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BUS502 Entrepreneurship
Business Model and Value Proposition Canvas – Part 1
Week 3
Learning Objectives
To introduce the business model and value proposition canvases
To understand the different components of these canvases
To explore how these canvases can help with the business model development
To explore business models and value propositions of existing organisations
To utilise the canvases for the business development as part of assignment 2
Focus
In week 3, we focus on the business model canvas (BMC)
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Why do businesses fail or succeed?
What do you suggest?
..
Why do businesses fail?
According to Entrepreneur.com (2017), there are 10 reasons:
Failure to deliver real value.
Failure to connect with the target audience.
Failure to optimize conversions.
Failure to create an effective sales funnel.
Lack of authenticity and transparency.
https://www.entrepreneur.com/article/299522
Why do businesses fail?
Cont’d:
Unable to compete against market leaders.
Inability to control expenses.
Lack of strategic and effective leadership.
Failure to build an employee "tribe.“
Failure to create the proper business systems.
https://www.entrepreneur.com/article/299522
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Why start-ups succeed
https://youtu.be/bNpx7gpSqbY
Business Model Definitions
“A business model describes the rationale of how an organization creates, delivers, and captures value”
(Osterwalder et al., 2010)
“A business model is a concise representation of how an interrelated set of decision variables in the areas of venture strategy, architecture, and economics are addressed to create sustainable competitive advantage in defined markets”
(Morris et al., 2005)
Why to use a Business Model?
Provides a structure
Creates a basis that everyone can understand
Facilitates description and discussion
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When to use a Business Model?
Planning a new venture
Planning new products or services
Reviewing the existing business model
Extending or revising the existing business model
Business Model Canvas
Business Model Canvas
… let’s watch some short videos on the Business Model Canvas (BMC)
(https://www.youtube.com/playlist?list=PLBh9h0LWoawphbpUv C1DofjagNqG1Qdf3 – around 19 mins in total)
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Ep 1 - Getting From Business Idea to Business Model
Ep 2 - Visualizing Your Business Model
Ep 3 - Prototyping
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Ep 5 - Proving It
Ep 6 - Telling Your Story
#1 Customer Segments
The Customer Segments Building Block defines the different groups of people or organizations an enterprise aims to reach and serve
The heart of any business model
One or more customer segments
Which segment to serve – which to ignore
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#1 Customer Segments
Customer groups represent separate segments if:
Their needs require and justify a distinct offer
They are reached through different Distribution Channels
They require different types of relationships
They have substantially different profitabilities
They are willing to pay for different aspects of the offer
E.g. mass market, niche market, segmented, diversified, or multi-sided platforms
#2 Value Propositions
The Value Propositions Building Block describes the bundle of products and services that create value for a specific Customer Segment
Why should customers buy your products and services?
What customer problem can you solve?
Or, what customer need can you satisfy?
Can be new, improved, or modified
#2 Value Propositions
Newness
Performance
‘getting the job done’
Design
Customization Brand/status
Price
Cost reduction
Risk reduction
Accessibility
Convenience
/usability
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#3 Channels
The Channels Building Block describes how a company communicates with and reaches its Customer Segments to deliver a Value Proposition
Customer touch points –> customer experience
Communication, distribution, and sales channels
Raising awareness among customers about a company’s products and services
Helping customers evaluate a company’s Value Proposition
Allowing customers to purchase specific products and services
Delivering a Value Proposition to customers
Providing post-purchase customer support
#3 Channels
#4 Customer Relationships
The Customer Relationships Building Block describes the types of relationships a company establishes with specific Customer Segments
From personal to automated
Influences the overall customer experience
Driven by motivation
Customer acquisition
Customer retention
Boosting sales (upselling)
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#4 Customer Relationships
Personal assistance
Dedicated personal assistance
Self-service
Automated services
Communities
Co-creation
#5 Revenue Streams
The Revenue Streams Building Block represents the cash a company generates from each Customer Segment (costs must be subtracted from revenues to create earnings)
What value is each customer segment willing to pay?
Each Revenue Stream may have different pricing mechanism
A business model can involve two different types of Revenue Streams:
Transaction revenues resulting from one-time customer payments
Recurring revenues resulting from ongoing payments to either deliver a Value Proposition to customers or provide post-purchase customer support
#5 Revenue Streams
Asset sale
Usage fee
Subscription fee
Lending/renting/ leasing
Licensing
Brokerage fees
Advertising
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#5 Revenue Streams
#6 Key Resources
The Key Resources Building Block describes the most important assets required to make a business model work
Different key resources depending on the business model
Can be physical, financial, intellectual, or human
Can be owned or leased, or acquired from key partners
#7 Key Activities
The Key Activities Building Block describes the most important things a company must do to make its business model work
Actions a company must take to operate successfully
Required to create the Value Proposition, reach markets, maintain Customer Relationships, and earn revenues
Production
Problem solving
Platform/network
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#8 Key Partnerships
The Key Partnerships Building Block describes the network of suppliers and partners that make the business model work
Forged for many reasons
A cornerstone for many business models
Four different types: 1.Strategic alliances between non-competitors
2.Coopetition: strategic partnerships between competitors 3.Joint ventures to develop new businesses
4.Buyer-supplier relationships to assure reliable supplies
#8 Key Partnerships
Different motivations for partnerships
Optimization and economy of scale
Reduction of risk and uncertainty
Acquisition of particular resources and activities
#9 Cost Structure
The Cost Structure describes all costs incurred to operate a business model
Most important costs
Can occur through Creating and delivering value, maintaining Customer Relationships, and generating revenue
Can be calculated after defining Key Resources, Key Activities, and Key Partnerships
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#9 Cost Structure
Cost- driven
Value- driven
Fixed costs
Variable costs
Economies of scale
Economies of scope
Preparation for next week
In week 4, we will start exploring the value proposition canvas with examples from existing businesses. Some further instructions and links are on Learnline
By week 4, you should have a clear idea about what your business idea is – if not, get in contact with your lecturer or the unit coordinator!
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Thank you for your attention
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