Business Model
Raj Shankar
ichiban Group
Purpose of A Business
The main purpose of a business is to create value
Purpose of A Business
The main purpose of a business is to create value
What is a Business Model?
A Business Model is a link between social domain where economic rents
are generated and creative domain where products and services are
conceptualized- Craig S. Fisher and Babette E. Bensoussan
A Business Model is a core logic of value creation
Details how the business will make money
Business Model & Business Plan- Key Differences
Business Model
Business Plan
Ascertains how a business
works in reality
Provides a section wise
details of your business
Creates an opportunity map
for your business idea
The business plan is drawn
up based on your business
model
It gives different shapes to
a single business idea and
more practical in terms
It is more literary in terms
and does not reflect the
practical shape that a
business would take in
reality
Why should we model before the plan?
Profitability is designed from the inside of the business
Most industries are moving from single dominant models
to multiple models
Allows clear visualization of Cost and Price Equilibrium
Studies the economics of business and viability of the
business
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Functions of a Business Model
Value Creation
Enterprise exist because they create value
Success of the enterprise is predicated on how many consider the
value generated useful
Customers are willing to pay a price based on how important they
consider this value
Value Capture
How much of earnings that the enterprise can retain to carry on and
deliver this value?
What are the broad margins that an enterprise can earn through
conducting the business?
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Ubiquitous Business Model
The Barter System
Exchange of goods between two people is one of the old models
The Kirana Stores
They have certain credit cycles built into products
The Razor Blade Model (Gillette)
The Reverse Razor Blade Model (i-Tunes)
Business Model Double Ellipse
Double Elipse
The product needs to be made available to the customer for purchase
Value Creation :Businesses exist only when they create value
Distribution
Activities
Resources : Businesses
will use resources to create this value that the customers find useful
Channels
Customer
PRICE
ELLIPSE
Value
Proposition
COST
ELLIPSE
Resources
Communication
Management
TheCustomer
value that: the
business
offers
needs
to
be
communicated
Businesses
need someone to feel the usefulnesstoofthethecustomer
value
Channels
To
activities
one wouldhas
need
level
of management
Tocoordinate
deliver thethe
value
the organization
to appropriate
execute some
activities
resources and controls
10
Business Influencer
Industry
Distribution
Channels
Customer
Price
Ellipse
Activity
Value
Proposition
Communication
Channels
Cost
Ellipse
Resources
Management
Competition
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Attributes
Customer
Value Proposition
Resources
Communication channels
Distribution channels
Activity
Management
Influencers
Industry
Competition
12
Value Proposition
Value proposition is defining the value being created and
delivered to the customer
From customers perspective
What will it help the customer achieve
Should be narrow
Should identify with one of the three value discipline
13
Customer
Defining the beneficiary of the value
Understanding User / Sponsor and Influencer
Characteristics of ideal customer
Typical buying cycle
Customer Volumes
14
Communication Channels
Communication channels are used to inform the
customer about the proposed value that is being
delivered by the service or the product so that they can
make a well informed purchase
Points of aggregation
Cost of communication
Level of customer maturity
15
Distribution Channels
Distribution channel should consider how the product or
service can be delivered:
Number of levels
Need for partners
Supply chain costs
16
Resources
These are the resources needed for delivering the value
Nature of resource (man / material / ip / infrastructure etc)
Partners
Is the resource differentiated?
Resource criticality
Access / Owned / Leased
17
Activity
To create value the resources have to be involved in
executing certain activities
Functional Activities ( S&M / HR / Accounts etc)
Operational Activities (Manufacturing / Customer relationship
management / purchase / infrastructure management etc)
Strategic Activities ( Outsourcing / Partnering etc)
18
Management
Management means positions, designation, utilisation of
resources to deliver value, overseeing of activities,
involvement in activities, etc
Structure
Over heads
Board / Advisory
19
Business Model- Interpretation
Business design is a constant state of stretching and
skewing between the two ellipses - the price ellipse and
the cost ellipse
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Benefits of a Business Model
Articulate the
value
proposition
in a clear
manner
Formulate
a good
competitiv
e strategy
Identify the
market
segments
profitable to
operate
Business
Model
Position
the firm
within the
overall
ecosystem
Structure
the value
chain
Estimate
the cost
structure,
revenue
and profit
models
21
Thank You..
Key Source: Entrepreneurship Theory and Practice, Raj
Shankar
For all your queries and suggestions,
Please contact:
[email protected]22
