Chapter 6

1. Entrepreneurship: Successfully Launching New Ventures, 2/e Bruce R. Barringer R. Duane Ireland Chapter 6

2. Case Study • International food delivery franchise - delivers foods from Malaysian top restaurants to homes and offices within one hour. • Launched in 2003 - has partnership with 95 restaurants in delivering food to customers in Klang Valley and Penang. • Provides convenient service to over 21,000 customers with a monthly turnover of approximately RM 300,000.

3. Caters to over 200 blue chip companies for office luncheon, training and board meetings. • Cater to a majority of the middle income bracket, heads of corporations, high income individuals and even ministers.

4. In summary: • Allows the customers to order favorite food from favorite takeaway or restaurant. • Delivers foods to the customers’ home or office within one hour. • Guarantees menu prices as same as takeaways and restaurants. • Sets a minimum order of RM 20 and delivery charge of RM 10 regardless of the order size.

5. 1. What is a Business Model? • A model is a plan or diagram used to make or describe something. • Business model – on the basis of generating profits. • how it competes • uses resources • structures relationships • interfaces with customers • creates value to sustain

6. Easy to understand. • No standard. • Term “business model” is used to include all activities - define how a company participates in a marketplace– • To generate RM

7. Dell’s Business Model Important – takes beyond its own boundaries. Almost all companies partner with others to make business models work. In Dell’s case - needs cooperation - suppliers, shippers, customers and many others

8. Can vary substantially from other companies in the same industry. • Dell is one of the best examples of both a good story and an excellent business model. • Didn’t need plants and equipment to build the components. • Eliminated most of costs and risks associated with carrying inventories of finished goods. • Products were sold before made. • Customers got exactly computer they wanted - with latest technology.

10. Timing? • During feasibility analysis stage • Before writing a business plan • Before you decide for your new venture

11. After feasibility analysis was conducted - knows a product or service with potential - business model addresses how to surround it with: • A core strategy • A partnership network • A customer interface • Distinctive resources • An approach to create value - represents a viable business.

12. 2. Importance of a Business Model • Serves as an ongoing extension of feasibility analysis. A business model continually asks the question: • “Does this business make sense?” • Focuses attention on how all the elements of a business fit together and constitute a working whole. • Describes why network of participants needed to make a business idea viable are willing to work together. • Articulates a company’s core logic to all stakeholders, including the company’s employees. • Show differentiation between your business model and competitors.

13. 3. How Business Models Emerge • Value chain is a model developed by an academic researcher - many businesses and entrepreneurs use to identify opportunities and enhance their competitive strategies. • Is string of activities - moves a product from the raw material stage, through manufacturing and distribution, and ultimately to the end user. • E.g. Hewlett Packard

14. By studying a product 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 - helpful in identifying opportunities for new businesses and in understanding how business models emerge.

15. Inbound logistics: involves a company relationship with its suppliers Operations: involves all activities required to manufacture a product Outbound logistics: involves all activities required to store and ship a finished product

16. Entrepreneurs look at value chain to pinpoint where it 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 of the value chain (e.g marketing and sales) • interface between one stage of the value chain and another (interface between operations and outbound logistics) or • one of support activities (human resource management).

17. 4. Potential Fatal Flaws • Two fatal flaws: • A complete misread of the customer needs. • Utterly unsound economics. • Pets.com • Convenient for customers to have pet food delivered to their homes • Orders took several days to arrive • Failed to realize - fast delivery was essential Pets.com sported an unsound business model, and failed.

18. 5. Components of a Business Model Four Components

19. a. Core Strategy • Describes how a company competes relative to its competitors. • Primary Elements of Core Strategy • Mission statement. • Product/market scope. E.g. Anti-aging serum with stem cell for Muslim market segments • Basis for differentiation. E.g. Halal + Affiliate + Free Delivery

20. Why it exists and what its business model is supposed to accomplish. E.g. “To produce a high quality ‘halal’ age reviving serum delivered free to our customers and offer a rewarding commission to our distributors" Business Mission Defines products and markets on which it will focus. because choice of products has an important impact – add values – bottom line Product / Market Scope

21. Differentiate from competitors is IMPORTANT to its customers and NOT EASY TO COPY. If a new company’s products or services aren’t different from those of its competitors, why should anyone try them? Differentiate - cost leadership strategy or a differentiation strategy. E.g ‘Halal’, affiliate, free delivery Basis of Differentiation

22. b. Strategic Resources • Not able to implement a strategy without adequate resources • Has affect its business model substantially. • For a new venture, its strategic resources • competencies of its founders • opportunity identified and • unique way to serve the market.

23. Unique skill / capability - exceeds products / markets • makes a significant contribution to the customer’s perceived benefits.

24. Two Important Strategic Resources A resource or capability - serves as a source of a company’s competitive advantage E.g. capitalising budget marketing to sell age reversing product Core Competencies Anything rare and valuable a company owns - plant and equipment, location, brands, patents, customer data, a highly qualified staff, and distinctive partnerships. E.g. Smart partnership with a contract manufacturer - natural based, ‘Halal’, hygienic and affordable, ‘passionate’ management team Strategic Assets

25. New ventures - combine core competencies and strategic assets to create a sustainable competitive advantage. • This factor - one that investors pay close attention to when evaluating a business. • A sustainable competitive advantage is achieved by implementing a value-creating strategy - unique and not easy to imitate. • E.g online recurring system

26. c. Partnership Network • New ventures - do not have the resources to perform key roles. • Does not do everything because majority of tasks needed to build a product or deliver a service are not core to a company’s competitive advantage. • A company’s partnership network includes: • Suppliers and other partners.

27. A supplier (vendor) is a company provides parts or services to another company. Mibelle Biochemistry – a primary supplier for stem-cell apply technology. Collaborative relationships with suppliers and finding ways to motivate them to perform at higher levels. Suppliers Along with suppliers, companies partner with other companies to make business models work. E.g Online social media experts, JAKIM An entrepreneur’s ability to launch a company achieves a sustainable competitive advantage may rely on partners’ skills and expertise. Other Key Relationships

28. Most Common Types of Business Partnerships

29. d. Customer Interface • The way a company interacts with its customers indicates on how it chooses to compete. • E.g. Amazon.com sells books over the Internet while Barnes & Noble sells through its traditional bookstores and online. • Dell sells strictly online while HP sells through retail stores. • Three elements: • Target customer, Fulfillment and support, and Pricing model.

30. Limited group of individuals or businesses that it goes after or tries to appeal to. Will affect everything it does, from the strategic assets it acquires to the partnerships it forges to its promotional campaigns. Target Market Describes the way a company’s product or service “goes to market” or how it reaches its customers. Also, channels a company uses and what level of customer support it provides. These issues impact shape and nature of a company’s business model. Fulfillment and Support

31. Pricing models vary, depending on a company’s target market and its pricing philosophy. Daily flat rate, flat fee per service, and hourly rate. Value-based, cost-based Pricing Structure

32. Recap: The Importance of Business Models • Very useful - to look at itself in a holistic manner • Must construct an effective “business model” • Everyone, from its customers to its partners - on a voluntary basis. • Must motivate its customers and its partners. • Close attention to each of the primary elements of a company’s business model is essential for a new venture’s success.

33. Revision