Entrepreneurship: Successfully Launching New Ventures

CH 3: Feasibility Analysis

Learning Objectives - for every ch try to answer them

- 3.1 Explain what a feasibility analysis is and why it’s important.

- 3.2 Describe a product/service feasibility analysis, explain its purpose, and discuss the two primary
issues that a proposed business should consider in this area.
- 3.3 Describe an industry/market feasibility analysis, explain its purpose, and discuss the two primary
issues to consider when completing this analysis.
- 3.4 Explain what an organizational feasibility analysis is and its purpose and discuss the two primary
issues to consider when completing this analysis.
- 3.5 Describe what a financial feasibility analysis is, explain its importance, and discuss the most
critical issues to consider when completing this analysis.
- 3.6 Describe a feasibility analysis template and explain when it is important for entrepreneurs to use
this template.

What Is Feasibility Analysis?

- Feasibility analysis is the process of determining whether a business idea is viable.

- It is the preliminary evaluation of a business idea, conducted for the purpose of determining whether
the idea is worth pursuing - is there money in it?

When to Conduct a Feasibility Analysis

- Timing of Feasibility Analysis - when should you do a feasibility analysis?

- The proper time to conduct a feasibility analysis is early in thinking through the prospects for a
new business (of the 9 elements of canvas business model.
- The thought is to screen ideas before a lot of resources are spent on them.
- the earlier you realize how to do it and if it can really work the less resources you’ll waste
- as early as possible
- Components of a Properly Conducted Feasibility Analysis
- A properly conducted feasibility analysis includes four separate component

Forms of Feasibility Analysis

1. Part 1: Product/Service Feasibility

a. Product/service desirability
 b. Product/service demand
2. Part 2: Industry/Target Market Feasibility - is the market interesting?
a. Industry attractiveness
b. Target market attractiveness
3. Part 3: Organizational Feasibility - do you have the skills/resources/time/energy?
a. Management prowess
b. Resource sufficiency
4. Part 4: Financial Feasibility - how are you going to finance, convince investors?
a. Total start-up cash needed
b. Financial performance of similar businesses - also opportunity cost as comparing to other
possible venture
c. Overall financial attractiveness of the proposed venture

Overall Assessment

Part 1 Product/Service Feasibility Analysis

- Purpose
- Is an assessment of the overall appeal of the product or service being proposed.
- Before a prospective firm rushes into a new product or service into development, it must be
sure that the product or service is what prospective customers want.
- Components of product/service feasibility analysis
- Product/Service Desirability - what the customer would lik
- Product/Service Demand - even if people like your product, is there demand? maybe already
smth exists so it is desirable but demand is already filled

Part 1 A. Product/Service Desirability

- 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?
- for example if your product is about sharing you want to introduce it in an economic
recession
- for example if your products is more about luxury you will want to focus on when there
is an economic boom
- Are there any fatal flaws in the product or service’s basic design or concept?

- Second, Administer a Concept Test

- A concept statement is a one-page description of a product or service idea that is distributed
to people who are asked to provide feedback on the potential of the 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.
- New Venture Fitness Drinks’ Concept Statement did this
- it was like a way to put value proposition in a paper
- how to do it depends on product creativity and focus you put

Part 1 B. Product/Service Demand

- There are three steps to assessing product/service demand.

- Step 1: Talking Face-to-Face with Potential Customers
- Step 2: Using Online Tools - to make the opinion broader - above is like the qual side and then you do
a quant more massively and it is less time consuming. After you would do an analysis of the data
 - Step 3: Library, Internet and Gumshoe/detective Research

Step 1: Talking Face-to-Face with Potential Customers

- The only way to know if your product or service is what people want is by talking to them.
- The idea is to gauge customer reaction to the general concept of what you want to sell, and then
tweak, revise, and improve on the idea based on the feedback.
- In some cases, talking with potential customers will cause an entrepreneur to abandon an idea.
- Entrepreneurs are often surprised to find that a product idea they think solves a problem gets
lukewarm reception when they talk to actual customers.

Step 2: Utilizing Online Tools

- The second way to assess demand is to utilize online tools to gauge reaction from potential
customers.
- Online tools include the following:
- Administering surveys
- Querying Q&A sites
- Utilizing Google Trends
- Purchasing Google AdWords to direct users to landing pages to see how many people
request additional information.
- Surveys
- most effective in validating what you’ve learned from face-to-face interviews rather than
collecting initial data.
- take it from the sample you interview to more generalized - more people’s opinions
- Q&A Sites
- such as Quora and Bright Journey, can be helpful in assessing product demand.
- You might pose a question on a Q&A site such as “Does Chicago need better food
delivery services?” The responses may provide insight about demand for food delivery
services in Chicago.
- Google Trends
- Allows you to enter a search term (such as skiing or running) to see if the term is trending
upwards or downwards in Google search queries.
- An upward trajectory may indicate strong consumer interest, while a downward trajectory may
indicate that consumer interest is waning - you can see this difference geographically to know
where to supply your products
- Google AdWords Coupled With Landing Pages
- Some entrepreneurs buy text ads on search engines that show up when a user is searching
for a product that is close to their idea
- If the searcher clicks on the text ad, they are taken to a landing page that describes the idea.
- There may be a link on the landing page that says “For future updates please enter your e-
mail address.” Demand for the idea can be assessed by how many people click on the text ad
and enter their email address - and this people info can be used to ask them later to
participate in focus sgroups.

Step 3: Library, Internet and Gumshoe Research

- The third way to assess the demand for a product or service idea is to conduct library, Internet, and
gumshoe research.
- Library Research
- Library research provides access to archival data, which can provide useful information.
- For example, if one were thinking about starting a company to sell educational toys, archival
research may answer question such as:
- What is the trajectory of the toy industry?
- What do industry experts say are the most important factors that parents consider
when buying toys?
- Is there a trade association for the makers of educational toys that can provide
additional information?
- realize what toy users like - teddys with simple soft labels that babies like
 - when you do research you will find records of these cases
- Internet Research
- The Internet Resource provides specific recommendations of online resources to utilize.
- For example, IBISWorld, which is available for free through most university libraries,
provides current industry reports on hundreds of industries.
- More general Internet research is also helpful.
- Simply typing a query into Google such as “market demand for educational toys” will
often produce helpful articles and industry reports.

- Gumshoe Research
- Simple gumshoe research is also important for gaining a sense of the likely demand for a
product or service idea.
- A gumshoe is a detective or an investigator that scrounges around for information or clues
wherever they can be found.
- Don’t be bashful. 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. Take the owner of a toy store to lunch and discuss your ideas.

Part 2 Industry/Target Market Feasibility Analysis

- Purpose
- Is an assessment of the overall appeal of the industry and the target market for the proposed
business.
- An industry/sector 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 - it is a segment
of the market, it is a niche.
- Components of industry/target market feasibility analysis
- Industry Attractiveness
- Target Market Attractiveness

Part 2 A. Industry Attractiveness

- 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 - look at 3Ps
- very high margins will be attractive
- car industry: car dealers do not make a lot of money, car repair yes.
- they put efforts in selling more because of repair after
- example of Kodak
- they did not realize the potential of digital camera - important to notice in which market you are
- do not go for too cheap market - maybe a bad sign

- Characteristics of Attractive Industries

- Are young rather than old.
 - Are early rather than late in their life cycle - first mover advantage - put stamp on market
(risks: a lot advertising, you do all favor, are customers ready, do well copyright or they will
copy)
- Are fragmented rather than concentrated - concentrated has few big players so difficult to
compete with them
- 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 a key raw material, like gasoline or
flour, to remain profitable

Part 2 B. 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 assessing the attractiveness of an
entire industry.
- Often, considerable ingenuity must be employed to find information to assess the attractiveness of a
specific target market.

Part 3 Organizational Feasibility Analysis

- 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 (financial resources are considered later)
- Components of organizational feasibility analysis
- Management Prowess - how good are you as a manager
- Resource Sufficiency

Part 3 A. 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.
- at least one founding partner who knows the market

Part 3 B. Resource Sufficiency

- v 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.
- 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.

Part 4 Financial Feasibility Analysis

- Purpose
 - Is the final component of a comprehensive feasibility analysis.
- A preliminary financial assessment is sufficient.
- Components of financial feasibility analysis
- Total Start-Up Cash Needed
- Financial Performance of Similar Businesses
- Overall Financial Attractiveness of the Proposed Venture

Part 4 A. Total Start-Up Cash Needed

- 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.
- startups in belgium are cheap - especially by yourself

Part 4 B. 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.

Part 4 C. Overall Financial Attractiveness of the Proposed Venture/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 information on the next slide lists the factors that pertain to the overall attractiveness of the
financial feasibility of the business idea.
- 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
- with this period you kind of control variables of the economy.
- 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. - people who bought
microsoft shares

A Feasibility Analysis Template

- First Screen is a template for completing a feasibility analysis.

- the right questions are asked
- It’s called “First Screen” because it’s a tool that can be used in the initial pass at determining the
feasibility of a business idea.
- If a business idea cuts muster at this stage, the next step is to complete a business plan.
Entrepreneurship: Successfully Launching New Ventures

Chapter 4 : Developing an Effective Business Model

Learning Objectives - we did the canvas type now we will see the type the book explains

- 4.1 Describe business models and discuss their importance.

- 4.2 Identify and describe the two general types of business models—standard and disruptive.
- 4.3 Explain the components of the Barringer/Ireland Business Model Template that entrepreneurs can
use to develop a business model for their firm.

Business Models

- A business model is a firm’s plan or recipe for how it creates, delivers, and captures value for its
stakeholders. KNOW THIS DEFINITION
- The proper time to develop a business model is following the feasibility analysis stage and prior to
fleshing out the operational details of the company.
- A firm’s business model is integral to its ability to succeed both in the short and long term.

General Categories of Business Models

- Standard Business Models
- The first category is standard business models.
- Standard business models depict existing plans or recipes firms can use to determine how
they will create, deliver, and capture value.
- recipes done already so you use it
- There are a number of standard or common business models, which are shown on the next
two slides. - by ___ they did not use it together
- advertising business model by google and facebook
- value proposition is based on advertising income streams
- a revenue generation strategy supported by the sale of advertising
- auction business model by eBay and uBid
- sellers offer products in an online auction and buyers bid on what they want to
buy
- bricks and clicks business model by apple, barnes and noble
- selling products to consumers via several channels, one which is usually a
tangible shop and the other one an e-business.
- franchise business model by 24 hours fitness, pancera bread and body shop
- independent owner of shop but use brand equipment products and knowhow of
supplier
- freemium business model by dropbox and evernote
- offers basic features of a product or service to users at no cost and charges a
premium for supplemental or advanced features
- low cost business model by southwest airlines and warby parker
- offer of low prices
- manufacturer/retailer business model by apple, fitbit and tesla motors
- Manufacturers product their own goods and may or may not sell them directly
to the public. Meanwhile, retails buy goods to later resell to the public.
- they skip the middle man
- peer to peer business model by airbnb and uber
- airbnb does this - well now it has become people building apartments to do this
and causing difficulty in local house market
- razor and blades business model by game consoles and games and printers and ink
cartridges
- gillette giving away almost for free the blazers without the knives and so people
would buy blades that were expensive
- HP example: printer price ok, ink expensive
- subscription business model by birchbox, blue apron and netflix
- pay subscription then no extra charge if u wanna download
- traditional retailer business model by whole foods markets and zappos
- purchases products directly from a wholesale or distributing company, then
sells the inventory directly to the public
- Disruptive Business Models
- The second category is disruptive business models.
- Disruptive business models, which are rare, are ones that do not fit the profile of a standard
business model.
- They are impactful enough that they disrupt or change the way business is conducted in an
industry or an important niche within an industry.
- four business models that were disruptive when they were introduced:
 - salesforce.com is CRM

Barringer/Ireland Business Model Template

- Barringer/Ireland Business Model Template

- Although not everyone agrees precisely on the components of a business model, many agree
that a successful business model has a common set of attributes.
- These attributes can be laid out in a visual framework or template (BMC) so it is easy to see
the individual parts and their interrelationships.
- The Barringer/Ireland Business Model Template
- core strategy
- business mission
- basis of differentiation
- target market
- product/market scope
- resources
- core competency
- key assets
- financials
- revenue streams
- cost structure
- financing/funding
- operations
- product (or service) production
- channels
- key partners

Core Strategy - new compared to canvas where we said strategy comes after BM

- first component
- A core strategy describes how the firm plans to compete relative to its competitors.
- The primary elements of core strategy are (warby):
- Business Mission (cheaper glasses)
- Basis of Differentiation (donate)
- Target Market (young demographic)
- Product/Market Scope (design glasses which are vintage)
- Business Mission
- A business’s mission or mission statement describes why it exists and what its business
model is supposed to accomplish.
- If carefully written and used properly, a mission statement can articulate a business’s
overarching priorities and act as its financial and moral compass.
- A well-written mission statement is something that a business can continually refer back to as
it makes important decisions in other elements of its business model.
- Basis of Differentiation
- It’s important that a business clearly articulate the points that differentiate its product or
service from competitors.
- A company’s basis of differentiation is what causes consumers to pick one company’s
products over another’s.
- It is what solves a problem or satisfies a customer need.
 - It is best to limit a company’s basis of differentiation to two to three key points
- Make sure that your points of differentiation refer to benefits rather than features (not technical
but rather what problems does our product solve) solution orientation
- Target Market
- The identification of the target market in which the firm will compete is extremely important.
- A target market is a place within a larger market segment that represents a narrow group of
customers with similar interests.
- A firm’s target market should be made explicit in the business model template.
- Product/Market Scope
- A company’s product/market scope defines the products and markets on which it will
concentrate.
- Most firms start with a narrow (or limited) product/market scope, and pursue adjacent product
and market opportunities as the company grows and becomes more financially secure.
- In completing the business model template, a company should be very clear about its initial
product/market scope and project 3-5 years in the future in terms of anticipated expansion.
- by the end of ___ I wanna be national expanded or regional expanded
- Nespresso
- idea to do it with hotels but then changed to consumers - do not give up product but
rather do a different product market product
- follow pareto rule 20-80 so focus on the most interesting market

Resources

- second component
- Resources are the inputs a firm uses to produce, sell, distribute, and service a product or service.
- Resources are the inputs a firm uses to produce, sell, distribute, and service a product or service.
- A firm’s most important resources, both tangible and intangible, must be both difficult to imitate
and hard to find a substitute for.
- difficult to achieve
- apple cars started and did not have knowledge of battery functioning and they convinced tesla
engineers to work for them for higher prices
- Richard Brandston said everything he did in his companies could be easily imitated but his
culture - a culture of being adventurous to the development of new products and new business
models
- This stipulation is necessary for an individual company’s business model to be competitive
over the long term.
- Core Competencies
- A core competency is a specific factor or capability that supports a firm’s business model and
sets it apart from rivals.
- e.g. nestle espresso guaranteeing the quality of the product - and with this they manage
consumers to pay high price
- A core competency can take on various forms, such as technical know-how, an efficient
process, a trusting relationship with customers, expertise in product design, and so forth.
- Most start-ups will list two to three core competencies in their business model template.
- difficult because what you have is a good idea but many times it is imitable
- important however to pinpoint them
- Key Assets
- Key assets are the assets that a firm owns that enable its business model to work. The assets
can be physical, financial, intellectual, or human.
- Physical assets include physical space, equipment, vehicles, and distribution networks.
- access to distribution network in japan is difficult to achieve
- japan in europe and america easy to distribute product
- europeans and americans there difficult
 - even also regarding the legislation in japan says cars need to have elighting at
a certain height but this not in europe or america so ssame like before japan
here yes us there we cannot
- Intellectual assets include resources such as patents, trademarks, copyrights, and
trade secrets, along with a company’s brand and its reputation.
- get as many patents as possible - patents are complicated because form one
country to another the extent to which it protects you is different and it is also
expensive
- Financial assets include cash, lines of credit, and commitments from investors.
- credit lines allow many things like liquidity possible issues and you might need
extra cash to be able to deal with it - loans for long term are more expensive
than this short term loans
- the way supermarkets finance themselves: from consumers sell everyday and
order each more time - financial leverage
- Human assets include a company’s founder or founders, its key employees, and its
advisors.

Financials

- The third component of a firm’s business model focuses on its financials.

- This is the only section of a firm’s business model that describes how it earns money—thus, it is
extremely important.
- For most businesses, the manner in which it makes money is one of the most fundamental aspects of
its business model.
- Remember diagrams on different ways you finance yourself?
- Revenue Streams
- A firm’s revenue streams describe the ways in which it makes money.
- Some businesses have a single revenue stream while others have several.
- have more than one but not too many
- For example, most restaurants have a single revenue stream. Their customers order a meal
and pay for it. Other restaurants may have several revenue streams—including meals, a
catering service, product sales (such as bottled barbeque sauce for a barbeque restaurant),
and apparel products with the name of the restaurant on them.
- create a good environment for customers they will buy or consume more - restaurant
- or also you will have a positive link to this product and possibly rebuy
- his brother is a professional cocktail maker
- he made workshops and decided to write a book
- he sells books while creating good atmosphere in workshops
- multiple revenue streams
- try to create several revenue streams
- COVID came - oh no workshops
- produced at home and sold with delivery
- do not stick with one revenue stream
- Cost Structure
- A business’s cost structure describes the most important costs incurred to support its business
model.
- It costs money to establish a basis of differentiation, develop core competencies, acquire and
develop key assets, and so forth.
- Generally, the goal for this box in a firm’s business model template is threefold:
- Identify whether the business is a cost-driven or value-driven business.
- quality oriented or cost cutting orientation - make this choice clear, not in the middle it
will difficult - stuck in the middle: nowadays doable because of technology and you can
differentiate customers but still try to pick a side
- Identify the nature of the business’s costs.
- variable vs fixed costs
- direct vs indirect costs
- Identify the business’s major cost categories.
- energy, raw materials, human capital
- e.g. for a bank personnel is 90% of its costs
 - Financing/Funding
- Many business models rely on a certain amount of financing or funding to bring their business
model to life.
- At the business model stage projections do not need to be completed to determine the exact
amount of money that is needed. An approximation is sufficient.
- There are three categories of costs to consider:
- Capital costs.
- building, equipment, patents, wages, …
- One-time expenses, such as building a Web site and training initial employees.
- Provisions for ramp-up expenses (most businesses incur costs before they earn
revenues).
- what if client asks for delay to pay - you still already have the expenses
- liquidity is what kills companies so make sure you make sure you have money left
- Some entrepreneurs are able to draw from personal resources to fund their business. In other
cases, the business may be simple enough that it is funded from its own profits from day one.
- In many cases, however, an initial infusion of funding or financing is needed.
- The business model template should indicate the appropriate amount of funding that will be
needed and where the money will most likely come from.

Operations

- The final quadrant in a firm’s business model focuses on operations.

- Operations are both integral to a firm’s overall business model and represent the day-to-day
heartbeat of a firm
- it is about making it work
- give arms and legs to your model
- it will not work without it
- make sure how it is gonna be in reality
- Product (or Service) Production
- This section focuses on how a firm’s products and/or services are produced.
- For example, if a firm sells a physical product, the product can be manufactured or produced
in-house, by a contract manufacturer, or via an outsource provider.
- This decision has a major impact on all aspects of a firm’s business model.
- If a firm is producing a service rather than a physical product, a brief description of how the
service will be produced should be provided.
- Channels - recall this was number three in canvas
- A company’s channels describe how it delivers its product or service to its customers.
- Businesses either sell direct, through intermediaries (such as distributors and wholesalers), or
via a combination of both.
- Some firms employ a sales force that calls on potential customers to try to close sales. This is
an expensive strategy but necessary in some instances.
- relationships with clients are of importance - his brother was a sales person and
thought let’s create a system of points accumulation, … employer does not earn
money but it earns relationship quality with clients
- his company said it would not pay off - there was disinvestment
- Key Partners
- The final element of a firm’s business model is key partners.
- Start-ups, in particular, typically do not have sufficient resources (or funding) to perform all the
tasks necessary to make their business models work, so they rely on key partners to perform
important roles.
- The table on the next slide identifies the most common types of business partnerships.
 -
- other ways that are more common and less complex
- joint venture
- long time ago when china opened up to trade with western countries
- belgian company went to china to develop business but could only do it through
joint venture with a chinese company
- his case with opening subsidiary ok KUL in UAE
- they had smth we did not have and we had smth they did not have
- hub and wheel star configuration between companies making a network
- network example: nike does it in some activities
- consortia:
- kinda like an umbrella organization, pharma companies work together when
defending their interest towards the government , or we work together to do an
endeavor that we cannot do alone
- we see this in research - universities are oftenly asked to do research for
government and different disciplines get together to do it
- strategic alliance
- purely strategic
- alliance mercedes saying they use gaudier tires and so they advertise together
- trade associations
- can also be an umbrella organization
- trade union - employees defending rights against employers

ADDENDUM 4: Business modle patterns - tool: business model navigator

1. business model patterns - business model types that we encounter a lot in different situations aand
have the same thing in common
a. the long tail
b. multi-sided platforms
c. business model “free”
d. bait and hook (Razor & Blade)
- trends for business model innovation

- less tangible side

A. The Long Tail

- before the internet we had only the head (in our stores we had a limited number of products that sold
really well, very popular and nice turnovers)
- with the emergence of the internet, long tail is developed - more individual products but each is sold
on limited numbers and popularity is low, however if product rare high margin

- Head : Mass market – small margin, high volume, mass audience

- Long tail – high margin, low volume, small but loyal audience
- Example: Publishing
- Self-publishing services - publishers take a lot oof the margin because of risk, costly to print a
book
- Print on demand (e.g. http://www.lulu.com) and online publishing open up new relations and
jeopardize old models
- because of this there are many people who write
- Pure Players vs. Physical Retailers - tail start at hybrid

-
- Product Variety Comparison for Internet and Brick-and-Mortar Channels and more products selling
online - 1h14mins
- long tail Example: Lego
- A mass market product exploiting niches well
- Lego Factory – design your own Lego set. Lego Digital Designer - letting customer decide
- Identification of niche markets – e.g., the 30-something vs. the 8 year old segments
- Also a good example of targeting multiple niche segments in different ways – e.g., Lego
Universe is a different target than 8 years old ?

B. Multi-sided Platforms (MSPs)

- google, linkedin, visa
- Customer Value Propositions delivering potentially different types of value to two or more
distinct customer segments
- Value to each segment depends on participation of the other segment(s)
 - if you do not have visa users then no shops will use visa and vierversa, without shops
consumers would not have smth to pay for
- different people might pay
- in our case stores
- Related to Network Strategy.
- Challenges of MSPs
- On which customer(s) should the revenue streams be based?
- How much should each side pay?
- customers pay? or maybe those who buy from our customers? or make money
on advertising? capitalize data of our community
- we do not pay to use google
- google gets money from those who want adds and analytics
- but you need people to use google so that companies want to put their
adds there
- “Chicken and egg” dilemma
- Value isn’t created unless / until there is meaningful participation on all sides.
- visa and shops example above
- advice: start with side that does not pay
- Multi-Sided Platforms
- Serving complementary segments
- Leveraging network effects of synergy among segments
- Google needs a) dominance in search engine market and b) related markets (e.g.,
Gmail, YouTube to c) sell advertising directly and c) indirectly through AdSense, etc.
- Failure to monetize would be disastrous – but also failure to monetize well, alienating
base

C. ‘Free’ as a Business Model

- The explosion of free – most social media sites, open-source software, etc.
- But where’s the money? Revenue models and free services
- Advertising is certainly part of it – from Facebook to newspapers, free consumption supported by ads
is normal now.
- metro
- newspaper available for free in metro stations
- live on advertising
- producing that newspaper like the editorial work is not very costly, based on software
that summarizes other articles - literally just one editor as a quality checker
- Bait and Hook
- Free/cheap to lock you in to expensive purchases later
- Mobile phone contracts
- get phone for 1 euro, but sign for subscription with the provider
- Gillette razors
- gave away almost for free razors but without blades who had to be bought and were
expensive
- printers
- not expensive but ink yes
- Freemium
- Free to try, pay for more – Allows users to sample and use product at limited scope and
encourages them to upgrade – examples
- software version that does almost everything but cannot save your work
- free+premium
- linkedin: free access but if you want some nice features you need to upgrade (see who
has visited your profile)
 - Open-source as freemium – Why buy when you can get it for free? There are often good
reasons to still buy instead taking free stuff (sometimes free version is not good enough)
- Example: Skype
- basic free version and then upgrade - kinda like linkedin
- for google you are not paying but you are the product

2. BUSINESS MODEL NAVIGATOR - O. Grassmann – Universität Sankt-Gallen

- like timeline of developments of new innovative business models - looks like a metro map
- basis: investigated and examined business models through time and found that 90% of business
model are not that innovative but they build on each other
- Business model innovation is no longer an art but a craft
- if you want to create a business model, use what is already there, be systematic, think about
combinations
- 55 different patterns - including those we just saw
- Let’s have a closer look at the “Razor and Blade” pattern (pink line, slide, pattern no.39):
- The main idea behind the pattern is to provide a base product to customers cheaply or even
for free and to sell disposables that are required to use the base product at very high margins.
- Gillette innovated its industry by giving razor holders to customers and selling matching blades
at high prices.
- Hewlett- Packard discovered the potential of this pattern for the printing industry shortly after;
it offers cheap printers and expensive cartridges.
- Nestlé finally applied the pattern onto the food business through Nespresso.
- As the concept was extremely successful, very soon Nestlé Special.T and BabyNes followed.
- Business Models more than just products

-
- Three strategies to generate new Business Model ideas:

-
-Look outside your existing dominant industry logic and thinking and
-transfer: take pattern from one market and transfer to another market
- nestle looked at gillette with the blades and did this for their coffee
- the machines are inexpensive and coffee pads are expensive
- combine: combination of lines
- leverage: taking the things you have done via either of two before to another product
- nestle learnt what they learn from the coffee thing and used for the baby food
- TRANSFER
 -Look outside your existing dominant industry logic and thinking and transport an existing
business model from another industry to your own sector. Most companies use this strategy.
Its advantage is that a blueprint already exists but don’t just copy and paste!
- COMBINE
- Transfer and combine two or more business models simultaneously. The advantage is that it’s
difficult for competitors to copy but it’s also difficult to execute as planning takes time.
- LEVERAGE
- Take an existing and successful business model for another product and leverage it for a new
product eg. Nestle’s BabyNes product which replicates Nespresso. It’s difficult to achieve but
it’s a manageable risk and companies need to balance the change in the market for new
customers.

examples in last slides read . Companies using combinations of business model types

13+6+28 amazon

37+28 ebay

48+28 netflix