Business Model Development

!
April 3, 2012!
TMP NVC, Semifinals!
MA Taylor!

Congratulations to each of YOU!

Introduction!

!
!

1)Me: CEO of a series of companies!

~ $100M revenues; ~ 500+ employees, mostly !
turn-arounds, some start-ups!

2)Todays Goal Help your team present a compelling

business case to show your ventures sustainable
competitive advantage which will SELL your plan to
investors!!
3)Today's process: Presentation, !
Q & A, !
!! ! ! ! ! !Next steps!

Business Model Development!

!
!
This morning we will cover:!
!Strategy Formulation!
!! !and stress testing your strategy!
!Strategy Documentation!
!! !which will result in your Business Model!
!!
!
I will cover a lot of ground, your job is to ask questions
lets make sure Im doing my job well so you will be able
to start preparing your teams business model.!
!

What is Strategy?
Very general concept in common usage but we
mean something very specic.

Deni<on:
Strategy is: the pa?ern or plan that integrates
an organiza<ons primary goals, policies and
ac<on sequences into a cohesive whole. H. Mintzberg

Strategy is: the means by which an

organiza<on achieves its objec<ves R. Grant

Strategy 2 levels
Grand Strategy

Business Level Strategy

Your Great Aunt Beth le/ you $2 Billion No one le/ you any money but you
what should you do?
have some ideas and areas of interest
or exper@se.
Grand Strategy will help you to decide Business Level Strategy will help you to
what industry you should enter.
nd the right combina<on of resources

to reach a par<cular market protably.
Summarized by M. Porters 5 Forces
model.
Conglomerates such as General
Electric can be viewed as employing
Grand Strategy at the Corporate Level

Each business that GE competes within

develops a business level strategy for
their business unit

Grand Strategy (Industry A?rac<veness)

Some industries are inherently more protable than
others due to these forces:

M. Porter

Note these are great ques<ons to ask about the industry you have
chosen because you can modify the impact of them via your
business model. See appendix at TMP NVC Resources on Web

Business Level Strategy (Compe<<ve Advantage)

Strategy is the process of:

1.
2.
3.
4.
5.

Developing the venture's goals

Analyzing the compe<<ve situa<on
Devising a plan of ac<on
Alloca<ng resources
Implementa<on

Where do we want to go? How should we get there?

Business Level Strategy

Developing a Strategic Vision

Who we are (our values)

What we do (our mission)
Where we are headed
(our vision)

Business Level Strategy

Components of the Strategic Process

Strategy Formula6on: Deciding on a specic direc<on
by clearly dening the company's mission: What is
the Value Proposi<on for our Intended Customers?

Business Level Strategy

Components of the Strategic Process
Strategic Implementa6on: The pa?ern of planned
human and material resource deployments and
ac<vi<es intended to enable an organiza<on to
achieve its goals.

Only Real Measure of Strategic Success:

The Organiza<ons Ability to add Value!

VALUE CHAIN ANALYSIS:

WHAT DISTINCT ACTIVITIES ARE

PERFORMED THAT CUSTOMERS
VALUE?

WHAT DO THEY COST?

Business Model a handy way to ne-tune

and then document your Strategy

Elements of the Business Model:

Customer Value Proposi<on

Prot Formula
Key Resources
Key Processes

Customer Value Proposi<on

Target Customer
Job to get done
Our Specic Oering

Successful Value Proposi@on (CVP) will solve our target

customers problem and sa@sfy their needs.
A. Osterwalder & Y. Pigneur

Key Resources & Processes/Ac<vi<es

Key Resources
People
Technology & Protected IP
Equipment
Informa<on
Materials
Access to Channels
Partnerships / Alliances
Brand

Key Resources & Processes/Ac<vi<es

Processes/Ac<vi<es
Domain specic Processes (IT, HR, Finance, etc.)
Rules and Metrics
Norms (Guidelines for Transac<on/Customer A?rac<veness)


What are the key resources and processes that it will take to
deliver the customer value proposi@on? M. Johnson, C. Christensen
& H. Kagermann

Prot Formula
Revenue Model (price X volume)
Cost Structure
Cost of Goods or Services Sold (given volume how
much margin do you need?)
Opera<ng Costs

Resource Velocity
Construct a prot formula that allows you to deliver value
to your company and your customer. M. Johnson, C. Christensen
& H. Kagermann

Examples of Successful Business Models

Tradi@onal Power Tool Co.
Sale of industrial power tools
and accessories

Hil@s Tool Fleet

Customer Value Leasing a comprehensive eet
Proposi<on
of tools to increase customer
on-site produc<vity

Low margins
High inventory turnover

Prot Formula

Higher margins, renewing

revenue from repair &
maintenance, asset heavy

Distribu<on channel to
retailers, manufacturing plants
in developing countries, R&D

Key Resources
and
Processes

Strong direct-sales, contract

management, IT sophis<ca<on,
warehousing

Examples of Successful Business Models

Dow Corning
Established Business

Dow Corning New Business Unit

Customized Solu<ons,
nego<ated contracts
High-margin, high overhead,
value-added services
R&D, sales, and service
orienta<on

Customer Value
Proposi<on

Prot Formula
Key Resources and
Processes

No frills, bulk prices, sold online

Spot-market pricing, low
overhead, lower margins, high
throughput
IT system, lowest-cost process,
maximum automa<on

Examples of Successful Business Models

Tradi@onal Commercial
Oce Supply Company

Innova@on A

Wholesaler catalogs
provided to customer ~
30,000 SKUs, ~ 70% ll rate
High margins, high
inventory investment, low
inventory turns
Costly customer rela<ons
personnel, large
warehousing commitment,
require large level of
working capital

Customer Value
Proposi<on

Prot Formula

Key Resources and

Processes

Proprietary catalog ~ 7,000

SKUs, next day delivery of
99.9+%
High inventory turns, no
backorders = customer
payment received in
<me
IT sophis<ca<on, lowest-
cost processing, strong
customer rela<ons
personnel

Examples of Successful Business Models

Tradi@onal Commercial
Oce Supply Company

Innova@on B
Customer Value
Proposi<on

Prot Formula

Key Resources and

Processes

My Guarantee to you: nd a way to solve a signicant customers problem or a way to

save them <me/money and you can devise a Protable Business Model!

Stress testing your Strategy

Discuss all these categories with your Team
Key Success Factors:

List all factors cri@cal to your success

Proprietary Technology


Your Compe<<ve Advantage:

Exactly why do you stand out from compe<tors?

How will you maintain an advantage over <me?

List others

Dis<nct Competencies:

What can you do so, so much be?er than anyone else?

Does your team have the expert knowledge or experience to create unique value

Does your team have a special synergy?

Analyze your value-chain:
Link every step in your process rank based on High medium or low value
See Resources at the TMP NVC site

Stress testing your Strategy (continued)

Discuss all these categories with your Team
Risks:
What things could go wrong, what mi<ga<on is there?
What are the technical risks?
What are the business risks? (chances that you cant
pull o your plan?)
Your Compe<tors Strengths

Other Risks

Stress testing your Strategy (continued)

Discuss with your Team how changes in the external environment would impact
your Business Model

Which do you Prefer?

Subscrip<on Based Revenue?

High value/low volume or low value/high volume?
Highly automated?
High level of personal care?
Exo<c?
The tried and true?
The new, new thing?
One bundled price or separate prices for service?

All of these are poten<al components of a Business Model

Format from Business Model Genera<on

A. Osterwalder & Y. Pigneur

The TMP NVC Business Model Template

Customer Value Proposi@on

Key Resources
Key Processes & Ac@vi@es
Prot Formula

Revenue Stream
Cost Structure
Primary External Rela@onships
Customers
Channels of Distribu@on
Partners
Owners

Page 1

The TMP NVC Business Model Template

Key Success Factors

Your Compe<<ve Advantage

Dis<nct Competencies

Analyze your value-chain

Risks

Impact of Changes in the external environment

Page 2

Summary
What is strategy?
What are the 5 Forces of Industry A?rac<veness?
How does strategy help in developing Business
Model ?
Why do I insist that Strategy is a Process?
Now your team should prepare a rst drav of the
TMP NVC Business Model Template (pages 1 & 2) and
then take advantage of oce hours to get
feedback and alterna<ve ideas.

Ques<ons

End

How do you get to a Business Model?

Start with the old concept of STRAEGY:
What do we mean by Strategy?
Military
Business
Personal Life Goals
Poli<cal
Driving - Avoiding Trac
Personal Wealth Crea<on
Sports
Chess
Get Ahead at Work

Strategy is looking at :

Business Level Strategy

Strategy is both a Plan and a Process

Vision
Mission
Values
Strategy

Organiza<on Structure
Policies and Methods
Specic Implementa<on Plan
Skills Acquisi<on & Training

Company Founda<on

Mechanics

Stress testing your Strategy

Key Success Factors:

List all factors cri@cal to your success

Proprietary Technology


Your Compe<<ve Advantage:

Exactly why do you stand out from compe<tors?

How will you maintain an advantage over <me?

list others

Dis<nct Competencies:

What can you do so, so much be?er than anyone else?

Does your team have the expert knowledge or experience to create unique value

Does your team have a special synergy?

Analyze your value-chain:
Link every step in your process rank based on High medium or low value (next slide)

You can nd the right combina<on:

Customer Value Proposi<on they may or may
not know what that is un<l you show them
Internal opera<ng excellence even with a
perfectly

Strategies that made sense before rapid

innova<on required shorter lead-<mes and
when physical assets were key:
Low-Cost Provider
Dieren<a<on
Focused Low-Cost
Best Cost (total quality)
Blue Ocean really this is the only strategy
when you are providing customers with true
innova<on!

Analyzing the Value-Chain

HIGH VALUE Requires Signicant Intellectual
Capital To Create / Maintain (Very Hard to Replicate)
and Customer Receives High Value

MEDIUM VALUE Requires Less I. C. but Ac<vity

not easily Outsourced or Eliminated by Process
Improvement or a Required Ac<vity

LOW VALUE Ac<vity could be outsourced at a

Compe<<ve Rate with Adequate Safeguards to
Customer Data and Company Intellectual Capital

IPOWER Branding
Informa6on
Adver6sing

Example Value-Chain

Per Click

Up and Running Web Site

Making Life BeBer /
Business Richer

Sales

Inbound Outbound

Connec6vity 100%
+ Hardware Up6me 100%
+ Applica6ons Running

Customer Signs up on line no help

Secure Billing

Capture / Rank Feature Requests

Market Research Interface

Support
Assists
Sign-up

Sales Journal; Deferred Revenue

Customer Data Base

Product Development

Support Services
Explain New Features
Adjust Customers Contract to
Match Actual Needs

+
Deploy New Product -
Feature Rich, Easy to Use,
Bug Free

Product Tes6ng
Beta Launch