Senior High School

11
ENTREPRENEURSHIP
Quarter 2 – Module 3:
Develop the Business Model

www.sweetnsimpledesign.com

Lilibeth S. Degulacion
Compiler / Contextualizer

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 Second Quarter MODULE 3, Week 3
Develop the Business Model

Content Standard : The learner demonstrates understanding of environment

and market in one’s locality/town.
Performance Standard : The learner independently creates a business vicinity map
reflective of potential market in one’s locality/town.
Competencies : TLE_ICTAN11/12EM-Ia-2
Learning Outcomes (Syllabus) : Upon the completion of the given unit, the SHS learners are
expected to develop business model base on their home-
based business.

What I Know

Identification.
Choose the correct word from the given group of words inside the box. Write each correct
answer clearly in a separate sheet.

Start-up cost Marketing Strategy

Business Model Value Proposition
Appreciation Business Model
Investment Demand
Pricing Marketing Costs

1. What is a high-level plan for profitably operating a business in a specific

marketplace?
2. What is defined as a description of the goods or services that a company offers
and why they are desirable to customers or clients, ideally stated in a way that
differentiates the product or service from its competitors?
3. What refers to a company's plan for making a profit. It identifies the products or
services the business plans to sell, its identified target market, and any
anticipated expenses?
4. What do you call of the expenses incurred during the process of creating a new
business?
5. What is defined as it contains the company’s value proposition, key brand
messaging, data on target customer demographics, and other high-level
elements?

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 6. What refers to an increase in the value of an asset over time?
7. How do you call an asset or item that is purchased with the hope that it will
generate income or appreciate the in value at some point in the future?
8. What is an economic principle referring to a consumer's desire to purchase goods
and services and willingness to pay a price for a specific good or service?
9. What is the process whereby a business sets the price at which it will sell its
products and services?
10. What do you call of all expenses that the company makes to market and sell its
products and develop and promote its brand?

Where you able to match and identify the terms? These are terms that are often heard
from active businesspeople and will be your guide in developing your business.

What I Need to Know

You are now buckled with enough knowledge this time. Therefore, let us
start a simple home-based business experimentation through learning how to create
your own business model! Your next key move is to start creating your simple business
model.

In this key move you are expected to:

• apply the process in creating simple start-up home based business
• analyze the preparation of a simple home-based start-up business
• do the business experimentation – the business model
---------------------------------------------------------------------------------------------

What’s In
After being indulged with the essential learning in product development, let’s
apply our learning into practice by understanding the value of creating the business
model.

What’s New
Business models are important for both new and established businesses. They help
new, developing companies attract investment, recruit talent, and motivate
management and staff. Established businesses should regularly update their business
plans or they will fail to anticipate trends and challenges ahead. Business plans help
investors evaluate companies that interest them.

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Successful entrepreneurs understand deeply what and how to run their business.
Profitability can be projected through the high-level plan which is the business model.
Now grab the opportunity in understanding what you need to know!

What is It

Understand things before you start off your business. Business Models are
important for both new and established businesses. Creating a business model
requires deep thought and analysis.

Understanding the key terms:

1. business model refers to a company's plan for making a profit. It identifies the
SSSSSSSSSSSss
products or services the business plans to sell, its identified target market, and
any anticipated expenses.
2. value proposition - a description of the goods or services that a company offers
and why they are desirable to customers or clients, ideally stated in a way that
differentiates the product or service from its competitors.
3. Startup costs are the expenses incurred during the process of creating a new
business.
4. Pre-opening startup costs include a business plan, research expenses,
borrowing costs, and expenses for technology.
5. Post-opening startup costs include advertising, promotion, and employee
expenses.
6. Marketing strategy refers to a business's overall game plan for reaching
prospective consumers and turning them into customers of the products or
services the business provides. A marketing strategy contains the company’s
value proposition, key brand messaging, data on target
customer demographics, and other high-level elements.
7. Demand is an economic principle referring to a consumer's desire to purchase
goods and services and willingness to pay a price for a specific good or service.
8. Investment is an asset or item that is purchased with the hope that it will
generate income or appreciate the in value at some point in the future.
9. Appreciation refers to an increase in the value of an asset over time.
10. Marketing costs are all expenses that the company makes to market and sell its
products and develop and promote its brand.

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A business model is not a business plan

It is a common misunderstanding to think of business modeling as a one-page

business plan.

A business plan is a document with a specific aim. It contains a bunch of assumptions

about your business. It also contains financial projections about the business for the
next 3-5 years. However, those assumptions can be hardly tested. The business plan
thus remains a document that lives in the imaginary world. Written to impress friends
and potential investors not for any use for experimentation.

As we will see the primary purpose of business modeling is about experimentation.

Another misconception around business models is to confuse them with the
monetization strategy or the revenue model of a company. While this is an essential
piece of the puzzle, it is just one of the components of a successful business model.

Business Plan vs. Business Model

a document in which a business
•
opportunity, or a business
• a framework for finding a
systematic way to unlock long-
already under way, is identified, term value for an organization
described and analyzed, while delivering value to
examining its technical, economic customers and capturing value
and financial feasibility through monetization strategies
• the Plan that develops all of the •a holistic framework to
procedures and strategies understand, design, and test your
necessary in order to convert the business assumptions in the
business opportunity into an marketplace
actual business project •is a framework for how a company
•is an indispensable tool in order will create value. It answers
to start up a business project, fundamental questions about the
independently of the size of the problem you are going to solve,
project and/or of the amount of how you will solve it, and the
business experience of the growth opportunity within a given
entrepreneur market.
• provides an answer to simple •should answer important
questions about a new business questions about your business and
or a business already under way: set out a strong vision for the
Which markets?, when?, who? business.
how? where?

Business Plan Business Model

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Understanding Business Models
Creating a business model is essential, whether you are starting a new venture,
expanding into a new market, or changing your go-to-market strategy. You can use a
business model to capture fundamental assumptions and decisions about the
opportunity in one place, setting the direction for success.

A business model is a high-level plan for profitably operating a business in a specific

marketplace. A primary component of the business model is the value proposition. This
is a description of the goods or services that a company offers and why they are desirable
to customers or clients, ideally stated in a way that differentiates the product or service
from its competitors.

A new enterprise's business model should also cover projected startup costs and
financing sources, the target customer for the business, marketing strategy, a review of
the competition, and projections of revenues and expenses. The plan may also define
opportunities in which the business can partner with other established companies.

When evaluating company investment, the investor should find out exactly how it makes
its money. This means looking through the company's business model. Admittedly, the
business model may not tell you everything about a company's prospects. But the
investor who understands the business model can make better sense of the financial
data. Company and product builders must think from the outside in, focusing on market
needs and what matters most to customers.

Successful businesses have business models that allow them to fulfill client needs at a
competitive price and a sustainable cost. Over time, many businesses revise their
business models from time to time to reflect changing business environments and
market demands.

Business models are “at heart, stories — stories that explain how enterprises work. A good
business model answers the following questions:

1. Who is the customer?

2. What does the customer value?’
3. How do we make money in this business?
4. What is the underlying economic logic that explains how we can deliver value to
customers at an appropriate cost?

Establishing this foundation guides the next planning tool — your product roadmap.

Two primary levers of a company's business model:

1. Pricing which is the process whereby a business sets the price at which it will
sell its products and services. It may be part of the business's marketing plan.

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 2. Product Costs which include materials, labor, production supplies and factory
overhead. Cost of the labor required to deliver a service to a customer is also
considered a product cost. Product costs related to services should include
things like compensation, payroll taxes and employee benefits.

A company can raise prices, and it can find inventory at reduced costs. Both actions
increase gross profit. Many analysts consider gross profit to be more important in
evaluating a business plan. A good gross profit suggests a sound business plan. If
expenses are out of control, the management team can correct it. Companies that run
on the best business models are more profitable.

The Key components of a business model should include:

1. your target customers, the market
2. organization strengths and challenges
3. essential elements of the product
4. how it will be sold

Here is a list of essential components included in a business model:

Components Definition
Vision High-level introduction to the company and business model
Key objectives Definition of the top-level goals and how they will be measured
Customer targets and Description of the different types of customers to be targeted
challenges and their pain points
Solution How the product will solve those pain points
Value The key characteristics that differentiate the product offering
Pricing A view into what the solution will cost and how it will be sold
Messaging Explanation of why the offering will serve a customer’s pain
points
Go-to-market Channels that will be used to reach and sell to customers
Investment required Costs required to make the solution successful
Growth opportunity Identified ways the business will grow

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Seven Key Elements of the business model

Cost Structure Revenue Stream

1. Key partners mean that you and a company that you have no direct competition
with, industry wise, will partner together in ways that will benefit the both of you.

Example: To maintain the quality of your product, you can partner with a best
peanut butter supplier to produce fillings for your bread business products that
you yourself may not be able to make. In return, you have a contract to pay for
these products that your partner has made you.

2. Key activities represent what the company must do to make the business model
work. These activities can be producing a product or providing a service, or a mix
of both.

If your business focuses on production of a product, your activities may include

learning more about the customers and new production techniques to improve
the product.

Example: If you own a restaurant, some of your activities may be to experiment

on new recipes to provide your customers with new dishes to bring new
customers or provide more varied options for your customers.

3. Key resources – describes the most important assets required to make a

business model work. These are the resources that allow an enterprise to create
and offer a Value Proposition, reach markets, maintain relationships with
Customer Segments, and earn revenues.

4 Categories of Key Resources:

1. Physical – Buildings, vehicles, machines, raw goods, etc.

2. Intellectual – Brand, proprietary knowledge, patents, partnerships, etc.

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 3. Human – Creativity, experience, etc.
4. Financial – Cash, credit, stock, etc.

4. Distribution channel is to provide a link between production and consumption. A

distribution channel can be very simple, with just two layers (producer and
consumer). A distribution channel can also be very complicated, with several levels.

What factors should be taken into account in choosing the best distribution
channel?

1) Nature of the product

✓ Perishable, Perishable/fragile? A product with a short-life
✓ Customised? A direct distribution approach often works best for a
product that the end consumer wants providing to a distinct
specification
✓ Desired image of the product
✓ Type of product – e.g. convenience, shopping, speciality
2) The Market
✓ Is it geographically spread?
✓ Does it involve selling overseas
✓ The extent and nature of the competition – which distribution channels
and intermediaries do competitors use?
3) The Business
✓ Size and scope – e.g. can it afford an in-house sales force?
✓ Marketing objectives – revenue or profit maximisation?
✓ Does it have established distribution network or does it need to extend
its distribution option
✓ How much control does it want over distribution? The longer the
channel, the less control is available
4) Legal issues
✓ Are there limitations on sale?
✓ What are the risks if an intermediary sells the product to an
inappropriate customer?

5. Customer segment are the community of customers or businesses that you are
aiming to sell your product or services to.

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 Customers can be segmented into distinct groups based on needs, behaviors and
other traits that they share. A customer segment may also be defined through
demographics such as age, ethnicity, profession, gender, etc or on their
psychographic factors such as spending behavior, interests, and motivations. An
organization can choose to target a single group or multiple groups through its
product and service.

6. Cost structure defines all the costs and expenses that your company will incur
while operating your business model. This final step in the process is important,
because it will help your team decide whether to pivot or proceed.

7. Revenue stream elaborates the earnings a business gets by subtracting the costs
from the revenue generated from each customer segment. It represents the cash,
not the profit, that the business has flowed in, at present. Specifying the pricing and
projected lifecycles of the list of resources. If the cost of designing and producing a
product is more than what the customer is willing to pay for it or greater than the
revenues the product will rake in before its lifecycle ends, then it does not make
business sense to go ahead with the product.

A business model implies the understanding of operations, customer acquisition,

retention, supply chain management, besides monetization. A designed business
model of in every organization, there will be a piece that plays a more critical role
compared to others. For example, the business model for an Services business may
identify benefits from an arrangement for referrals to and from a printing company.

For instance, a vital component of the Julie’s Bakeshop business model is its
franchising strategy. For other companies like McDonald’s, the key to its business
model success is the heavily franchised restaurants that helped the company scale up
all over the world.

Each company will develop a unique model among the many types of business models
which is what makes your company robust in the long-run!

There are many types of business models. Each one varies considerably based on the
type of organization and offering. For example, a manufacturing company will have a
very different model than an advertising agency. Even within a specific industry,
business models vary.

Here are a few common business models used by technology companies:

1. Subscription
2. Transactional
3. Freemium
4. Affiliate
5. Retail sales

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The importance of business model design

Real World
✓ Messy simple simple Long-
quantitative qualitative
✓ Unpredictable thinking
analysis analysis
thinking Add focus term
tools tools
✓ Noisy Vision
✓ ambiguous Strategies

In the real world of business scenario, it is very important to look at the long-term vision
of the company considering all the messy, unpredictable, noisy and ambiguous business
environment and settings. Meaning, as an entrepreneur plays the marketing tools and
strategies on hand, he has to do understand the economic condition that will directly or
indirectly affect the business applying the strategies of simple thinking tools, qualitative
and quantitative analysis with focus to attain the long-term vision aimed by the
company.

The Primary aim of a business model:

1) to create a sustainable chain
2) able to unlock value for several players in a market, industry or niche

For instance, when Bo’s Coffee started it didn’t look to dominate the whole market. It
started from a niche. As Pether Thiel put it in his book, Zero to One. Bo’s Coffee began
as follows:

1. Identifying its most valuable partner

2. what at the time they called “power user.”

That was a choice driven by its business model design. Therefore, instead of focusing
on generically offering a coffee for everyone, Bo’s Coffee focused on acquiring and
attracting as many power coffee drinkers as possible.

Those power drinkers were mostly on call center company areas that had already scaled
them up. Thus, Bo’s Coffee focused all its effort on acquiring those power coffee drinkers

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from call center companies and offices, fast! Only after Bo’s Coffee had drafted, tested,
and validated a clear value proposition for a small, yet a critical group of power coffee
drinkers, it could move on to take larger and larger segments of that market.

Business modeling is about experimentation

Where scientists use labs to test their hypothesis through experimentation.

Entrepreneurs build business model experiments to test their business ideas in the real
world. Study and carefully analyze the details and flow given.

Test
emphatize viability
sustain
Culture ability
Design
Motivat Thinking
define feasibiliy
ion prototype Process
Context

ideate

https://fourweekmba.com/what-is-a-business-model/#A_business_model_is_not_a_business_plan

FourWeekMBA perspective on business model components for startups

https://fourweekmba.com/what-is-a-business-model

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The key components of any business model analysis are:
• A compelling value proposition: How do you want your people to think about
your brand?
• A unique brand positioning: What do you offer to your people that make them
want more?
• A 10x goal setting: Can you offer a 10X better product or service? (compared
to existing solutions)
• Customer segments: Who is your customer? (to notice here we’re not talking
anymore about people but customers, those willing to pay for your product or
service)
• Distribution channels: How do you get your product or service to your
customers?
• Profit formula: Is the business financially sustainable?

This business model framework has four aims:

1. simplicity: heuristics-based rather than complex models
2. noise reduction: choosing a few key data points, rather than looking at a
massive amount of data that only adds noise and paralyze decision-making
processes
3. branding and distribution: looking at a business model as a systematic way
to build a strong distribution network and a strong brand. The two things walk
hand in hand
4. and profitability: the financial viability of a business model is a key element
for its success

There are two dimensions of a business in this framework that should walk hand in
hand:
I. People dimension

Elements of people dimension:

a) A compelling value proposition: How do you want your people to think
about your brand?
b) A unique brand positioning: What do you offer to your people that make
them want more?
c) A 10x goal setting: Can you offer a 10X better product or service?
(compared to existing solutions)

II. Financial dimension

Three elements of the financial dimensions are:
a) Customer segments: Who is your customer? (to notice here we’re not
talking anymore about people but customers, those willing to pay for your
product or service)
b) Distribution channels: How do you get your product or service to your
customers?
c) Profit formula: Is the business financially sustainable?

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 This people dimension will help you build a solid brand. A solid brand builds up a tribe,
a group of people that can follow you anywhere. Once you have a solid brand, you can
focus on the second dimension: the financial dimension.

Sample Business Model Framework

Vision Mission

What is the long term How do you got closer to achieve

hard problem you are this hard problem in short term?
solving?
VALUE
Value Proposition
What use cases, do we prioritize as they are all target with our customer needs?

Costs Structure R&D Management

Revenue generation How does the company spend How do we handle
How does the company money to make money? (Cost people resources
make money? of Sales) considering possible
expansion?
BUSINESS MODEL
FINANCE TEMPLATE
TECHNOLOGY
Profitability
Cash Generation Production and Distribution
Is the company
Is the company Cash
profitable? What’s More
positive?
How do we enable the product
in manufacturing and
Marketing distribution? How do we enable
Brief essay. In
just one (1) sentence fill How
out with details built-in features of
do we sell on how
and what are the this elements ofto financial machines/IT equipments to
product
the right
dimension of your start up business structure: help us in our product
audience?
Use the products and business you have in the innovation?
previous modules. Write answers briefly and
clearly in a separate sheet of paper.
DISTRIBUTION
Partnership Deals
Who do we partner with to What deals do we close to help
expand our customer base? us in our product promotion?

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 What’s More

Elements Description of business financial dimension

1. Customer segments

2. Distribution channel

3. Profit formula

What I Have Learned

Express your insights on your planned business model. Revisit the vicinity map you’ve
made in Module 3.

Instructions: Using your identified location map in Module 3, draw the vicinity map of
your business located in your sitio in a clean sheet of paper. Explain in three(3)
sentences why you choose this area for your business?

What I Can Do

Application. Now it’s your time to identify the components of your home-base business.
Use the details from your home-based business in the previous modules. Write the
answer clearly in a separate sheet.

Have your business experimentation!

Components Business Details
Vision
Key objectives
Customer targets and
challenges
Solution
Value
Pricing
Messaging

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 Go-to-market
Investment required
Growth opportunity

Assessment

MULTIPLE CHOICE: Write the letter of your correct answer in a separate sheet of paper.

1. What is an assumption of your business that also contains financial projections about
the business for the next 3-5 years?
A. Business Plan C. Value Proposition
B. Business Model D. Start-up costs
2. What is a high-level introduction to the company and business model?
A. Business Plan C. Mission
B. Vision D. Objectives
3. What is a high-level plan for profitably operating a business in a specific marketplace?
A. Business Plan C. Value Proposition
B. Business Model D. Start-up costs
4. What is defined as a description of the goods or services that a company offers and
why they are desirable to customers or clients, ideally stated in a way that differentiates
the product or service from its competitors and the primary component of the business
model?
A. Business Plan C. Value Proposition
B. Business Model D. Start-up costs
5. What is th term given for the description of the different types of customers to be
targeted and their pain points?
A. customer targets and challenges C. Value
B. go-to-market D. Pricing
6. What refers to a company's plan for making a profit. It identifies the products or
services the business plans to sell, its identified target market, and any
anticipated expenses?
A. Business Plan C. Value Proposition
B. Start-up Costs D. Business Model
7. What channels that will be used to reach and sell to customers?
A. customer targets and challenges C. Value proposition
B. go-to-market D. Start-up costs
8. How the product will solve those pain points?
A. customer targets and challenges C. Solution
B. go-to-market D. Pricing

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9. What is an economic principle referring to a consumer's desire to purchase goods and
services and willingness to pay a price for a specific good or service?
A. Demand C. Value proposition
B. Solution D. Start-up Costs
10. What is an aim element of the business model which is looking at a business model
as a systematic way to build a strong distribution network and a strong brand?
A. Profitability C. Noise and reduction
B. Branding and distribution D. Simplicity

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 Answer Key

Assessment
10.Marketing costs
9. Pricing
8. Demand 1. A
7. Investment 2. B
6. Appreciation 3. B
5. marketing strategy 4. C
4. Startup costs 5. A
3. business plan 6. D
2. value proposition 7. B
1. business model 8. C
9. A
What I know 10. B

References
https://www.investopedia.com/terms/b/businessmodel.asp
https://hbr.org/2015/01/what-is-a-business-model
https://www.investopedia.com/terms/m/marketing-strategy.asp
https://www.aha.io/roadmapping/guide/product-strategy/what-are-some-examples-
of-a-business-model
https://fourweekmba.com/what-is-a-business-
model/#A_business_model_is_not_a_business_plan
https://www.mbaskool.com/business-concepts/marketing-and-strategy-
terms/13635-marketing-cost.html
http://www.madrid.org/cs/StaticFiles/Emprendedores/Analisis_Riesgos/pages/pdf/
metodologia/1Plandeempresa(AR)_en.pdf
https://www.cleverism.com/customer-segments-business-model-canvas/
https://bmcintroduction.wordpress.com/key-resources/
https://www.tutor2u.net/business/reference/distribution-channels

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