Developing Business Model

Joanna Claire Miranda | April 26, 2018

Business Model
A firm’s plan/recipe for how it creates, delivers and
captures value for its stakeholders
The proper time to develop a business model is following
an initial validation of a business idea and prior to fleshing
out the operational details
A firm’s business model is integral to its ability to succeed
both in the short and long term.
Initial Preparation Fleshing out
validation of of the the operation
the business business details of the
idea model company
Three important element of a business model

Target
market
Can be further
expended to make it
Basis for more effective
Firms differentiatio
busines n
s Key assets
model
General categories of business model
Amazon took Sears
Roebuck & Co mail order
model online
Ebay took auction model
& moved it online
Standard Improvising
from existing
plans and
Categories of recipes
business model

Caution: Disruptive Disrupt/change

New business model the way
companies
should
business is
guard conducted in
themselves the industry
against
thinking New/important
market disruption-
that one niche in
addresses the that wasn’t
a market
particular
Strength of the served-Google
industry & its AdWords
business
model is a opportunity must be Low end market disruption-
homerun firms in an industry continue to
assessed and the
regardless improve its product & services
of feasibility of the idea to better serve their clientele
circumstan
ces
must be validated needs- low cost budget airlines
Standard Business Models
Standard business models depict existing plans or recipes firms can use to
determine how they will create, deliver, and capture value.
There are a number of standard or common business models, such as:
Description
Providing advertisers access to highly
targeted customers
Providing an online option for auction
Integrates Offline and Online business
model
A firm that has successful business, licenses
its trademark and method to franchisee
Offers basic version for free, sells & makes
money from premium version
Cost efficiency and makes money by
servicing large customers
Manufacturer makes and sells its product, online, offline or both

Matchmaker of individuals who have a

service to offer and customers who need
 What
Disruptive Business Models type is
your
Disruptive business models, which are rare, are ones
business
that do not fit the profile of a standard business model. model
They are impactful enough that they disrupt or change
the way business is conducted in an industry or an
important niche within an industry.
Below are few samples of business models that were
disruptive when they were introduced.

What did they disrupt

COPYRIGHT © 2016 PEARSON EDUCATION LTD.

 Barringer/Ireland Business Model Template

Although not
everyone
agrees precisely
on the
components of
a business
model, many
agree that a
successful
business model
has a common
set of
attributes, as
laid out in this
template
COPYRIGHT © 2016 PEARSON EDUCATION LTD.
Core Strategy
It is what solves a problem or satisfies a
customer need.
It is best to limit a company’s basis of
The first component of the business model differentiation to two to three key points.
Make sure that your points of differentiation
refer to benefits rather than features.
A core strategy describes how the firm plans to compete Businessrelative
Missionto its competitors.
Basis of differentiation
The primary elements ofIf carefully
core strategy
written and
are:
Mission statement describes Value proposition; what will
Business Mission used properly, a mission why it exists & what its make consumers pick this
statement can articulate a
business’s overarching business model is suppose to company’s product/service
Basis of Differentiation
priorities and act as its achieve. over other.
financial and moral
Target Market compass.
A well-written mission
Product/Market Scope statement is something Core Strategy
that a business can
continually refer back to as
it makes important
decisions in other
elements of its business
model. Target market Product/Market Scope
Clearly identify the narrower Products and markets that
The identification of the target
market in which the firm will group of customers that the the company will concentrate
compete is extremely important. company is targeting
A target market is a place within a
larger market segment that
represents a narrow group of
customers with similar interests. A company’s product/market scope defines the products
A firm’s target market should be and markets on which it will concentrate.
made explicit in the business Most firms start with a narrow (or limited) product/market
model template. scope, and pursue adjacent product and market
opportunities as the company grows and becomes more
financially secure, company should be very clear about its
COPYRIGHT © 2016 PEARSON EDUCATION LTD. initial product/market scope and project 3-5 years in the
Resources
Resources are the inputs a firm uses to produce, sell, distribute, and service a product or service.
A firm’s most important resources, both tangible and intangible, must be both difficult to imitate
and hard to find a substitute for.
This stipulation is necessary for an individual company’s business model to be competitive over
Core
the long term.
Key Assets
Competency
Specific factor or capability that supports a firm’s Assets that firms own that enable its business model to
business model and sets it apart from its business work
rival

Can take on various forms; technical know how, an Made up of; physical assets, intellectual assets,
efficient process , a trusting relationship with a financial assets, and human assets
customer, expertise in product design to name a few

Most start-ups will list 2 or 3 core competencies Firms vary regarding the key assets they prioritise and
accumulate. Eg. Whole Foods market rely on physical
assets because of its stores whereas Uber relies
exclusively on intellectual market
 Financials
This is the only section of a firm’s business model that
describes how it earns Revenuemoney—thus,
Streams it is extremely
important.
Describes how the company will make money. Some have one
revenue stream to leverage the value they are creating for customers,
other have two or more such as subscription and online for instance

Cost Structure- Financing

The most important cost to support the How they acquire
business. It cost money to establish a basis for finance/funding.
differentiation , develop core competencies, Normal for up front
acquire key assets for example. capital to start a
business
Business can be cost Identify the nature of the Personal Sources or other
driven or value driven. business cost ( fixed and options . Also need to
Cost driven- minimize variable cost structure) & consider the nature of the
cost wherever possible, identify the business cost; capital cost, one
Value driven- high quality major cost categories time cost and ramp-up
product or service and ( such as data centre cost expenses
personalized service or marketing and
advertising)
Think of examples for each- cost and
value driven
 Need to Operations
develop
Direct sales force-
core –
expensive but may be
competency necessary
in
manufacturi
ng and May be
procure key cheaper
assets Product or Service Channels-How it
related to
Production delivers its products
production
Need up front
process
investment Focuses on how the and services to its
customers
a firm’s
Direct- Store or
product/service is online
produced Intermediaries- like
If the firm sells via Amazon, travel
physical product, will Key partners-
agent – no store
Emerging trend is to use
it be produced in- Usually start-up
presence freelancers that have
How to locate
suitable house, by contract rely on partners to skills in certain area

providers manufacturer or via perform key role;

outsource provider First will be
suppliers-supply
chain
management
Key Partners-Examples
TutorialUsing Barringer/Ireland Business Model Template,
develop your business model.