capabilities
    • List all resources needed by the business
looking ahead
Looking Ahead
  • Part One: Entrepreneurial Opportunity (Ch 1-4)
  • Part Two: Feasibility Analysis
    • Chapter 5: Analyzing the Industry and Market
    • Chapter 6: Analyzing Product/Service Design and Protection
    • Chapter 7: Building the Founding Team
    • Chapter 8: Calculating Startup Capital Requirements
  • Part Three: Business Design (Ch 9-15)
  • Part Four: Planning for Growth and Change (Ch 16-18)
new venture action plan
New Venture Action Plan
  • Create a concept statement for a new venture.
  • Develop a business model for the venture.
  • Craft a story that explains the business and is compelling to others.
  • Prepare to conduct a feasibility analysis on the business model.