1. ©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. DEVELOPING AND TESTING A BUSINESS MODEL 4

2. ©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Model Components Table 4.1

3. ©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Why Business Models Fail  Flawed logic  Limited strategic choices  Imperfect value creation and capture assumptions  Incorrect assumptions about the value chain

4. ©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Developing a Concept for a New Business  A business concept is a concise description of an opportunity that contains four essential elements: 1.The customer definition 2.The value proposition 3.The product/service 4.The distribution channel

5. ©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Entrepreneur's Story  A compelling story has a beginning, middle, and end. How they identified or created the opportunity Challenges they overcame Where they are now

6. ©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Building a Business Model  Stage 1: Identify position in value chain  Stage 2: Calculate how to create value for the customer  Stage 3: Identify revenue sources  Stage 4: Determining expenses and cost drivers  Stage 5: Develop the competitive strategy  Stage 6: Test the model through feasibility analysis

7. ©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Building a Business Model Figure 4.1

8. ©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Analyzing the Feasibility of a Business Model  All opportunities involve uncertainty, which is characterized by varying degrees of risk.  Risks can be identified and dealt with.  Uncertainty means outcomes are unknown so subjective probabilities must be applied.

9. ©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Analyzing the Feasibility of a Business Model (cont’d)  Feasibility and the Business Plan Split view amongst entrepreneurs on the value of the business plan.  The Outcomes of Feasibility Analysis Determination of whether the business model appears feasible  Preparing for Feasibility Analysis Critical success factors  The Feasibility Tests Areas to be analyzed

10. ©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Feasibility Analysis: Testing the Business Model Figure 4.4

11. ©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Quick “Screen” for Multiple Options  Quick screen ideas before undertaking a thorough feasibility study on any one of the concepts: 1.Start with a concept statement 2.Examine the industry 3.Identify the market – customer & competitors 4.Identify how the product/service benefits the customer 5.Examine founding/management team capabilities 6.List all resources needed by the business

12. ©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. New Venture Action Plan Create a concept statement for a new venture. Develop a business model for the venture. Craft a story that explains the business and is compelling to others. Prepare to conduct a feasibility analysis on the business model. End of Chapter 4… DEVELOPING AND TESTING A BUSINESS MODEL