Developing Business Model

Joanna Claire Miranda | April 26, 2018

Business Model
 A firm’s plan/recipe for how it creates, delivers and
captures value for its stakeholders
 The proper time to develop a business model is following
an initial validation of a business idea and prior to fleshing
out the operational details
 A firm’s business model is integral to its ability to succeed both in the
short and long term.
Initial Fleshing out
Preparation of
validation of the operation
the business
the business details of the
model
idea company
Three important element of a business model

Target market
Can be further
expended to make it
Basis for more effective
Firms differentiation
busines
s
Key assets
model
General categories of business model
 Amazon took Sears
Roebuck & Co mail
order model online
 Ebay took auction
model & moved it online
Improvising from
Standard existing plans and
recipes
Categories of
business model Disrupt/change the
Caution: way business is
New
companies
Disruptive business conducted in the
should guard model industry /important
themselves niche in the
against
thinking that industry
one particular  New market disruption- addresses a
business market that wasn’t served-Google & its
model is a
Strength of the AdWords
homerun
 Low end market disruption- firms in an
regardless of opportunity must be
circumstances industry continue to improve its product
assessed and the
& services to better serve their clientele
feasibility of the idea needs- low cost budget airlines
must be validated
Standard Business Models

 Standard business models depict existing plans or recipes firms can use to determine how they will
create, deliver, and capture value.
 There are a number of standard or common business models, such as:
Description

Providing advertisers access to highly targeted customers

Providing an online option for auction

Integrates Offline and Online business model

A firm that has successful business, licenses its trademark and

method to franchisee
Offers basic version for free, sells & makes money from premium
version
Cost efficiency and makes money by servicing large customers

Manufacturer makes and sells its product, online, offline or both

Matchmaker of individuals who have a service to offer and

customers who need that service
Disruptive Business Models
What
 Disruptive business models, which are rare, are ones that do type is
your
not fit the profile of a standard business model. business
 They are impactful enough that they disrupt or change the model
way business is conducted in an industry or an important
niche within an industry.
 Below are few samples of business models that were
disruptive when they were introduced.
What did they disrupt

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 Barringer/Ireland Business Model Template

Although not
everyone agrees
precisely on the
components of a
business model, many
agree that a successful
business model has a
common set of
attributes, as laid out
in this template

COPYRIGHT © 2016 PEARSON EDUCATION LTD. 4-7

 Core Strategy
It is what solves a problem or satisfies a customer need.
It is best to limit a company’s basis of differentiation to
 The first component of the business model two to three key points.
Make sure that your points of differentiation refer to
 A core strategy describes how the firm plans to compete relative to its competitors. benefits rather than features.

 The primary elements of core strategy are:

If carefully written and used Business Mission Basis of differentiation
 Business Mission properly, a mission statement can
articulate a business’s overarching Mission statement describes Value proposition; what will
 Basis of Differentiation priorities and act as its financial make consumers pick this
why it exists & what its
 Target Market
and moral compass.
A well-written mission statement business model is suppose company’s product/service

is something that a business can to achieve. over other.
Product/Market Scope continually refer back to as it
makes important decisions in
other elements of its business
model. Core Strategy

The identification of the target market in Target market Product/Market Scope

which the firm will compete is extremely
important. Clearly identify the narrower Products and markets that
A target market is a place within a larger
group of customers that the the company will
market segment that represents a narrow
group of customers with similar interests. company is targeting concentrate
A company’s product/market scope defines the products and markets on
A firm’s target market should be made explicit
which it will concentrate.
in the business model template.
Most firms start with a narrow (or limited) product/market scope, and pursue
adjacent product and market opportunities as the company grows and
becomes more financially secure, company should be very clear about its
initial product/market scope and project 3-5 years in the future in terms of
anticipated expansion.
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 Resources
Resources are the inputs a firm uses to produce, sell, distribute, and service a product or service.
A firm’s most important resources, both tangible and intangible, must be both difficult to imitate and hard to find a substitute
for.
This stipulation is necessary for an individual company’s business model to be competitive over the long term.
Core
Key Assets
Competency
Specific factor or capability that supports a firm’s business Assets that firms own that enable its business model to
model and sets it apart from its business rival work

Can take on various forms; technical know how, an

Made up of; physical assets, intellectual assets, financial
efficient process , a trusting relationship with a customer,
assets, and human assets
expertise in product design to name a few

Firms vary regarding the key assets they prioritise and

accumulate. Eg. Whole Foods market rely on physical
Most start-ups will list 2 or 3 core competencies
assets because of its stores whereas Uber relies
exclusively on intellectual market
 Financials
 This is the only section of a firm’s business model that describes how it
earns money—thus, it is extremely important.
Revenue Streams
Describes how the company will make money. Some have one revenue
stream to leverage the value they are creating for customers, other
have two or more such as subscription and online for instance
Financing
Cost Structure-
How they acquire
The most important cost to support the
finance/funding.
business. It cost money to establish a basis for
Normal for up front
differentiation , develop core competencies,
capital to start a
acquire key assets for example.
business
Business can be cost Identify the nature of the
Personal Sources or other
driven or value driven. business cost ( fixed and
options . Also need to
Cost driven- minimize cost variable cost structure) &
consider the nature of the
wherever possible, Value identify the business major
cost; capital cost, one time
driven- high quality cost categories ( such as
cost and ramp-up
product or service and data centre cost or
expenses
personalized service marketing and advertising)

Think of examples for each- cost and value driven

 Operations
Need to
develop
Direct sales force-
core –
expensive but may be
competency necessary
in
manufacturi
ng and May be cheaper
procure key
assets Product or Service Channels-How it
related to Production delivers its products
Need up front
production
investment
process Focuses on how the and services to its
customers
a firm’s
Direct- Store or
product/service is online
produced Intermediaries- like
If the firm sells via Amazon, travel
physical product, will Key partners-
agent – no store Emerging trend is to use
it be produced in- Usually start-up
presence freelancers that have
How to locate skills in certain area
suitable house, by contract rely on partners to
providers
manufacturer or via perform key role;
outsource provider First will be
suppliers-supply
chain
management
Key Partners-Examples
 Tutorial
Using Barringer/Ireland Business Model Template, develop your business model.