Introduction to Business Models Flashcards
What is a business model?
A business model is a model of the business that describes, in stylized form, how management intends to create and deliver value for its customers and in turn extract some of that value as revenue.
What makes up a business model?
- Product/Service
- The Market
- The Economic Engine which enables the business to meet its profitability and growth objectives.
How does the Business Model represent management’s thinking?
- How and at what cost the business will create value and deliver it to its customers,
- How it will get paid, and
- What is the logic that will enable it to meet its objectives?
Value-creation model
(what are four questions you would ask?)
• Who are your customers? • How does the offering create differentiated value for these customers (value proposition)? • What is the value chain for the offering, and what parts of the value chain does your business participate in? • What are your go-to-market and market development strategies?
Profit model
(What are four questions you would need to be able to answer?)
- What are your sources of revenue?
- What is your cost structure?
- What is your unit economics?
- What are your key drivers of profitability?
Logic Model
What is your business goal?
Why (and how) will your business meet this goal?
What the first step in business model analysis and why?
identification of the target customers and the offering that will create differentiated value for them.
Why? to attract customers and make a profit, the offering has to be better than the competition on some dimension.
What is value discipline?
The source of differentiated value for a business.
Name the 4 value discipline archtypes
Operational excellence
Product/Service Innovation (leadership)
Customer intimacy
Value-chain coordination
What is Operational Excellence?
Operationally excellent businesses minimize the delivered cost of the products or services they offer customers.
NOTE: While they may price their products or services competitively, they also strive to reduce the intangible costs borne by their customers as the product or service is delivered to them.
How does Walmart demonstrate Operational Excellence?
- It sells a large variety of quality merchandise at lower prices than most competitors
- Its stores sells prodcuts that are available
- They have friendly customer service
How does Walmart deliver on the intangible costs that their customers struggle with?
By providing ‘under-banked’ customers with financial services such reloadable cash cards and by providing incentives for savings.
https://www.abcactionnews.com/money/consumer/dont-waste-your-money/yes-walmart-now-wants-to-be-your-bank
What is Product/Service Innovation
Where innovators seek to invent and deliver the best products and services for their customers by focusing on product performance, user experience or available options.
Customer Intimacy
These types of businesses deliver best total solutions by tailoring their products or services to satisfy unique, or highly-targeted, customer needs.
Key word: Granular down to a single customer
What elements are central to Customer Intimacy?
The creation of continuous learning relationship with its customers
Must initiate explicit or implict dialogues with them, capture information about their behaviors and preferences and use that information to customize products, services, content and context to fine definitions of customer segments.
What is the Value-Creation Model
Based on the art, science and technology of nurturing many-to-many relationships within the Value Chain.
Describe an Adoption Strategy
Direct channels
Indirect channels
Partnerships
Describe a Transactional Revenue Model
Transactional revenues incorporate fixed fees and quantity discounts.
Example: a gallon of milk
Describe a Subscription Revenue Model
Customers pay a fixed fee per unit of time and they receive in return a fixed number of units of the product or service
Example: Netflix, Hulu, etc.
Licensing
Usually in the B2B domain, the customer pays a royalty or license fee to use, sell, or copy the product for a period of time.
Example: Software or Newspapers (license its articles)
What is Cost Structure?
Cost Structure specifies the activities that drive the different costs of the business and how they add up to total cost.
What does Economies of Scale mean
when a business benefits from the size of its operation.
Example: it’s far cheaper and more efficient to serve 1,000 customers at a restaurant than one.
Example: Amazon enjoys economies of scale far beyond their online competition, and they can use that power to offer hyper-aggressive prices and fast, cheap shipping.
What is Unit Economics
Unit economics describes a specific business model’s revenues and costs in relation to an individual unit. A unit refers to any basic, quantifiable item that creates value for a business. Thus, unit economics demonstrates how much value each item—or “unit”—generates for the business.
What does Driver of Profitability Mean?
Profit drivers are the internal and external factors that affect your business’s bottom line. Understanding your profit drivers and how they affect your business is key to developing effective strategies to improve your profits.
Break Even Point
each a point in a business venture when the profits are equal to the costs.
Define Churn Rate
the annual percentage rate at which customers stop subscribing to a service or employees leave a job.
What are the two elements of business logic?
What is the business goal?
Why do you believe you will meet this goal, and how?
What is the basic logic of Walmart’s business?
Operational Excellence
Everyday low pricing
What is a Full Stack Business Model?
Full-stack startups are built on the premise of offering a seamless end-to-end product to customers. Essentially what this means is that a full-stack startup is built in a way that they are able to not rely on other businesses or corporations to get their product to market.
What is the Logic in McDonald’s Business Model?
Scale
Process Discipline
Exacting Standards
DSIR
Demand Side Increasing Returns
Minimum Viable Product (MVP)
The lowest resolution prototype that is sufficient to effectively test our current hypothesis
