chapter 4

Question 1

business model

Answer 1

a firm’s plan or recipe for how it creates, delivers, and captures value for its stakeholders. they are foundational to a firm’s ability to succeed. the proper time to determine it is following the initial validation of the business idea and prior to fleshing out the details of how the firm will operate to provide its product or service to customers. it represents the core aspects of its business. three important elements are; (1) target market, (2) basis for differentiation, and (3) key assets. it also describes how core aspects fit together and support one another. there are two categories; (1) standard business models, and (2) disruptive business models.

Question 2

standard business models

Answer 2

depict existing plans or recipes firms can use to determine how they will create, deliver, and capture value for their stakeholders. this type is commonly used by existing firms as well as those launching an entrepreneurial venture. most of them, except for the freemium model, have been in place for some time.

Question 3

freemium business model

Answer 3

a business model in which a firm provides a basic version of its service for free and makes money by selling a premium version of the service.

Question 4

advertising business model

Answer 4

a business model based on providing advertisers access to highly target customer niches.

Question 5

auction business model

Answer 5

a model where the idea is to provide a platform for individuals and businesses to sell items in an auction format.

Question 6

bricks and clicks business model

Answer 6

a business model in which a company integrates both online and offline presences.

Question 7

franchise business model

Answer 7

a business model in which a firm that has a successful product or service licenses its trademarkt and method of doing business to other businesses.

Question 8

low-cost business model

Answer 8

a well-established business model that relies on driving down costs and making money by servicing a large number of customers.

Question 9

manufacturer/retailer business model

Answer 9

a business model in which a manufacturer both produces and sells a product.

Question 10

peer-to-peer business model

Answer 10

a model in which a business acts as a matchmaker between individuals with a service to offer and others who want the service.

Question 11

razor and blades business model

Answer 11

a business model that involves the sale of dependent goods for different prices. one good is sold at a discount, with the dependent good sold at a considerably higher margin.

Question 12

subscription business model

Answer 12

a business model in which the customer pays a monthly, quarterly, or yearly subscription fee to have access to a product or service. the disadvantage of this model is churn.

Question 13

churn

Answer 13

the number of subscribers that a subscription-based business loses each month.

Question 14

traditional retailer business model

Answer 14

a business model calling for a firm to sell its products or services, made by others, directly to consumers at a mark-up from the original price.

Question 15

disruptive business models

Answer 15

rare models that do not fit the profile of a standard business model and are impactful enough that they disrupt or change the way business is conducted in an industry or an important niche within an industry. there are three types; (1) new market disruption, (2) low-end market disruption, and (3) low-end disruptive business models.

Question 16

new market disruption

Answer 16

addresses a market that previously was not served.

Question 17

low-end market disruption

Answer 17

possible when the firms in an industry continue to improve products or services to the point where they are actually better than a sizable portion of their clientele’s needs or desires.

Question 18

low-end disruptive business models

Answer 18

offer a simpler, cheaper, or more convenient way to perform an everday task. if a start-up goes this route, the advantages must be compelling, and the company must strike a nerve for disruption to take place.

Question 19

Business Model Canvas

Answer 19

consists of nien basic parts that show the logic of how a firm intends to create, deliver, and capture value for its stakeholders.

Question 20

Barringer/Ireland business model

Answer 20

slightly more comprehensive than the Business Model canvas, as it consists of 4 major categories and 12 individual parts. the 12 parts make up the firm’s business model. it allows an entrepreneur to describe, project, revise, and pivot a business model until all 12 parts are decided upon. the 12 parts are spread out, which provides space for ideas to be recorded, scratched out, and recorded again as ideas morph and change.

Question 21

core strategy

Answer 21

describes how the firm plans to compete relative to its competitors. the business mission, basis of differentiation, target market, and product/market scope are the primary elements.

Question 22

business mission/mission statement

Answer 22

or mission statement describes why it exists and what its business model is supposed to accomplish. broadly, the mission statement indicates how a firm intends to create value for stakeholders. it is the first box that should be completed in the business model template and has 6 rules of thumb.

Question 23

basis of differentiation

Answer 23

what causes consumers to pick one company’s products over another’s. it is best to limit the description to 2 to 3 differentiating points, of which the value is easy to see and understand. points of differentiation that focus on features instead of benefits are less compelling.

Question 24

target market

Answer 24

a segment within a larger market that represents a narrower group of customers with similar interest. the target market a firm selects affects everything it does, from the key assets it acquires to the financing or funding it will need to the partnerships it forms.

Question 25

product/market scope

Answer 25

defines the products and markets on which it will concentrate. most firms start narrow and pursue adjacent product and market opportunities at the company grows and becomes financially secure. new firms typically do not have the resources to produce multiple products and pursue multiple market simultaneously. in the Barringer/Ireland template, a company should be clear about its initial prdocut/market scope and project 3-5 years into the future in terms of anticipated expansion.

Question 26

resources

Answer 26

the second component of a business model. the inputs a firm uses to produce, sell, distribute, and service a product or service. at a basic level, a firm must have sufficient resources to enable its business model to work. at a deeper level, a firm’s most important resources, both tangible and intangible, must be both difficult to imitate and hard to find a substitute for in order for the business model to be competitive over the long term. it considers core competencies and key assets.

Question 27

core competencies

Answer 27

a specific factor or capability that supports a firm’s business model and sets it apart from its rivals. it largely determines what a firm can do and should not only support a firm’s initiative but also be difficult to imitate and substitute.

Question 28

key assets

Answer 28

the assets that a firm owns that enables its business model to work. they can be physical (equipment, vehicles, distribution networks), financial (cash, lines of credit), intellectual (patents, etc.), or human (founders, key employees, advisors). in Barringer/Ireland a firm should list 3 to 4 key assets that support the business model as a whole.

Question 29

financials

Answer 29

considers how the firm earns money. the primary aspects are revenue streams, cost structure, and financing/funding.

Question 30

revenue streams

Answer 30

describe the ways in which a firm makes money. there can be one, or multiple. most common are advertising, commissions, download fee, matchmaking, renting/licensing, etc.

Question 31

cost structure

Answer 31

describes the most important costs incurred to support its business model. initially, it is important to determine the role of costs in a business. businesses can be categorised as cost-driven or value-driven. next, identify the nature of the business’ costs; most mainly have a fixed-cost or variable-cost structure. finally, identify the major cost categories, eg. marketing and sales. this breakdown helps a business understand where its major costs will be incurred.

Question 32

cost-driven businesses

Answer 32

focus on minimising costs wherever possible.

Question 33

value-driven businesses

Answer 33

focus on offering a high-quality product and personalised service.

Question 34

fixed costs

Answer 34

costs that remain the same despite the volume of goods or services produced.

Question 35

variable costs

Answer 35

vary proportionally with the volume of goods or services produced.

Question 36

financing/funding

Answer 36

some entrepreneurs can fund their business through personal resources. sometimes, a business can be funded from its own profits from day one. usually, an initial infusion of funding or financing is required. there are three categories of costs to consider; (1) capital costs, (2) one-time expenses, and (3) ramp-up expenses.

Question 37

capital costs

Answer 37

real estate, buildings, equipment.

Question 38

one-time expenses

Answer 38

website design, procurement of initial inventory.

Question 39

ramp-up expenses

Answer 39

period where businesses lose money until they are up to speed and reach profitability.

Question 40

operations

Answer 40

both integral to a firm’s overall business model and represent the day-to-day heartbeat of the firm. the primary elements are product production, channels, and key partners.

Question 41

product (or service) production

Answer 41

if a firm sells physical products, they can be produced in-house, by a contract manufacturer, or via an outsource provider. this decision has a major impact on all aspects of the business model. if a service is provided, a brief description of how the service will be produced should be provided.

Question 42

channels

Answer 42

describe how a firm delivers its product or service to its customers. businesses sell direct, through intermediaries, or a combination of both. many businesses sell direct, through storefront, and/or online. some businesses employ a sales force that calls on potential customers to try to close sales (expensive).

Question 43

key partners

Answer 43

the first partnership is with suppliers. firms also partner with other companies to make their business models work. most common forms are; joint venture, network, consortia, network alliance, and trade associations. potential disadvantages are; loss of proprietary information, management complexities, and partial loss of decision autonomy.

Question 44

supplier

Answer 44

a company that provides parts or services to another company.

Question 45

joint venture

Answer 45

an entity created by two or more firms pooling a portion of their resources to create a new entity to address those needs.

Question 46

network

Answer 46

a hub-and-wheel configuration with a local firm at the hub organising the interdependencies of a complex array of firms.

Question 47

consortia

Answer 47

a group of organisations with similar needs that band togeter to create a new entity to address those needs.

Question 48

strategic alliance

Answer 48

an arrangement between two or more firms that establishes an exchange relationship but has no joint ownership involved.

Question 49

trade associations

Answer 49

organisations (typically non-profit) that are formed by firms in the same industry to collect and disseminate trade information, offer legal and technical advice, furnish industry-related training, and provide a platform for collective lobbying.