FAMILY & SMALL BUSINESS

ENTREPRENEURS
Chapter 6
Dr Nur Kamarul Hafiz bin Jamil
Faculty of Business and Accountancy
Lincoln University College
 START-UP:
DEVELOPING THE BUSINESS MODEL
• Bringing your idea to life
• New venture creation framework
• Lean start-up
• Identifying your market segments
• Defining your value proposition
• Tailoring your marketing mix
• Linking features and benefits with marketing mix
• Channels of distribution
• Understanding customer and consumer benefits
• Generic business models
• Niche business models
 Bringing Ideas to Life
• Simon (1969):
 Principles of
Integrated Business Model
New Venture Creation
Framework Business
Model
 Lean Start-up
The Lean Start-Up methodology, popularized by Eric Ries, offers a systematic approach to mitigating risks associated with launching
new products or services, particularly in the context of radical innovations. Here's how it works and its implications for startups:
1. Incremental Development:
• The Lean Start-Up methodology advocates for an incremental approach to product development, involving continuous cycles of planning,
experimentation, implementation, and evaluation.
• Rather than aiming for a fully finished product from the outset, startups focus on creating a "minimum viable product" (MVP) with just enough
features to satisfy early customers.
2. Market Testing and Customer Feedback:
• Startups conduct limited market testing of the MVP to gather feedback from early adopters and validate assumptions about customer needs
and preferences.
• Customer feedback is used iteratively to refine and tailor the product or service to better meet the specific needs of customers, a process
referred to as "validated learning."
3. Continuous Iteration:
• The Lean Start-Up process is a continuous cycle of experimentation and iteration, where each iteration builds upon the insights gained from
previous tests and feedback.
• Startups use this iterative approach to adapt and pivot their strategies as they learn more about their target market and refine their product or
service offering.
4. Risk Mitigation and Cost Reduction:
• By focusing on incremental development and market testing, the Lean Start-Up methodology helps startups mitigate risks associated with new
product launches.
• Startups can minimize costs by avoiding investments in features or services that customers do not value, thereby maximizing the efficient
allocation of resources.
 Lean Start-Up
Challenges and Considerations:
1. Determining when the MVP is sufficiently ready to launch can be a
challenging decision for startups. Launching an underdeveloped MVP may
risk customer rejection and damage brand reputation, while waiting too long
to launch may result in missed opportunities.
2. The applicability of the Lean Start-Up approach may vary depending on the
nature of the product or service. While it works well for software and web-
based product development, high-investment or disruptive innovations may
require a more refined and polished product from the outset.
 Identifying Your Market Segment
(Target Customers)
1.Market Segmentation:
• Market segmentation involves dividing the market into distinct groups of customers
with similar needs, characteristics, or behaviors. These groups are known as market
segments.
• Startups should focus their resources on two or three clearly defined, important, and
sizable market segments, which constitute their Served Available Market (SAM)
within the broader Total Available Market (TAM).
2.Value Proposition Alignment:
• Startups need to have a clear understanding of their target customers and the value
proposition they offer to them. This proposition should address the real needs or
problems of the target customers and differentiate from competitors.
• Aligning the value proposition to specific customer segments involves judgment, as
both the proposition and the target customers can be adjusted to some extent.
 Identifying Your Market Segment
(Target Customers)
1.Segmenting Criteria:
• Market segments can be defined based on various criteria, including
demographics (age, gender, income), geographic location, psychographics
(lifestyle, values), behavior (purchase habits, usage patterns), or business
characteristics (sector, size, technology usage).
2.Identifying Gaps in the Market:
• The goal of market segmentation is to identify gaps in the market where the
needs of a particular segment are not being adequately met. Startups should
aim to target segments with significant unmet needs or where existing
solutions are suboptimal.
 Identifying Your Market Segment
(Target Customers)
1.Viability of Segments:
• Each market segment targeted by the startup should meet certain criteria to
be considered viable. These include being distinctive with significantly
different needs, being commercially attractive in size or willingness to pay,
being accessible through communication or distribution channels, and being
defendable from competitors.
2.Segment Size and Customer Satisfaction:
• Market segments vary in size, and startups need to balance customer
satisfaction with cost considerations. While slim market segments may offer
higher customer satisfaction, they also entail higher costs and prices.
• Targeting multiple segments can help spread the risk associated with
overdependence on a single segment and diversify the customer base.
 Defining Your Value Proposition
• Defining the value proposition is essential for any business, as it
articulates the tangible benefits customers receive from purchasing a
product or service.
• The value proposition is a statement that communicates the specific
benefits a customer gains from buying a product or service. It focuses
on the problems or needs the offering solves for the customer.
• Differentiation:
• A compelling value proposition differentiates a company from its competitors
and clarifies why customers should choose one company over another. It
highlights the unique benefits or advantages offered by the product or
service.
 Defining Your Value Proposition
1.Customer-Centric Approach:
1. Understanding the needs and desires of customers is crucial in defining the value
proposition. Companies should align their offerings with the benefits that customers value
most.
2.Features vs. Benefits:
1. While features describe the characteristics or attributes of a product or service, benefits
explain how those features fulfill the needs or desires of the customer.
2. For example, a car's features may include horsepower and fuel efficiency, but the benefits
could be faster travel times, cost savings on fuel, and environmental friendliness.
3.Service Orientation:
1. In many industries, including manufacturing, the focus is shifting from selling products to
providing services. Companies should understand the service customers seek and how their
offerings deliver value in the form of services.
4.Customer-Centric Thinking:
1. Effective value propositions start with an understanding of customer needs and desires. By
focusing on the benefits customers seek, businesses can tailor their offerings to meet those
needs effectively.
 A Value Proposition
Should State Four Things:
Tailoring Your Marketing Mix
 Linking Features and
Benefits of Marketing Mix
The marketing mix, often referred to as the "Five Ps," encompasses the key elements that businesses use to
create and deliver value to customers. Here's an overview of each element:
1. Product/Service:
• This includes the functional specifications, design, and features of the product or service being offered. It forms the core of
the marketing mix and should align with the needs and preferences of the target market.
2. Price:
• The pricing strategy determines how much customers will pay for the product or service. Pricing decisions should consider
factors such as production costs, competitor pricing, and perceived value by customers.
3. Promotion:
• Promotion involves the communication of the product or service to the target market. This includes advertising, sales
promotions, public relations, and other promotional activities aimed at creating awareness and generating demand.
4. Place (Distribution):
• Place refers to the distribution channels and locations where customers can purchase the product or service. It involves
decisions about the most effective ways to make the offering available to customers, whether through physical stores, online
platforms, or other channels.
5. People (Related Service):
• People represent the personnel involved in delivering the product or service to customers. This includes customer service
representatives, sales staff, and other employees who interact with customers. The quality of customer service can
significantly impact the overall customer experience.
 Linking Features &
Benefits of Marketing Mix
• Each element of the marketing mix works together to deliver the
value proposition to customers. While individual elements may not be
unique, the combination of these elements can create a unique and
compelling offering that sets the business apart from competitors. It's
essential for businesses to ensure that each element of the marketing
mix is consistent with the overall value proposition and supports the
company's marketing objectives.
 Linking Features &
Benefits of Marketing Mix
• For startups, the founding entrepreneur often plays a central role in
shaping the marketing mix, especially in the early stages when
resources may be limited. Building strong personal relationships with
customers, leveraging personal networks, and delivering exceptional
customer service can be effective strategies for startups to
differentiate themselves and create value for customers. Additionally,
startups can focus on creating a unique combination of marketing mix
elements that resonates with their target market and reinforces their
value proposition. This can help them establish a distinctive brand
and enhance their competitive position in the market.
 Understanding Customers
& Consumer Benefits
Understanding customers and consumers involves recognizing that not all products serve
the same purpose for every individual. For instance, a pen may be purchased by a
customer as a gift for the ultimate consumer. In this scenario, the value proposition and
marketing strategy may differ significantly compared to pens bought for personal use.
Here's how the considerations for both customers and consumers can vary:
1.Customer Perspective:
• Customers purchasing gift pens are seeking a product that conveys prestige and value to the recipient.
• They are willing to spend a higher price for a product that reflects positively on the recipient and enhances
their relationship.
• The marketing strategy for gift pens may focus more on differentiation and prestige rather than affordability.
2.Consumer Perspective:
• Consumers receiving the gift pens expect functionality, quality, and elegant design.
• They may value the prestige associated with the brand and the message conveyed by the gift.
• While functionality is essential, the symbolic value and emotional significance of the gift are equally
important.
 Understanding Customers
& Consumer Benefits
In this context, the marketing mix for gift pens must cater to the desires and
expectations of both the customer and the consumer. Key elements of the
marketing mix may include:

• Product: Gift pens should be well-crafted, high-quality, and elegantly designed to

appeal to the consumer's sense of prestige.
• Price: Customers may be willing to pay a higher price for a prestigious gift,
reflecting the perceived value of the product.
• Promotion: Advertising and promotion should emphasize the symbolic value and
emotional significance of the gift, particularly during gift-giving occasions.
• Place: Gift pens may be sold in specialty gift shops or department stores, with a
focus on creating an exclusive and luxurious shopping experience.
• People: Sales staff should be knowledgeable about the product and able to assist
customers in selecting the perfect gift.
 Channels of Distribution
Channels of distribution are crucial considerations for any business, regardless of
whether it sells physical goods or virtual products/services. These channels extend
a firm's market reach, but each link in the distribution chain seeks benefits, with
profit typically being the most important element. Here's an overview of key points
related to distribution channels:
1.Influencing Distribution Channels:
• A firm doesn't directly control distribution channels but influences them, often through
financial incentives.
• Selling directly to customers may yield higher revenues but also entails higher costs, such as
maintaining a sales force or developing online sales platforms.
2.Distribution Channels for Physical Products:
• Channels for physical consumer products may include retailers, wholesalers, and agents,
while business-to-business products may involve direct sales or sales through intermediaries.
• Each distribution channel adds costs to the business model, impacting profit margins.
 Channels of Distribution
1.Distribution Channels for Web or Mobile Products:
• Web or mobile products may be sold through a firm's website, app stores, or via referrals.
• Costs are associated with each channel, affecting overall profitability.
2.Multi-sided Markets:
• Many products/services sell through multiple distribution channels, each with its profit margin.
• While multi-sided markets may increase sales revenue, every link in the distribution chain adds
costs to the business model.
3.Incentivizing Distribution:
• Distributors need incentives to stock products/services, often in the form of profit margins or
initial discounts.
• Demand-pull and supply-push strategies influence distribution by creating customer demand or
offering incentives to distributors.
4.Supply-Push Strategy:
• Supply-push strategies involve influencing distributors through incentives or promotional
activities.
• Launch strategies should coordinate push and pull incentives to ensure consistency with the
overall marketing strategy.
Generic Business Model
Generic Business Model
 Niche Business Model
The niche business model offers significant potential for success, particularly when based on high differentiation within a focused
target market. Here are some key points about the niche business model:
1. High Differentiation:
• The niche business model relies on offering unique and differentiated products/services that stand out from competitors.
• This differentiation allows the firm to charge higher prices and compete effectively against rivals.
2. Market Focus:
• Niche businesses deeply understand the needs of a relatively small customer base, allowing for tailored offerings.
• Focusing on smaller markets reduces competition, especially for start-ups with limited resources.
3. Limited Competition:
• By targeting a niche market, start-ups may face fewer competitors, at least initially, enhancing their chances of success.
4. Global Reach:
• The internet enables niche businesses to sell to a global audience, expanding their market potential beyond geographical boundaries.
5. Trade-off Between Price and Value:
• There's often a trade-off between price and other elements of the marketing mix.
• Strong differentiation in other areas allows for higher pricing, reflecting the value offered to customers.
6. Example of Successful Niche Strategy:
• A small firm producing motor components shifted from competing on price to focusing on high technical specifications and quality.
• By offering specialized, high-quality products at higher prices, it carved out a niche in the market and built strong relationships with customers.