Textbook: Ch.4
creation; capture value network
A recent study of the current definitions of business model has concluded that all these definitions have at their foundation 2 fundamental activities: the ___________ and ___________ of value. These 2 activities represent the core logic for how the company creates value for the customers and what the organization must do to become or remain viable. First, a successful venture creates value by differentiating itself from competitors and/or by meeting an unserved need in the market. Second, it captures value by monetizing (to use another popular term) its offering; in other words, entrepreneurs find ways to make money from what the businesses do. Both of these activities take place within what has been termed a _________________, which is the community of partners, suppliers, and other members of the value chain with which the venture does business.
business concept Elevator pitch
DEVELOPING A CONCEPT FOR A NEW BUSINESS: A ______________ is a concise description of an opportunity that contains 4 essential elements: (1) the customer definition; (2) the value proposition (or benefit to the customer); (3) the product/service being offered; and (4) the distribution channel or means of delivering the benefit to the customer. It is useful to think of the business concept as a quick elevator pitch. __________________ is a term that has been applied to the idea that entrepreneurs have only a few seconds—the time it takes to ride an elevator up to the 12th floor of a building—to get an investor (or other third party) interested in the entrepreneur's business concept. But the elevator pitch serves another valuable purpose: it gives focus to the development of the business. It's likely that the first concept conceived will go through many iterations before the business is launched, but coming back to the 4 critical elements each time will ensure that the fundamentals of the business are intact.
mission
Drucker's five questions are the basis for the development of the business model. The ____________ is why we're in business—the big goal that the company is trying to achieve. The customer is the one who pays for the value being delivered, and that customer may be an individual or a business. What the customer values is the most difficult question to answer unless the entrepreneur has spent time in the market trying to understand the problems customers face. Solving those problems is the value or benefit customers are seeking. The results tell us if we're on the right path, but entrepreneurs also need to know what results they're working toward. Entrepreneurs don't predict the future—they create it and then find the means to achieve it. The plan is not the traditional business plan, a huge document that tends to cement ideas in place while the reality around those ideas keeps changing. For entrepreneurs, the plan is an action plan, a series of small experiments to provide feedback and help them test and rework the original ideas until they best meet the needs of the customer.
change imitation
Effective business models address all the aspects of the model, pricing, revenue, value proposition, process, and Internet commerce. A winning business model is difficult to copy because it builds barriers to entry for competitors. It is also "grounded in reality...based on accurate assumptions about customer behavior." Building an efficient business model addresses all these issues and creates a competitive advantage for the company. One difficulty with business models is that they tend to ____________ over time as customer needs change, so the challenge is to find a way to sustain the efficacy of the model over time. It must also be protected from ______________, which could turn the company's products and services into commodities and force the entrepreneur to compete on price.
creation; capture
Limited Strategic Choices: The strategic choices that a business model addresses should reflect both the value ___________ and the value ____________ processes. Satisfying only one of these will often lead to problems. During the dot com era, many misguided entrepreneurs thought that the Internet was the business model, so they developed businesses that had no compelling reason to exist beyond the fact that they were on the Internet. As a result, they couldn't get customers to patronize their sites. Pets.com, for example, was built on the notion that customers would find it easier to buy dog food online. What they didn't realize was that most customers purchase dog food when they purchase their own food in a grocery store, so making online purchases was actually an inconvenience for them because it required them to make an additional stop on their computer and pay shipping charges. Funerals.com experienced a similar fate during the run-up to the dot com crash. -The founder did not understand that in times of emotional grief, people do not want to turn to their computers for help; they prefer to deal with someone face-to-face. In the offline world, problems with strategic choices also exist. Entrepreneurs are continually faced with the challenge of maintaining the value of their products and services so that they don't become commodities competing only on price. Avoiding commoditization means following a strategy of continual innovation and searching persistently for new ways to satisfy the changing needs of the customer. This certainly is the challenge that every technology entrepreneur faces.
channel intermediaries
The Distribution Channel: The distribution channel answers the question "How do you deliver the benefit to the customer?" Many options exist, but in general, the best option is the one that fulfills the customer's expectations about where and how the product or service should be sold. Most services are delivered direct to customers, but products often go through _______________________ such as distributors and retailers. Creating a clear and concise concept statement or elevator pitch from the 4 elements is not difficult, but it does require an ability to parse words, something many entrepreneurs have difficulty with. For example, consider the creation of artificial nerves called BIONS, under development at the University of Southern California. -BIONS re-animate paralyzed muscles through electrical stimulation. -In this case the proposed company, we'll call it BIONNIX, is studying the treatment of pressure ulcers in patients who are bedridden or in a coma. -The company plans to sell to hospitals and nursing homes. -To attract attention for the business, the entrepreneur needs to convey the magnitude of the pain. Every year there are 3.5 to 5 million people in the United States suffering from pressure ulcers, and an estimated 60,000 persons die annually from ulcer-related complications. Pressure ulcers represent a common but preventable medical problem encountered by primary-care practitioners providing care to older patients, particularly in hospital and nursing home settings. This is the problem that must be solved in order to offer value to the customer. It must be stated in a way that captures attention quickly. If the problem requires detailed explanation, then the real pain has probably not been identified. In other words, the problem statement should be simple and clearly understood. Adding the 4-element concept statement or solution to a condensed problem statement produces the following: -An estimated 60,000 persons die annually from pressure ulcer-related complications that could have been prevented with muscle stimulation. -BIONNIX will provide a proprietary solution to hospitals and nursing homes that seek to reduce the costs and nursing hours associated with preventing and treating pressure ulcers in their immobile patients. -BIONNIX will manufacture, sell, and support the implantable BION, which provides patients with an effective, easy, and painless solution to pressure ulcers. We see here that the primary customer is hospitals and nursing homes that are looking to save money (labor costs) on treating patients with pressure ulcers. The end beneficiary is the patient, who avoids pressure ulcers. The concept statement is not designed to answer all the questions about the solution or how it will be implemented; instead, its goal is to focus the feasibility analysis and generate interest and further discussion. Note that in the development of the concept statement, money was not mentioned. Money is assumed by inexperienced entrepreneurs to be the most necessary component of a successful venture. But although money is important, it is only an enabler; its presence does not confirm that the business concept is feasible, nor does it ensure success. In fact, the dot com bust of spring 2000 proved that a large investment in a business idea will not make it feasible if customer demand and an effective business model are not also present. Until customers express interest in what is offered and will pay for it, all the money in the world will not make the venture feasible.
value proposition benefits features
The Value Proposition: The ___________________ is the benefit that the customer derives from the product or service the entrepreneur is offering; in other words, the reason the customer will buy—the value for the customer. To understand what the customer values, entrepreneurs need to identify a need or "pain" that customers are experiencing. When entrepreneurs first conceive of the concept for their business, they typically start with the value they believe customers will recognize and pay for. However, it is not until they do some actual market research and learn what customers value from their own words, that they can be confident that there will be someone to buy what they're selling. Entrepreneurs often confuse features with benefits as they design their products and services. In general, ___________ are intangibles such as better health, saving time and money, or reliability, while _____________ reflect attributes of the product such as design and characteristics.
