1. BUS827 Entrepreneurship and Business Strategy
Seminar 3: Business Models and Venture Feasibility
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2. Course Objectives:
Apply the entrepreneurial process model to analyse entrepreneurs’ venture creation.
Understand and practise idea generation and screening including opportunity analysis trends, feasibility and competitive analysis.
Understand the process how to write up feasibility analysis and business plan to launch the new venture successfully.
Understand the basics of entrepreneurial finance: raising funds, growth financing, financial evaluation of opportunities, and acquisition financing.
Comprehend the issues and tasks involved in setting up a venture, marketing and financing the venture, and evaluating venture performance for growth and sustainability.
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3. Developing an Effective Business Model Objectives
Describe the process of strategic Management
Describe a business model.
Explain business model innovation.
Discuss the importance of having a clearly articulated business model.
Discuss the concept of the value chain.
Identify a business model’s two potential fatal flaws.
Identify a business model’s four major components.
Explain the meaning of the term business concept blind spot.
Define the term core competency and describe its importance.
Explain the concept of supply chain management.
Source: Barringer Chap 6, Scarborough Chap 3
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4. What do we mean by Strategic Management?
Is crucial to building a successful business.
Involves developing a game plan to guide a company as it strives to accomplish its mission, goals, and objectives, and to keep it on its desired course.
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5. What is the relationship between Strategic Management and Competitive Advantage
Developing a strategic plan is crucial to creating a sustainable competitive advantage, the aggregation of factors that sets a company apart from its competitors and gives it a unique position in the market that is superior to its competition.
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6. How to Build a Competitive Advantage?
Consider five aspects of a small company:
Products they sell
Service they provide
Pricing they offer
Way they sell
Values to which they are committed
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7. What do we mean by Core Competencies
Unique set of capabilities a company develops in key areas, such as superior quality, customer service, innovation, team-building, flexibility, responsiveness, and others that allow it to vault past competitors.
They are what a company does best.
Best to rely on a natural advantage (often linked to a company’s “smallness”).
Example: Pizza Fusion
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8. What is a Business Model?
Entrepreneurs do not lack creative ideas, but …once the idea has been developed, a business model is needed.
A business model defines the process a company will use to generate sales and a profit.
There is no standard business model for an industry or for a target market within an industry. However, over time, the most successful business models in an industry predominate. There are always opportunities for business model innovation
Ch. 4: Feasibility Analysis & Business Plan

9. What is a Business Model?
A model is a plan or diagram that’s used to make or describe something.
Business Model
A firm’s business model is its plan or diagram for how it competes, uses its resources, structures its relationships, interfaces with customers, and creates value to sustain itself on the basis of the profits it generates.
The term “business model” is used to include all the activities that define how a firm competes in the marketplace.
Flaws: A business model may be untenable from the beginning if:
A complete misread of the customer
Utterly unsound economics
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10. What is a Business Model Composed of?
A business model is comprised of:
A definition of target customers and how the company will reach them
The customer value proposition the company offers
Point of differentiation
Pricing
Selling process
Distribution system
Customer support
Ch. 4: Feasibility Analysis & Business Plan

11. What defines Dell’s Business Model
Dell’s Approach to Selling PCs versus Traditional Manufacturers
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12. MKTG303 marketing StrategySeminar 7 MKTG303 Session 1, 2008
What defines Styles and Goddard Business Model Approach?
Each point of the star reflects a strategic choice.
Question: How different is the firm’s star from its rivals
Audience
Choice of served market
Appeal
Unique value
proposition
Antagonists
Rivals targeting the
same audience
Value
Acquisition
How the cash is
obtained
(value captured)
Source: Styles, C; & Goddard, J. (2004). Spinning the wheel of strategic innovation: Business Strategy Review, 15(2), p63-72
Activities
What the Firm Chooses to Do
The make/buy decision
Access
Channels of communication
and distribution
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13. Example: BMW’s Business Model
Seminar 7 MKTG303 Session 1, 2008
MKTG303 marketing StrategySeminar 7 MKTG303 Session 1, 2008
Example: BMW’s Business Model
Audience
Affluent professional
Status conscious
Loyal
Appeal
Other car makers
(eg Audi, Mercedes, SUVs)
Antagonists
Value capture
Driving pleasure
Prestige brand
Quality & reliability
Longevity
Fun & sporty
Range
Sale of cars to dealers
After market
Finance
Value
Access
Activities
Dealers
Fleet managers
Current owners
Advertising
Brand management
Design/R&D
Supplier relationships
Quality of assembly
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14. Using the Blue Ocean Strategy Canvas to Visualize Your Business Model
1. Visual Awakening
2. Visual Exploration
3. Visual Strategy Fair
4. Visual Communication
Compare you business with competitors by drawing ‘As Is’ Strategy Canvas
See what your strategy needs to change
Go into the field. Never outsource your ‘eyes’. Gain a deep understanding of buyers
Observe advantages of alternative products and services
Create ERRC Grid (Eliminate, Raise, Reduce, Create)
Draw ‘To Be’ Strategy Canvas based on field insights
Use this to gain feedback on alternate To Be’ Strategy Canvas options from all buyers
Distribute ‘As Is’ and ‘To Be’ Strategy Canvas on one page for easy comparison
Choose those projects and operational moves that allow acutalisation of new strategy
Source: Kim, W. and Mauborgne, R. 2005, Blue Ocean Strategy, McGraw Hill, Chapter 4
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15. The Blue Ocean Strategy Canvas
Having a clearly articulated business model is important because it does the following:
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16. How do Business Models Emerge? 1 of 3
The Value Chain
The value chain is the string of activities that moves a product from the raw material stage, through manufacturing and distribution, and ultimately to the end user.
By studying a product’s or service’s value chain, an organization can identify ways to create additional value and assess whether it has the means to do so.
Value chain analysis is also helpful in identifying opportunities for new businesses and in understanding how business models emerge.
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17. How do Business Models Emerge? 2 of 3
The Value Chain
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18. How do Business Models Emerge? 3 of 3
The Value Chain (continued)
Entrepreneurs look at the value chain of a product or a service to pinpoint where the value chain can be made more effective or to spot where additional “value” can be added.
This type of analysis may focus on:
A single primary activity such as marketing and sales.
The interface between one stage of the value chain and another, such as the interface between operations and outgoing logistics.
One of the support activities, such as human resource management.
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19. What are the Components of a Business Model?
Four Components of a Business Model
Fatal Flaws
Two fatal flaws can render a business model untenable from the beginning:
A complete misread of the customer
Utterly unsound economics
Stop Here
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20. Core Strategy Core Strategy Primary Elements of Core Strategy
The first component of a business model is the core strategy, which describes how a firm competes relative to its competitors.
Primary Elements of Core Strategy
Mission statement
Product/market scope
Basis for differentiation

21. Strategic Resources Importance of Strategic Resources
New ventures ultimately try to combine their core competencies and strategic assets to create a sustainable competitive advantage.
This factor is one that investors pay close attention to when evaluating a business.
A sustainable competitive advantage is achieved by implementing a value-creating strategy that is unique and not easy to imitate.
This type of advantage is achievable when a firm has strategic resources and the ability to use them.
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22. The Most Common Types of Business Partnerships
Partnership Network
The Most Common Types of Business Partnerships
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23. Customer Interface Customer Interface
The way a firm interacts with its customer hinges on how it chooses to compete.
For example, Amazon.com sells books over the Internet while Barnes & Noble sells through its traditional bookstores and online.
The three elements of a company’s customer interface are:
Target customer
Fulfillment and support
Pricing model
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24. Entrepreneurship and Business Strategy Industry & Competitor Analysis
Start Here
BUS827
Entrepreneurship and Business Strategy
Industry & Competitor Analysis
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25. What is Industry Analysis?
An industry is a group of firms producing a similar product or service, such as airlines, fitness drinks, furniture, or electronic games.
Industry Analysis
Is business research that focuses on the potential of an industry.
The analysis helps a firm determine if the target market it identified during feasibility analysis is favorable for a new firm.
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26. Three Key Questions
When studying an industry, an entrepreneur must answer three questions before pursuing the idea of starting a firm.
Is the industry
accessible—in other
words, is it is realistic
place for a new
venture to enter?
Question 1
Does the industry
contain markets that
are ripe for innovation
or are underserved?
Question 2
Are there positions in
the industry that avoid
some of the negative
attributes of the
industry as a whole?
Question 3

27. How Industry and Firm-Level Factors Affect Performance
Include a firm’s assets, products, culture, teamwork among its employees, reputation, and other resources.
Industry-Level Factors
Include threat of new entrants, rivalry among existing firms, bargaining power of buyers, and related factors.
Conclusion
In various studies, researchers have found that from 8% to 30% of the variation in firm profitability is directly attributable to the industry in which a firm competes.

28. Techniques Available to Assess Industry Attractiveness
Assessing Industry Attractiveness
Study Environmental
and Business Trends
The Five Competitive
Forces Model
Techniques Available to Assess Industry Attractiveness

29. Studying Industry Trends
Environmental Trends
Include economic trends, social trends, technological advances, and political and regulatory changes.
For example, industries that sell products to seniors are benefiting by the aging of the population.
Business Trends
Other trends that impact an industry.
For example, are profit margins in the industry increasing or falling? Is innovation accelerating or waning? Are input costs going up or down?

30. Building a Sustainable Competitive Advantage
Capabilities
Core competencies
Lessons learned
Sustainable competitive advantage
Superior value for customers
Skills

31. The Five Competitive Forces Model
Explanation of the Five Forces Model
A framework for understanding the structure of an industry.
The model is composed of the forces that determine industry profitability.
They help determine the average rate of return for the firms in an industry.
Each of the five forces impacts the average rate of return for the firms in an industry by applying pressure on industry profitability.
Well managed firms try to position their firms in a way that avoids or diminishes these forces—in an attempt to beat the average rate of return of the industry.

32. Entrepreneurship and Business Strategy
Feasibility Analysis
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33. Feasibility Analysis Objectives 1 of 2
Explain what a feasibility analysis is and why it’s important.
Discuss the proper time to complete a feasibility analysis when developing an entrepreneurial venture.
Describe the purpose of a product/service feasibility analysis and the two primary issues that a proposed business should consider in this area.
Explain a concept statement and its components.
Describe the purpose of a buying intentions survey and how it’s administered.
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34. Objectives 2 of 2
Explain the importance of library, Internet, and detective research.
Describe the purpose of industry/market feasibility analysis and the two primary issues to consider in this area.
Discuss the characteristics of an attractive industry.
Describe the purpose of organizational feasibility analysis and list the two primary issues to consider in this area.
Explain the importance of financial feasibility analysis and list the most critical issues to consider in this area.
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35. When To Conduct a Feasibility Analysis
Timing of Feasibility Analysis
The proper time to conduct a feasibility analysis is early in thinking through the prospects for a new business.
The thought is to screen ideas before a lot of resources are spent on them.
Components of a Properly Conducted Feasibility Analysis
A properly conducted feasibility analysis includes four separate components, as discussed in the following slides.
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36. Role of feasibility analysis in developing business ideas.

37. Forms of Feasibility Analysis
Product/
Service Feasibility
Organizational
Feasibility
Industry/Target
Market
Feasibility
Financial
Feasibility
Source: Barringer and Ireland Table 3.1
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38. Product/Service Feasibility Analysis
Consists of
Purpose
Is an assessment of the overall
appeal of the product or service
being proposed.
Before a prospective firm rushes
a new product or service into
development, it should be sure
that the product or service is what
prospective customers want.
Product/Service
Desirability
Product/Service
Demand
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39. Product/Service Desirability 1 of 3
First, ask the following questions to determine the basic appeal of the product or service.
Does it make sense? Is it reasonable? Is it something consumers
will get excited about?
Does it take advantage of an environmental trend, solve a
problem, or take advantage of a gap in the marketplace?
Is this a good time to introduce the product or service to the
market?
Are there any fatal flaws in the product or service’s basic design
or concept?
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40. Product/Service Desirability 2 of 3
Second, Administer a Concept Test
A concept statement should be developed.
A concept statement is a one-page description of a business that is distributed to people who are asked to provide feedback on the potential of the business idea.
The feedback will hopefully provide the entrepreneur:
A sense of the viability of the product or service idea.
Suggestions for how the idea can be strengthened or “tweaked” before proceeding further.
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41. Product/Service Desirability 3 of 3
New Venture Fitness Drink’s Concept Statement
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42. Product/Service Demand 1 of 7
There are two steps to assessing product/service demand.
Step 1: Administer a Buying Intentions Survey
Step 2: Conduct Library, Internet, and Gumshoe research
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43. Product/Service Demand 2 of 7
Buying Intentions Survey
Is an instrument that is used to gauge customer interest in a product or service.
It consists of a concept statement or a similar description of a product or survey with a short survey attached to gauge customer interest.
Internet sites like SurveyMonkey make administering a buying intentions survey easy and affordable.
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44. Product/Service Demand 3 of 7
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45. A Commercially Viable Blue Ocean Idea
BOS Logic: Get the Strategic Sequence right
4 of 7
Source Kim & Mauborgne, Blue Ocean Strategy p118
Buyer utility
Is there exceptional buyer utility in your business idea?
No-- Rethink
An important part of blue ocean strategy is to “get the strategic sequence right.” This sequence fleshes out and validates blue ocean ideas to ensure their commercial viability. This can then reduce business model risk. In this model, potential blue ocean ideas must pass through a sequence of buyer utility, price, cost, and adoption. At each step there are only two options: a “yes” answer, in which case the idea may pass to the next step, or “no”. If an idea receives a no at any point, the company can either park the idea or rethink it until you get a yes.
Yes
Price
Is your price easily accessible to the mass of buyers?
No-- Rethink
Yes
Cost
Can you attain your cost target to profit at your strategic price?
No-- Rethink
The starting point is buyer utility. Does your offering unlock exceptional utility? Is there a compelling reason for the mass of people to buy it?
Absent this, there is no Blue Ocean potential to begin with. Here there are only two options. Park the idea, or rethink it until you reach an affirmative answer.
When you clear the exceptional utility bar, you advance to the second step: setting the right strategic price. Remember a company does not want to rely on price to create demand. The key question her is this: Is your offering priced to attract the mass of target buyers so that they have a compelling ability to pay for your offering? If it is not, they cannot buy it. Nor will the offering create irresistible market buzz.
These two steps address the revenue side of a company's business model.
Securing the profit side bring the third element: cost. Can you produce your offering at the target cost and still earn a healthy profit margin? Can you profit at the strategic price-the price easily accessible to the mass of target buyers? You should not let costs drive prices. Nor should you scale down utility because high costs block your ability to profit at the strategic price. When the target cost cannot be met, you must either forgo the idea because the Blue Ocean won't be profitable, or you must innovate your business model to hit the target cost. It is the combination of exceptional utility, strategic pricing, and target costing that allows companies to achieve value innovation-a leap in value for both buyers and companies.
The last step is to address adoption hurdles. What are the adoption hurdles in rolling out your idea? Have you addressed these up front? The formulation of Blue Ocean Strategy is complete only when you address adoption hurdles in the beginning to ensure the successful actualization of your idea. Adoption hurdles include, for example, potential resistance to the idea by retailers or partners. Because Blue Ocean Strategies represent a significant departure from red oceans, it is key to address adoption hurdles up front.
Yes
Adoption
What are the adoption hurdles in actualizing your business idea? Are you addressing them up front?
No-- Rethink
Yes
A Commercially Viable Blue Ocean Idea
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46. What is the Buyer Utility Map?
5 of 7
The buyer utility map helps managers look at this issue from the right perspective. It outlines all the levers companies can pull to deliver exceptional utility to buyers as well as the various experiences buyers can have with a product or service.
The Six Stages of the Buyer Experience Cycle 1.
Purchase 2.
Delivery 3.
Use 4.
Supplements 5.
Maintenance 6.
Disposal
Customer Productivity
Simplicity
Convenience
The Six Utility Levers
Risk
Fun and Image
Environmental friendliness
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47. What is the Buyer’s Experience Cycle?
6 of 7
A buyer’s experience can usually be broken into a cycle of six stages, running more or less sequentially from purchase to disposal. Each stage encompasses a wide variety of specific experiences. At each stage, managers can ask a set of questions to gauge the quality of buyer’s experience.
Purchase
Delivery
Use
Supplements
Maintenance
Disposal
How long does it take to find the product you need?
Is the place of purchase attractive and accessible?
How secure is the transaction environment?
How rapidly can you make a purchase?
How long does it take to get the product delivered?
How difficult is it to unpack and install the new product?
Do buyers have to arrange delivery themselves? If yes, how costly and difficult is this?
Does the product require training or expert assistance?
Is the product easy to store when not in use?
How effective are the product’s features and functions?
Does the product or service deliver far more power or options than required by the average user? Is in overcharged with bells and whistles?
Do you need other products and services to make this product work?
If so, how costly are they?
How much time do they take?
How easy are they to obtain?
Does the product require external maintenance?
How easy is it to maintain and upgrade the product?
How costly is maintenance?
Does use of the product create waste items?
How easy is it to dispose of the product?
Are there legal or environmental issues in disposing of the product safely?
How costly is disposal?
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48. Product/Service Demand 7of 7
Library, Internet, and Detective Research
Conduct library, Internet, and be a detective research.
Reference librarians can often point you toward resources to help you investigate a business idea, such as industry-specific trade journals and industry reports.
Internet searches can often yield important information about the potential viability of a product or service idea.
Be a detective. Ask people what they think about your product or service idea. If your idea is to sell educational toys, spend a week volunteering at a day care center and watch how children interact with toys.
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49. Industry/Target Market Feasibility Analysis
The components of which are:
Purpose
Is an assessment of the overall
appeal of the industry and the
target market for the proposed
business.
An industry is a group of firms
producing a similar product or
service.
A firm’s target market is the
limited portion of the industry it
plans to go after.
Industry Attractiveness
Target Market
Attractiveness
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50. Industry Attractiveness 1 of 2
Industries vary in terms of their overall attractiveness.
In general, the most attractive industries have the characteristics depicted on the next slide.
Particularly important—the degree to which environmental and business trends are moving in favor rather than against the industry.
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51. Industry Attractiveness 2 of 2
Characteristics of Attractive Industries
Are young rather than old
Are early rather than late in their life cycle
Are fragmented rather than concentrated
Are growing rather than shrinking
Are selling products and services that customers “must have” rather than “want to have”
Are not crowded
Have high rather than low operating margins
Are not highly dependent on the historically low price of key raw materials
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52. Target Market Attractiveness
The challenge in identifying an attractive target market is to find a market that’s large enough for the proposed business but is yet small enough to avoid attracting larger competitors.
Assessing the attractiveness of a target market is tougher than an entire industry.
Often, considerable ingenuity must be employed to find information to assess the attractiveness of a specific target market.
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53. Organizational Feasibility Analysis
Consists of
Purpose
Is conducted to determine
whether a proposed business has
sufficient management expertise,
organizational competence, and
resources to successfully launch
a business.
Focuses on non-financial resources.
Management Prowess
Resource Sufficiency
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54. Management Prowess Management Prowess
A proposed business should candidly evaluate the prowess, or ability, of its management team to satisfy itself that management has the requisite passion and expertise to launch the venture.
Two of the most important factors in this area are:
The passion that the sole entrepreneur or the founding team has for the business idea.
The extent to which the sole entrepreneur or the founding team understands the markets in which the firm will participate.
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55. Resource Sufficiency 1 of 2
This topic pertains to an assessment of whether an entrepreneur has sufficient resources to launch the proposed venture.
To test resource sufficiency, a firm should list the 6 to 12 most critical nonfinancial resources that will be needed to move the business idea forward successfully.
If critical resources are not available in certain areas, it may be impractical to proceed with the business idea.
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56. Resource Sufficiency 2 of 2
Examples of nonfinancial resources that may be critical to the successful launch of a new business
Affordable office space
Lab space, manufacturing space, or space to launch a service business
Availability of contract manufacturers or service providers
Key management employees (now and in the future)
Key support personnel (now and in the future)
Ability to obtain intellectual property protection
Ability to form favorable business partnerships
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57. Financial Feasibility Analysis 1 of 2
Purpose
Is the final component of a
comprehensive feasibility analysis.
A preliminary financial assessment
is sufficient.
Financial Feasibility Analysis
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58. Ten Deadly Mistakes of Entrepreneurship
Management mistakes
Lack of experience
Poor financial control
Weak marketing efforts
Failure to develop a strategic plan
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59. Ten Deadly Mistakes of Entrepreneurship
Uncontrolled growth
Poor location
Improper inventory control
Incorrect pricing
Inability to make the “entrepreneurial transition”
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60. Financial Feasibility Analysis
Components of financial
feasibility analysis
Total Start-Up Cash
Needed
Financial Performance of
Similar Businesses
Overall Financial
Attractiveness of the
Proposed Venture
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61. Total Start-Up Cash Needed
The first issue refers to the total cash needed to prepare the business to make its first sale.
An actual budget should be prepared that lists all the anticipated capital purchases and operating expenses needed to generate the first $1 in revenues.
The point of this exercise is to determine if the proposed venture is realistic given the total start-up cash needed.
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62. Financial Performance of Similar Businesses
Estimate the proposed start-up’s financial performance by comparing it to similar, already established businesses.
There are several ways to doing this, all of which involve a little ethical detective work.
First, there are many reports available, some for free and some that require a fee, offering detailed industry trend analysis and reports on thousands of individual firms.
Second, simple observational research may be needed. For example, the owners of New Venture Fitness Drinks could estimate their sales by tracking the number of people who patronize similar restaurants and estimating the average amount each customer spends.
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63. Overall Financial Attractiveness of the Proposed Venture
Overall Financial Attractiveness of the Proposed Investment
A number of other financial factors are associated with promising business start-ups.
In the feasibility analysis stage, the extent to which a business opportunity is positive relative to each factor is based on an estimate rather than actual performance.
The table on the next slide lists the factors that pertain to the overall attractiveness of the financial feasibility of the business idea.
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64. Overall Financial Attractiveness of the Proposed Venture 2 of 2
Financial Factors Associated With Promising Business Opportunities
Steady and rapid growth in sales during the first 5 to 7 years in a clearly
defined market niche
High percentage of recurring revenue—meaning that once a firm wins a
client, the client will provide recurring sources of revenue
Ability to forecast income and expenses with a reasonable degree of
certainty
Internally generated funds to finance and sustain growth
Availability of an exit opportunity for investors to convert equity to cash
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