ENI 3103 Midterm
Business models
describe what an organization does, for whom and how its elements are related o Enterprise—shows how an entire organization creates and delivers value to customers outside the organization o Team—shows how a group creates and delivers values, often to customers inside the organization o Personal—how an individual creates and delivers values
Disruptive innovation
creative destruction of old markets with inferior technology and creation of new markets - Became popular due to Clayton Christensen's theory of incumbent failure - More advantageous to new firms b/c they create markets where no market exists - Improve the performance of established products through characteristics that mainstream customers adopt
Barter
"Barter" - business model in which products or services are exchanged between people or organizations for other products or services without monetary exchange. Origins: o Ancient Egypt o Gaius Clinius maecenas - (emperor augustus's political advisor) concept of patronage. o Sports clubs and organizations were popularly backed by this concept in the 1960's Innovators: Proctor and Gamble; Twitter; Stoli Vodka; Pepsi
Add-on
Additional charges for extras Origins: o Difficult to trace the actual origins o Used in service industries: Hotels, Cruises etc. o Used in modular products: Car features etc. Innovators: o Ryanair: Cheap airline rates plus extra services o Bosch: Care engine customization o Mercedes-Benz: Premium car features o SAP: Management software features o Harley Davidson: Motorcycle customization o Sega: Video game DLC Application: o Applicable to hotels, cruises, software etc. o Property Investors: Buy cheap AC, elevators, security systems upfront to maximize profit during sale.
Crowd funding
Innovators: Kickstarter and Gofundme; Independent rappers production costs, family birthday presents and social causes (benefits for AIDS, autism, cancer research, etc.) o Crowdfunding truly dates back to the 1700s (Fundable.com) o Marillion Band was the first recorded successful instance of crowdfunding in 1997 Funded their "reunion tour" in America via family and friends Emailed 6,000 fans to request help Ultimately raised $60,000 From this, ArtistShare became the first dedicated crowdfunding platform in 2000. Shortly thereafter, more crowdfunding platforms began to emerge, and the crowdfunding industry has grown consistently each year (Fundable.com). Pattern: Crowdfunding is the allocation of small amounts of money from a large group of people to fund a new business venture.
Netflix revenues
Netflix has a subscription based revenue model. New entrants like Netflix are innovating rapidly and driving improvements. Netflix Revenue for 2013 was 4.37 billion
Netflix strategies
Netflix plan was to eliminate Linear TV. Netflix initially offered online DVD rental service. Netflix wanted to allow users a movie experience anywhere. Netflix evolved because of the internet
Netflix ideation
Netflix was founded in 1997 in California by Marc Randolph and Reed Hastings. Hastings invested $2.5 million in startup cash for Netflix The idea of Netflix came to Hastings when he was forced to pay $40 in overdue fines after returning Apollo 13 well past its due date.
Cross-selling
OFFERING OF CERTAIN COMPLEMENTARY PRODUCTS OR SERVICES BEYOND A COMPANY'S RANGE o COMPANIES AIM TO EXPLOIT THEIR CUSTOMER RELATIONSHIPS TO SELL MORE PRODUCTS OR SERVICES o IN B2B, CROSS-SELLING IS USED IN CONJUNCTION WITH THE SOLUTION PROVIDER PATTERN o ALSO KNOW AS "UPSELLING" o Leverage existing resources (sales and marketing) and get customers to spend more money o "one-stop shops" Innovators: Ikea; Starbucks; Amazon, KFC; GoDaddy Origins: o "KILL TWO BIRDS WITH ONE STONE." o CROSS-SELLING HAS BEEN USED BY MERCHANTS IN ANCIENT MIDDLE EASTERN BAZAARS
Factional ownership
Origins: o Dates back to collective farming in 20th century Russia and communist ideology o NetJets - factional ownership of aircraft Pattern: o Title deed (legally divided) where customers purchase only part of an asset o Allows consumers to buy things they could usually not afford o More efficient use of assets o Tax advantages o Company oversees maintenance, rules and regulations governing association o Only 12 owners (while timeshares have 50-52 members) Innovators: Four Seasons; Switzerland's Hapimag Resort; NetJets Application: o IN THE 1960'S NETJETS ESTABLISHED FACTIONAL OWNERSHIP OF AIRCRAFT o CUSTOMERS BOUGHT A FRACTION OF THE AIRCRAFT, WHICH ENTITLED THEM TO A CERTAIN ALLOTMENT OF FLIGHT HOURS o NETJETS HAD A FLEET OF OVER 800 PLANES WORLDWIDE AND COULD GUARANTEE ITS CUSTOMERS AN AVAILABLE AIRCRAFT WITHIN 24 HOURS
Customer loyalty
Origins: The Customer Loyalty pattern is over 200 years old. o American Airlines was one of the first to introduce a customer loyalty program. Pattern: o Customers are retained and loyalty earned by providing value over & above the basic products or services o Usually achieved through incentive-based programs o This pattern works well in a plethora of situations. Innovators: American Airlines - "frequent flyers" Application: loyalty cards, key fobs, rewards programs
E-commerce
Pattern: o According to The Business Model Navigator, E-Commerce is the buying and selling of products and services via electronic systems. o Pros Customers get to compare costs as well as save travel time and money Companies get to reduce overhead costs and save money o Cons Customers aren't able to test products or services before purchasing them Origins/Innovators: ARPANET (used by MIT and Stanford students to buy weed); CompuServ; Amazon and eBay Applications: Walmart.com; Zappos
Freemium
Pattern: o Free + premium o "offering a basic version of the product or service free of charge, while the premium version is made available against additional payment" - BMN o Free version establishes customer base to turn them into lasting premium customers o KPI: ratio of paying : non paying Innovators: Hotmail; SurveyMonkey; LinkedIn; Skype Origins: o Wilson: free service, possibly supported by ads, acquire a lot customers very efficiently by word of mouth + referral networks + search marketing, then offer premium priced value added services / enhanced version o Digitisation: economy of bits in a myriad of products that can be reproduced virtually cost free and sold at a minimum price Application: Spotify, Canva, Dropbox, Evernote
Franchising
Pattern: o Franchisors offer rights to franchisees to use their business model o Benefit to franchisors - expand their business rapidly o Benefit to franchisees - fewer risks than novel business ideas and a franchisor's expertise Origins: o Feudal lords sell rights to collect taxes and operate markets (middle ages) o Ben Franklin enters 1st franchising agreement in 1731 o Isaac Singer starts Singer sewing machine franchise in 1851 o Coca-Cola starts franchising in 1899 o Model T franchised in early 1900s o Franchising explodes due to Interstate Highway System in 1960s Innovators: Chickfila, Starbucks, DQ, 7-Eleven, Subway Application: o Gas stations - expensive to start o Marriot - ongoing royalties, initial app fee and marketing fees
Experience selling
Pattern: Allows the client to experience the product, Often via sales force and a pyramid commission structure; traditionally applied for cosmetic products. o Experience consumption likely to grow due to social media Innovators: Porsche, Red Bull, Starbucks Applications: concerts; Airbnb, Turo, Eventbrite
Direct selling
Products and/or services are sold directly to customers or businesses (B2B) o No intermediary channels o No retail profit margins = savings to consumer o Uniform distribution model o More personal sales experience Origins: o One of the oldest distribution models, used by the Babylonians as early as 2000 B.C.E. o Popular in Greece in the 5th century C.E. o The Middle Ages - craftsmen and farmers sold their goods in market and wayside stalls o Yankee Peddlers - independent salesmen brought supplies to the western Frontier and Canadian territory Innovators: Avon; Tupperware; Mary Kay Application: MLMs (Herbal Life; doTerra; LuLaRoe)
Netflix launch
The Netflix website was launched on August 29, 1997 Initially had traditional pay-per-rental model Changed overtime to online streaming on various platforms
Aikido
This business model attracts customer who prefer ideas or concept opposed to the mainstream Innovators: Six Flags; Cirque du Soleil; Nintendo Application: o You have to think outside the box o Remember it can work in any industry o Market charges are crucial!
Toms business model
- Early success - every pair of shoes bought, company donated a pair to someone in need - "1-for-1" business model, later copied by Warby Parker
Key activities
- make - sell - support
How are disruptive products different?
- start with "good enough" performance along traditional dimensions - offer new benefits such as simplicity, convenience or low prices - appeal to "overshot" customers or "nonconsumers" - often utilize "low cost" or "start small" business models - take advantage of competitive weaknesses and blind spots
Channels
1) create awareness; 2) induces evaluation; 3) enables purchase; 4) executes delivery
How do you maximize a CVP?
1. Identify an important job-to-be-done that is poorly satisfied today for a customer then... 2. Devise and develop an offering that does the job better than alternatives at the lowest appropriate price
Why did Apple have an "unfair advantage" with its podcasting platform over competitors like Odeo?
Apple was a giant competitor to a small startup like Odeo, so they had an unfair advantage
Auction
Based on participative pricing: o Buyers actively influence the final price of the good/service o Think A&E's Storage Wars Buyers place bids on goods/services, the highest bidder wins Origins: o 500 BC in Ancient Babylon o Women were auctioned off to their future husbands o Sotheby's Auction House, London 1744 o Samuel Baker (bookseller) liquidated several hundred valuable books at a profit o Business quickly expanded to auctioning medals, coins, and prints Innovators: eBay, WineBid, Priceline, StockX Application: o Geared towards selling highly specialized products o MUST HAVE SUFFICIENT TRAFFIC o You can either offer your own products or create a marketplace for sellers and buyers o Note: the pattern works well if an auction creates more transparency for standardized products o Model is highly scalable and can serve millions of users around the clock
What value proposition did the early version of Twttr offer its users?
Broadcast messages to friends for free; instant; free; convenient
What are the jobs to be done that Uber addresses?
Connects people in needs of rides to drivers willing to provide them
PINT
Problems, Issues, Needs and Trends o Detects work that needs doing before the work as been addressed elsewhere o Problem/Potential: something is broken or not working well o Issue—nothing is broken, but rules, regulations or conditions are changing o Need—something is missing or a desire for something new or different o Trend—things are changing or moving in new directions
What type of innovation would you consider the original Odeo platform? Why?
Radical product innovation, because it introduced the concept of podcasting to the world
SIRP
Solutions, Innovation, Resources, and Positioning o Solution—a fix, repair, or suggestion for a new method, service or product that addresses a Problem or Potential o Innovation—proactively adapting things or circumstances to address an Issue o Resource—people, money, material or intellectual property that satisfy a Need o Positioning Idea—a proposed way to exploit a trend or minimize risk
White space
Uncharted territory or an underserved market; serving a new customer or an existing one in a radically new way
If you were in charge at Netflix, would you pay more to Internet providers to gain faster delivery of your content on the Internet? Why or why not?
Yes, as long as it make a significant difference to general consumers of the app. netflix users could easily convert to hulu, hbo etc. if they had faster speeds
What areas of a taxi cab's business model does Uber disrupt?
a. Provide mobile platform that connects ride-seeking consumers with drivers b. No waving cab down the street c. No cash d. Usually cheaper than cab rides
What should Netflix do to counter this threat to the third iteration of its business model?
a. lower subscription prices to entice more viewership b. student discounts c. different features
Innovation
can change based on type (radical, incremental, and disruptive) and can refer to products or processes
Job description
duties, tasks and expected outcomes
Jobs-to-be-done
finding the causal driver behind a purchase - Job—what an individual wants to accomplish in a given circumstance
Role description
focuses on relationships with others
Iteration
making a change in the current business model in an attempt to capitalize on a closely related market opportunity
Customer segments
may be paying, non-paying or cost inducing
Radical product innovation
new to the world innovation; never seen before
Costs
o Fixed—salaries, leases o Variable—cost of goods and services; contingent labor o Non-cash—goodwill, externalities; amortization
Value propositions
o Functional—accomplish specific task o Social—improves how customers are perceived by others o Emotional—helps customers feel a certain way
Revenue
o Payment form (lease vs. outright purchase) o Payment method (credit card vs. paypal)
Key resources
o People o Tangible property o Intangible property o Money
4 things that motivate people
o Purpose o Autonomy o Relatedness o Mastery
Defining your team's why
o Short and memorable (15 words or less) o Communicate both why and what o State the higher purpose o Write in third person
Diagramming a team business model
o Start with team's customers Best way to serve external customers is by first serving enterprise and internal teams o List a separate value proposition for each o List financial costs
Third objects
physical tools that allow leaders to make their message clearer
Interdependent thinking
relationships between people and groups
Dependent thinking
seeking direction and depending on others to teach one new or better ways of working
Alignment canvas
shows two related business models on the same sheet: lower level (less complex) and higher level (more complex) o Can be related through hierarchy, interdependency, subsidiary status, customer-provider status, or a combination o Higher-level model takes precedence
Reverse income statement
start with a profit goal that answers the question "How big does the aggregate profit need to be in 3-5 years for this opportunity to be worthwhile?" Use the following elements: - revenue model (price x quantity) - cost structure (direct costs and overhead) - target unit margin - resource velocity (inventory turns, staff utilization)
Value proposition
summarizes the reasons that a customer should buy a particular product or use a particular service
Business model innovation
the discovery of a fundamentally different business model in an existing business - To innovate = new business model must enlarge the existing economic pie by attracting new customers or encouraging existing ones to consume more - Tend to require a business model not only different but in conflict traditional one - New performance attributes on price or distribution outlets
Key partners
those who provide help or resources essential to making the business model work; different than suppliers
What threats does the end of net neutrality pose to Netflix's business model?
throttle speeds on its website and apps if Netflix doesn't pay prioritization fees to entertainment producers
Independent thinking
trusting one's own experience and becoming more self-directed
Marketplace business model
two different customer segments of buyers and sellers (ebay, Airbnb
Multi-sided business model
users and customers are different (ad-based models, big data and enterprise)
Direct business model
users becoming customers (e.g. coffee shop)
What are business models?
• rationale of how an organization creates, delivers and captures value • How the business operates, its underlying foundations, and the exchange activities and financial flows upon which it can be successful" • Each business model unique • Revenue stream vital component
Crowd sourcing
◦ Crowdsourcing is a form of outsourcing companies use to discover innovation and less expensive solutions. ◦ Companies can use crowdsourcing for funding or using people for their skills or ideas. ◦ Origins: ◦ Can be traced back to 1714 when the British government was searching for a way to compute longitude. They were offering a reward of 20,000 pounds. ◦ Coined by Jeff Howe in 2006 ◦ 1773 - John Harrison was awarded the prize for coming up with a marine chronometer that helped determine longitude coordinates. ◦ Innovators: Amazon; Unilever; Lego; Pepsi ◦ Application: ◦ Crowdsourcing can be done in the company's ideation stages ◦ To be successful you need to set goals, figure out what platforms or channels you're going to use to crowdsource: survey, data collection or find the best crowdsourcing websites. ◦ Make sure that the ideas people are giving you will actually benefit the company