Introduction to Entrepreneurship Launching New Ventures Allen 5th Edition Chapter 3 Developing a Business Model BUSINESS CONCEPT concise description of an opportunity that contains identifies 4 essential elements 1 Customer definition 2 Value proposition benefit to customer 3 Product service 4 Distribution channel means of delivering the benefit VALUE PROPOSITION benefit the customer derives from the product service the reason the customer will buy needs a compelling story that answers providing products AND services provides multiple revenue streams and serves as an COMPETITIVE ADVANTAGE 1 Why the customer should be interested 2 What problem does it solve benefits mostly intangible Quick Test Concept Am I really interested in this opportunity Is anyone else interested Will people actually pay for the offering Why me Why now The value chain and distribution channel are central components to business concepts and consist of 1 Upstream Activities 2 Downstream Activities related to production related to selling The INTERNET is a MAJOR force in the value chain because It is widely available Relatively inexpensive and fast Brings buyers sellers together in a way that there is no need for intermediaries shortens value chain It is an efficient channel It helps reduce transaction costs Characteristics Defining an Effective Channel Inventory Ownership Financing and payment Risk management Member power before choosing a distribution strategy entrepreneur must examine various channels similar companies are using to reveal opportunity gaps OPPORTUNITY GAP group of customers not currently being served Factors Affecting Strategy Choice 1 Cost price 2 Market coverage 3 Speed reliability 4 Location Business model creates and captures value to remain a viable company organization VALUE NETWORK community of partners suppliers and other members in the value chain in which a business does business with business models change as customers needs change the CHALLENGE is to find ways to sustain efficiency of the business model over time Major Problems with Business Models Flawed logic Limited strategic choices Imperfect value creation Incorrect value chain assumptions Building a Business Model 1 Size and importance of revenue streams 2 What costs most affect the model size and importance of cost drivers 3 How much capital cash required to execute 4 What are critical success factors to achieving Stages 1 Entrepreneurs position in value chain 2 Calculate how to create value for the customer 3 4 Test for model weaknesses 5 Develop competitive strategy Identify revenue streams cost drivers Business Model Sources of Opportunity Repositioning on the value chain Reinvent the value chain Redefine value added Redefine distribution When the model must change Change incrementally to expand enter new markets modify pricing or change product service line Revitalize established model to give new life and ward off competition Take existing models into new areas Use existing core competencies to build new models Reinvest the business model
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