Introduction to Entrepreneurship: Business Models By: Venture Highway

Objectives Describe what a business model is Describe the characteristics of a good business model Give an overview of the lean startup process Discuss the importance of customer discovery Discuss the meaning and purpose of a value proposition

Business Models A business model is the operational foundation of a company and is used to describe many core aspects of a business, such as goals, product offerings, markets served, and business strategies. Open up with a general overview of business models. Expound upon the general meaning as noted on this slide. See supplemental notes below, as well as the instructor notes: A business model is the operational foundation of a company. When you see a company doing exceptionally well or poorly, it is often the result of their business model. The term “business model” is used to describe many core aspects of a business, such as goals, product offerings, markets served, and business strategies. Its purpose is to give an overall picture of the business that is easy to understand. It should also provide a common language and logic to inform business decisions.

Business Models An effective business model should ask the following questions: Who is your customer? What does the customer value? How do you deliver value at an appropriate cost? Expound upon each question. Engage in a conversation using various examples from current business. For example, Wal-Mart, McDonalds, etc… Reference the instructor guide section 4.1 for supplemental notes or see below: Peter Druker described a business model as the answer to the following questions: (Casadesus-Masanell, Ramon and Joan E. Ricart, “How to Design a Winning Business Model”, Harvard Business Review, January-February 2011, 5.) Who is your customer? What does the customer value? How do you deliver value at an appropriate cost? You also need a good understanding of the capabilities and resources required to deliver customer value at a cost they are willing to pay. (Liedtka, Jeanne M. and Angela Meyer, “Business Model Innovation: A Process Model”, Technical Note UV1692Darden Business Publishing, University of Virginia, 2009, 1.) Answering these questions paints a picture of how a business creates and delivers value, both for the customer and for the organization. (Johnson, Mark W., “The Four-Box Business Model Framework: Radical Change as a Manageable Process”, Harvard Business Press, Boston, MA, 2010, 2.)

Business Models Why Business Models Matter The business model is created during the early startup period and competes with other models in the market. It also creates value through self-reinforcing virtuous cycles that have a potential of enhancing the business. Discuss the importance of having a business model that will compete with other business models in the market.

Business Models Business Model Business Strategy vs. A business strategy identifies the steps that are taken to meet the business mission and goals, while outlining the variables that could impact the business model. The business model creates a map related to how your products or services create value for customers. Describe the apparent differences between a business model and a business strategy. See supportive notes below: The business model creates a map related to how your products or services create value for customers. Within this model, the business is identified as an operational system that generates income and profits for the organization, as well as benefits for customers. Conversely, a business strategy identifies the steps that are taken to meet the business mission and goals. It should also outline the variables that could impact the business model. For instance, the economy or even banking interest rates. Strategies could also be put in place to minimize the amount of overhead cost. For example, the cost of human resources could be a factor that would need to be controlled in order to keep business cost low.

External Factors that Affect a Business Strategy Business Models External Factors that Affect a Business Strategy Global Economy Finance Weather Infrastructure Laws Trends Customers Discuss the external factors that could affect the overall business model. Expound upon each point from this slide.

Business Models Good business models have (3) key characteristics: They are aligned with strategic goals They are self-reinforcing They are robust Outline the three characteristics for a good business model. Further descriptions are given on the subsequent slides.

Aligning With Strategic Goals Business Models Aligning With Strategic Goals Good business models are aligned to strategic goals. Every consequence, tactic and constraint generated by the business model should support and reinforce your strategic objectives.

Business Models Self-Reinforcing Good business models are created through self-reinforcing choices which are internally consistent. If you want to create a business model that supports a low-cost offering, then every choice has to support and reinforce that goal.

Business Models The Business Model Should be Robust Good business models are robust enough to both last over time and fend off competitors. They provide a system of business operation which is difficult to copy or disrupt.

An Effective Design Process Business Models An Effective Design Process Good business models are a result of design and should reflect upon the following: What customers want How they want it How your enterprise will be organized to meet those needs and make a profit while doing so Describe the following points from this slide as it relates to designing an effective business model.

6 Stage Systematic & Iterative Design Process Business Models 6 Stage Systematic & Iterative Design Process Scaling Piloting Prototyping Concept Development Pattern Finding Exploration Discuss each stage of the systematic & iterative business model design. Generate a discussion related to each point. Reference the instructor notes listed in section 4.2 of module 4.

Business Models The Lean Solution Lean Startup principles can help you lower your risk of building a company around a product or service that no one will buy. These principles include: Create early, fast product iterations Gain customer feedback through product testing Adjust, retest, and adjust again Discuss the principles related to the lean startup. Explain to students the importance of creating early product versions and testing them extensively with customers.

The Lean Startup Experiment Business Models The Lean Startup Experiment Lean Startup experiments should answer the following critical questions: Do customers recognize they have the problem you are trying to solve? If there was a solution, would they buy it? Would they buy it from you? Can you build the solution? Discuss the following questions related to solving customer problems. Elaborate on each question.

The Lean Startup Process Business Models The Lean Startup Process Lean Startup process has (3) basic steps: Build Measure Learn Expound upon each point as noted in the subsequent slides.

The Lean Startup Process Business Models The Lean Startup Process Build: The product you build for your early customers should be a minimum viable product or MVP. Your MVP will lack elaborate features and may even have critical flaws.

Business Models The Lean Startup Process Measure: Once you have developed and released your MVP, you need to measure. As customers use your product, they will provide feedback that is qualitative, such as whether they like the product or not, and quantitative, such as how many of them use it and like it.

The Lean Startup Process Business Models The Lean Startup Process Learn: The goal of launching your MVP is to test your fundamental business hypotheses. The following questions should be answered: Have you created value? Have you validated your growth strategy?

The Lean Startup Process Business Models The Lean Startup Process Information you learn from testing also has to be actionable, accessible, and auditable. Actionable metrics have to demonstrate cause and effect. The data has to clearly tell you what gets results, which are a positive change in customer behavior. Accessible metrics must be simple enough for everyone to understand, and they have to be available to everyone. Each person in the company needs access to the learned information so that it can guide their actions. Auditable metrics must be tested and measured in the real world. The data should be checked for consistency and validated by spot checks with real customers. Describe the actionable, accessible, and auditable information that must be learned from testing. References Ries, 134-147 for more detail.

Moving From Vision to Success Business Models Moving From Vision to Success Interacting with potential customers will enable you to test assumptions from your vision and assist with further guidance of your business model. Describe the importance of interacting with people who have the problem you are trying to solve. Explain how this contributes to the business model.

Business Models How Can Your Product Succeed? Customer Discovery The most common reason for new product failure is that the final product doesn’t match market needs. Successful companies spend significantly more time understanding what the customer values before they build the product. Discuss why it is important to understand customer value prior to building the product. Review the course instructor notes for further emphasis and example links.

How Can Your Product Succeed? Business Models How Can Your Product Succeed? You will test, fail, and modify your assumptions of your product within the target market. Then test them again. Discuss the importance of testing product ideas within your target market. Base your discussion off of the ideas listed in module 4.4.

Business Models Customer Discovery in Action Example: Betaworks is a business development company that follows the principle that a company has $100,000 to create a MVP in 100 days. Give a description of Betaworks business concept and how they used the principles of customer discovery to test their products with customers. See notes within the instructor content.

Business Models Attracting Customers In order to attract customers, you will have to be able to communicate to them specifically and succinctly what value you are offering them. A good value proposition articulates the distinctive benefit gained by purchasing your product or service.

Value Proposition Defined Business Models Value Proposition Defined A value proposition is a statement that articulates the value of a company’s product or service and how the customer will benefit. Provide a few examples of value propositions. Use the examples for iTunes, and Skype as listed within the course content.

Formulating the Value Proposition Business Models Formulating the Value Proposition What value do you provide the customer? How is the value you provide different from existing solutions in the market? How are you going to communicate the value of your offering to the customer? Does your value proposition provide a sustainable competitive advantage over the competition? Review the questions that will assist an entrepreneur in creating their value proposition. See supplemental notes below: Here are some questions that can help you formulate your value proposition: What value do you provide the customer? Consider qualitative values such as customer experience in addition to quantitative values such as faster, better, or cheaper. How is the value you provide different from existing solutions in the market? How are you going to communicate the value of your offering to the customer? Remember to consider a mix of methods. Does your value proposition provide a sustainable competitive advantage over the competition?

Elements Contributing to the Value Proposition Business Models Elements Contributing to the Value Proposition Getting the job done Brand/Status Newness Performance Design Customization Expound upon the following element that contribute to the value proposition. See the supplemental notes listed within the course content section 4.5.

Business Models Elements Contributing to the Value Proposition Price Cost Reduction Risk Reduction Accessibility Convenience/Usability Expound upon the following element that contribute to the value proposition. See the supplemental notes listed within the course content section 4.5.

Product Positioning Statement Business Models Product Positioning Statement For (target end user) Who wants/needs (compelling reason to buy) The (product name) is a (product category) That provides (key benefit) Unlike (main competitor) The (product name) (key differentiation) Discuss the following template structure from an exercise used to develop a product positioning statement. Describe each point in detail. Reference Blank and Dorf.