11

S
enior High School

ENTREPRENEURS
HIP Quarter 2 –
Module 3: Develop
the Business Model

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

challenges targeted 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.
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.
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 Unpredictab simple thinking quantitative qualitative tools Long term

tools analysis analysis
✓ le ✓ Noisy Vision
simple thinking Add focus
✓ 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

Culture emphatize Design sustain ability viability

Motivat prototype ideate feasibiliy

ion Thinking Process
Context define

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

Revenue How does the company R&D Management

generation How spend money to make How do we handle
does the company money? (Cost of Sales) people resources
make money? considering possible
Costs Structure BUSINESS MODEL expansion?

FINANCE
TECHNOLOGY TEMPLATE

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

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