MODULE 2

DEVELOPING A BUSINES MODEL

What is the business model canvas and why is it important?

If you need to summarize and communicate a business idea or concept, the business model
canvas is an ideal visual tool to do just that.

Originally devised by Alexander Osterwalder in 2005, the basic model is described in his 2010
book “Business Model Generation”. Although numerous specialized versions of the canvas have
since been devised (including a lean version) the basic template remains a simple document with
nine boxes representing the core elements of any business model or idea: customer segments,
value propositions, channels, customer relationships, revenue streams, key resources, key
activities, key partnerships, cost structure.

As you can see, the nine elements of the business model canvas include both the main external
and internal factors that will affect any business. By combining the two sets of influences in a
single exercise, you can clearly identify your business’s value proposition: i.e. exactly what your
business is offering to customers and clients.

What is the purpose of the business model canvas?

 The purpose of the business model canvas could be described as simplicity. A new
business idea or concept can be a complicated challenge to make real. The beauty of the
business model canvas is that it brings all the essential information about the business
together and lays it out logically on a single sheet of paper (not always a physical sheet of
paper, of course).
 This aids in keeping a variety of complex, interrelated factors in mind, while enabling
entrepreneurs, business owners, and strategists to move the business forward – always
focused on the value proposition at its core.

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 The importance of business model canvas is that it offers a high-level analysis, provides
important insights, and a greater understanding of your venture, all while avoiding getting
bogged down in the details.
 Other than providing a general overview of the business model, these canvases enable
companies to visualize and analyze their strategy. This includes updating the model as the
company evolves, such as changes in the market, new streams or expansions.
 The business model canvas provides the central, common source of knowledge through
which each department can add their unique input from their respective domains.
 It is a template that defines the business - specifically, how each section interacts with
the others. For example, understanding the value proposition, the target customer and
the channels through which they are engaged all need to be analyzed together, not just
in individual vacuums.
 Alternatively, the business model canvas can be used by organizations to plan, assess or
execute new models altogether. In this way, the canvas highlights the key essentials and
ensures that no vital factors are forgotten. If the canvas is incomplete, then the respective
strategy is also incomplete.

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Osterwalder Business Model Canvas

The Business Model Canvas is organized in nine building blocks that represent a business
model's key elements. These building blocks are:

1. Value Proposition - The unique value the business provides to its customers and how it
differentiates itself from competitors. In other words, it’s what sets your business apart,
what makes it special, and what value it brings. What are you offering the
customer/client/user? What are your products and services? What problem(s) and
specific pain points do they address? What is unique about your business? Why would
your target market turn to you rather than the competition? How can they distinguish
between you?
2. Customer Segments - The different groups of customers the business targets with its
products or services. This building block looks at your most important customers. Your
target audience. Who are the key customers or users of your business? Who are you

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 solving a problem for? What do they do? What draws them to you? What are your top
three segments?
3. Customer Relationships - The business' relationships with its customers and how it
interacts with them. This is a fundamental building block as not only does it help you build
and maintain a relationship, it also enables you to map out the cost and deliverables
needed to continue to improve that relationship. What are the key relationships, and how
do you maintain them? Having attracted clients and customers, how do you plan to retain
them? How do you nurture your customer/client relationships? Are you going the
automated route (think about how Amazon maintains post-sale contact with automatic
messages and emails) or something more personal
4. Channels - The different channels that the business uses to reach and interact with
customers, including physical and digital channels. How do you reach out and connect
with your customers? How exactly do your customers come into contact with your
business? How are you communicating your value proposition? This includes both
physical (bricks & mortar store, sales reps, face-to-face networking, etc.) and digital
channels (website, mobile app, cloud platform, social media, etc.)
5. Key Partnerships - The relationships and collaborations that the business has with its
suppliers, vendors, and other external partners. Who are the people and institutions
without whom your business wouldn’t run? These might be other companies, joint
venture partners or collaborators, suppliers, holding companies or subsidiaries, strategic
alliances, or other third parties. Who else do you rely on to deliver your value proposition?
6. Key Activities - The key activities that the business must perform to deliver its value
proposition and operate successfully. This building block helps you to define your most
mission-critical actions and prioritize them accordingly. What are the daily activities that
keep your business (and business model) running? What is it you actually do to deliver
your value proposition?
7. Key Resources - The key resources the business requires to operate, including human
resources, physical assets, and intellectual property. This can also include relationships,
distribution channels, and virtual assets. What do you use to run your business – people,

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 knowledge and skills, office space, the internet, intellectual property, budget, etc. What
resources are necessary to keep running?
8. Revenue Streams - The different sources of revenue that the business generates from its
customers, including one-time sales, recurring revenue, and other revenue streams. This
building block also helps determine how each stream contributes to the business profit.
9. Cost Structure - The various costs that the business incurs to operate, including fixed
costs, variable costs, and other expenses. It also helps you identify your most expensive
assets and activities to make effective financial plans for the future. What are the costs of
running your business model? Consider production or manufacturing costs, the physical
space your business occupies (if any), research & development, marketing and sales, legal
costs, etc. Are these costs fixed or variable?

A business model is a plan for how a company is going to make money. This can be simple or very
complicated. The components of a business model include details on all operations, as well as
short- and long-term visions for the business' growth. Without a business model, investors and
owners will not have a clear idea of how to best grow the business, and it will be much harder to
create a stable and sustainable concern.

Components of an effective business model.

 Value Proposition and Market Segment

These parts of the business model describe how the product or service addresses the customer's
needs and the value of the product from the customer's perspective. The value proposition
describes the mix of product, service, customer relations and brand image unique to the
company.

The value proposition helps the company to differentiate itself from competitors and to focus on
providing core value for customers. The market segment is a related component and describes
what type of customers or what segment of the market the business will target.

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  Value Chain Structure

The value chain describes the chain of activities for a given business. This includes all the activities
that a product or service goes through as it is being created and sold. As it passes through each
part of the chain, the product or service gains more value. A business model will include
descriptions of activities in the value chain and a discussion of how the company will use the
chain to increase the value of the product or service being created.

 Revenue Generation Strategies

This portion of the business model notes how revenue will be generated by the company.
Revenue may be generated in different ways, including sale of a product or service, subscriptions
and paid advertising on the company's website by other companies. The overall cost structures
and estimated profit margins should be included in this section of the business plan.

 Position in the Market

This component is also called the position in value network. In this section of the business model,
identify competitors and how your product or service will differ from theirs, for example, by
having a lower price, more features or better service. You can also identify complementary
products or services that may help you sell your product or service. For example, PayPal helps
sites such as eBay and Amazon.com do business, so it is complementary to those businesses.

 Long-Term Strategy

Outline how you will develop and maintain a competitive position in the market: for example,
whether you will use a low-cost strategy, a value-added strategy, a pioneer strategy or a growth
strategy. Most businesses eventually develop a complex strategy or series of strategies, but in
the initial business mod

Benefits of business model canvas

Apply the business model canvas to your existing situation or to a new concept or direction. The
potential advantages and uses of business model canvas include:

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  Visualize and explore your business model,

 Clear expression and communication of your idea or concept to the team, stakeholders
or potential investors,

 Clarify the issues faced by your customers or users, leading to more sophisticated and
targeted solutions,

 Involving the team and stakeholders in the process raises engagement and commitment
to the business,

 Incorporate user feedback into your business model,

 Verify that your business model is correctly focused (or correct it if it isn’t),

 Understand the influence that customers and users have on the way you do business,

 Where you have multiple product lines or services, get a clear view on the potential
conflicts and dependencies,

 A business model canvas can serve as the foundation for a more detailed business plan.

Another advantage relates not so much to the outcomes as to the process itself: given the scope
of the exercise, the business model canvas is quick to complete, giving you rapid insights into
your business.

Finally, you don’t have to apply the business model canvas only to your own business. Take time
to map the business models of your key competitors. This gives you a more in-depth
understanding of the market as a whole, how customer needs and pain points are currently being
addressed (or not!), and how you can further differentiate yourself from the competition.

Why is the business model canvas important?

Every business is at risk from the unknown, especially when heading in a new direction or
launching a new product or service. To minimize and manage that risk, you need knowledge and
insight. The business model canvas is ideal for gathering existing knowledge about your business
and presenting it in a highly usable format. It also clearly outlines any gaps in that knowledge,

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pointing the way forward and enabling you to develop an appropriate and nuanced strategy for
success.

Small Scale Industry

Small Scale Industries (SSI) are industries that manufacture, produce and render services on a
small or micro scale level. In India, several SSIs exists in various fields such as handicrafts, toys,
weaving, pickle making, food products, etc. These industries make a one-time investment in
machinery, plant, and equipment, but it does not exceed Rs.10 crore and annual turnover does
not exceed Rs.50 crore.

Types of SSI

SSI are primarily categorised into 3 types, based on the nature of work carried out, which are as
follows:

 Manufacturing Industries

The manufacturing industries manufacture finished goods for consumption or used further in
processing. Some examples of such SSIs are food processing units, power looms, engineering
units, etc.

 Ancillary Industries

Ancillary industries manufacture components for other manufacturers. These manufacturers

then assemble the final product. Big companies manufacture finished goods, but they do not
generally make all the parts themselves. The vendors of such big companies are ancillary
industries.

 Service Industries

Service-based industries are not involved in any kind of manufacturing products. They provide
services such as repair, maintenance and upkeep of the products after-sales.

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Other types of SSIs are as follows:

 Export Units

An SSI is considered as an export unit when the exporting is more than 50% of its production.

 Cottage Units

The cottage units are considered as SSIs when they do not involve a dedicated facility and are
carried out within living spaces or houses of the owners.

 Village Industries

An SSI is considered village industries when they are established in rural areas and are not part
of the organised sector. Typically, these industries solely depend on human labour for
production.

Starting a small scale industry

1. Product Selection

The first and foremost step which should be taken while launching a small scale industry is to
choose a product to be produced. Before choosing that product, one must also conduct market
research on various products and then only choose to produce it. Some factors which must be
kept in mind while researching on the market are:

1. The product must be unique.

2. The product must have little or low competition from its competitors in the market.

3. The product should be new and innovative.

4. The raw materials needed to produce these products must be readily available.

5. The production of the product must be in the budget.

6. The product should be easily accessible in the market

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The potential business entrepreneur must have clear small scale industry ideas before production
because the product is the core of the business. Some small scale industries examples are
producing handmade chocolates, making handmade soaps, producing spices, papad, and other
dry food items, producing hair oil, etc.

2. The pattern of the Organisation

Small scale industries can be chosen to be in three main forms of ownership. These are
Proprietary, Partnership, and Company.

Proprietary implies all the rights that the proprietor or the property owner can exercise and all
the items or products produced and marketed under exclusive rights. By exclusive right, we mean
that those rights are to be exercised only by the proprietor. The proprietary also has a registered
trade name. This trade name also protects the business from unethical works such as copying.

A partnership is an association of two or more people. The individuals involved in the small scale
industry business invest their money together in the partnership and carry on the company as a
joint venture. While being in a joint venture, the benefits and the losses are immense because of
the profits, losses, and risks shared by all the individuals involved. The partnership is also
characterised by the fact that the business gets the combined capital and managerial skills of all
the individuals involved. There the "partners" get a mutual benefit.

A company abbreviated as co. is a legal entity that is created by the state whose liabilities and
assets are separate from its owner. A company represents an association of people who may be
natural legal or a mixture sharing a specific objective.

Therefore according to the above guide, a person can decide the pattern of his organisation.

3. Provisional Registration

It is always worthwhile to register the unit with the authorities. The entrepreneur must receive
the specified application from the DIC or Directorate of Industries for provisional registration.
This will allow the entrepreneur to take advantage of numerous government facilities, incentives,
and assistance programmes, such as financial help from NSIC/SFCs/KVIC.

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After all the above steps are done, the small scale industry should be registered with higher
authorities like DGSD, RBI, RLA and State Directorate of India. This should be done so as the
government will recognise one's industry. Small scale industry registration has become hassle-
free as, under the Udyog Aadhar scheme, one can easily fill the online registration form to get
the registry done. It is free of cost one doesn't even need to pay for the processing. After
registration, one will get the registration certificate on the email id only after the documents
verification is completed. Some information that is compulsory to be shown is contact details,
bank details, and business details, number of employees. An Aadhar card is also one of the
mandatory documents to be shared.

These were few steps that should be taken if a person wants to be an entrepreneur of a small
scale industry business. This is a basic guide for a person who does not know how to start a small
scale industry. Some small scale industry examples are Rice mills, potato chips, beverages, toys,
etc.

4. Location of the Enterprise

Location is a crucial factor while setting up a small scale industry. Location affects a lot of other
important factors such as transportation costs, availability of raw materials, availability of land at
low rates. Suppose the location of the production unit is in the proximity of the source of raw
materials. In that case, the transportation costs reduce and it maximises the profit. In India, the
government also offers pre-built areas or developed plots to develop small scale industries. So if
a person wants to start a small scale manufacturing business, he/she can easily start one by
registering with the government

5. Project Appraisal

Project appraisal signifies the analysis of a scheme or project that has to be prepared according
to all the aspects such as financial aspect, technical aspect, marketing, and management. This is
done so that it will become the most feasible enterprise. It also helps the entrepreneur to acquire
data that will help him in the future. This will help it to become one of the best small scale
industries.

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Analysis of the project is done by researching the product’s performance in the market, its
demands, and consumption. One can also analyse a certain idea by researching it, just like it was
stated above. So that if the idea about a certain product works and helps in more sales, it will be
incorporated by the company or enterprise for a long period. But if the idea doesn't work, it can
be discarded as soon as possible.

6.Finance

Finance is the enterprise’s lifeblood. To receive it, the entrepreneur must take specific
procedures and adhere to the rules and regulations of financial organisations and banks.

Business Plan

A business plan is a document demonstrating the feasibility of a prospective new business and
providing a roadmap for its first several years of operation. Business plans are an important part
of creating new businesses, whether as a startup or an offshoot of an existing business.

Business planning process

A business plan is just one step of the business planning process. The steps of the business
planning process below will help you understand it:

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  The preliminary investigation

The preliminary investigation includes the following steps: Identify the problem or
opportunity: The first step is to identify the problem or opportunity that the proposed system is
intended to address. This may involve interviews with stakeholders, reviewing existing systems,
and analyzing the business processes.

 Idea generation

Idea generation is a creative process businesses use to generate new ideas, whether they're
tangible or intangible. It involves gathering ideas, research, testing, editing or revising, and
ultimately implementing the plan. There are many techniques that can be used.

 Environmental scanning

Environmental scanning is the process of gathering information about events and their
relationships within an organization's internal and external environments. The basic purpose of
environmental scanning is to help management determine the future direction of the
organization.

 Feasibility analysis

Feasibility analysis involves assessing your new business idea in detail to determine if it will be
viable. This can build on any initial research you've already done. A feasibility analysis helps you
consider the costs and activities required to set up and run a business, and how to make an
informed decision about whether to start a business and how to do it.

Most importantly, it will give you a picture of the costs involved that you'll need to consider and
the revenue and profit you can realistically expect to generate.

 Functional planning

Functional planning focuses on specific actions that need to be taken in order to support the
attainment of both long-term and short-term goals. It incorporates the day-to-day operations
that are geared toward the attainment of tactical and strategic goals.
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  Project report

A project report summarizes a project's key aspects, including its goals, timeline, budget,
progress, and outcomes. It provides project managers with critical information to monitor and
evaluate the project's performance, identify potential risks and challenges, and communicate
progress to stakeholders.

 Evaluation and Control

A Strategy Evaluation and Control Framework. Strategy evaluation and control include 3 basic
activities. They are:

(1) Examining the underlying bases of a firm's strategy,

(2) Comparing expected results with actual results, and

(3) Taking corrective actions to ensure that performance conforms to plans.

Advantages and disadvantages of a business plan

While creating a business plan is a critical step in launching and running a successful business, it's
important for managers and business owners to remember that there can be drawbacks.
Advantages and disadvantages of a business plan are as follows:

Advantages of a business plan Disadvantages of a business plan

 Provides a roadmap for achieving  Can be time-consuming and require

business objectives significant effort to create

 Helps secure funding and attract  Business plans may become outdated
investors quickly and need to be regularly updated

 Allows for more informed decision-  May lead to overconfidence in the

making business's success

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  Promotes a harmonious working  Can be limiting and prevent businesses
structure among employees and from adapting to changing market
business owners conditions

 Helps track business progress

 Provides a framework for measuring

success

 Helps mitigate risk

What is the feasibility analysis?

A feasibility analysis helps you consider the costs and activities required to set up and run a
business, and how to make an informed decision about whether to start a business and how to
do it.

Types of feasibility studies

There are numerous feasibility studies a consultant can perform before a company decides on a
project, and multiple study types may be combined to cover all aspects of the project from start,
progress, completion and delivery. A few of them are:

Technical Feasibility: Technical feasibility study checks for accessibility of technical resources in
the organization. In case technological resources exist, the study team will conduct assessments
to check whether the technical team can customize or update the existing technology to suit the
new method of workings for the project by properly checking the health of the hardware and
software.

Many factors need to be taken into consideration here, like staffing requirements,
transportation, and technological competency.

Financial Feasibility: Financial feasibility allows an organization to determine cost-benefit

analysis. It gives details about the investment that has to go in to get the desired level of benefit

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(profit). Factors such as total cost and expenses are considered to arrive simultaneously. With
this data, the companies know their present state of financial affairs and anticipate future
monetary requirements and the sources from which the company can acquire them. Investors
can largely benefit from the economic analysis done. Assessing the return on investment of a
particular asset or acquisition can be a financial feasibility study example.

Market Feasibility: It assesses the industry type, the existing marketing characteristics and
improvements to make it better, the growth evident and needed, competitive environment of
the company’s products and services. Preparations of sales projections can thus be a good market
feasibility study example.

Organization Feasibility: Organization feasibility focuses on the organization’s structure,

including the legal system, management team’s competency, etc. It checks whether the existing
conditions will suffice to implement the business idea.

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