Transcript *Business Models Made Easy* Don Debelak
Key Course Information
Recap
For labs next week…
Lab registration Be sure that you have registered in a lab on the course website and check the room location Remember to take the coupon sheet that came with the lab manual to your lab You need it to get the access codes for the 2 assessments due at the end of the week Read the Lab #1 materials carefully and make sure you have prepared for the lab as per the instructions Remember that ½ of your participation mark is determined based on your prep work for the lab
Additional Sessions
DON’T FORGET! the mandatory BBA Student Success Session Sunday night at 7pm in P1025/27 for all students that did not attain a B- in BU111 or BU111/127 combined (C+ and below) Strongly recommended for those who only attained a B Everyone that wants to improve their grade in BU121 is welcome Students that had a C- or lower must also make an appointment with the Academic Advisors in the BBA office
Business Models
How you intend to make money with your idea…Turning your idea into a profitable business or sustainable not for-profit “A product is the centre of a business model, but it is not a business in and of itself – it can’t succeed without a great business model.
” The Dragon’s Den Guide to Real-World Business Models
Learning Objectives
After studying this topic, you should understand: what a business model is and the different building blocks that make up a business model why it is important to understand your business model why companies in the same industry or with essentially the same product/service might have different business models how a company’s business model affects how it operates some of the common patterns found in business models the process of building a business model and be able to apply it
What is a Business Model?
“a business model describes the rationale of how an organization creates, delivers, and captures value” Alexander Osterwalder – “Business Model Generation” How a company intends to make money / the logic by which it sustains itself financially How your idea actually becomes a business that makes money / social venture that is sustainable Different companies can have similar offerings but different business models Model affects strategy/ways of operating Blueprint describing how an organization operates
Gillette virtually gives away the handle and makes its money selling a steady supply of razor blades Companies that sell electric shavers make their money up front
3 Ways to Make Money in Water Filtration
Q Water
Rents water filtration systems for a monthly fee to restaurants
AquaOvo
Sells water filtration systems with a stylish cooler for a one-time fee to individuals
Event Water Solutions
Rents water filtration systems for a per event fee to event holders
Subscription-based vs advertising-based revenue model Focus on selecting content readers willing to pay for vs selecting content to attract readers advertisers want to sell to
Sell tickets at cost and make profits on refreshments Refreshment stand staffing critical - long lines dissuade customers - staff try to ‘up sell’
What is Your Business Model?
Product or service model?
Merchant or agency model?
consumer-direct, retail, pop-up, or party plan Producer or licensor model?
Independent owner/operator or Franchising/licensing model?
Traditional or game-changer model?
Revenue model? / Why is it sustainable?
“Business Model Generation”
Alexander Osterwalder and Yves Pigneur https://www.youtube.com/watch?v=QoAOzMTL P5s http://www.businessmodelgeneration.com/book
Banking Consumer electronics Gluten-free products Mass market Niche market Segmented Amazon Diversified Credit card companies Multi-sided
Cell phones Newness Performance PCs Jeans Customization Rolls Royce “Getting the job done” Apple Design Cost reduction UPS Brand/status Rolex Price Risk reduction Service guarantee Walmart Accessibility Mutual funds Convenience/ usability iTunes
Partner Indirect Own Direct Awareness Evaluation Purchase Delivery After sales
Dedicated personal assistance Private banking Personal assistance Self service Grocery stores Amazon Automated services Car dealerships Communities HOGs Co-creation Product reviews
Ford Asset sale Usage fee Hotel Subscription fees WOW Lending/rentin g/leasing Zipcar.com
Licensing Content, technology Media Advertising Brokerage fees Credit cards
Key Questions to Answer
from The Dragon’s Den Guide to Real-World Business Models
Who pays you?
– consumer, business, licensee…
How does your product/service generate revenue?
How do you charge?
– unit price, transaction fee, royalty…
When do you get paid? How do you collect?
– up front, installments, back end…
Is your revenue model scalable?
– can your respond to sudden increases in sales without spreading your resources too thin? **
What is your pricing model?
point – price floor, price ceiling, price
What is the lifetime value of each customer?
= annual revenue x number of years a customer will pay you
Intellectual Nike, Microsoft Human Mayo Clinic Financial Physical Walmart Stock options for key employees
Making Manufacturing, providing services, platform/network development Selling Promotion and education Supporting Finding talent/HR, customer service, platform/network management
Optimization and Economy of Scale
ola
Outsourcing or sharing infrastructure Reduction of risk and uncertainty BluRay Acquisition of resources and activities Mobile phone operating systems
Walmart Cost driven Luxury hotel Value driven Fixed costs Manufacturing Variable costs Services Economies of scale Economies of scope Distribution for multiple products
Business Model Patterns
Multi-Sided Platform Value is created by facilitating interactions between two or more distinct but interdependent groups of customers Of value to one group only if the other groups of customers are also present – and grows in value to the extent that it attracts more users – network effect
Examples:
Times (newspapers), Facebook, Video game consoles, Google Visa (credit card companies), eBay, Financial
Multi-sided platform
Free Search Monetizing Content Targeted Ads Web Surfers Content Creators Advertisers Keyword Auctions From
Business Model Generation
by Alex Osterwalder & Yves Pigneur
Business Model Patterns
cont’d… The Long Tail Selling ‘less of more’ – focusing on offering a large number of niche products, each of which sells relatively infrequently vs. focusing on selling a small number of products, each selling in high volume # of sales # of products
Examples:
Netflix, eBay, YouTube, Facebook, LEGO Factory (customer-designed kits), lulu.com
‘Traditional’ Book Publishing Model
Content Acquisition, Publishing, Sales Broad Content Ideally ‘hits’ Content, Publishing Knowledge Retail Network Broad Audience Publishing and Marketing Wholesale revenues From
Business Model Generation
by Alex Osterwalder & Yves Pigneur
‘New’ Long Tail Model
Niche Authors Platform Develop ment, Logistics Platform, Print-on Demand Infrastructure Large scope of Niche Content and Content Production Tools 1. Self publishing Services 2. Marketplace for Niche Content Commun ities of Interest, Online Profile Niche.
Can cater to Users and Content Providers – Multi Sided 1. Niche Authors 2. Niche Audiences Sell ‘Less of More’ Lulu.co
m Internet Platform Development and Management Sales Commissions (low), Publishing Service Fees From
Business Model Generation
by Alex Osterwalder & Yves Pigneur
Business Model Patterns
cont’d… FREE At least one substantial customer segment is able to continuously benefit from a free-of-charge offer, financed by another part of the business model or by another customer segment Different patterns make the free offer possible
Advertising Freemium
Bait & Hook Examples:
Google / Flickr, Skype / Free mobile phones, Gillette
Freemium
Free Internet and Video calling Mass customized Cheap calls to phones SkypeOut Skype.com
Web users Globally People who want to call phones Pre-paid or subscription From
Business Model Generation
by Alex Osterwalder & Yves Pigneur
‘Bait & Hook’
Razor handle Blades Built-in ‘Lock-in’ Mass market – people who shave 1x handle purchase Frequent blade replacements From
Business Model Generation
by Alex Osterwalder & Yves Pigneur
Business Model Patterns
cont’d… On a earlier slide asked: “What is Your Business model?”: Traditional or game changer?
Some recent game changer patterns: Freemium Membership models – subscription box, member community, flash sales Crowdsourcing models – crowdsourcing, crowdfunding, peer-to-peer sharing
Other Examples
Groupon vs other daily email businesses http://www.youtube.com/watch?v=7J-PHRNoc20 Social entrepreneurship http://www.youtube.com/watch?v=LWbT7KZYBuM Startup for grannies – different approaches http://www.youtube.com/watch?v=PjG8SHXqcVY
Building Your Business Model
The Process
1. Understanding the Context
Building the Model…
2.
Build on Customer Insights
Ask them!
3.
Brainstorm
Ask ‘what if?’ questions
Rules: prepare, stay focused, defer judgment, and think visually…
Building the Model
cont’d
…
4.
Think Visually
Post-it notes
Use thick marking pens Write only one element on each post-it Write only a few words to capture the essential point
Drawings
Building the Model
cont’d
…
4.
Think Visually
Post-it notes
Use thick marking pens Write only one element on each post-it Write only a few words to capture the essential point
Drawings
5.
Tell the Story
Key Concepts
The details of the building blocks and the process of building the canvas are important for the New Venture project, but will NOT be tested on exams Important to download the PDF of the Business Model Generation book and READ the assignment requirements For exam purposes you should understand what a business model is, and different business model patterns that exist how companies can have basically the same product but different business models and how your business model affects how you operate