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Chapter 4. (Summary) Developing an Effective Business Model


Chapter 4. Developing an Effective Business Model

·         Business Models and Their Importance
A Firm’s business models is a plan or recipe for how it creates, delivers, and captures value for its stakeholders.
·         General Categories of Business Models
1.       Standard Business Models
Standard business models depict existing plans or recipes firms can use to determine how they will create, deliver, and capture value for their stakeholders. It’s important to note that a firm’s business model takes it beyond its own boundaries.

2.       Disruptive Business Models
Disruptive business models are ones 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 industry. There are 3 types of disruptive business models :
a)       New Market Disruption
New market disruption addresses a market that previously wasn’t served.
b)      Low-end Market Disruption
Low-end market disruption is a type of disruption that is 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 needs or desires.

·         The Barringer/Ireland Business Model Template

Core Strategy
Business Mission
Basis of Differentiation
Target Market
Product/Market Scope

1.       Core Strategy
The first component of a business model is core strategy. A core startegy describes how the firm plans to compete relative to its competitor.

a)       Business mission
Business mission or mission statement describes why it exists and what its business model is supposed to accomplish.


b)      Basis of Differentiation
Basis of differentation is what causes consumers to pick one company’s products over another’s. It is what solves a problem or satisfies a customer need.
c)       Target Market
Target market is a place within a larger market segment that represents a narrower group of customers with similar interests.

d)      Product/Market Scope
Product/Market Scope defines the products and markets on which it will concentrate. Most firms start narrow and pursue adjacent product and market opportunities as the company grows and becomes financially secure.

Resources
Core Competency
Key Assets

2.       Resources
Resources are the inputs a firm uses to produce, sell distribute, and service a product or service.
a)       Core Competencies
Core competency is a specific factor or capability that supports a firm’s business model and sets it apart from its rivals

b)      Key Assets
Key assets are the assets that a firm owns that enable its business model to work. The assets can be physical, financial, intellectual, or human.


Financials
Revenue Streams
Cost Structure
Financing/Funding

3.       Financials
The third component of a business model focuses on its financials.
a)       Revenue Streams
Revenue Streams describe the ways in which it makes money. The number and nature of a business’ revenue streams has a direct impact on the other elements of its business model.

b)      Cost Structure
Cost Structure describes the most important cost incurred to support its business model. It costs money to establish a basis of differentiation, develop core competencies, acquire or develop key assests, form partnership, and so on.

c)       Fiancing/Funding
Similar to cost structure, there are three categories of costs to consider:capital costs, one-time expenses, and provisions for ramp-up expenses.

Operations
Product (or service) Production
Channels
Key Partners

4.       Operations
Operations are both integral to a firm’s overall business model and represent the day-to-day hearbeat of a firm.

a)       Product (or Service) production
This sections focuses on how a firm’s products and /or service are produced. If a firm sells physical products, the products can be manufactured or produced in-house, by a contract manufacturer, or via an outsource provider.

b)      Channels
Channels describe how it delivers its product or service to its customers.

c)       Key Partners
Key partners desrcibe about the partnerhip of business. Normally, a start-up begins with a fairly small number of partnerships, which grows over time.

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