Description
On this data regarding a primer in entrepreneurship business economics economics university of zurich spring 2008.
A primer in Entrepreneurship
Prof. Dr. Ulrich Kaiser
Institute for Strategy and Business Economics Institute for Strategy and Business Economics
University of Zurich
Spring semester 2008
Chapter 6: Developing an Effective Business Model
Table of Contents
I. Business Models
A. What is a Business Model?
B. The importance of a Business Model
C. How Business Models Emerge
D. Potential Fatal Flaws of Business Models D. Potential Fatal Flaws of Business Models
II. Components of an Effective Business Model
A. Core strategy
B Strategic resources B. Strategic resources
C. Partnership network
D. Customer interface
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
2
I. Business Models
1. A business model is a firm’s plan or diagram for how it competes, uses its
A. What is a Business Model?
1. A business model is a firms plan or diagram for how it competes, uses its
resources, structures its relationships, interfaces with customers, and
creates value to sustain itself on the basis of the profits it earns.
2. It’s important to understand that a firm’s business model takes it beyond
its own boundaries. Almost all firms partner with others to make their
b i d l k business models work.
3. There is no standard business model, no hard?and?fast rules that dictate
how firms in a particular industry should compete.
4. The term business model innovation refers to initiatives such as that
undertaken by Michael Dell that revolutionized how products are sold in
an industry.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
3
I. Business Models
5. The development of a firm’s business model follows the feasibility
l f l h b b f h
A. What is a Business Model?
analysis stage of launching a new venture but comes before the
completion of a business plan.
a. If a firm has conducted a feasibility analysis and knows that it has a
product or service with potential, the business model stage
addresses how to surround it with a core strategy, a partnership gy, p p
model, a customer interface, distinctive resources, and an approach
to creating value that represents a viable business model.
b. At the business model development stage, it is premature for a new
venture to raise money, hire a lot of employees, establish
partnerships or implement a marketing plan A firm needs to have a partnerships, or implement a marketing plan. A firm needs to have a
business model in place before it can make additional substantive
decisions.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
4
I. Business Models
Digression: Dell
In Dell’s case, it needs the cooperation of its suppliers, shippers, customers,
d h k i b i d l ibl and many others to make its business model possible.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
5
I. Business Models
Digression: Dell
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
6
I. Business Models
1. Having a clearly articulated business model is important because it does
B. The Importance of a Business Model
the following:
Serves as an ongoing extension of feasibility analysis;
Focuses attention on how all the elements of a business fit together g
and constitute a working whole;
Describes why the network of participants needed to make a business
idea viable would be willing to work together; idea viable would be willing to work together;
Articulates a company’s core logic to all stakeholders, including the
firm’s employees.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
7
I. Business Models
2. Once a firm’s business model is clearly determined, the entrepreneur
B. The Importance of a Business Model
should diagram it on paper (to the extent possible), examine it, and ask
the following questions:
Does my business model make sense? y
Will the businesses I need as partners participate?
If I can get partners to participate, how motivated will they be? Am I
asking them to work for or against their self?interest? asking them to work for or against their self interest?
How about my customers? Will it be worth their time to do business
with my company?
If I do get customers how motivated will they be? If I do get customers, how motivated will they be?
Can I motivate my partners and customers at a sufficient scale to cover
the overhead of my business and make a profit?
H di i ill b i b ? If I’ f l ill i b f How distinct will my business be? If I’m successful, will it be easy for a
larger competitor to step in and steal my idea?
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
8
I. Business Models
If the answer to each of these questions isn’t satisfactory, then the
B. The Importance of a Business Model
business model should be revised or abandoned.
Ultimately, a business model is viable only insofar as the buyer, the y, y y ,
seller, and the partners involved see it as an appropriate method of
selling a product or service.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
9
I. Business Models
1 The value chain is a model that many businesses and entrepreneurs use
C. How Business Models Emerge
1. The value chain is a model that many businesses and entrepreneurs use
to identify opportunities to enhance their competitive strategies.
2 Th l h i l l i h b i d l d d l 2. The value chain also explains how business models emerge and develop.
a. The value chain is the string of activities that moves a product from
the raw material stage, through manufacturing and distribution, and
ultimately to the end user.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
10
I. Business Models
b. By studying a product’s or service’s value chain, an organization
C. How Business Models Emerge
b y s udy g a p oduc s o se ce s a ue c a , a o ga a o
can identify ways to create additional value and assess whether
it has the means to do so.
c. Value chain analysis is also helpful in identifying opportunities
for new businesses and in understanding how business models
emerge emerge.
d. A firm can be formed to strengthen the value chain for a
d h l f bl b d l b product, however, only if a viable business model can be
created to support it.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
11
I. Business Models
Entrepreneurs look at the value chain of a product or a service to pinpoint
C. How Business Models Emerge
ep e eu s oo a e a ue c a o a p oduc o a se ce o p po
where the value chain can be made more effective or to spot where
additional “value” can be added.
This type of analysis may focus on
(1) a single primary activity of the value chain (such as marketing and
sales) sales),
(2) the interface between one stage of the value chain and another (such
as the interface between operations and outgoing logistics), or
( ) f h ( h h ) (3) one of the support activities (such as human resource management).
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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I. Business Models
C. How Business Models Emerge
University of Zurich
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Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
13
I. Business Models
Two fatal flaws can render a business model untenable from the
D. Potential Fatal Flaws of Business Models
Two fatal flaws can render a business model untenable from the
beginning:
a A complete misread of customers a. A complete misread of customers.
b. Utterly unsound economics.
Pets.com sported an unsound
business model, and failed.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
14
Chapter 6: Developing an Effective Business Model
Table of Contents
I. Business Models
A. What is a Business Model?
B. The importance of a Business Model
C. How Business Models Emerge
D. Potential Fatal Flaws of Business Models D. Potential Fatal Flaws of Business Models
II. Components of an Effective Business Model
A. Core strategy
B Strategic resources B. Strategic resources
C. Partnership network
D. Customer interface
University of Zurich
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Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model p
1. The first component of a business model is the core strategy, which
A. Core Strategy
e s co po e o a bus ess ode s e co e s a egy, c
describes how a firm competes relative to its competitors. The following
are the essential components of a firm’s core strategy.
a. Mission Statement. A firm’s mission, or mission statement, describes
why it exists and what its business model is supposed to accomplish.
b. Product/Market Scope. A company’s product/market scope defines
the products and markets on which it will concentrate.
University of Zurich
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Ulrich Kaiser
A primer in Entrepreneurship
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II. Components of an Effective Business Model
c Basis for Differentiation It is important that a new venture
p
A. Core Strategy
c. Basis for Differentiation. It is important that a new venture
differentiate itself from its competitors in some way that is
important to its customers. If a new firm’s products or services
’t diff t f th f it tit h h ld aren’t different from those of its competitors, why should
anyone try them?
i. From a broad perspective, firms typically choose one of two
generic strategies (cost leadership or differentiation) to
position themselves in the marketplace.
ii. Firms that have a cost leadership strategy strive to have the
lowest costs in the industry, relative to competitors’ costs, lowest costs in the industry, relative to competitors costs,
and typically attract customers on that basis.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model
iii. In contrast, firms with a differentiation strategy compete on
p
A. Core Strategy
iii. In contrast, firms with a differentiation strategy compete on
the basis of providing unique or different products and
typically compete on the basis of quality, service,
timeliness or some other important dimension timeliness, or some other important dimension.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model p
A. Core Strategy
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A primer in Entrepreneurship
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II. Components of an Effective Business Model p
A. Core Strategy
Primary Elements of Core Strategy
Business
A firm’s mission, or mission statement, describes why it exists
and what its business model is supposed to accomplish. For
Business
Mission
example, Southwest Airlines’ Mission Statement is as follows:
“The mission of Southwest Airlines is dedication to the highest
level of customer service delivered with a sense of warmth,
friendliness, individual pride, and company spirit.” friendliness, individual pride, and company spirit.
Product/Market
Scope
A company’s product/market scope defines the
products and markets on which it will concentrate. The
choice of products has an important impact on a firm’s
business model.
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Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model p
A. Core Strategy
It is important that a new venture
differentiate itself from its competitors in
Basis of
Differentiation
p
some way that is important to its
customers. If a new firm’s products or
services aren’t different from those of its
Differentiation
competitors, why should anyone try them?
Firms often differentiate themselves on the
basis of a cost leadership strategy or a
differentiation strategy.
University of Zurich
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Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model
1. A firm is not able to implement a strategy without resources, so the
B. Strategic Resources
p
resources a firm has affects its business model substantially. The two
most important strategic resources are discussed below.
a. Core Competency. A core competency is a resource or capability
that serves as a source of a firm’s competitive advantage over its
rivals Examples of core competencies include Sony’s competence in rivals. Examples of core competencies include Sony s competence in
miniaturization, Dell’s competence in supply chain management,
and 3M’s competence in managing innovation.
b. Strategic Assets. Strategic assets are anything rare and valuable that
a firm owns. They include plant and equipment, location, brands,
patents, customer data, a highly qualified staff, and distinctive
partnerships.
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A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model
2. Companies ultimately try to combine their core competencies and
p
B. Strategic Resources
2. Companies ultimately try to combine their core competencies and
strategic assets to create a sustainable competitive advantage. This factor
is one to which investors pay close attention when evaluating a business.
University of Zurich
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Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model p
B. Strategic Resources
Primary Elements of Strategic Resources
Core
A t i bilit th t
Core
Competencies
A core competency is a resource or capability that
serves as a source of a firm’s competitive advantage
over its rivals.
Strategic
Assets
Strategic assets are anything rare and valuable that a
firm owns.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model p
B. Strategic Resources
Importance of Strategic Resources
New ventures ultimately try to combine their core competencies and
strategic assets to create a sustainable competitive advantage.
This factor is one that investors pay close attention to when evaluating This factor is one that investors pay close attention to when evaluating
a business.
A sustainable competitive advantage is achieved by implementing a
l i h i i d i i value?creating strategy that is unique and not easy to imitate.
This type of advantage is achievable when a firm has strategic
resources and the ability to use them. y
University of Zurich
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Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model
1. A firm’s network of partnerships is the third component of a business
C. Partnership Network
p
1. A firms network of partnerships is the third component of a business
model. New ventures, in particular, typically do not have the resources
to perform all the tasks required to make their businesses work, so they
rely on partners to perform key roles rely on partners to perform key roles.
a. Suppliers. A supplier (or a vendor) is a company that provides parts
i t th Al t ll fi h li h or services to another company. Almost all firms have suppliers who
play a vital roles in the functioning of their business models.
University of Zurich
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A primer in Entrepreneurship
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II. Components of an Effective Business Model
b. Other Key Relationships. Along with its suppliers, firms partner
p
C. Partnership Network
with other companies to make their business models work.
i. There are risks involved in partnerships, particularly if a i. There are risks involved in partnerships, particularly if a
single partnership is a key component of a firm’s business
model.
ii. Many partnerships fall short of meeting the expectations of
the participants for a variety of reasons.
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Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model p
C. Partnership Network
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A primer in Entrepreneurship
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II. Components of an Effective Business Model
Customer interface how a firm interacts with its customers is the fourth
D. Customer Interface
p
Customer interface – how a firm interacts with its customers – is the fourth
component of a business model. The type of customer interaction
depends on how a firm chooses to compete.
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A primer in Entrepreneurship
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II. Components of an Effective Business Model p
D. Customer Interface
Primary Elements of Customer Interface
Target Market
A firm’s target market is the limited group of individuals or
businesses that it goes after or tries to appeal to. The target
market a firm selects affects e er thing it does from the
g
market a firm selects affects everything it does, from the
strategic assets it acquires to the partnerships it forges to its
promotional campaigns.
F lfill t d
Fulfillment and support describes the way a firm’s product or
Fulfillment and
Support
service “goes to market” or how it reaches its customers. It also
refers to the channels a company uses and what level of
customer support it provides. All these issues impact the shape
and nature of a company’s business model and nature of a company s business model.
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A primer in Entrepreneurship
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II. Components of an Effective Business Model p
D. Customer Interface
Primary Elements of Customer Interface
Pricing Structure
The third element of a company’s customer interface
is its pricing structure, a topic that will be discussed in
d t il i Ch t 11 P i i d l more detail in Chapter 11. Pricing models vary,
depending on a firm’s target market and its pricing
philosophy.
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Ulrich Kaiser
A primer in Entrepreneurship
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II. Components of an Effective Business Model p
Recap: The Importance of Business Models
Business Models
It is very useful for a new venture to look at itself in a holistic manner
and understand that it must construct an effective “business model”
to be successful.
Everyone that does business with a firm, from its customers to its
partners, does so on a voluntary basis. As a result, a firm must
motivate its customers and its partners to play along motivate its customers and its partners to play along.
Close attention to each of the primary elements of a firm’s business
model is essential for a new venture’s success.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
32
doc_112809103.pdf
On this data regarding a primer in entrepreneurship business economics economics university of zurich spring 2008.
A primer in Entrepreneurship
Prof. Dr. Ulrich Kaiser
Institute for Strategy and Business Economics Institute for Strategy and Business Economics
University of Zurich
Spring semester 2008
Chapter 6: Developing an Effective Business Model
Table of Contents
I. Business Models
A. What is a Business Model?
B. The importance of a Business Model
C. How Business Models Emerge
D. Potential Fatal Flaws of Business Models D. Potential Fatal Flaws of Business Models
II. Components of an Effective Business Model
A. Core strategy
B Strategic resources B. Strategic resources
C. Partnership network
D. Customer interface
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
2
I. Business Models
1. A business model is a firm’s plan or diagram for how it competes, uses its
A. What is a Business Model?
1. A business model is a firms plan or diagram for how it competes, uses its
resources, structures its relationships, interfaces with customers, and
creates value to sustain itself on the basis of the profits it earns.
2. It’s important to understand that a firm’s business model takes it beyond
its own boundaries. Almost all firms partner with others to make their
b i d l k business models work.
3. There is no standard business model, no hard?and?fast rules that dictate
how firms in a particular industry should compete.
4. The term business model innovation refers to initiatives such as that
undertaken by Michael Dell that revolutionized how products are sold in
an industry.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
3
I. Business Models
5. The development of a firm’s business model follows the feasibility
l f l h b b f h
A. What is a Business Model?
analysis stage of launching a new venture but comes before the
completion of a business plan.
a. If a firm has conducted a feasibility analysis and knows that it has a
product or service with potential, the business model stage
addresses how to surround it with a core strategy, a partnership gy, p p
model, a customer interface, distinctive resources, and an approach
to creating value that represents a viable business model.
b. At the business model development stage, it is premature for a new
venture to raise money, hire a lot of employees, establish
partnerships or implement a marketing plan A firm needs to have a partnerships, or implement a marketing plan. A firm needs to have a
business model in place before it can make additional substantive
decisions.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
4
I. Business Models
Digression: Dell
In Dell’s case, it needs the cooperation of its suppliers, shippers, customers,
d h k i b i d l ibl and many others to make its business model possible.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
5
I. Business Models
Digression: Dell
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
6
I. Business Models
1. Having a clearly articulated business model is important because it does
B. The Importance of a Business Model
the following:
Serves as an ongoing extension of feasibility analysis;
Focuses attention on how all the elements of a business fit together g
and constitute a working whole;
Describes why the network of participants needed to make a business
idea viable would be willing to work together; idea viable would be willing to work together;
Articulates a company’s core logic to all stakeholders, including the
firm’s employees.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
7
I. Business Models
2. Once a firm’s business model is clearly determined, the entrepreneur
B. The Importance of a Business Model
should diagram it on paper (to the extent possible), examine it, and ask
the following questions:
Does my business model make sense? y
Will the businesses I need as partners participate?
If I can get partners to participate, how motivated will they be? Am I
asking them to work for or against their self?interest? asking them to work for or against their self interest?
How about my customers? Will it be worth their time to do business
with my company?
If I do get customers how motivated will they be? If I do get customers, how motivated will they be?
Can I motivate my partners and customers at a sufficient scale to cover
the overhead of my business and make a profit?
H di i ill b i b ? If I’ f l ill i b f How distinct will my business be? If I’m successful, will it be easy for a
larger competitor to step in and steal my idea?
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
8
I. Business Models
If the answer to each of these questions isn’t satisfactory, then the
B. The Importance of a Business Model
business model should be revised or abandoned.
Ultimately, a business model is viable only insofar as the buyer, the y, y y ,
seller, and the partners involved see it as an appropriate method of
selling a product or service.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
9
I. Business Models
1 The value chain is a model that many businesses and entrepreneurs use
C. How Business Models Emerge
1. The value chain is a model that many businesses and entrepreneurs use
to identify opportunities to enhance their competitive strategies.
2 Th l h i l l i h b i d l d d l 2. The value chain also explains how business models emerge and develop.
a. The value chain is the string of activities that moves a product from
the raw material stage, through manufacturing and distribution, and
ultimately to the end user.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
10
I. Business Models
b. By studying a product’s or service’s value chain, an organization
C. How Business Models Emerge
b y s udy g a p oduc s o se ce s a ue c a , a o ga a o
can identify ways to create additional value and assess whether
it has the means to do so.
c. Value chain analysis is also helpful in identifying opportunities
for new businesses and in understanding how business models
emerge emerge.
d. A firm can be formed to strengthen the value chain for a
d h l f bl b d l b product, however, only if a viable business model can be
created to support it.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
11
I. Business Models
Entrepreneurs look at the value chain of a product or a service to pinpoint
C. How Business Models Emerge
ep e eu s oo a e a ue c a o a p oduc o a se ce o p po
where the value chain can be made more effective or to spot where
additional “value” can be added.
This type of analysis may focus on
(1) a single primary activity of the value chain (such as marketing and
sales) sales),
(2) the interface between one stage of the value chain and another (such
as the interface between operations and outgoing logistics), or
( ) f h ( h h ) (3) one of the support activities (such as human resource management).
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
12
I. Business Models
C. How Business Models Emerge
University of Zurich
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Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
13
I. Business Models
Two fatal flaws can render a business model untenable from the
D. Potential Fatal Flaws of Business Models
Two fatal flaws can render a business model untenable from the
beginning:
a A complete misread of customers a. A complete misread of customers.
b. Utterly unsound economics.
Pets.com sported an unsound
business model, and failed.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
14
Chapter 6: Developing an Effective Business Model
Table of Contents
I. Business Models
A. What is a Business Model?
B. The importance of a Business Model
C. How Business Models Emerge
D. Potential Fatal Flaws of Business Models D. Potential Fatal Flaws of Business Models
II. Components of an Effective Business Model
A. Core strategy
B Strategic resources B. Strategic resources
C. Partnership network
D. Customer interface
University of Zurich
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Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
15
II. Components of an Effective Business Model p
1. The first component of a business model is the core strategy, which
A. Core Strategy
e s co po e o a bus ess ode s e co e s a egy, c
describes how a firm competes relative to its competitors. The following
are the essential components of a firm’s core strategy.
a. Mission Statement. A firm’s mission, or mission statement, describes
why it exists and what its business model is supposed to accomplish.
b. Product/Market Scope. A company’s product/market scope defines
the products and markets on which it will concentrate.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model
c Basis for Differentiation It is important that a new venture
p
A. Core Strategy
c. Basis for Differentiation. It is important that a new venture
differentiate itself from its competitors in some way that is
important to its customers. If a new firm’s products or services
’t diff t f th f it tit h h ld aren’t different from those of its competitors, why should
anyone try them?
i. From a broad perspective, firms typically choose one of two
generic strategies (cost leadership or differentiation) to
position themselves in the marketplace.
ii. Firms that have a cost leadership strategy strive to have the
lowest costs in the industry, relative to competitors’ costs, lowest costs in the industry, relative to competitors costs,
and typically attract customers on that basis.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
17
II. Components of an Effective Business Model
iii. In contrast, firms with a differentiation strategy compete on
p
A. Core Strategy
iii. In contrast, firms with a differentiation strategy compete on
the basis of providing unique or different products and
typically compete on the basis of quality, service,
timeliness or some other important dimension timeliness, or some other important dimension.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
18
II. Components of an Effective Business Model p
A. Core Strategy
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A primer in Entrepreneurship
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II. Components of an Effective Business Model p
A. Core Strategy
Primary Elements of Core Strategy
Business
A firm’s mission, or mission statement, describes why it exists
and what its business model is supposed to accomplish. For
Business
Mission
example, Southwest Airlines’ Mission Statement is as follows:
“The mission of Southwest Airlines is dedication to the highest
level of customer service delivered with a sense of warmth,
friendliness, individual pride, and company spirit.” friendliness, individual pride, and company spirit.
Product/Market
Scope
A company’s product/market scope defines the
products and markets on which it will concentrate. The
choice of products has an important impact on a firm’s
business model.
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A primer in Entrepreneurship
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II. Components of an Effective Business Model p
A. Core Strategy
It is important that a new venture
differentiate itself from its competitors in
Basis of
Differentiation
p
some way that is important to its
customers. If a new firm’s products or
services aren’t different from those of its
Differentiation
competitors, why should anyone try them?
Firms often differentiate themselves on the
basis of a cost leadership strategy or a
differentiation strategy.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model
1. A firm is not able to implement a strategy without resources, so the
B. Strategic Resources
p
resources a firm has affects its business model substantially. The two
most important strategic resources are discussed below.
a. Core Competency. A core competency is a resource or capability
that serves as a source of a firm’s competitive advantage over its
rivals Examples of core competencies include Sony’s competence in rivals. Examples of core competencies include Sony s competence in
miniaturization, Dell’s competence in supply chain management,
and 3M’s competence in managing innovation.
b. Strategic Assets. Strategic assets are anything rare and valuable that
a firm owns. They include plant and equipment, location, brands,
patents, customer data, a highly qualified staff, and distinctive
partnerships.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model
2. Companies ultimately try to combine their core competencies and
p
B. Strategic Resources
2. Companies ultimately try to combine their core competencies and
strategic assets to create a sustainable competitive advantage. This factor
is one to which investors pay close attention when evaluating a business.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model p
B. Strategic Resources
Primary Elements of Strategic Resources
Core
A t i bilit th t
Core
Competencies
A core competency is a resource or capability that
serves as a source of a firm’s competitive advantage
over its rivals.
Strategic
Assets
Strategic assets are anything rare and valuable that a
firm owns.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model p
B. Strategic Resources
Importance of Strategic Resources
New ventures ultimately try to combine their core competencies and
strategic assets to create a sustainable competitive advantage.
This factor is one that investors pay close attention to when evaluating This factor is one that investors pay close attention to when evaluating
a business.
A sustainable competitive advantage is achieved by implementing a
l i h i i d i i value?creating strategy that is unique and not easy to imitate.
This type of advantage is achievable when a firm has strategic
resources and the ability to use them. y
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
25
II. Components of an Effective Business Model
1. A firm’s network of partnerships is the third component of a business
C. Partnership Network
p
1. A firms network of partnerships is the third component of a business
model. New ventures, in particular, typically do not have the resources
to perform all the tasks required to make their businesses work, so they
rely on partners to perform key roles rely on partners to perform key roles.
a. Suppliers. A supplier (or a vendor) is a company that provides parts
i t th Al t ll fi h li h or services to another company. Almost all firms have suppliers who
play a vital roles in the functioning of their business models.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model
b. Other Key Relationships. Along with its suppliers, firms partner
p
C. Partnership Network
with other companies to make their business models work.
i. There are risks involved in partnerships, particularly if a i. There are risks involved in partnerships, particularly if a
single partnership is a key component of a firm’s business
model.
ii. Many partnerships fall short of meeting the expectations of
the participants for a variety of reasons.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model p
C. Partnership Network
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model
Customer interface how a firm interacts with its customers is the fourth
D. Customer Interface
p
Customer interface – how a firm interacts with its customers – is the fourth
component of a business model. The type of customer interaction
depends on how a firm chooses to compete.
University of Zurich
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Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model p
D. Customer Interface
Primary Elements of Customer Interface
Target Market
A firm’s target market is the limited group of individuals or
businesses that it goes after or tries to appeal to. The target
market a firm selects affects e er thing it does from the
g
market a firm selects affects everything it does, from the
strategic assets it acquires to the partnerships it forges to its
promotional campaigns.
F lfill t d
Fulfillment and support describes the way a firm’s product or
Fulfillment and
Support
service “goes to market” or how it reaches its customers. It also
refers to the channels a company uses and what level of
customer support it provides. All these issues impact the shape
and nature of a company’s business model and nature of a company s business model.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model p
D. Customer Interface
Primary Elements of Customer Interface
Pricing Structure
The third element of a company’s customer interface
is its pricing structure, a topic that will be discussed in
d t il i Ch t 11 P i i d l more detail in Chapter 11. Pricing models vary,
depending on a firm’s target market and its pricing
philosophy.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
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II. Components of an Effective Business Model p
Recap: The Importance of Business Models
Business Models
It is very useful for a new venture to look at itself in a holistic manner
and understand that it must construct an effective “business model”
to be successful.
Everyone that does business with a firm, from its customers to its
partners, does so on a voluntary basis. As a result, a firm must
motivate its customers and its partners to play along motivate its customers and its partners to play along.
Close attention to each of the primary elements of a firm’s business
model is essential for a new venture’s success.
University of Zurich
ISU – Institute for Strategy and Business Economics
Ulrich Kaiser
A primer in Entrepreneurship
Spring semester 2008
32
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