Definition of a Business Model

A business model describes the rationale of how an

organization creates, delivers and captures value

A business model needs to fulfil the following
criteria
simple
relevant
intuitively understandable

= Recipe for how the company intends to make money

= Needs to cover four main areas of business: offer,
customers, infrastructure, financial viability
9 Building Blocks of a Business Model

1. Customer segments An organization serves one or several customer segments

2. Value propositions Solving customer problems or satisfying needs

3. Channels Delivery of value to customers through communication, distribution
and sales

4. Customer relationships How business maintains relationships with customers

5. Revenue streams Value proposition successfully delivered to customers

6. Key resources Assets required to offer all the above mentioned elements

7. Key activities Activities performed to implement all these elements

8. Key partnerships External/outsourced resources that these activities require

9. Cost structure How much all the above costs
Business Model Canvas -
Key Partners



Key Activities



Value
Propositions


Customer
Relationships


Customer
Segments




Key
Resources



Channels



Cost Structure



Revenue Streams



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Customer Segments
Mass Market
Niche Market
Segmented
Diversified
Multi-sided Platform
To build an effective business model, a company must
identify which customers it tries to serve.

Various sets of customers can be segmented based on the
different needs and attributes to ensure appropriate
implementation of corporate strategy

Who are the most important customers to the business?

Value Propositions
The collection of products and services a business offers to
meet the needs of its customers

Each customer segment has a different value proposition

A company's value proposition is what distinguishes itself
from its competitors.

The value propositions may be:

Quantitative- price and efficiency
Qualitative- overall customer experience and outcome

Value Propositions
What value do we deliver to the customer?
Which one of our customers problems are we helping to solve?
What bundles of products and services are we offering to each
Customer Segment?
Which customer needs are we satisfying?

CHARACTERISTICS

Newness Price Design
Performance Cost Reduction
Customization Risk Reduction
Getting the Job Done Accessibility
Brand/Status Convenience / Usability
Channels
A company can deliver its value proposition to its
targeted customers through different channels.
Effective channels will distribute a companys value
proposition in ways that are fast, efficient and cost
effective.
An organization can reach its clients either through its
own channels (store front), partner channels (major
distributors), or a combination of both.
Channels
Through which Channels do our Customer Segments want
to be reached?
How are we reaching them now?
How are our Channels integrated?
Which ones work best?
Which ones are most cost-efficient?
How are we integrating them with customer routines?

Channel Phases
1. Awareness
How do we raise awareness about our companys products
and services?
2. Evaluation
How do we help customers evaluate our organizations Value
Proposition?
3. Purchase
How do we allow customers to purchase specific products
and services?
4. Delivery
How do we deliver a Value Proposition to customers?
5. After sales
How do we provide post-purchase customer support?
Customer Relationships
To ensure the survival and success of any businesses,
companies must identify the type of relationship they
want to create with their customer segments.

What type of relationship does each of our Customer
Segments expect us to establish and maintain with
them?

How to get, keep and grow your customer base

How are they integrated with the rest of our business
model and how costly are they?
Customer Relationships
Examples

Personal assistance
Dedicated Personal Assistance
Self-Service
Automated Services
Communities
Co-creation
Revenue Streams
For what value are our customers really willing to pay?
For what do they currently pay?
How are they currently paying?
How would they prefer to pay?
How much does each Revenue Stream contribute to overall revenues
TYPES
Asset sale
Usage fee
Subscription Fees
Lending/Renting/Leasing
Licensing
Brokerage fees
Advertising
FIXED PRICING
List Price
Product feature
dependent
Customer segment
dependent
Volume dependent

DYNAMIC PRICING
Negotiation
(bargaining)
Yield Management
Real-time-Market

Describing the cash a company generates from each customer
segment (Revenue costs = earnings/profits)
Key Resources
What Key Resources do our Value Propositions
require?

Types of Resources
Physical
Intellectual (brand patents, copyrights, data)
Human
Financial
The resources that are necessary to create value for the
customer. They are considered an asset to a company,
which are needed in order to sustain and support the
business.
Key Activities
What Key Activities do our Value Propositions require?
Our Distribution Channels?
Customer Relationships?
Revenue streams?

CATEGORIES
Production
Problem Solving
Platform/Network
The most important activities in executing a company's value
proposition. What are the key activities we really need to
excel at? R& D ? Sales & Marketing?
Key Partners
Basic Mantra You cant go it alone

In order to optimize operations and reduce risks of a
business model, organizations usually cultivate buyer-
supplier relationships so they can focus on their core
activity.

Complementary business alliances also can be
considered through joint ventures, strategic alliances
between competitors or non-competitors.
Key Partners
Who are our Key Partners?
Who are our key suppliers?
Which Key Resources are we acquiring from
partners?
Which Key Activities do partners perform?

Motivations For Partnerships

Optimization and economy
Reduction of risk and uncertainty
Acquisition of particular resources and
activities
Cost Structure
What are the most important costs inherent in our business model?
Which Key Resources are most expensive?
Which Key Activities are most expensive?

Is Your Business More:
Cost Driven (leanest cost structure, low price value proposition,
maximum automation, extensive outsourcing)

Value Driven (focused on value creation, premium value
proposition)

Sample Characteristics
Fixed Costs (salaries, rents, utilities)
Variable costs
Economies of scale
Economies of scope
Business Model Canvas Variation
Problem



Solution



Value

Propositions


Unfair
Advantage


Customer
Segments




Key Metrics



Channels



Cost Structure



Revenue Streams



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Common Mistakes with Business Models
Falling in love with your solution
Not monetizable
No significant path to customers
Insufficient resources cash flow
A weak unique value proposition
No unfair advantage
Problems not specific enough
Sub-optimal outcomes
Marketing to everyone
No clearly defined performance metric
SOLUTIONS & TESTING
At best a Business Model is a series of hypotheses
and there are no guarantees that it will work
The hypotheses must be tested with customers,
channel partners etc.
Business Model generation should optimally
becomes an iterative process where the hypotheses
are market tested and tweaked at appropriate
intervals prior to implementation to increase
chances of success
Customer Development
Customer discovery: Business model
development and testing of hypotheses
Customer validation: Testing whether the
business model is repeatable and scalable
Customer creation: Building end-user demand
and ramping up sales
Company creation: Transitioning from a start-
up to a company focused on executing a validated
model