© Inge Hill Start Up, Palgrave 2015

Business modelling that fits CHAPTER 7 Business modelling that fits © Inge Hill Start Up, Palgrave 2015

© Inge Hill Start Up, Palgrave 2015 The purpose of Start Up So many start-ups fail because… No or insufficient research carried out Forecasts for sales too high Too little time spent on business modelling – finding optimal ways of production and delivery – therefore, costs too high Too much stock bought too early Insufficient amount of marketing A sustainable start-up only closes when the founder(s) want to do so – and is/are not forced to do it. The Start Up Cube offers a solution to create a sustainable start-up offering principles and doable practices. © Inge Hill Start Up, Palgrave 2015

© Inge Hill Start Up, Palgrave 2015 Learning outcomes Apply the cube faces “strategy” and “evaluation” the principles of alertness and sustainability with co-creation Define business model Explain business models and business modelling Apply business modelling to the sustainable start-up Discuss a variety of business models Discuss business models for social enterprises © Inge Hill Start Up, Palgrave 2015

© Inge Hill Start Up, Palgrave 2015 Cube faces applied © Inge Hill Start Up, Palgrave 2015

What is a business model / modelling? Business model is an essential part of the strategy to make the business a success blueprint for a strategy Realised through organisational structures, systems (such as Human Resource systems, sales systems), processes (ways to do business) Business modelling on-going process of developing the way of doing business for the sustainable start-up doing, fine-tuning, evaluating Dr. Inge Hill 2014 BUS4003 Week 4

Importance of business modelling To create a strategic fit between an organisation and its markets it operates in as well as the values of management (and founders) and capabilities. In order to operate profitably and achieve optimal business performance. Dr. Inge Hill 2014 BUS4003 Week 4

Definitions of business model A method for generating value, a company’s blueprint and explains the current and future state of a company (Bowman and MacInnes, 2006) It articulates the logic, data and evidence that support a value proposition for the customers and viable structure of revenues and costs for the enterprise delivering that value (Teece, 2010) A set of capabilities that is configured to enable value creation consistent with either economic or social strategic objectives (Seelos and Mair, 2007) Dr. Inge Hill 2014 BUS4003 Week 4

Business model cube™ (Hill, 2015) Business processes: Operations and process management Financial circuits: Spending and making money (including pricing) Frameworks: Internal frameworks (governance) and legal issues Customer focus (and environment): Marketing, sales, market and industry research Strategy: Business modelling and positioning Evaluation: Value creation and impact management. Dr. Inge Hill 2014 BUS4003 Week 4

Business model cube™ Dr. Inge Hill 2014 BUS4003 Week 4

Business model cube™ It can be realised through applying all six principles and associated practices: ALERTNESS RESPONSIBILITY RESOURCEFUL IMPACT INTERCONNECTEDNESS CO-CREATION SUSTAINABILITY Dr. Inge Hill 2014 BUS4003 Week 4

Other business models Business model canvas Digital business model (Weill and Woerner, 2013) Dr. Inge Hill 2014 BUS4003 Week 4

© Inge Hill Start Up, Palgrave 2015 Learning outcomes © Inge Hill Start Up, Palgrave 2015

The 9 building blocks of the canvas Four areas: Customers Customer segments – Customer relationships Value proposition – offer to customers Finance Cost structure – Revenue streams Infrastructure Key partners = external stakeholders that are important; Key activities – Key resources Resources needed in order to be able to create the most important activities to create the product / service Dr. Inge Hill 2014 BUS4003 Week 4

Customer relationships Purposes: Customer acquisition Customer retention Boosting sales (upselling) Differentiated by timing in the relationship: Bringing in new customers While being customers After sales service © Inge Hill Start Up, Palgrave 2015

Customer relationships cont. Personal assistance – human interaction = key Via email/call centre/f2f/other At point of sale, before and afterwards Dedicated personal assistance, account managers for key customers - bespoke Self-service – no direct relationship Automated services – customer self service mixed with automated processes Example: book or movie recommendation on personal profile © Inge Hill Start Up, Palgrave 2015

© Inge Hill Start Up, Palgrave 2015 Value proposition Package of benefits a customer gains not features of products / services themselves, but delivered by them That solves a problem / addresses a customer pain © Inge Hill Start Up, Palgrave 2015

© Inge Hill Start Up, Palgrave 2015 Customer segments Who is the first customer the new business sells to? Different customers need to be reached through different offers / pay for different parts of the offer more / require different relationships and distribution channels / © Inge Hill Start Up, Palgrave 2015

© Inge Hill Start Up, Palgrave 2015 Customer channels Communication and ordering / delivery: Email, website, skype, social media, file sharing, phones, call centres Marketing channels: tangible Bill boards, flyers, posters etc. Physical delivery of a product Via lorry, mail, parcel service, other companies © Inge Hill Start Up, Palgrave 2015

© Inge Hill Start Up, Palgrave 2015 Cost structure Low cost High value / cost As low running cost as possible Example: Aldi, RyanAir How does that compare to Marks and Spencer Food section and First class with British Airways? Advantage of that? A high value offer to customers that can cost the business more Gucci Handbags / H&M handbag Advantage of that? © Inge Hill Start Up, Palgrave 2015

© Inge Hill Start Up, Palgrave 2015 Revenue streams Cash created from each customer segment (minus cost for creating earnings) Two types: 1) one-time payments 2) recurring revenues EXAMPLES Selling assets – car, computers License fee – customers use protected IP and pay fee (2) Subscription fee – gym, web based computer games (2) Renting / leasing – zipcar.com – car sharing (2) © Inge Hill Start Up, Palgrave 2015

© Inge Hill Start Up, Palgrave 2015 A digital business model content – experience – platform Weill and Woerner, 2013 Content = all information including product information offered on the website, including price, product features, and reviews of other customers, actual digital products, such as presentations, that can be used online. Experience: the whole experience of what it feels like on the customer journey using the platform, buying physical or tangible products such as books, electronics, or obtaining a service, such as online learning. Important features include Useability, ease of use, speed in finding what a user is looking for, Payment options on offer, Colour schemes, use of flash or other tools Messaging options available, such as via text or email, What searches can be carried out, if searcher are remembered and stored or not, Personalised recommendations for the customer etc. © Inge Hill Start Up, Palgrave 2015

© Inge Hill Start Up, Palgrave 2015 Digital model cont. Platform: all internal and external business processes, data and infrastructure features that are digital. Internal systems = all business processes and data that the customer does not see and / or experience, such as customer analyses carried out on the search and purchase history (for example the way Amazon does it); External systems or platforms address the interface between the company and the buyer / consumer (PC, laptop, tablet, smart phone), The telecommunications network, the interface between the company and delivery partners. © Inge Hill Start Up, Palgrave 2015

Three business models for social enterprises First model: Trading for profit to finance social impact Social impact = services for beneficiaries, people in need or the environment Second model: trading has a social impact by itself = trade-off model The higher the surplus the lower the social impact Example: buying from suppliers in the fair trade chain and paying them a reasonable price means the own profit margins will be reduced. © Inge Hill Start Up, Palgrave 2015

Three business models for social enterprises cont. Trading to generate profits: Often member owned organisations – credit unions, co-operatives Social impact increases or decreases parallel to financial return made Members are customers and gain share of profits in relation to money spent © Inge Hill Start Up, Palgrave 2015

© Inge Hill Start Up, Palgrave 2015 Questions? © Inge Hill Start Up, Palgrave 2015