Module 5 - Business Models

Question 1

What are the key attributes of effective business models?

Answer 1

Profitability

Scalability

Repeatability

Strategic alignment

Robustness

Question 2

Profitability definition

Answer 2

The degree to which a business yields profit (revenues in excess of its expenses) or financial gain

Question 3

To assess the profitability of a business model, entrepreneurs should assess what?

Answer 3

Cost of acquiring customers (‘CAC’)

Lifetime value of customer (‘LTV’)

Question 4

Equation for costs of acquiring customers (‘CAC’)

Answer 4

Expense associated with acquiring the customers (often be up front promotional costs) / number of customers that are expected to be acquired

Question 5

What does Lifetime Value of Customers (LTV) represent

Answer 5

The net profit a business can make from a customer over the time that they continue to be a customer of the business

Question 6

LTV must “what” in relation to CAC in order for a business to be profitable?

Answer 6

Must exceed

Question 7

Is it generally thought that it is cheaper to retain existing customers than acquire new ones?

Answer 7

Yes

Question 8

In order to maximise LTV, businesses typically aim to:

Answer 8

Attract more customers - discounts / promotions / branding

Retain customers for longer - loyalty cards

Increase average customer spend - targeted promotions

Question 9

What is a scalable business model?

Answer 9

One that has potential to multiply revenue with minimal incremental cost

Question 10

Can internet businesses (especially those selling virtual products) often achieve disproportionate profit growth?

Answer 10

Yes

Question 11

What is a repeatable business model?

Answer 11

On which a business can apply consistently to new products and markets to generate sustained growth

Question 12

What is strategic alignment?

Answer 12

It is about aligning organisation structure and resources to the mission statement, strategy and business environment

Question 13

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?

Answer 13

No

Question 14

What is robustness?

Answer 14

The ability to continue delivering effective performance even when underlying conditions change

Question 15

A robust business model should be able to pass a “what”?

Answer 15

Stress-test - ask key questions like what if etc.

Question 16

Different types of business models

Answer 16

Pipe vs platform

Bricks, clicks and flips

Disintermediation

Razor and blades

Franchising and licensing

Question 17

What is a pipe business model

Answer 17

A business directly or through a distribution channel ‘pushes’ goods or services to customers

Question 18

What is a platform business model

Answer 18

No pushing of goods or services but instead providing a platform for users to interact and create value

Question 19

What are the different types of platform models? (Interactions leading to…)

Answer 19

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

Question 20

Can a business have a hybrid pipe / platform model?

Answer 20

Yes

Question 21

What is a bricks and clicks model?

Answer 21

A specific pipe business model

Both physical shops and virtual channels

Question 22

What is disintermediation?

Answer 22

Cutting out the middleman

Question 23

Advantages of disintermediation

Answer 23

Higher profit margin

Better relationship with customer

More control

Question 24

Disadvantages of disintermediation?

Answer 24

No big retailer expertise

More complex

Question 25

What is razor and blades?

Answer 25

Give em the razor, sell em the blades

Question 26

What is a franchising / licensing model?

Answer 26

A product, service or brand is licensed to a third part in return for franchising or licensing fees

Question 27

What are Critical Success Factors (CSFs)

Answer 27

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

Question 28

Critical success factors (CSFs) could include

Answer 28

Functional advantages - unique feature

Financial advantages - competitive price

Other intangible factors - brand loyalty

Question 29

An effective business model should address:

Answer 29

Market segment to focus on

The CSFs

How the business can deliver CSF in a way that is both competitive and cost-efficient

Question 30

Critical success factors (CSFs) lead to what?

Answer 30

KPI’s

Question 31

Three key things when developing a business model (related to CSF)

Answer 31

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

Question 32

What is market testing?

Answer 32

Gaining more of an understanding of the market and the viability of a product / service

To test a business model before committing to it

Question 33

How can market testing be done?

Answer 33

Market research (asking questions to a group of customers)

Testing responses to an actual product on a small scale

Could use an app

Question 34

Benefits of market testing

Answer 34

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

Question 35

What is LTV

Answer 35

Lifetime value of customers

Question 36

What is CAC

Answer 36

Cost of acquiring customers

Question 37

Time to recover CAC

Answer 37

(CAC / net profit) x time period (days/weeks/months/years)

What time period?