1. ABDM4233 ENTREPRENEURSHIP
From Business Model to
Strategic Plan :
Part 1 : Business Model
by
Stephen Ong
Principal Lecturer (Specialist)
Visiting Professor, Shenzhen

2. The social enterprise Mission
statement
 It should be clear and succinct
 It should explain:
 What the enterprise will do
 How it is entrepreneurial
 Why it is important
 This should occur before planning
activities
 A mission statement has goals and
measures of progress towards goal

3. EMBRACE
 VISION : Every woman and
child has an equal chance for a
healthy life.
 MISSION : Advancing Maternal
and Child Health
 … by providing innovative
solutions to the world's most
vulnerable populations

4. What a mission statement
should specify
 What the enterprise will and will not do
 How it creates and measures value
 How an enterprise innovates or adapts
 How success will be measured

5. $80 for 15cents

6. … Keep it to 3 Words

7. MISSION
NIKE 2012 3 KEY WORDS
INSPIRATION
INNOVATION
ATHLETE

8. One Laptop per Child
http://one.laptop.org MISSION
 To empower
the world's
poorest
We
provide
aim to
each
children
child with a through
rugged, low-
cost, low-power, education

9. Benefits of a good mission
statement
 It provides focus
 Social entrepreneurs can stay on target as
they develop the concept
 It helps to attract support
 As a marketing tool, it brings other
resources into the enterprise
 For example, volunteers, donors, partners

10. From social mission to business
model
 Business model – a plan for how
the mission will be achieved and
how the enterprise will create value
 A general description of how the
enterprise will operate:
 Its mission
 Its strategic resources
 Its partners
 How it will serve its beneficiaries

11. Business model for
EMBRACE

12. Threats to business models
 Demand side threats
A product or service that finds no
market – people don’t want it
 Its value is not accepted by clients
 Supply side threats
 Too
much capital needed, or too
much ongoing cost to sustain itself
 Either threat can derail an
enterprise

13. Many social enterprises fail
 Persistent lack of income is a common
reason
 A supply explanation would be that
costs are too high
 A demand explanation would be that
revenues are too low
 Both flaws can be examined in the
business model

14. What is a Business Model?
 Model
 A model is a plan or diagram that’s used to make or
describe something.
 Business Model
 A firm’s business model is its plan or diagram for how it
competes, uses its resources, structures its relationships,
interfaces with customers, and creates value to sustain
itself on the basis of the profits it generates.
 The term “business model” is used to include all the
activities that define how a firm competes in the
marketplace.

15. Changing Business Models

16. Dell’s Business Model
1 of 2
 Beyond Its Own Boundaries
 It’s important to understand that a firm’s business
model takes it beyond its own boundaries.
 Almost all firms partner with others to make their
business models work.
 In Dell’s case, it needs the cooperation of its suppliers,
customers, and many others to make its business model
work.

17. Dell’s Business Model
2 of 2
Dell’s Approach to Selling PCs versus Traditional Manufacturers

18. The Importance of Business Models
Having a clearly articulated business model is important
because it does the following:
• Serves as an ongoing extension of feasibility analysis. A business
model continually asks the question, “Does this business make
sense?”
• Focuses attention on how all the elements of a business fit
together and constitute a working whole.
• Describes why the network of participants needed to make a
business idea viable are willing to work together.
• Articulates a company’s core logic to all stakeholders, including
the firm’s employees.

19. Diversity of Business Models
• There is no standard business
model for an industry or for
a target market within an
Diversity or Variety in industry.
• However, over time, the most
Business Models successful business models
in an industry predominate.
• There are always opportunities
for business model innovation.

20. How Business Models Emerge
1 of 3
 The Value Chain
 The value chain is the string of activities that moves a
product from the raw material stage, through
manufacturing and distribution, and ultimately to the
end user.
 By studying a product’s or service’s value chain, an
organization can identify ways to create additional
value and assess whether it has the means to do so.
 Value chain analysis is also helpful in identifying
opportunities for new businesses and in understanding
how business models emerge.

21. How Business Models Emerge
2 of 3
The Value Chain

22. How Business Models Emerge
3 of 3
 The Value Chain (continued)
 Entrepreneurs look at the value chain of a product or a
service to pinpoint where the value chain can be made
more effective or to spot where additional “value” can
be added.
 This type of analysis may focus on:
 A single primary activity such as marketing and sales.
 The interface between one stage of the value chain and
another, such as the interface between operations and outgoing
logistics.
 One of the support activities, such as human resource
management.

23. Potential Fatal Flaws in Business Models
 Fatal Flaws
 Two fatal flaws can render a business model untenable
from the beginning:
 A complete misread of the customer
 Utterly unsound economics

24. “JOBS to be Done”
 Video :“What JOB does a Milkshake Do?”
 Prof. Clayton M. Christensen, Harvard Business School

25. Osterwalder’s Business Model

26. http://www.businessmodelgeneration.com/canvas

27. 9 Components of Business Model
(Osterwalder 2010)
1. Customer 1. Key Activities
Segments 2. Key Resources
2. Value 3. Key Partners
Propositions
3. Customer 1. Revenue Stream
Relationships
2. Cost Structure
4. Channels

28. 1. Customer Segments
 For whom are we  Customer Gains?
creating value?
 Who are our most
important
customers?
 Mass Market/ Niche  Customer Pain?
Market/ Segmented/
Diversified/ Multi-sided
Platform
 What are JOBS to
be done?

29. 2. Value Propositions
characteristics
 What value do we deliver Newness
to the customer? Performance
 Which one of our Customization
customer’s problems are “Getting the Job Done”
we helping to solve? Design
Brand/Status
 What bundles of products Price
and services are we Cost Reduction
offering to each Customer Risk Reduction
Segment? Accessibility
 Which customer needs Convenience/Usability
are we satisfying?  Gain creators?
 Get the JOBS done?
 Pain relievers?

30. 3. Customer Relationships
 What type of relationship Examples
does each of our Personal assistance
Customer Segments Dedicated Personal
expect us to establish and Assistance
maintain with them?
Self-Service
 Which ones have we
Automated Services
established?
Communities
 How are they integrated
Co-creation
with the rest of our
business model?
 How costly are they?

31. channel phases:
4. Channels 1. Awareness : How do we
raise awareness about our
 Through which Channels do company’s products /services?
our Customer Segments 2. Evaluation : How do we help
want to be reached? customers evaluate our
 How are we reaching them organization’s Value
now? Proposition?
 How are our Channels 3. Purchase : How do we allow
integrated? customers to purchase specific
products/services?
 Which ones work best?
4. Delivery : How do we deliver
 Which ones are most cost- a Value Proposition to
efficient? customers?
 How are we integrating them 5. After sales : How do we
with customer routines? provide post-purchase
customer support?

32. 5. Key Activities
 What Key Activities categories
do our Value Production
Propositions Problem Solving
require? Platform/Network
 Our Distribution
Channels?
 Customer
Relationships?
 Revenue streams?

33. 6. Key Resources
 What Key types of resources
Resources do our Physical
Value Propositions Intellectual (brand
require? patents, copyrights,
data)
 Our Distribution
Human
Channels?
Financial
 Customer
Relationships?
 Revenue Streams?

34. 7. Key Partners
 Who are our Key motivations for
Partners? partnerships:
Optimization and
 Who are our key
suppliers? economy
Reduction of risk and
 Which Key
uncertainty
Resources are we
Acquisition of
acquiring from
partners? particular resources
and activities
 Which Key Activities
do partners perform?

35. types:
8. Revenue Stream Asset sale
Usage fee
Subscription Fees
 For what value are our Lending/ Renting/ Leasing
customers really willing to Licensing
pay? Brokerage fees
Advertising
 For what do they currently
fixed pricing
pay? List Price
 How are they currently Product feature dependent
paying? Customer segment dependent
Volume dependent
 How would they prefer to
pay? dynamic pricing
Negotiation (bargaining)
 How much does each Yield Management
Revenue Stream contribute Real-time-Market
to overall revenues?

36. is your business more:
9. Cost Structure Cost Driven (leanest cost
structure, low price value
proposition, maximum
 What are the most automation, extensive
important costs outsourcing)
Value Driven ( focused on
inherent in our value creation, premium value
proposition)
business model?
 Which Key characteristics:
Resources are most Fixed Costs (salaries,
rents, utilities)
expensive? Variable costs
 Which Key Activities Economies of scale
are most expensive? Economies of scope

37. Business Model Test Drive
1. How much do switching costs prevent your
customers from churning?
2. How scalable is your business model?
3. Does your business model produce recurring
revenues?
4. Do you earn before you spend?
5. How much do you get others to do the work?
6. Does your business model provide built-in
protection from competition?
7. Is your business model based on a game
changing cost structure?

38. Business Model of Facebook

39. Business Model of Zynga

40. Strategic Business Model
(Barringer & Ireland 2012)
Four Components of the Business Model

41. Core Strategy
1 of 3
 Core Strategy
 The first component of a business model is the core
strategy, which describes how a firm competes relative
to its competitors.
 Primary Elements of Core Strategy
 Mission statement
 Product/market scope
 Basis for differentiation

42. Core Strategy
2 of 3
Primary Elements of Core Strategy
A firm’s mission, or mission statement,
Mission
describes why it exists and what its business
Statement
model is supposed to accomplish.
Product/Market A company’s product/market scope defines the
Scope products and markets on which it will
concentrate.

43. Core Strategy
3 of 3
Primary Elements of Core Strategy
It is important that a new venture differentiate
itself from its competitors in some way that is
Basis of important to its customers. If a new firm’s
Differentiation products or services aren’t different from
those of its competitors, why should anyone
try them?

44. Strategic Resources
1 of 3
 Strategic Resources
 A firm is not able to implement a strategy without
resources, so the resources a firm has affect its business
model substantially.
 For a new venture, its strategic resources may initially be
limited to the competencies of its founders, the opportunity
they have identified, and the unique way they plan to serve
their market.
 The two most important strategic resources are:
 A firm’s core competencies
 Strategic assets

45. Strategic Resources
2 of 3
Primary Elements of Strategic Resources
A core competency is a resource or capability that
serves as a source of a firm’s competitive advantage.
Core Examples include Sony’s competence in
Competencies miniaturization and Dell’s competence in supply chain
management.
Strategic assets are anything rare and valuable that a
Strategic firm owns. They include plant and equipment,
Assets location, brands, patents, customer data, a highly
qualified staff, and distinctive partnerships.

46. Strategic Resources
3 of 3
 Importance of Strategic Resources
 New ventures ultimately try to combine their core
competencies and strategic assets to create a sustainable
competitive advantage.
 This factor is one that investors pay close attention to
when evaluating a business.
 A sustainable competitive advantage is achieved by
implementing a value-creating strategy that is unique
and not easy to imitate.
 This type of advantage is achievable when a firm has
strategic resources and the ability to use them.

47. Partnership Network
1 of 3
 Partnership Network
 A firm’s partnership network is the third component of
a business model. New ventures, in particular, typically
do not have the resources to perform key roles.
 In most cases, a business does not want to do everything
itself because the majority of tasks needed to build a
product or deliver a service are not core to a company’s
competitive advantage.
 A firm’s partnership network includes:
 Suppliers
 Other key relationships

48. Partnership Network
2 of 3
Primary Elements of Partnership Network
A supplier is a company that provides parts or
Suppliers services to another company. Intel is Dell’s primary
suppler for computer chips, for example.
Firms partner with other companies to make their
business models work. An entrepreneur’s ability to
Other Key launch a firm that achieves a competitive advantage
Relationships may hinge as much on the skills of the partners as
on the skills within the firm itself.

49. Partnership Network
3 of 3
The Most Common Types of Business Partnerships

50. Customer Interface
1 of 3
 Customer Interface
 The way a firm interacts with its customer hinges on
how it chooses to compete.
 For example, Amazon.com sells books over the Internet while
Barnes & Noble sells through its traditional bookstores and
online.
 The three elements of a company’s customer interface
are:
 Target customer
 Fulfillment and support
 Pricing model

51. Customer Interface
2 of 3
Primary Elements of Customer Interface
Target A firm’s target market is the limited group of
Market individuals or businesses that it goes after or tries to
appeal to.
Fulfillment and support describes the way a firm’s
Fulfillment product or service reaches its customers. It also refers
and Support to the channels a company uses and what level of
customer support it provides.

52. Customer Interface
3 of 3
Primary Elements of Customer Interface
The third element of a company’s customer
Pricing interface is its pricing structure. Pricing models
Structure vary, depending on a firm’s target market and its
pricing philosophy.

53. Recap: The Importance of Business
Models
 Business Models
 It is very useful for a new venture to look at itself in a
holistic manner and understand that it must construct
an effective “business model” to be successful.
 Everyone that does business with a firm, from its
customers to its partners, does so on a voluntary basis.
As a result, a firm must motivate its customers and its
partners to play along.
 Close attention to each of the primary elements of a
firm’s business model is essential for a new venture’s
success.

54. Further Reading
 Scarborough, Norman, M. 2011. Essentials of
Entrepreneurship and Small Business
Management. 6th edition. Pearson.
 Brooks, Arthur C. (2006) Social Entrepreneurship :
A Modern Approach to Social Value Creation.
Pearson
 Barringer, Bruce R. & Ireland, R. Duane, 2011
Entrepreneurship – Successfully launching new
ventures 4th edition, Pearson.
 Schaper, M., Volery, T., Weber, P. & Lewis, K. 2011.
Entrepreneurship and Small Business. 3rd Asia
Pacific edition. John Wiley.
 Osterwalder, A. & Piqneur,Y. 2011 Business Model
Generation . Business Model Foundry.