Lecture 4 - Business Planning
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Lecture 4 - Business Planning

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Lecture 4 of the New Venture Creation series

Lecture 4 of the New Venture Creation series

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Lecture 4 - Business Planning Lecture 4 - Business Planning Presentation Transcript

  • Business Planning Bringing Order to OperationsHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • RecapØ  Lecture 1 – We covered what keeps entrepreneurship from growing in PakistanØ  Lecture 2 – We discussed the different types of ideas and how to classify themØ  Lecture 3 – We began structuring how businesses must be developed – business model firstØ  Last week – You were supposed to send me your business ideas via email so that I could provide comments & feedback – I got 2 business ideasHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • What We Have Covered So FarØ  Customer Segments –  Defines the different groups of people or organizations a venture aims to reach and serve –  Explained that a venture can have multiple customer segments depending on their business model, products and servicesØ  The Value Proposition –  Describes the bundle of products and services that create value for a specific Customer Segment –  Value can be defined differently for different customer segmentsHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • ChannelsHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Channels Channels describe how a venture communicates with and reaches its Customer Segments to deliver a Value PropositionHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • ChannelsCommunication, distribution and Sales channels comprise the way that aventure interacts with their customers. Channels are customer touch pointsthat play an important role in the customer experience.HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Function of Channels Ø  Raise awareness among customers about a company’s products and services Ø  Help customers evaluate a company’s Value Proposition Ø  Allow customers to purchase specific products and services Ø  Deliver a venture’s Value Proposition to customers Ø  Provide post-purchase customer supportHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Understanding the Different ChannelsØ  There are 5 distinct phases to channelsØ  Each channel can cover some or all of Sales Force these phasesØ  They are distinguished between direct Own Direct and indirect, owned and partner Web Sites channelsØ  Finding the right mix is crucial to Own Stores delivering your Value Proposition to market Partner Stores Partner Indirect WholesalerHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Understanding the Different ChannelsØ  Owned Channels are direct, such as in-house sales Sales Force forces and/or web sites, or they can be indirect, such Own Direct Web Sites as retail stores owned and operated by the Own Stores organizationØ  Owned Channels have Partner Stores Partner higher margins, but can be Indirect costly to put in operation Wholesaler and operateHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Understanding the Different ChannelsØ  Partner Channels are indirect and cover a wider Sales Force range of options, including wholesale distribution, retail Own Direct Web Sites and partner-owned web sites Own StoresØ  Partner Channels are also lower margins, but they Partner Stores Partner allow for an expanded reach Indirect and benefit from partner Wholesaler strengthsHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • The trick is to find the right balance integrating them for great customer experience and maximize revenuesHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Understanding the Different PhasesØ  Awareness Ø  Delivery –  How do we raise awareness –  How do we deliver a Value about our company’s products Proposition to customers? and services? Ø  After Sales ServiceØ  Evaluation –  How do we provide post- –  How do we help customers purchase customer support? evaluate our organizations Value PropositionØ  Purchase –  How do we allow customers to purchase specific products and services?HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Customer RelationshipsHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Customer RelationshipsCustomer Relationships describes the types of relationships a company establishes withspecific Customer Segments. A venture must clarify the type of relationship it wants toestablish with each Customer Segment. Relationships can range from personal toautomated.HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Customer RelationshipsCustomer Relationships may be driven by different motivations ranging from CustomerAcquisition and Retention to Increasing Sales (upselling).HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • What type of relationship does each of our Customer Segments expect us to establish and maintain with them? Which ones have we established? How costly are they? How are they integrated with the rest of our business model?HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • In the early days, mobile network operator Customer Relationships were driven by aggressive acquisition strategies. Some even involved giving away free mobile phones to new subscribers.HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • But when the market became saturated, operators switched to focusing on customer retention and increasing revenue per customer.HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • The Customer Relationships that ventures develop must be driven to increase and influence the overall customer experience.HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Categories of Customer RelationshipsØ  Personal Assistance Ø  Self-Service –  Based on Human Interaction –  Company maintains no direct –  Customers communicate with relationship with customers people to get help during the –  Expects the customers to be able sales process or after purchase is to help themselves with all the complete materials provided to them from –  Point of Sale, Call Centers, e-mail the companyØ  Dedicated Personal Assistance Ø  Automated Services –  Dedicating a single representative –  Mixture of a sophisticated form to a customer of customer self-service with –  The deepest and most intimate automated processes type of relationship and usually –  Think online transactions and develops over a period of time memberships –  Typically found in private banking services for high net worth individualsHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Categories of Customer RelationshipsØ  Communities Ø  Co-Creation –  Company maintained to allow –  Using the customer-vendor users to exchange knowledge relationship to co-create value and solve each other’s problems with customers –  Helps the company to –  Amazon.com invites customers to understand the customer better write reviews and creates value for other book lovers –  Some companies engage customers to assist with the design of new and innovative products –  Others allows customers to create content for public consumptionHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Revenue StreamsHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Revenue StreamsRevenue Streams represent the cash a venture generates from each CustomerSegment.HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Revenue StreamsYou have to ask yourself – “What is each Customer Segment really willing to pay forthe Value Proposition we are offering?”HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Revenue StreamsWhen you successfully answer that question, you are able to define the generation of oneor more Revenue Streams from each Customer Segment. Each Revenue Stream may havedifferent pricing mechanisms – fixed, bargaining, auction, market, volume, etc.HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • For what value are our customers really willing to pay? For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues?HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Two Types of Revenue Streams Ø  Venture can generate revenue from two different methods: –  Transaction revenues resulting from one-time customer payments (Single Interaction) –  Recurring revenues resulting from ongoing payments to deliver the Value Proposition or provide post-purchase customer support.HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Ways to Generate Revenue StreamsØ  Asset Sale Ø  Subscription Fees –  Selling ownership rights to a –  Generated by selling continuous physical product access to a service –  Amazon sells books, music, –  Gyms sell members monthly or electronics and more online yearly memberships –  Toyota sells automobiles that –  World of Warcraft allows users to buyers are free to drive, resell or play its onlne game in exchange even destroy for a monthly subscription fee –  Nokia gives access to a musicØ  Usage Fee library for a subscription fee –  Generated by the use of a particular service –  The more the service is used, the more the customer pays –  Telecom operators charge by the minutes spent on the phone –  TCS charges customer for the delivery of a package from one location to anotherHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Ways to Generate Revenue StreamsØ  Lending/Renting/Leasing Ø  Licensing –  Created by temporarily granting –  Generated by giving customers someone the exclusive right to use permission to use protected a particular asset for a period of intellectual property in exchange time in return for a fee for licensing fees –  Renter enjoy the benefits of limited –  Allows rights holders to generate expenses rather than the full cost revenues from their property of ownership without having to manufacturing a product or commercialize a serviceØ  Brokerage Fees –  Most common in the media –  Derives revenue from industry, where content owners intermediation service performed keep the copyright while letting on behalf of two or more parties others use it –  Credit cards providers earn –  Technology companies also allow revenues by taking a percentage of other companies the right to use a the value of each sales transaction patented technology in return for a –  Brokers and real estate agents earn license fee a commission each time they successfully match a buyer and sellerHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Pricing Models Fixed “Menu” Pricing Dynamic PricingPredefined prices based on static variable Prices change based on market conditionsList Price Negotiation (Bargaining)Fixed prices for individual products, services or Price negotiated between two or more partnersother Value Propositions depending on negotiation power and/or negotiation skillsProduct Feature Dependent Yield ManagementPrice depends on the number or quality of Price depends on inventory and time ofValue Proposition features purchaseCustomer Segment Dependent Real-Time MarketPrice depends on the type and characteristic of Price is established dynamically based ona Customer Segment supply and demandVolume Dependent AuctionsPrice as a function of the quantity purchased Price determined by outcome of competitive biddingHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Key ResourcesHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Key ResourcesKey Resources defines the most important assets required to make a business modelwork. These resources allow an enterprise to create and offer a Value Proposition,reach markets, maintain relationships and earn revenues.HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Key ResourcesKey resources can be physical, financial, intellectual, or human. They can be owned orleased by the venture or acquired from key partners.HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • What Key Resources do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue Streams?HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Understanding Key ResourcesØ  Physical Ø  Intellectual –  Manufacturing facilities, –  Brands, proprietary knowledge, buildings, vehicles, machines, patents, copyrights, partnerships, systems, point of sale systems, and customer databases and distribution networks –  Difficult to develop but when –  Wal-Mart has an enormous global successfully created may offer network of stores and related substantial value logistics infrastructure –  Nike and Sony rely on brand –  Amazon.com has an extensive IT, –  Microsoft and SAP depend on warehouse, and logistics software and other intellectual infrastructure property –  Both are capital intensiveHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Understanding Key ResourcesØ  Human Ø  Financial –  Human resources are crucial in –  Some business models require knowledge-intensive and creative financial resources and/or industries financial guarantees, such as –  Professional services companies cash, lines of credit, or a stock rely heavily on human resources option pool for hiring key – without them business models employees would collapse –  This is very true for startups who don’t have capital, but a great idea or prototypeHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Key ActivitiesHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Key ActivitiesKey Activities are the most important things that a company must do to make itsbusiness model work. They are the most important actions to operate successfully.HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Key ActivitiesLike Key Resources, they are required to create and offer a Value Proposition, reachmarkets, maintain customer Relationships, and earn revenues. They differ dependingon business model type.HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • What Key Activities do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue Streams?HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Categories of Key ActivitiesØ  Production Ø  Platform/Network –  Designing, making and delivering –  Networks, matchmaking a product in substantial platforms, software and even quantities and/or of superior brands can function as a quality platform –  eBay’s business model requiresØ  Problem Solving that the company continually –  Coming up with new solutions to develop and maintain its individual customer problems platform – the website at –  Consultancies, hospitals and eBay.com other service organizations are –  Visa’s business model requires typically dominated by problem activities related to its Visa credit solving activities card transaction platform –  Microsoft’s business model requires managing the interface between other vendors’ software and WindowsHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Key PartnershipsHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Key PartnershipsKey Partnerships describe the network of suppliers and partners that make thebusiness model work.HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Key PartnershipsCompanies create partnerships for many reasons, and partnerships have become thecornerstone for the success of many business models. Companies create alliances tooptimize their business models, reduce risk, or acquire resources.HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Types of PartnershipsØ  We distinguish partnerships into 4 categories –  Strategic alliances between non-competitors –  Cooperation – strategic partnerships between competitors –  Joint ventures to develop new businesses –  Buyer-supplier relationships to assure reliable suppliesHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Who are our Key Partners? Who are our key suppliers? Which Key Resources are we acquiring from partners? Which Key Activities do partners perform?HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Motivations for Creating PartnershipsØ  Optimization and Economy of Scale Ø  Acquisition of Particular –  This is the most basic form of Resources and Activities partnership designed to optimize –  Few companies own all the the allocation of resources and resources or perform all the activities activities described in their –  It is not possible for a venture to business models own all resources or perform every –  Some extend their capabilities by activity by itself relying on other firms to furnish –  Done to reduce costs particular resources or perform certain activitiesØ  Reduction of Risk and Uncertainty –  These are motivated by needs to –  Help to reduce risk in a competitive acquire knowledge, licenses or environment characterized by access to customers uncertainty –  It is not unusual for competitors to form strategic alliance in one area while competing in another –  Blu-ray is an example of thisHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Cost StructureHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Cost StructureThe Cost Structure describes all costs incurred to operate a business model. Itdescribes the most important costs incurred while operating under a particularbusiness model.HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Cost StructureCreating and delivering value, maintaining Customer Relationships, and generatingrevenue all incur costs. Such costs can be calculated relatively easily after defining KeyResources, Key Activities, and Key Partnerships.HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive?HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Of course, costs should be minimized in every business model. But low Cost Structures are more important to some business models than to others.HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Broad Classes of Cost StructuresØ  Cost-Driven Ø  Value-Driven –  Focus on minimizing costs –  Less concerned with cost whenever possible implications of particular –  Aims to create and maintain the business model design and leanest possible Cost Structure, instead of focus on value using low price Value creation Propositions, maximum –  Premium Value Propositions and automation, and extensive a high degree of personalized outsourcing service usually characterize –  No frills – Southwest, easyJet and value-driven business models Ryanair – are great examples of –  Luxury hotels fall into this cost-driven business models categoryHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Characteristics of Cost StructuresØ  Fixed Costs Ø  Economies of Scale –  Costs that remain the same –  Cost advantages that a business despite the volume of goods or gains as its output increases services produced –  Large companies benefit from –  Salaries, rents, physical bulk rates manufacturing facilities –  This affects average cost per unit to fall as output risesØ  Variable Costs –  Costs that vary proportionally Ø  Economies of Scope with the volume of goods or –  Cost advantages that a business services produced gains due to larger scope of –  Businesses like festivals are operations characterized by a high –  When one marketing or proportion of variable costs distribution department supports many products, companies or servicesHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Writing the Business ModelHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
  • Business Model CanvasHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
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  • Efficiency ValueHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED