Module 5 - Business Models Flashcards
What are the key attributes of effective business models?
Profitability
Scalability
Repeatability
Strategic alignment
Robustness
Profitability definition
The degree to which a business yields profit (revenues in excess of its expenses) or financial gain
To assess the profitability of a business model, entrepreneurs should assess what?
Cost of acquiring customers (‘CAC’)
Lifetime value of customer (‘LTV’)
Equation for costs of acquiring customers (‘CAC’)
Expense associated with acquiring the customers (often be up front promotional costs) / number of customers that are expected to be acquired
What does Lifetime Value of Customers (LTV) represent
The net profit a business can make from a customer over the time that they continue to be a customer of the business
LTV must “what” in relation to CAC in order for a business to be profitable?
Must exceed
Is it generally thought that it is cheaper to retain existing customers than acquire new ones?
Yes
In order to maximise LTV, businesses typically aim to:
Attract more customers - discounts / promotions / branding
Retain customers for longer - loyalty cards
Increase average customer spend - targeted promotions
What is a scalable business model?
One that has potential to multiply revenue with minimal incremental cost
Can internet businesses (especially those selling virtual products) often achieve disproportionate profit growth?
Yes
What is a repeatable business model?
On which a business can apply consistently to new products and markets to generate sustained growth
What is strategic alignment?
It is about aligning organisation structure and resources to the mission statement, strategy and business environment
In a strategically aligned business model, if a proposed course of action doesn’t support the strategy of the business, should it be taken even if it looks a good idea in isolation?
No
What is robustness?
The ability to continue delivering effective performance even when underlying conditions change
A robust business model should be able to pass a “what”?
Stress-test - ask key questions like what if etc.
Different types of business models
Pipe vs platform
Bricks, clicks and flips
Disintermediation
Razor and blades
Franchising and licensing
What is a pipe business model
A business directly or through a distribution channel ‘pushes’ goods or services to customers
What is a platform business model
No pushing of goods or services but instead providing a platform for users to interact and create value
What are the different types of platform models? (Interactions leading to…)
Interactions leading to exchange of physical goods
Interactions leading to the exchange of physically delivered services
Interactions leading to the exchange of virtual products
Interactions leading to the exchange of info between users
Can a business have a hybrid pipe / platform model?
Yes
What is a bricks and clicks model?
A specific pipe business model
Both physical shops and virtual channels
What is disintermediation?
Cutting out the middleman
Advantages of disintermediation
Higher profit margin
Better relationship with customer
More control
Disadvantages of disintermediation?
No big retailer expertise
More complex
What is razor and blades?
Give em the razor, sell em the blades
What is a franchising / licensing model?
A product, service or brand is licensed to a third part in return for franchising or licensing fees
What are Critical Success Factors (CSFs)
Product features that are particularly valued by a group of customers and therefore are features in which the organisation must excel to outperform competition. ‘Product should encompass both products and services’
Things that must go right
The reason customers come to us
Critical success factors (CSFs) could include
Functional advantages - unique feature
Financial advantages - competitive price
Other intangible factors - brand loyalty
An effective business model should address:
Market segment to focus on
The CSFs
How the business can deliver CSF in a way that is both competitive and cost-efficient
Critical success factors (CSFs) lead to what?
KPI’s
Three key things when developing a business model (related to CSF)
CSF are defined in relation to customers
Performance needs to be understood in relative terms - has to be a number like 10% better
CSF changes over time as customer values change
What is market testing?
Gaining more of an understanding of the market and the viability of a product / service
To test a business model before committing to it
How can market testing be done?
Market research (asking questions to a group of customers)
Testing responses to an actual product on a small scale
Could use an app
Benefits of market testing
Better understanding of customers and their CSF
Able to better manage risks
Opportunity to refine marketing mix
More evidence to support business model to gain more support
What is LTV
Lifetime value of customers
What is CAC
Cost of acquiring customers
Time to recover CAC
(CAC / net profit) x time period (days/weeks/months/years)
What time period?
