Business Models How you intend to make money
Business Models How you intend to make money with your idea…Turning your idea into a profitable business or sustainable not-for-profit “A product is the centre of a business model, but it is not a business in and of itself – it can’t succeed without a great business model. ” The Dragon’s Den Guide to Real-World Business Models
“Business Models Made Easy” Don Debelak Ü GEL Factor Analysis Ü G = great customers Ü E = easy sales Great Customers Ü L = long life Easy Sales Long Life Ü The objective of the GEL analysis is to fine-tune your idea so that it delivers all the GEL factors and you’ll be able to develop a better business model and write a great business plan.
GREAT CUSTOMER S G EASY SALES E LONG LIFE L Characteristics Number Ease of Finding Spending Patterns Value to You $ Value of Sale Repeat Sales Ongoing Sales Support Value to Customer How Important Competitive Advantage Price/Value Relationship Customer Acquisition Cost Entry Points Sales Support Required Promotional Activities Profit per Sale Margins Up-Selling and Cross-Selling Ongoing Product Costs Investment Required To Enter Business To Keep Market Share To Stay on the Cutting Edge
GREAT Characteristics CUSTOMERS Number Ease of Finding Spending Patterns High Easy Prolific $ Value of Sale Repeat Sales Ongoing Sales Support High Many Low How Important Competitive Advantage Price/Value Relationship Important High Low Customer Acquisition Cost Entry Points Sales Support Required Promotional Activities Many Little Low Profit per Sale Margins Up-Selling and Cross-Selling Ongoing Product Costs High Much Low Investment Required To Enter Business (10 x sales) To Keep Market Share To Stay on the Cutting Edge Low Low Value to You EASY SALES Value to Customer LONG LIFE Why it’s important / When it’s a Key Concern / How to Compensate
GREAT Characteristics CUSTOMERS Value to You Number Ease of Finding Spending Patterns High Easy Prolific $ Value of Sale Repeat Sales Ongoing Sales Support High Many Low Why it’s important: • need large enough customer base to cover costs of running business, meeting income expectations, promoting product/service and expanding When It’s a Key Concern: • when product/service is inexpensive • when opportunities for repeat or add-on sales are limited • when customers can’t find business easily • people don’t know about you How to Compensate: • present a compelling reason to buy • have a devoted distribution channel • being in places your customers go and/or being part of network that serves that customer group
GREAT CUSTOMERS Characteristics Number • Click to edit Master text styles title of Finding Click to edit. Ease Master – Second level Value to You Spending Patterns ✔ style ✔ $ Value of Sale Repeat Sales Ongoing Sales Support ✔ ✔ High Many Low Competitive Advantage Price/Value Relationship ✔ ✔ ✔ Important High Low Customer Acquisition Cost Entry Points Sales Support Required Promotional Activities ✔ ✔ ✔ Many Little Low Profit per Sale Margins ✔ Up-Selling and Cross-Selling Ongoing Product Costs ✔ Moderate Much Low Investment Required To Enter Business To Keep Market Share To Stay on the Cutting Edge Low Low • Third level – Fourth level » Fifth EASY SALES Value to level Customer How Important LONG LIFE High Easy Prolific ✔ ✔
Must Have Winners Customers – Ease of Finding ___ Yes Value to Customer – Price-Value Relationship ___ Yes Profit per Sale - Margins ___ Yes All must be checked Yes or the model is flawed Must Not be a Concern Customers – Spending Patterns ___ No Customer Value to Company – Ongoing Sales Support ___ No Investment Required – To Keep Market Share ___ No Winners: 1. 2. 3… Concerns: 1. 2. 3… All must be checked No or the model is flawed Winners need to outnumber concerns by three to one in order to proceed.
GEL Assignment Ü A completed analysis of each of the GEL factors, summarized using the following charts: Ü Figure 2 -1 on page 15 of your lab manual - G Great Customers Customer Characteristics Customer Value to Company Desired Number High Ease of Finding Easy Spending Patterns Prolific $ Value of Sale High Repeat Sales Many Ongoing Sales Support Low Excellent Ü Figure 6 -1 on page 30 of your lab manual - E Ü Figure 7 -1 on page 45 of your lab manual - L Ü Average Poor
Ü A paragraph explaining that analysis for each of the 6 GEL sub-factors = 6 paragraphs Ü explain how your business idea meets the desired level on each of the 3 criteria relevant to that sub-factor Ü Figure 8 -2 on page 62 of your lab manual – outlining the compensating tactics you will use for each of the criteria that does not meet the “desired” level. It is not necessary to rate their “effectiveness”. Ü Figure 8 -3 on page 63 and 64 of your lab manual – summarizing the status of each of the criteria after applying the compensating tactics that you have decided to pursue for any of your problem areas. Ü Figure 8 -4 on page 65 of your lab manual – as a final evaluation + a final summary paragraph.
What is a Business Model? Ü “a business model describes the rationale of how an organization creates, delivers, and captures value” Alexander Osterwalder – “Business Model Generation” Ü how a company intends to make money Ü how your idea actually becomes a business that makes money / social venture that is sustainable Ü Different companies can have similar offerings but different business models Ü Model affects strategy/ways of operating
Ü subscription-based vs advertising-based Ü focus on selecting content readers willing to pay for vs selecting content to attract readers advertisers want to sell to
Ü Sell tickets at cost and make profits on refreshments Ü Refreshment stand staffing critical Ü - long lines dissuade customers Ü - staff try to ‘up sell’
Ü Gillette virtually gives away the handle and makes its money selling a steady supply of razor blades Ü Companies that sell electric shavers make their money up front
3 Ways to Make Money in Water Filtration Q Water Aqua. Ovo Event Water Solutions Rents water filtration systems for a monthly fee to restaurants Sells water filtration systems with a stylish cooler for a one-time fee to individuals Rents water filtration systems for a per-event fee to event holders
What is Your Business Model? Ü Product or service model? Ü Merchant or agency model? Ü consumer-direct, retail, pop-up, or party plan Ü Producer or licensor model? Ü Independent owner/operator or Franchising/licensing model? Ü Traditional or game-changer model? Ü Membership models – subscription box, member community, or flash sales Ü Crowdsourcing models – crowdsourcing, crowdfunding, or peer-topeer sharing Ü Freemium Ü Revenue model? Ü Why is it sustainable?
“Business Model Generation” Alexander Osterwalder and Yves Pigneur Ü http: //www. youtube. com/watch? v=Qo. AOz. MTLP 5 s&fe ature=player_embedded Ü http: //www. businessmodelgeneration. com/book
Mass market Niche market Segmented Diversified Multi-sided
Cost reduction Newness Performance Risk reduction Customization Price Accessibility “Getting the job done” Brand/status Design Convenience/us ability
Partner Wholesaler Web sales Partner stores Direct Sales force Own stores Awareness Indirect Own Evaluation Purchase Delivery After sales
Personal assistance Dedicated personal assistance Self service Automated services Co-creation Communities
Asset sale Advertising Usage fee Subscription fees Brokerage fees Lending/renting/l easing Licensing
Pricing Mechanisms Fixed “Menu” Pricing Dynamic Pricing • • List price Product feature dependent Customer segment dependent Volume dependent • • Negotiation/bargaining Yield management Real-time-market Auctions
Key Questions to Answer Ü Who pays you? – consumer, business, licensee… Ü How does your product/service generate revenue? Ü How do you charge? – unit price, transaction fee, royalty… Ü When do you get paid? How do you collect? – up front, installments, back end… Ü Is your revenue model scalable? – can your respond to sudden increases in sales without spreading your resources too thin? ** Ü What is your pricing model? – price floor, price ceiling, price point Ü What is the lifetime value of each customer? = annual revenue x number of years a customer will pay you
Physical Intellectual Human Financial
Production Problem solving Platform/network
Optimization and Economy of Scale Reduction of risk and uncertainty Acquisition of resources and activities
Cost driven Fixed costs Value driven Variable costs Economies of scale Economies of scope
Other Examples Ü Groupon vs other daily email businesses Ü ttp: //www. youtube. com/watch? v=7 J-PHRNoc 20 Ü Social entrepreneurship Ü http: //www. youtube. com/watch? v=LWb. T 7 KZYBu. M Ü Startup for grannies – different approaches Ü http: //www. youtube. com/watch? v=Pj. G 8 SHXqc. VY
- Slides: 32