Chapter 12 - Business models - NPI

dilemma of technology shift

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Difference between Business plan and business model

A BP is a detailed document with a lot of financial projections. It is used to set up a new businesses and apply for a loan. A BM is much less detailed, it describes the specific way the business expects to make money, usually it is in a diagram form to represent a single concept

What is a business model?

A business model describes the value an organisation offer to its customers. It illustrates the capabilities and resources required to create, market and deliver this value and to generate profiable, sustainable revenue streams

when a BM is developed, it should be flexible and easily modified. It should at least contain

A graphical representation - A list of activities, on the part of both the business owner and potential customers - A likely sequence for those activities - A set of indicators or metrics for measuring the linkage

There are 16 BM archetypes

Entrepreneur: Based around the concept of entrepreneurs creang businesses and generang wealth - Manufacturer: One of the simplest and most well-known. It involves creang physical products. It involves taking physical assets and assembling them to add value. - Inventor/creator: Individuals create or design products that can then be sold to generate money. - Human creator: The asset here is human. - Financial trade: This covers acvies involve in distribung &nance (ex: investment banking) - Wholesaler / retailer: This is the sale of goods to anyone other than a standard consumer. It involves the resale of new and used goods to retailers. - IP trader: Buying and selling intellectual property, usually the IP is in the form of a patent which can be licensed. - Human distributor: such BM are illegal, but exists. Human traOcking is the trade of humans. - Financial landlord: The asset is the money that is looked aAer by the landlord and used to generate more money. - Physical landlord: The physical asset is used to generate income. - Intellectual landlord: It is the acvity of making informaon available to the general public. - Contractor: He is responsible for the overall coordinaon of a project - Financial broker - Physical broker - IP broker - HR broke

there are 4 key aspects to any BM

O+ering Value must always be considered from the buyer's perspecve. It is crical to understand 49 sur 73 the customer's role as well as where the customer belongs ont the technology adopon lifecycle. The value proposion must be superior to the compeon. - Customer side Target market segment to know what characterizes the ideal customer. The business needs to consider the kind of relaonship it wants to have with each customer segment. It is important to consider the distribuon channel. - Infrastructure It is important to list the business's core capabilies (skills, patents, assets and experse), a SWOT can be made. Building a business may also involve third pares and suppliers. - Finances Evaluang the streams through which the business will earn revenues and calculang the costs that will be incurred to run the BM. The BM describes how the components of the business &t together to produce a pro&t. It answers the queson for investors: how does it work ?

Industry model

Redefine an existing industry, move into a new one or create one.

considerations in designing a business mode

Switching costs is the e7ort or money a customer has to spend to switch from one product or service provider to another one. The higher the switching costs, the likelier a customer is to sck to one provider. ➔ Scalability describes how easy it is to expand a BM without equally increasing its cost base. Facebook is a huge example of scalability, Skype as well. ➔ Recurring revenues are from subscripon. They have two major advantages : the costs of sales incur only once for repeve revenues and the business will have a beEer idea of how much it will earn in the future. ➔ Cash1ow ➔ Ge2ng others to do the work: IKEA ! ➔ Protecng the business from commetors ➔ Changing the cost structure: CuYng cost is pracced a lot, but some BM go beyond that by creang value based on a totally di7erent cost structure. ➔ Intellectual mromerty is an asset: and should be treated and managed as such. ➔ Connual adamtaon of the BM

In general, a business model does not matter to customers, it is important to the company and the organizatoon of its business. There are 6 di7erent parts

Value proposition - Market segment - Value chain structure - Revenue generation and margins - Position in value network - Competitive strategy

Revenue / pricing model

change how revenue is generated through new value propositions Revenue models are concerned specifically with the pricing element of the BM. Advertising, subscription, transaction fee, retail and aOliate are different revenue models

A key question is:

how will a business make money? Who is the target customer? - What value does it deliver? - How does it generate revenue? - What is the cost structure

There is a wide range of BM applicable across all industries. Start-ups can use several methods to create an innovative BM

revenue/pricing model enterprise model industry model

Enterprise model

specialize and configure the business to deliver greater value by rethinking what is done in-house and through collaboration It focuses on redefining the internal and external boundaries of the organisation to create a new BM

A company's strategy defines

the company's target market segment and customers, and determines the value promosition for the customer's business. The BM focuses on how a start-up captures some of the value for itself