Module 3: Business Models and Value Propositions

The Business Model Canvas is a strategic management tool that helps

entrepreneurs and business professionals visualize, design, and analyze the key
components of a business model. It was developed by Alexander Osterwalder and Yves
Pigneur and is widely used to create a concise and clear representation of how a business
creates, delivers, and captures value.
The canvas consists of nine essential building blocks, and I'll discuss each of them
below with examples and references:
1. Customer Segments: This block defines the different groups of people or
organizations that the business aims to serve. These segments can be based on
various characteristics such as demographics, psychographics, geography, or
behavior. For instance, Netflix initially targeted tech-savvy early adopters and
movie enthusiasts as their customer segment.
2. Value Proposition: This component outlines the unique value that the business
offers to its customers. It explains why customers should choose your product or
service over alternatives. For instance, Apple's value proposition for the iPhone
includes sleek design, user-friendly interface, and a robust app ecosystem.
3. Channels: These are the distribution and communication channels through which
the business reaches its customers. Examples include online sales, retail stores,
direct sales teams, or partnerships. Amazon uses a combination of an online
marketplace, Prime subscription, and physical stores (e.g., Whole Foods) as its
channels.
4. Customer Relationships: This block describes the type of relationships a
business establishes with its customers. This can range from personal assistance
and dedicated support to automated self-service. For instance, a premium airline
might offer personalized service to its first-class passengers.
5. Revenue Streams: They represent the various sources from which a business
generates income. These streams can come from different customer segments,
products, or services. It's important to identify and diversify revenue streams to
mitigate risks and increase financial stability.
Examples of Revenue Streams:
 Product Sales: Revenue generated from selling physical or digital
products, such as smartphones, software licenses, or clothing.
 Subscription Fees: Recurring revenue from subscription-based models,
like Netflix's monthly subscription fees.
 Advertising Revenue: Income generated from displaying ads, as seen on
platforms like Google and Facebook.
ENT101 Startup Essentials
Asst. Prof. Charlou A. Bautista, MBA, CFMP
  Licensing and Royalties: Earnings from licensing intellectual property or
receiving royalties for using patented technology.
 Service Fees: Revenue from providing services, such as consulting,
maintenance, or professional services.
Diversifying revenue streams can help businesses reduce dependency on
a single source of income and increase their overall financial stability.
A classic example is Google, which generates a significant portion of its
revenue through advertising on its search engine.
6. Key Resources: These are the crucial assets and resources required to deliver
the value proposition. This can include physical assets like machinery, intellectual
property, or human resources. Tesla, for example, relies on advanced battery
technology and a network of charging stations as key resources.
Examples of Key Resources:
 Physical Resources: Manufacturing facilities, machinery, inventory, and
distribution centers.
 Intellectual Property: Patents, trademarks, copyrights, and proprietary
software.
 Human Resources: Skilled employees, management team, and knowledge
workers.
 Financial Resources: Capital, funding, loans, and financial partnerships.
7. Key Activities: This component outlines the essential activities the business must
perform to deliver its value proposition effectively. For a company like Uber, key
activities include app development, driver recruitment, and fleet management.
8. Key Partnerships: Businesses often need strategic partnerships to leverage
external resources and capabilities. This block identifies the key partners and
describes the nature of these collaborations. An example is the partnership
between Starbucks and Nestlé to distribute Starbucks' coffee products in stores
worldwide.
9. Cost Structure: This block delineates the costs associated with operating the
business. It includes both fixed and variable costs, as well as economies of scale.
For instance, a low-cost airline like Southwest Airlines focuses on minimizing costs
through efficient operations and point-to-point routes.
Examples of Costs:
 Fixed Costs: Expenses that remain relatively constant regardless of the level
of production or sales, such as rent, salaries, insurance, and depreciation.

ENT101 Startup Essentials

Asst. Prof. Charlou A. Bautista, MBA, CFMP
  Variable Costs: Expenses that fluctuate based on production or sales volume,
such as raw materials, packaging, and shipping.
 Operating Costs: Costs associated with day-to-day operations, including
utilities, marketing, and office supplies.
 Research and Development (R&D): Investment in innovation and product
development.
 Marketing and Advertising Costs: Expenses related to promoting products
or services.
Analyzing the cost structure helps businesses identify opportunities for cost
reduction, efficiency improvements, and overall financial sustainability.
Revenue Streams, Cost Structure, and Key Resources are interconnected
components of a business model. Optimizing revenue streams while managing costs and
leveraging key resources effectively are key strategies for building a sustainable and
profitable business. Businesses should continuously monitor and adjust these
components to adapt to changing market conditions and maximize their overall success.
The Business Model Canvas Template by Strategyzer

ENT101 Startup Essentials

Asst. Prof. Charlou A. Bautista, MBA, CFMP
 Business Model Canvas for a Manufacturing Company

Source: https://www.slideteam.net
These nine building blocks interact and influence each other, and they collectively
define the business model of a company. The Business Model Canvas is a versatile tool
for entrepreneurs to map out their business plans, identify areas for innovation, and
communicate their strategy to stakeholders. It can also be adapted and customized to fit
various industries and business types.

ENT101 Startup Essentials

Asst. Prof. Charlou A. Bautista, MBA, CFMP
DEFINING CUSTOMER SEGMENTS AND VALUE PROPOSITION
TAM, SAM, and SOM are acronyms used in market analysis to understand the
potential size of a market. They help businesses evaluate the opportunity and make
strategic decisions. Here's what each acronym stands for:

Source: https://medium.com/lumiitgroup/market-analysis-for-startups
TAM (Total Addressable Market):
 TAM represents the total or maximum market demand for a product or service. It
includes all potential customers or users who could benefit from or have a need
for what your business offers.
 TAM is often used to define the overall market size without taking into
consideration any limitations or constraints. It represents the "big picture" of the
market opportunity.

ENT101 Startup Essentials

Asst. Prof. Charlou A. Bautista, MBA, CFMP
  TAM is typically expressed in terms of revenue, units sold, or other relevant
metrics.
 Businesses use TAM to understand the upper limit of their market opportunity,
which can be valuable for setting long-term goals and assessing the overall
attractiveness of an industry.
Example: If you are developing a new mobile app for language learning, the TAM would
include everyone in the world who wants to learn a new language through a mobile app.
SAM (Serviceable Addressable Market):
 SAM is a subset of the TAM and represents the portion of the market that your
business can realistically serve or target given your resources, capabilities, and
strategic focus.
 SAM takes into consideration factors like geographical limitations, market
segmentation, and specific customer characteristics.
 It helps businesses identify their more immediate or accessible market opportunity
and is often used for short to mid-term planning.
Example: If your language learning app only supports English-speaking users and targets
people aged 18-35, your SAM would include only those individuals who fit these criteria
and have access to your app.
SOM (Share of Market):
 SOM is the portion of the SAM that your business expects to capture or achieve.
It represents the market share or percentage of the SAM that you aim to serve
within a specific timeframe.
 SOM is a strategic goal that businesses set for themselves. It helps define their
aspirations and what they believe is achievable based on their marketing and
operational efforts.
 By setting a SOM target, businesses can measure their progress and success in
penetrating the market.
Example: If, based on your resources and marketing strategy, you aim to capture 10% of
the SAM for your language learning app within the first year, your SOM goal is 10% of the
SAM.
In summary, TAM, SAM, and SOM are essential concepts for market analysis and
strategic planning. They help businesses assess the size of their potential market, focus
their efforts on reachable segments, and set achievable market share goals. These
concepts are particularly valuable when developing business plans, seeking investment,
or making decisions about market entry and growth strategies.
ENT101 Startup Essentials
Asst. Prof. Charlou A. Bautista, MBA, CFMP
Customer Segments:
Customer Segments refer to the different groups of people or organizations that a
business aims to serve. These groups can be based on various characteristics, including
demographics, psychographics, behavior, or specific needs. Identifying and
understanding your customer segments is essential because it allows a business to tailor
its products, services, and marketing efforts to meet the unique needs of each group.
Examples of Customer Segments:
 Mass Market: A business may target a broad audience with no specific
segmentation, such as a convenience store that serves a local neighborhood.
 Niche Market: A business may focus on a specific niche, like a company that
sells high-end, custom-made bicycles for cycling enthusiasts.
 Segmented Market: A business may divide its customer base into distinct
segments, like a hotel chain that caters to both business travelers and
vacationing families.
It's important to note that a business may have multiple customer segments, and
each segment may have different preferences, behaviors, and needs.
Value Proposition:
The Value Proposition is a statement or description that articulates the unique
value and benefits that a business offers to its customer segments. It answers the
fundamental question: "Why should customers choose your product or service over
alternatives?"
A strong value proposition should clearly communicate what makes your offering
special and how it addresses the specific pain points or desires of your target customers.
Examples of Value Propositions:
 Apple iPhone: "The iPhone offers a sleek, user-friendly design, a vast selection
of apps, and seamless integration with other Apple devices, providing a premium
mobile experience."
 Tesla: "Tesla electric vehicles combine cutting-edge technology, long-range
battery life, and sustainable transportation, making them the future of automotive
innovation."
 Amazon Prime: "With Amazon Prime, customers enjoy fast, free shipping,
exclusive access to streaming content, and a range of other benefits, making it
the ultimate convenience and entertainment package."

ENT101 Startup Essentials

Asst. Prof. Charlou A. Bautista, MBA, CFMP
 Your value proposition should highlight the features, benefits, and advantages that
resonate most with your target customer segments. It's a critical element in attracting and
retaining customers.
In summary, understanding your Customer Segments helps you define and target
the right audience, while crafting a compelling Value Proposition enables you to
communicate how your products or services uniquely address the needs and desires of
those segments. These two components are foundational for building a successful
business model.
Crafting a Compelling Value Proposition
Crafting a compelling value proposition is essential for attracting and retaining
customers. A well-crafted value proposition communicates the unique benefits and value
that your product or service offers to your target audience. Here's a step-by-step guide
on how to create a compelling value proposition:
1. Know Your Audience: Understand your target audience's needs, desires, pain
points, and preferences. You should have a deep understanding of who your ideal
customers are and what problems your product or service can solve for them.
2. Identify the Key Benefits: Determine the most significant benefits that your
product or service provides to your customers. These benefits should directly
address the needs and pain points of your target audience. Consider both
functional benefits (what it does) and emotional benefits (how it makes customers
feel).
3. Highlight the Unique Selling Points: Identify what sets your offering apart from
competitors. This could be a unique feature, a superior quality, a faster delivery
time, a better price, exceptional customer service, or any combination of these
factors.
4. Craft a Clear and Concise Statement: Your value proposition should be clear,
concise, and easy to understand. Avoid jargon or complex language. Aim for a
statement that can be quickly grasped by your audience.
5. Use a Value Proposition Template: A commonly used template for crafting a
value proposition is "We help [target audience] [solve a problem/meet a need] by
[unique value proposition]." Here's a breakdown of each part:
 Target Audience: Describe your ideal customer segment.
 Problem/Need: Highlight the main problem or need your product/service
addresses.
 Unique Value Proposition: Explain what makes your solution unique or
superior.
ENT101 Startup Essentials
Asst. Prof. Charlou A. Bautista, MBA, CFMP
 Example: "We help busy professionals stay healthy by delivering fresh,
chef-prepared meals to their doorstep."
6. Make It Customer-Centric: Frame your value proposition from the customer's
perspective. Use "you" and "your" instead of "we" or "our." Focus on what
customers gain or experience by choosing your product or service.
7. Test and Iterate: Don't be afraid to test different value propositions with your target
audience. Conduct surveys, interviews, or A/B testing to see which value
proposition resonates the most. Be open to refining and improving it based on
feedback.
8. Emphasize Benefits over Features: While features are important, customers are
more interested in how those features benefit them. Explain how your product or
service will make their lives better, easier, or more enjoyable.
9. Be Specific: If you have statistics, awards, or customer testimonials that support
your value proposition, include them to build credibility. Specificity adds
authenticity to your claims.
10. Keep It Memorable: Aim for a value proposition that's memorable and easy to
recall. Avoid generic or vague statements that blend in with competitors.
11. Align with Brand Identity: Ensure that your value proposition aligns with your
brand's overall identity and messaging. Consistency in your messaging helps build
trust and recognition.
12. Continuously Monitor and Adapt: Market conditions and customer preferences
can change over time. Keep an eye on your competitors and be ready to adapt
your value proposition to stay relevant.
Remember that your value proposition is a critical element of your marketing
strategy. It should be prominently featured on your website, marketing materials, and in
your communication with customers. A compelling value proposition can be a powerful
tool in convincing potential customers to choose your product or service over alternatives.
The Value Proposition Canvas
The Value Proposition Canvas was originally created by Dr Alexander
Osterwalder, in order to maximise the chances of new product development success by
ensuring that the value proposition that is created is based on total alignment between
the physical and emotional needs of the customer and the features and benefits of the
brand’s products and services. It is this alignment that enables the organisation to sell
solutions, rather than simply products.
As Charles Revson, the founder of Revlon, said;

ENT101 Startup Essentials

Asst. Prof. Charlou A. Bautista, MBA, CFMP
In the factory we make products, in the drugstore we sell hope.
The Value Proposition Canvas can be applied to existing products, to see if they
need modifying, but is especially useful when developing new products.

Source: https://www.brandspeak.co.uk/blog
The Customer Profile
To enable this part of the Canvas to be completed, the proposed target audience
must already be defined. If this is not the case then qualitative and / or quantitative
research can be conducted, to identify the relevant segment(s), their objectives, desires
and barriers in relation to the value proposition area that is being developed.
There are 3 parts to the Customer Profile which then need to be completed:
 Customer Jobs or Goals. (‘Jobs’ was the term used by Dr Osterwalder.) These
reflect things the customer ‘needs’ to accomplish in their work or life – like cleaning
the house or car. Or they can be aspirational – like owning a piece of art.
 Gains. The outcomes and benefits the customer desires

ENT101 Startup Essentials

Asst. Prof. Charlou A. Bautista, MBA, CFMP
  Pains. The problems, barriers and negative feelings that customers experience
either before, during or after they try to get the job done.
As an example of how the three relate to each other, a customer may have a
need/desire to keep their house clean (the job or goal). However, the work involved to
achieve this is perceived as boring (a pain). The gain could come about through
something that makes cleaning less boring, or easier or faster to accomplish.
Care is needed when assessing each of the three areas. It is all too easy to make
assumptions about what customers are seeking to achieve, and what the real gain and
pain points are.
The use of assumptions can be avoided by commissioning qualitative market
research to identify exactly what customers think and feel, as well as the level of priority
they ascribe to each different job, pain and gain.
The answers won’t be the same for everybody, but the market research agency
will also make clear which attitudes are shared by which customers, enabling meaningful
customer segments to be created.
The Value Map
The Value Map is also made up of three parts:
 Products and services; The physical products and / or services you provide that
will deliver the Gains and relieve the Pains for the customer. These can be physical
or digital in nature. This list should also include the support services that you make
available in support of your products e.g. phone-based customer service or online
chat facility.
 Pain relievers; The specific aspects of the products or services that remove or
lessen the customer’s pains. When you undertake this exercise, you will quickly
identify the pain relievers that your products and services don’t currently provide.
 Gain creators; The product or service feature(s) that are really responsible for
delivering the outcomes and benefits the customer needs or wants. As above, the
Gain Creators you identify can also relate to features and benefits that you don’t
currently provide.
Once Gain Creators and Pain Relievers have been identified, each point identified
can be ranked from nice-to-have to essential in terms of value to the customer. A fit is
achieved when the products and services offered as part of the value proposition address
the most significant pains and gains from the customer profile – in other words, they are
benefit-led rather than feature-led.

ENT101 Startup Essentials

Asst. Prof. Charlou A. Bautista, MBA, CFMP
Sample Market Survey for New Product Evaluation
Introduction: Thank you for participating in our market research survey. Your feedback
is essential in helping us understand the market's preferences and needs for our
upcoming product. This survey should take approximately [estimated time] to complete.
All responses will remain confidential.
Section 1: Demographics
1.1. Gender:
 Male  Other (please specify): _______
 Female
1.2. Age:
 Under 18  45-54
 18-24  55-64
 25-34  65 or older
 35-44
1.3. Location (City/State or Country):

Section 2: Product Awareness

2.1. Have you heard of [Your Product Name] before taking this survey?
 Yes
 No
2.2. If yes, where did you hear about it? (Check all that apply)
 Social Media
 Online Advertisement
 Word of Mouth
 Television
 Other (please specify): _______

ENT101 Startup Essentials

Asst. Prof. Charlou A. Bautista, MBA, CFMP
Section 3: Product Evaluation
3.1. Please read the product description below and rate your interest on a scale of 1 to 5,
with 1 being "Not Interested" and 5 being "Very Interested."
Product Description: [Provide a brief description of your new product, highlighting its key
features and benefits.]
 1 (Not Interested)
 2
 3
 4
 5 (Very Interested)
3.2. What aspects of this product are most appealing to you? (Check all that apply)
 Price
 Features
 Design
 Quality
 Convenience
 Brand Reputation
 Other (please specify): _______
3.3. Are there any concerns or hesitations you have about this product? Please describe.

Section 4: Potential Use and Purchase Intent

4.1. How likely are you to consider purchasing this product in the future?
 Very Likely
 Likely
 Neutral
 Unlikely
 Very Unlikely

ENT101 Startup Essentials

Asst. Prof. Charlou A. Bautista, MBA, CFMP
4.2. What would motivate you to purchase this product? (Check all that apply)
 Discounts or Promotions
 Positive Reviews
 Personal Recommendations
 Warranty/Guarantee
 Product Trials/Demos
 Other (please specify): _______
4.3. How often do you purchase similar products or alternatives to this one?
 Frequently
 Occasionally
 Rarely
 Never

Section 5: Additional Feedback

5.1. Do you have any additional comments, suggestions, or concerns about this product
or anything related to it?

Section 6: Contact Information (Optional)

6.1. If you would like to receive updates about [Your Product Name] or participate in future
research, please provide your email address.

Thank you for completing our survey! Your feedback is valuable to us.

ENT101 Startup Essentials

Asst. Prof. Charlou A. Bautista, MBA, CFMP
ASSIGNMENTS
Group Assignment 3.1: Customer Segments Analysis
Objective: To understand the importance of identifying and targeting specific customer
segments.
Instructions:
1. Select a Product or Service: Choose the product or service idea based on your
selection in module 2.
2. Market Research: Conduct market research to identify potential customer
segments for your chosen product or service. You may consider tailoring the
sample market research survey for new product evaluation to your chosen product
or service. Further, utilize online resources, surveys, interviews, or data analysis
to gather information.
3. Segmentation Criteria: Define the criteria you will use to segment the market.
This could include demographics, psychographics, behavioral patterns, or
geographic location.
4. Segmentation Exercise: Segment the market into at least three distinct customer
segments based on your research and criteria. Provide a brief description of each
segment, including their needs, preferences, and pain points.
5. Target Segment Selection: Choose one of the segments as your primary target
audience. Explain why you've selected this particular segment as the primary focus
for your product or service.
6. Presentation: Create a presentation or report summarizing your findings and
segmentation decisions. Include visuals, such as charts or graphs, to support your
analysis. Submit also a document format of your outputs including the results of
the market survey.
Group Assignment 3.2: Crafting a Value Proposition
Objective: To develop a compelling value proposition for a chosen product or service.
Instructions:
1. Use the Product or Service from Assignment in Module 2: Continue working
with the same product or service you selected in Assignment in Module 2.
2. Value Proposition Research: Research your product or service thoroughly.
Identify its key features, benefits, and competitive advantages.
3. Customer Persona: Develop a detailed customer persona for your chosen target
segment. Consider demographics, interests, pain points, and motivations.
ENT101 Startup Essentials
Asst. Prof. Charlou A. Bautista, MBA, CFMP
 4. Craft a Value Proposition: Based on your research and the customer persona,
create a compelling value proposition for your product or service. Use a template
like "We help [target audience] [solve a problem/meet a need] by [unique value
proposition]."
5. Test and Refine: Share your value proposition with peers, friends, or potential
customers and gather feedback. Refine your value proposition based on their
input.
6. Presentation or Pitch: Present your final value proposition to the class or in a
written report. Explain how it addresses the specific needs and desires of your
target segment and why it is compelling.

Reference:
 Osterwalder, A., Pigneur, Y., Bernarda, G., & Smith, A. (2014). Business Model
Generation: A Handbook for Visionaries, Game Changers, and Challengers.
Wiley.
 https://www.brandspeak.co.uk/blog/using-the-value-proposition-canvas-for-new-
product-development/

ENT101 Startup Essentials

Asst. Prof. Charlou A. Bautista, MBA, CFMP