ValueLinks Module 5

Business models

ValueLinks 2.0

Setting Chain analysis VC upgrading Monitoring

boundaries and strategy solutions

1 Scope of 2 Value chain 5 Business models

11 Managing data
value chain analysis & monitoring
development
6 Business linkages
3 Value chain
strategies
7 Services
4 Programs and
projects 8
VC Financing

9 Quality and
Solutions for standards
improving
the value chain
2
10 Policy instruments
 Business models

Contents
1 Business models for VC development

2 Improving small-scale farm and SME business models

3 Promoting and supporting entrepreneurship

The business model concept

Definition
a specific combination of product/markets, internal operations &
technology, supply and marketing links that an enterprise uses to
succeed and grow (“the rational of how an individual firm creates,
captures and delivers value”)

Elements of a business model

1 Product
Costumers/markets
Scale of production (capacity, volume)
Type of enterprise (size, localisation, organisation, formal/informal)
Technology
Backward linkages to suppliers
Marketing channels

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 The business model concept (2)

Business models and the value chain

Every enterprise has a business model, either implicitly or
explicitly.
The value chain as a whole can be decomposed into business
models of specific types of operators who follow a similar business
model.

1 Identifying business models

Identify a group of operators in the value chain map that shares a
particular business model
number of enterprises following that business model
Specifics: Names of lead companies, location

Tools to analyse business models

The “business model canvas” (simplified)

Partners / suppliers Product Distribution channel

Value-creating („value proposition“) Costumers
activities and Costumer relations
resources

1
Cost structure Revenue stream

Profit or Loss

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 Describing a business model

The complete “business model canvas” form

Key Key Value Customer Customer

Partners Activities Propositions Relationships Segments
Key partners? What key activities do Types of relationships
What value do we For whom are we
Key suppliers? value propositions, with each customer?
deliver? creating value?
Which key resources relationships, Are they integrated with
Which of our customer´s Who are the most
are we acquiring from distribution channels, the business model?
problems are we helping important costumers?
partners? revenue streams How costly are they?
Which key activities do require? to solve?
partners perform? What bundles of
1 products and services
Key are offered?
Channels
Which costumer needs
Resources are we satisfying? Through which channels
What key resources are costumers reached?
do Are channels integrated?
value propositions, Which ones
relationships, - work best?
distribution channels, - are most cost-efficient?
revenue streams
require?

Cost Structure Revenue Streams

What are the most important costs inherent in For what value are costumers willing to pay?
the business model? For what do they currently pay?
Which key resources are most expensive? How much does each revenue stream
Which key activities are most expensive? contribute to overall revenues?
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Business models

Contents
1 Business models for VC development

2 Improving small-scale farm and SME business models

3 Promoting and supporting entrepreneurship

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 Attiéké value chain, Burkina

Locating business models of processors in the VC

Attiéké
Cassava Intermediary
Milling
Atiéké
Trade
(processed
production trade making cassava)

Importers of Artisanal
cassava paste producers 1

Artisanal producers
Manual grinding
2 Traders
Retailers
Domestic
Growers Mechanized producers market
Collectors
Traders of
tubers
Attieke makers

9 Business models Importers

Attiéké making business model

Business model canvas (simplified) of mechanized processors

Partners Products Channel / costumers

Equipment providers (a) Attiéké Attiéké traders
Collectors & traders (b) Milling service Other attiéké makers

Cost structure Revenue stream

- raw material - Attiéké sales
2 - wages - Income from milling service
- installations

Profit or Loss

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 Assessing small-scale business models

Financial analysis
For each of the business models retained, a financial analysis is
required to make projections of the attainable income of
enterprises and to calculate the investment and financing needs:
Unit cost of production (current and at improved scale and
technology)
Investment requirements to move from current to the improved
status
2 Cash flow, payback period
Estimated profit, income
Risk

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Business models

Manual versus mechanized cassava milling for attieke

Parameter Manual Electric milling Service
milling milling
Value proposition Packaged attieke Packaged attieke Milling service

Key resources - Type of milling Manual grinder Electric mill Electric mill

Key partners Neighbors Large farmers Clients

Channels and end markets Wholesale traders Wholesale traders Attieke makers

Daily milling capacity, cassava (t) 100 kg/day/person 1 ton / day 1 ton / day

Number of workers (for 6 months) 7,5 4,6 (2,4 at clients)

2
Annual milling, cassava (t) 90 t 130 t 86 t, service

Likely capacity utilization 100% 60% 40% for clients

Long-term capital – installations (€)

1 hut for storage @ 5 m2 1.500
Cassava grinder, 3 huts @ 5 m2 7.500 7.500
Short-term capital – implements 300 400 200
raw material and input purchase (€) 21.000 26.000 0
(for 6 months)
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 Financial analysis
Manual versus mechanized cassava milling for attieke
Parameter Manual Electric Service
milling milling milling
Capacity utilization (%) 100% 60% 40%

Volume of cassava processed (t) 90 t 130 t 86 t

Volume of attieke obtained 45 t 65 t (none)
Fixed cost (FC) per annum (€)
Repair, depreciation, renewal of implements 525 980 (40% of FC)
Interest on investment (8%) 120 600
Variable cost (VC) per ton (€)
Raw material (Cassava) 18.000 26.000 0
Labor 2.000 1.200 0
2 Energy, water, packaging, other inputs 1.800 2.700 1.300
Average unit cost per ton of attieke (€) 357 346 13 per t milling

Volume of attieke sold (t) 45 t 65 t (86 t cassava

milled)
Sales price per ton (€) 500 500 Milling fee = 15

Total Revenue (€) 31.500 45.360 1.300

Total Cost (€) 22.470 30.320 1.080

13 Profit (€) 9.030 15.040 220

Assessing small-scale business models

Significance for VC development & social benefits

Can the business model be replicated? Does it provide services or
products that can become a basis for developing other business
models?
Position of the business model in the value chain - upstream and
downstream business linkages
Number of enterprises that can adopt the business model
Potential subsequent innovations (business partners, service
2 providers)

Assessment of the likely social benefits

Income of poor self-employed entrepreneurs
Jobs created
Economic opportunities created for (other) small-scale
entrepreneurs
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Availability of cheap food
 Business models

Contents
1 Business models for VC development

2 Improving small-scale farm and SME business models

3 Promoting and supporting entrepreneurship

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Becoming a better entrepreneur

Strategies developing improved business models

“Firm-level upgrading”: Upgrading an existing business model

making it more profitable for enterprises and improving its
economic viability

Supporting start-ups: Creation of new types of (SME) business

models

Generating and promoting new business ideas

3
Preparation of business plans

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 Promoting/supporting entrepreneurship

Generic instruments for business skills training

ILO: “Start and Improve your business” (SIYB)
“Competency based economies & formation of enterprise” -
CEFE
UNCTAD: Empretec program

Sector-specific “agripreneurship” training

FBS - Farmer business school (value chain specific)

Promotion of business start-ups

3 Business incubation / SME counselling / Assistance services

Financial incentives
Business plan competitions
Grants, venture capital and fiscal incentives
17 Public co-investment

Summary: Main lessons to remember

“Module 5 is the first in the series of modules 5-10 that present the
choice of VC solutions to be implemented in VCD programs.
Business model solutions are the key to VC development because
improved profitability of operators is a precondition for the VCD strategy
to be effective.
For one, developing the VC implies improving the business models of
the VC operators. Improved business models are key solutions in any
VCD strategy.
Second, business model analysis is used to assess the economic
viability of VC solutions addressing environmental and social issues.
Two main instruments are available – the business model canvas, a
qualitative tools, and the quantitative financial analysis of business
models. The instruments complement each other.
An improved business model does not only increase profits, it also
provides answers to critical factors such as raw material supply and
sales channels, clarifies the capital needs and determines the
repayment ability. Here is a connection to module 8 – VC finance.
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