Entrepreneurship Canadian Edition William D Entrepreneurship Canadian Edition William D. Bygrave, Andrew Zacharakis, Sean Wise

UNDERSTANDING YOUR BUSINESS MODEL AND DEVELOPING YOUR SRATEGY Chapter 4

Learning Objectives The Business Model The First-Mover Myth Learning Objective 4.1 Describe the two components of the business model. The First-Mover Myth Learning Objective 4.2 Explain why the first-mover advantage is a myth. Long Tail Theory Learning Objective 4.3 Describe the long tail theory. Formulating a Winning Strategy Learning Objective 4.4 Describe the components required to formulate a winning business strategy.

Today’s Key Concepts Business Model Better, Faster or Cheaper? Revenue Model The World is Flat Starting Strategy Entry Strategy Differentiation Expansion Strategy Low cost Niche Business Model Canvas First Mover Advantage First Mover Myth

Your First Steps Are to… Select a business model Determine a basic strategy category Differentiation Low cost Niche

What Is a Business Model? A business model describes the rationale of how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts. Business model = revenue model – cost model The revenue model breaks down all the sources of revenue that your business will generate. The cost model identifies how you are spending your resources to make money. It includes your cost of goods sold (COGS) and your operating expenses. Business Model has 9 components

9 Parts of a Business Model Key partners – Who are our suppliers and service providers Key activities – What do we do with our resources? Value proposition – What problems need to be solved? What product does it best? Customer relationships – How do we interact with our customers? Customers – Who are our users and who are our paying customers? Channels – How do our customers find, buy, and use the product? Revenue – Where does revenue come from? Key resources – What goods, services, and infrastructure do we use? Costs – What is the total cost of production?

Building a Business Model

Business Model Canvas

Lean Startup Canvas

Create a Business Model Cost Model Cost of Goods Sold Operating Expenses Revenue Model Sources of Revenue

Amazon’s Revenue and Cost Model Requires High Volume Revenues just exceed costs 48.1 14.8 (14.2) (18.3) (23.0) 2007 2008 2009 2010 2011

To succeed as a successful first mover you must… Be first (or very early) into the market Capture a large percentage of the market quickly Create switching costs so customers stick with you First movers rarely win and it’s an expensive strategy to take

First Mover’s Are Often Surpassed Industry First Mover Current Leader Social Networking Friendster Facebook Video Games Atari Nintendo Web Browser Mosaic Google Internet Search Engine Excite Word Processing Software WordStar Microsoft Word Personal Computer Altair Dell Email Juno Yahoo Mail Diet Soda No-Cal Diet Coke Presentation Software Harvard Graphics Microsoft PowerPoint Online Bookseller Book Stacks Unlimited Amazon ATM Machines Docutel Diebold

To win, your strategy must be to be one, or more, of these… Faster Better Cheaper And one of these must be 10x

People Are the Advantage Values Structure Selection Founders need to create a culture and align the employees they select with the values and structure of the company

Develop Entry Strategy Benchmark Devise Initial Market Test Create a Platform

Benchmark the Competition: The JetBlue Example

Drive Growth Three Ways Geographic expansion Product mix expansion Franchising

Franchising Has Three Main Benefits Replicability Established and proven methods New sources of revenue Royalties and fees from franchisees New capital funds growth Franchising works best with service businesses that are easy to replicate. Be sure to monitor franchisees to maintain brand purity

Top Franchisors Do Well

Drive Growth with Product Mix Tangents and adjacencies What makes sense with current offerings? Spread current costs New products  revenues more than costs Maintain same distribution channels Build on the base that was already created from existing products. Share resources, relationships and channels with current lines?

Mimic proven success strategies Vendors Can you use the same vendors? Three Items to Consider before Expanding Geographically Customers Go where they are Mimic proven success strategies Vendors Can you use the same vendors? Any new costs? Leverage volume for better pricing Distribution Same channels? Leverage volume

Friends and Family of Alumni Global 2.0 It used to be, conquer the homeland before going aboard But today’s startups are global from day 1 The World is Flat, but you can still choose a beachhead e.g. Facebook Harvard Ivey League Any School Alumni Friends and Family of Alumni All English Speakers Anyone Beachhead Mass Adoption

There are 8 basic ways to expanded internationally

International expansion has risks Means Pros Cons Technology Transfer - Reduces entry costs - Risk of losing the technology Technology Licensing - Creates revenue, conserves resources - Doesn’t extend the brand Outsourcing - Cost-saving - Managing partners Exporting Cheap and easy Extra sales and transport costs Moral hazard Foreign Direct Investment - Physical presence - Control of assets - Expensive Franchising - Licenses an operational system - Risk of damaging the brand name Venture financing - Enabling and enacting mechanism - Can lead to mergers and acquisitions with foreign companies Mergers and acquisitions - Established infrastructure - Company can grow quickly - Very expensive

Case: Zumba Fitness Discussion Questions 1. What business models could Zumba use? 2. Develop a revenue and cost model diagram for each of the options. 3. Which of these models would you recommend that they implement and why? 4. What are the key revenue and cost drivers for your recommended model? 5. What do you feel are the key aspects to implementing this model?

Recap Determine revenue and cost structure Choose a strategy Find a Beachhead Create a culture Seek and select people who fit culture and goals Plan entry approach, including benchmarks Plan growth drivers

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