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Building A Business Model

This document provides guidance on building a business model, including understanding the value proposition, target market, production and distribution methods, and testing and evaluating the business model. Key aspects to consider are understanding customer needs and how the product or service satisfies them, determining production and distribution strategies, creating financial projections, and gathering feedback to refine the model. The overall goal is to create a sustainable plan to successfully deliver value to the target market.

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InNUvation
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© Attribution Non-Commercial (BY-NC)
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Download as PPT, PDF, TXT or read online on Scribd
151 views

Building A Business Model

This document provides guidance on building a business model, including understanding the value proposition, target market, production and distribution methods, and testing and evaluating the business model. Key aspects to consider are understanding customer needs and how the product or service satisfies them, determining production and distribution strategies, creating financial projections, and gathering feedback to refine the model. The overall goal is to create a sustainable plan to successfully deliver value to the target market.

Uploaded by

InNUvation
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Building a business model

IEMS 325
Creating a value proposition
• Understand the product or service
– How is it positioned?
– Who are you selling to? (Target market)
– Size the market
– Why will people buy it?
– What are the alternatives?
– Why will people buy it from you…now?
• Is your product sufficiently different to truly succeed?
• Understand how you will produce the product
– Subcontract-buy versus build
– License for others to build
– Create a brand versus sell to the existing brands
• Is production your distinctive competency?
• Does it need to be to enable your success?
• Understand how you will distribute the product
– Distribution-sell versus distributor versus web based
• What distribution model reflects your strategy best?
Your pitch: 5 whys
• Why this market?
– Because it is a big market growing quickly
• Why this market need?
– Because it is real and largely unfulfilled
• Why this solution?
– Because it is satisfies the need cost effectively
• Why this team of people?
– Because they are experts who have done this before
• Why now?
– Because there is a window of opportunity
Understand your target market
• What percentage will switch to your product?
• Behaviors
– They will pay $X for Y functionality
– They wont pay more than Z
• They will stick to their preferred brand UNLESS:
– They try something new
– Their friends tell them about something new
– The price is lower
– The features are dramatically better
Creating a business model
• Who will pay you?
• Who do you have to pay?
• What are your timeframes for collection of
money versus the expenditure of money?
• What does demand versus supply look like
over time?
Evaluating options
• Remember Beta Golf!
• License technology to others
• Buy existing company
• Build a company/brand yourself
• Subcontract to others
• Build with the idea of being acquired
versus going IPO (initial public offering)
Testing the business model
• Survey your target market:
– Brand allegiances
– Buying criteria
– Openness to new product
– Desires for new product
– Price sensitivity
– Positioning concerns
• Build a (virtual) prototype
– Get (potential) customer feedback
Pro forma income statement
• Sales: Look at target market and ramp sales
based on history in the industry from other
(similar) companies.
– Base growth on industry sales growth curves
• Costs: Look at your product costs (COGS) and
vertical analyses (expenses) of other
companies
– Based on % sales
– Don’t forget debt servicing and other expenses that
might be specific to your plan
• Look at cash flows and make sure you have
enough cash on hand to survive the lean times
Extrapolations
• Sales should grow at a rate that is sustainable
and based on history
– May need to freshen up your product/portfolio over
time. Don’t forget to invest in new product
development for future offerings
• COGS generally decreases with volume and
over time (learning curve effects)
• Expenses are usually based on a % of sales.
G/A, sales commissions etc. are usually based
on this
Plans
• Distribution plan
• Sales/marketing
• Manufacturing
• New product development

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