Lecture 5 Evaluation of the Business Model Canvas

SEVEN QUESTIONS

Seven Questions 1. How much do switching costs prevent your customers from churning? How scalable is your business model? 3. Does your business model produce recurring revenues? 4. Do you earn before you spend? 5. How much do you get others to do the work? 6. Does your business model provide built-in protection from competition? 7. Is your business model based on a game changing cost structure?

1. How much do switching costs prevent your customers from churning? Cost to customer to move from one provider to another –Time –Effort –Investment –Training –Toothpaste and beverages versus auto parts Tie your customers to your business –Consumables –Protocols and standards –Regulations –Interchangeability –Generational compatibility

2. How scalable is your business model? Expansion cost versus reventue stream Minimum efficient scale Revenue scaling Capital Cost scaling Employee scaling Scaling factors –Franchising –Multiple units –Revenue per sale –NPV per sale

3. Does your business model produce recurring revenues? Transaction versus relationship –Software versus software as service NPV analysis Cost per customer versus NPV of revenue per customer Low up-front and recurring revenue stream Licensing Models –Subscription –Consumables –Licensing –Updates –Complements

4. Do you earn before you spend? Up front cash flows Customer financing Customer deposits Prepaid offerings

5. How much do you get others to do the work? Outsourcing Platform Crowdsourcing Idea Tournaments Facebook Threadless Quirky

6. Does your business model provide built-in protection from competition? Design Identity Special Relationships Family Learning Special employees Reputation Trade Secrets

7. Is your business model based on a game changing cost structure? Longtail Freemium Disintermediation Computer Based Peer Production Skype Flickr Amazon Wikipedia