ENTREPRENEURSHIP - FINALS

DEVELOPING AN
EFFECTIVE
BUSINESS MODEL
LESSON 2
 OBJECTIVES
1. Describe a business model.
2. Explain business model innovation.
3. Discuss the importance of having a clearly articulated business model.
4. Discuss the concept of the value chain.
5. Identify a business model’s two potentially fatal flaws.
6. Identify a business model’s four major components.
7. Explain the meaning of the term “business concept blind spot”.
8. Define the term core competency and describe its importance.
9. Explain the concept of supply chain management.
10. Explain the concept of fulfillment and support.
 TOPICS
a. What is a Business Model?
b. The Importance of Business Models.
c. How Business Models Emerge?
d. Potential Fatal Flaws in Business Models.
e. Components of a Business Model.
 WHAT IS A
BUSINESS MODEL?

1
Learning Objective
No. 1

BUSINESS MODEL
Describe a business
model.

Model
• A model is a plan or diagram that’s used to make or
describe something.

Business Model
• A firm’s business model is its plan or diagram for
how it competes, uses its resources, structures its
relationships, interfaces with customers, and creates
value to sustain itself on the basis of the profits it
generates.
• The term “business model” is used to include all
the activities that define how a firm competes in the
marketplace.
Learning Objective
No. 2

MC DONALD‘S BUSINESS MODEL

Explain business
model innovation.

Beyond Its Own Boundaries

• It’s important to understand that a firm’s
business model takes it beyond its own
boundaries.
• In Mc Donald‘s case, it needs the
cooperation of its suppliers, customers, and
many others to make its business model
work.
• When Mc Donald‘s business model wast
introduced, it was a business model
innovation, which refers to a business model
that revolutionizes how a product is
BUSINESS MODEL
INNOVATION
Mc Donald‘s is an example of a business model innovation. It
started with 15 cent hamburgers and soon went on to transform
itself into Disruptive Innovation.

The chain has more than 38,000 locations in more than 100
countries, employing approximately 200,000 people worldwide.
Best known for its burgers and fries, the company's menu also
features chicken, fish, breakfast, milkshakes, coffee, and soft drinks,
along with regional items that vary from country to country.

They began at the bottom and swiftly moved to the top by

disrupting the existing market.
THE IMPORTANCE OF
BUSINESS MODELS

2
 Learning Objective
No. 3

THE IMPORTANCE OF BUSINESS MODELS

Discuss the
importance of having
a clearly articulated
business model.

Having a clearly articulated business model is

important because it does the following:
• Serves as an ongoing extension of feasibility
analysis. A business model continually asks the
question, “Does this business make sense?”
• Focuses attention on how all the elements of a
business fit together and constitute a working
whole.
• Describe why the network of participants needed to
make a business idea viable are willing to work
together.
• Articulates a company’s core logic to all
stakeholders, including the firm’s employees.
DIVERSITY OF BUSINESS MODELS
• There is NO standard business model for an
industry or for a target market within an industry.
• However, over time, the most successful business
models in an industry predominate.
• There are always opportunities for business model
innovation.
Figure 1. Five Distinct Ways of Making Money Online (The way an online company makes money largely defines its business
model )
How Business Models
Emerge?

3
Learning Objective
No. 4

HOW BUSINESS MODELS EMERGE?

Discuss the concept
of the value chain.

The Value Chain

• The value chain is the string of activities that
moves a product from the raw material stage,
through manufacturing and distribution, and
ultimately to the end user.
• By studying a product’s or service’s value chain, an
organization can identify ways to create additional
value and assess whether it has the means to do so.
• Value chain analysis is also helpful in identifying
opportunities for new businesses and in
understanding how business models emerge.
Figure 2. The Value Chain
HOW BUSINESS MODELS EMERGE?
The Value Chain (Continued)
• Entrepreneurs look at the value chain of a product
or a service to pinpoint where the value chain can
be made more effective or to spot where additional
“value” can be added.
• This type of analysis may focus on:
⚬ A single primary activity such as marketing
and sales.
⚬ The interface between one stage of the value
chain and another, such as the interface
between operations and outgoing logistics.
⚬ One of the support activities, such as human
resource management.
Potential Fatal Flaws in
Business Models

4
 Learning Objective
No. 5

POTENTIAL FATAL FLAWS IN

Identify a business
model’s two

BUSINESS MODELS
potentially fatal flaws.

Two fatal flaws can render a business model untenable

from the beginning:
• A complete misread of the customer
(responsiveness and efficiency)
• Utterly unsound economics (high revenues and
low-profit models)
COMPONENTS OF A
BUSINESS MODEL

5
Learning Objective
No. 6

COMPONENTS OF A BUSINESS MODEL

Identify a business
model’s four major
components.

Four Components of a Business Model

• Core strategy (how a firm competes)
• Strategic resources (how a firm acquires and uses
its resources)
• Partnership network (how a firm structures and
nurtures its partnerships)
• Customer interface (how a firm interfaces with its
customers)
Figure 3. Summary of each component and its respective subcomponents
 Learning Objective
No. 7

COMPONENTS OF A BUSINESS MODEL

Explain the meaning
of the term “business
concept blind spot”.

Core Strategy
• The first component of a business model is the core
strategy, which describes how a firm competes
relative to its competitors.
• Primary Elements of Core Strategy
⚬ Mission statement
￭ A firm’s mission, or mission statement,
describes why it exists and what its
business model is supposed to accomplish.
￭ Business concept blind spot, in which
learning prevents a firm from seeing an
opportunity that might fit its business
model.
COMPONENTS OF A BUSINESS MODEL
⚬ Product/market scope
￭ A company’s product/market scope defines
the products and markets on which it will
concentrate.
⚬ Basis for differentiation
￭ It is important, that a new venture
differentiates itself from its competitors in
some way that is important to its customers
and is not easy to copy.
• cost leadership strategy
• differentiation strategy
COMPONENTS OF A BUSINESS MODEL
Strategic Resources
• A firm is not able to implement a strategy without
resources, so the resources a firm has affect its
business model substantially.
• For a new venture, its strategic resources may
initially be limited to the competencies of its
founders, the opportunities they have identified,
and the unique way they plan to serve their market.
Learning Objective
No. 8

COMPONENTS OF A BUSINESS MODEL

Define the term core
competency and
describe its
importance.
• The two most important strategic resources are:
⚬ A firm’s core competencies
￭ A core competency is a resource or
capability that serves as a source of a
firm’s competitive advantage over its
rivals.
￭ Resource leverage - the process of
adapting a company’s core competencies
to exploit new opportunities.
⚬ Strategic assets
￭ Strategic assets are anything rare and
valuable that a firm owns.
￭ Companies ultimately try to combine their
core competencies and strategic assets to
Learning Objective
No. 9
Explain the concept
of supply chain
management.
COMPONENTS OF A BUSINESS MODEL
Partnership Network
• A firm’s partnership network is the third component
of a business model. New ventures, in particular,
typically do not have the resources to perform key
roles.
• A firm’s partnership network includes:
⚬ Suppliers
￭ A supply chain is the network of all the
companies that participate in the
production of a product.
￭ Managers are focusing on supply chain
management, which is the coordination of
the flow of all information, money, and
material that moves through a product’s
COMPONENTS OF A BUSINESS MODEL
⚬ Other key relationships
￭ Along with its suppliers, firms partner with
other companies to make their business
models work.
￭ There are also hybrid forms of business
partnerships that allow companies to
maximize their efficiencies. One relatively
new approach, referred to as insourcing,
takes place when a service provider comes
inside a partner’s facilities and helps the
partner design and manage its supply
chain.
COMPONENTS OF A BUSINESS MODEL
Customer Interface
• The way a firm interacts with its customers hinges
on how it chooses to compete.
• The three elements of a company’s customer
interface are:
￭ Target customer
• A firm’s target market is the limited
group of individuals or businesses that
it goes after or tries to appeal to.
• The target market a firm selects affects
everything it does, from the strategic
resources it acquires to the
partnerships it forges to its
promotional campaigns.
Learning Objective
No. 10

COMPONENTS OF A BUSINESS MODEL

Explain the concept
of fulfillment and
support.

￭ Fulfillment and support

• Fulfillment and support describe the
way a firm’s product or service “goes
to market,” or how it reaches its
customers. It also refers to the
channels a company uses and what
level of customer support it provides.
• All these issues impact the shape and
nature of a company’s business model.
￭ Pricing model
• Pricing structures vary, depending on a
firm’s target market and its pricing
philosophy.
Figure 4. Business Model Template
Figure 5. Business Model Example
RECAP:
Business Models
• It is very useful for a new venture to look at itself in a holistic manner and
understand that it must construct an effective “business model” to be
successful.
• Everyone who does business with a firm, from its customers to its partners,
does so on a voluntary basis. As a result, a firm must motivate its
customers and its partners to play along.
• Close attention to each of the primary elements of a firm’s business model
is essential for a new venture’s success
QUESTIONS?
REFERENCE:
Barringer, B. R., & Ireland, R. D. (2010).
Entrepreneurship: Successfully Launching New Ventures
(3rd Edition). Pearson Education.
THANK YOU