ENTREPRENEU

RSHIP
Quarter 2 – Module 3

Develop the
OBJECTIVES:

apply the process in creating simple start-up

home based business
analyze the preparation of a simple home-
based start-up business
do the business experimentation – the
business model
1.Business model refers to a company's plan for
making a profit. It identifies the products or services
the business plans to sell, its identified target market,
and any anticipated expenses.
2.Value proposition - a description of the goods or
services that a company offers and why they are
desirable to customers or clients, ideally stated in a
way that differentiates the product or service from its
competitors.

3.Startup costs are the expenses incurred during

the process of creating a new business.
4.Pre-opening startup costs include a business
5.Post-opening startup costs include advertising,
promotion, and employee expenses.
6.Marketing strategy refers to a business's overall
game plan for reaching prospective consumers
and turning them into customers of the products
or services the business provides. A marketing
strategy contains the company’s value proposition,
key brand messaging, data on target customer
demographics, and other high-level elements.
7.Demand is an economic principle referring to a
consumer's desire to purchase goods and
services and willingness to pay a price for a
specific good or service.
8.Investment is an asset or item that is purchased
9. Appreciation refers to an increase in the value of an
asset over time.
10. Marketing costs are all expenses that the company
makes to market and sell its products and develop and
promote its brand.
A business model is not a business plan
It is a common misunderstanding to think of business
modeling as a one-page business plan.
A business plan is a document with a specific aim. It
contains a bunch of assumptions about your business. It also
contains financial projections about the business for the next 3-
5 years. However, those assumptions can be hardly tested. The
business plan thus remains a document that lives in the
imaginary world.
Written to impress
friends and potential
investors not for any use
for experimentation.
As we will see the primary
purpose of business
modeling is about
experimentation. Another
misconception around
business models is to
confuse them with the
monetization strategy or the
revenue model of a company.
While this is an essential
piece of the puzzle, it is just
Understanding Business Models
Creating a business model is essential, whether you are
starting a new venture, expanding into a new market, or
changing your go-to-market strategy. You can use a business
model to capture fundamental assumptions and decisions about
the opportunity in one place, setting the direction for success.

A business model is a high-level plan for profitably

operating a business in a specifi c marketplace. A primary
component of the business model is the value proposition.
This is a description of the goods or services that a company
offers and why they are desirable to customers or clients,
ideally stated in a way that differentiates the product or
A new enterprise's business model should also cover
projected startup costs and financing sources, the target
customer for the business, marketing strategy, a review of
the competition, and projections of revenues and expenses.
The plan may also define opportunities in which the
business can partner with other established companies.

When evaluating company investment, the investor should

find out exactly how it makes its money. This means
looking through the company's business model.
Admittedly, the business model may not tell you everything
about a company's prospects. But the investor who
understands the business model can make better sense of
the financial data. Company and product builders must
think from the outside in, focusing on market needs and
Successful businesses have business models that allow
them to fulfill client needs at a competitive price and a
sustainable cost. Over time, many businesses revise their
business models from time to time to reflect changing
business environments and market demands.

Business models are “at heart, stories — stories that

explain how enterprises work. A good business model
answers the following questions:

1.Who is the customer?

2.What does the customer value?’
3.How do we make money in this business?
4.What is the underlying economic logic that explains how
we can deliver value to customers at an appropriate
Establishing this foundation guides the next planning tool — your
product roadmap.

Two primary levers of a company's

business model:
1.Pricing which is the process whereby a business sets
the price at which it will sell its products and services.
It may be part of the
business's marketing plan.

2.Product Costs which include materials, labor,

production supplies and factory overhead. Cost of the
labor required to deliver a service to a customer is also
considered a product cost. Product costs related to services
A company can raise prices, and it can find inventory at
reduced costs. Both actions increase gross profit. Many
analysts consider gross profit to be more important in
evaluating a business plan. A good gross profit suggests a
sound business plan. If expenses are out of control, the
management team can correct it. Companies that run on
the best business models are more profitable.

The Key components of a business model should include:

1. your target customers, the market
2.organization strengths and challenges
3.essential elements of the product
4.how it will be sold
 Here is a list of essential components included in a
business model:
Components Definition
Vision High-level introduction to the company and
business model
Key objectives Definition of the top-level goals and how
they will be
measured
Customer Description of the different types of
targets and customers to be
challenges targeted and their pain points

Solution How the product will solve those pain points

Value The key characteristics that differentiate
the product
offering
Pricing A view into what the solution
will cost and how it will be
sold
Messaging Explanation of why the offering
will serve a customer’s pain
points
Go-to- Channels that will be used to
market reach and sell to customers
Investment Costs required to make the
required solution successful
Growth Identified ways the business will
opportunity grow
 Seven Key Elements of the
business model

1. Key partners mean that you and a company

that you have no direct competition with, industry wise, will
partner together in ways that will benefit the both of you.
Example: To maintain the quality of your product, you
can partner with a best peanut butter supplier to
produce fillings for your bread business products that
you yourself may not be able to make. In return, you
have a contract to pay for these products that your
partner has made you.

2.Key activities represent what the

company must do to make the business model work.
These activities can be producing a product or
providing a service, or a mix of both.

If your business focuses on production of a product,

your activities may include learning more about the
 Example: If you own a restaurant, some of your
activities may be to experiment on new recipes to
provide your customers with new dishes to bring new
customers or provide more varied options for your
customers.
3.Key resources – describes the most
important assets required to make a business model
work. These are the resources that allow an
enterprise to create and offer a Value Proposition,
reach markets, maintain relationships with Customer
Segments, and earn revenues.
4 Categories of Key Resources:
4.Physical – Buildings, vehicles, machines, raw
 3. Human – Creativity, experience, etc.
4. Financial – Cash, credit, stock, etc.

4. Distribution channel is to provide a link

between production and consumption. A distribution
channel can be very simple, with just two layers
(producer and consumer). A distribution channel can
also be very complicated, with several levels.
What factors should be taken into account in choosing
the best distribution channel?
1)Nature of the product
Perishable, Perishable/fragile? A product with a short-life
Customised? A direct distribution approach often works
best for a product that the end consumer wants providing to
a distinct specification
Desired image of the product
Type of product – e.g. convenience, shopping, speciality

2)The Market
Is it geographically spread?
Does it involve selling overseas
The extent and nature of the competition – which
distribution channels and intermediaries do competitors use?
3)The Business
Size and scope – e.g. can it afford an in-house sales force?
Marketing objectives – revenue or profit maximisation?
Does it have established distribution network or does it need to
extend its distribution option
How much control does it want over distribution? The longer the
channel, the less control is available

4) Legal issues
Are there limitations on sale?
What are the risks if an intermediary sells the product to an
inappropriate customer?

5.Customer segment are the community of customers or

businesses that you are aiming to sell your product or services to.
 Customers can be segmented into distinct groups based on needs,
behaviors and other traits that they share. A customer segment
may also be defined through demographics such as age, ethnicity,
profession, gender, etc or on their psychographic factors such as
spending behavior, interests, and motivations. An organization can
choose to target a single group or multiple groups through its
product and service.

6.Cost structure defines all the costs and expenses that your
company will incur while operating your business model. This final
step in the process is important, because it will help your team
decide whether to pivot or proceed.

7.Revenue stream elaborates the earnings a business gets by

subtracting the costs from the revenue generated from each
customer segment. It represents the cash, not the profit, that the
present. Specifying the pricing and projected lifecycles of the
list of resources. If the cost of designing and producing a
product is more than what the customer is willing to pay for it
or greater than the revenues the product will rake in before
its lifecycle ends, then it does not make business sense to go
ahead with the product.
A business model implies the understanding of operations,
customer acquisition, retention, supply chain management,
besides monetization. A designed business model of in every
organization, there will be a piece that plays a more critical
role compared to others. For example, the business model for
an Services business may identify benefits from an
arrangement for referrals to and from a printing company.

For instance, a vital component of the Julie’s

Bakeshop business model is its franchising strategy. For
model success is the heavily franchised restaurants that
helped the company scale up all over the world.
Each company will develop a unique model among the many
types of business models which is what makes your
company robust in the long-run!
There are many types of business models. Each one varies
considerably based on the type of organization and offering.
For example, a manufacturing company will have a very
different model than an advertising agency. Even within a
specific industry, business models vary.
Here are a few common business models used by technology
companies:
1.Subscription 4. Affiliate
2.Transactional 5. Retail Sales
3.Freemium
The importance of business
model design
In the real world of business scenario, it is very important to
look at the long-term vision of the company considering all
the messy, unpredictable, noisy and ambiguous business
environment and settings. Meaning, as an entrepreneur
plays the marketing tools and strategies on hand, he has to
do understand the economic condition that will directly or
indirectly affect the business applying the strategies of
simple thinking tools, qualitative and quantitative analysis
with focus to attain the long-term vision aimed by the
company.

The Primary aim of a business model:

1)to create a sustainable chain

2)able to unlock value for several players in a market,

industry or niche
For instance, when Bo’s Coffee started it didn’t look to
dominate the whole market. It started from a niche. As
Pether Thiel put it in his book, Zero to One. Bo’s Coffee
began as follows:

1.Identifying its most valuable partner

2.what at the time they called “power user.”

That was a choice driven by its business model design.

Therefore, instead of focusing on generically offering a
coffee for everyone, Bo’s Coffee focused on acquiring and
attracting as many power coffee drinkers as possible.

Those power drinkers were mostly on call center company

areas that had already scaled them up. Thus, Bo’s Coffee
focused all its effort on acquiring those power coffee
a clear value proposition for a small, yet a critical group of power
coffee drinkers, it could move on to take larger and larger
segments of that market.
Business modeling is about experimentation
Where scientists use labs to test their hypothesis through
experimentation. Entrepreneurs build business model experiments
to test their business ideas in the real world. Study and carefully
analyze the details and flow given.
FourWeekMBA perspective on business model
components for startups
The key components of any business model analysis are:
 A compelling value proposition: How do you want your
people to think about your brand?
 A unique brand positioning: What do you offer to your
people that make them want more?
 A 10x goal setting: Can you offer a 10X better product or
service? (compared to existing solutions)
 Customer segments: Who is your customer? (to notice
here we’re not talking anymore about people but customers,
those willing to pay for your product or service)
 Distribution channels: How do you get your product or
service to your customers?
 Profit formula: Is the business financially sustainable?
This business model framework has four aims:
1. simplicity: heuristics-based rather than complex models
2. noise reduction: choosing a few key data points, rather
than looking at a massive amount of data that only adds
noise and paralyze decision-making processes
3. branding and distribution: looking at a business model as
a systematic way to build a strong distribution network and
a strong brand. The two things walk hand in hand
4. and profitability: the financial viability of a business
model is a key element for its success
There are two dimensions of a business in this framework that
should walk hand in hand:
I. People dimension
 Elements of people dimension:
a)A compelling value proposition: How do you want your
people to think about your brand?

b)A unique brand positioning: What do you offer to your

people that make them want more?

c)A 10x goal setting: Can you offer a 10X better product or
service? (compared to existing solutions)
II.Financial dimension
Three elements of the financial dimensions are:
a)Customer segments: Who is your customer? (to notice
here we’re not talking anymore about people but customers,
those willing to pay for your product or service)
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 b) Distribution channels: How do you get your product or
service to your customers?

c) Profit formula: Is the business financially sustainable?

This people dimension will help you build a solid brand. A solid
brand builds up a tribe, a group of people that can follow you
anywhere. Once you have a solid brand, you can focus on the
second dimension: the financial dimension.
 Assessmen
t
1.What is an assumption of your business that also contains
financial projections about the business for the next 3-5 years?
A.Business Model
B.Start-up costs
C.Business Plan
D.Value Proposition

2. What is a high-level introduction to the company and business

model?
E.Business Plan
F.Objectives
G.Mission
H.Vision
 Assessmen
t
3. What is a high-level plan for profitably operating a business in a
specific marketplace?
A.Business Model
B.Start-up costs
C.Business Plan
D.Value Proposition

4. What is defined as a description of the goods or services that a

company offers and why they are desirable to customers or
clients, ideally stated in a way that differentiates the product or
service from its competitors and the primary component of the
business model?
E.Business Model
F.Start-up costs
G.Business Plan
H.Value Proposition
 Assessmen
t
5. What is th term given for the description of the different types
of customers to be targeted and their pain points?
A.customer targets and challenges
B.Pricing
C.go-to-market
D.Value

6. What refers to a company's plan for making a profit. It identifies

the products or services the business plans to sell, its identified
target market, and any anticipated expenses?
E.Business Model
F.Start-up Costs
G.Business Plan
H.Value Proposition
 Assessmen
t
7. What channels that will be used to reach and sell to
customers?
A.customer targets and challenges
B.Star -up costs
C.go-to-market
D.Value proposition

8. How the product will solve those pain points?

E.customer targets and challenges
F.Pricing
G.go-to-market
H.Solution
 Assessmen
t
9. What is an economic principle referring to a consumer's desire to
purchase goods and services and willingness to pay a price for a
specific good or service?
A.Demand
B.Start-up Costs
C.Solution
D.Value proposition

10. What is an aim element of the business model which is looking at

a business model as a systematic way to build a strong distribution
network and a strong brand?
E.Branding and distribution
F.Profitability
G.Noise and reduction
H.Simplicity
11. It is a framework for how a company will create value. It
answers fundamental questions about the problem you are
going to solve, how you will solve it, and the growth
opportunity within a given market.
A. Business Model
B. Start-up costs
C. Business Plan
D. Value Proposition

12. What are the community of customers or businesses that

you are aiming to sell your product or services to?
E. Customer Data
F. Customer Segment
G. Customer Evaluation
H. Customer Structure 16
13. It provides an answer to simple questions about a new
business or a business already under way: Which
markets?, when?, who? how? where?
A. Business Model
B. Start-up costs
C. Business Plan
D. Value Proposition

14. It is the process whereby a business sets the price at

which it will sell its products and services. It may be part of
the business’s marketing plan.
E. customer target
F. Marketing
G. go-to-market
H. Pricing 16
15. What is a plan that develops all of the procedures and
strategies necessary in order to convert the business
opportunity into an actual business project?
A. Business Model
B. Start-up costs
C. Business Plan
D. Value Proposition

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