Building a business model
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Building a business model

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Describes the concepts of a Value Network, the Osterwalder Canvas Model and the absolute basics of a financial plan in order to build a viable business model

Describes the concepts of a Value Network, the Osterwalder Canvas Model and the absolute basics of a financial plan in order to build a viable business model

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Building a business model Building a business model Presentation Transcript

  • A passionatetalk on building a business model
    Lightbulb Sessions II - Erik Vanhauwaert
  • New business / product / service
    - “Is this a profitable venture?”
    ?
    ?
    ?
    ?
    ?
    ?
    ?
    ?
    Can I make money with this?
  • Definition
    Business Model
    Linked to a (set of) products/services!
    ≠ Business Strategy
    Long term, broader scope
    ≠ Business Plan
    Implementation plan with financial evaluation
    “ describes how one creates, delivers and capturesvalue ”
  • Road guide to the money question
    3 frameworks that don’t give you answers, but that let you ask the right questions.
    i. Value Network
  • Value Network
    An eco-system of actors, which perform roles and who interact with others.
    Use:
    Identify all roles
    Identify possible actors
    Map actors on roles
    Indicate required interactions
  • Value Network
    Goal:
    Think about different configurations
    Are all roles fulfilled by a happy actor?
    Example 1: the anvil
    Finds resourcesBuilds anvilsGets paid
    Gets anvil
    Pays
    Delivery
    Create
    Buy & use

    Payment

    Instructions
    Company X
    Blacksmiths
  • Value Network
    Example 2:
    WebCo designs a site for clients to sell their products online, for a margin on the sales.
    Create site
    Buy product
    WebCo
    Consumers
    Payment
    Delivery
    Product info
    Margin share
    Handle sales
    Provide product
    Company X
  • Road guide to the money question
    ii. Canvas Model (Österwalder)
    i. Value Network
  • Business Model Canvas
    What?
    How?
    Who?
    $?
  • Business Model Canvas
    Price?Performance?Design?Newness?…
    Product OfferorValue Proposition
    How?
    Who?
    $?
  • Business Model Canvas
    Mass Market?Segmented?Multi-sided?Diversified?

    Product Offer
    How?
    CustomerSegments
    $?
  • Business Model Canvas
    AwarenessEvaluationPurchaseDeliveryAfter-sale
    Product Offer
    How?
    CustomerSegments
    DistributionChannel
    $?
  • Business Model Canvas
    CRM
    Self-service?Personal assistance?
    Community?…
    Product Offer
    How?
    CustomerSegments
    DistributionChannel
    $?
  • Business Model Canvas
    CRM
    Product Offer
    How?
    Sale?Pay per use?
    Lease?License?…
    CustomerSegments
    DistributionChannel
    RevenueStreams
  • Business Model Canvas
    PhysicalHumanIntellectualFinancial
    CRM
    Product Offer
    CustomerSegments
    KeyResources
    DistributionChannel
    RevenueStreams
  • Business Model Canvas
    CRM
    ProductionProblem SolvingPlatform or network
    Product Offer
    KeyActivities
    CustomerSegments
    KeyResources
    DistributionChannel
    RevenueStreams
  • Business Model Canvas
    ResourcesRisk reductionEconomy of scale
    CRM
    Product Offer
    KeyActivities
    Key Partners
    CustomerSegments
    KeyResources
    DistributionChannel
    RevenueStreams
  • Business Model Canvas
    CRM
    Product Offer
    Cost vs. value drivenFixed vs. variableEconomies of scale & scope
    KeyActivities
    Key Partners
    CustomerSegments
    KeyResources
    DistributionChannel
    RevenueStreams
    Cost Structure
  • Business Model Canvas
    Detail of one actor in the Value Network
    CRM
    Product Offer
    KeyActivities
    Key Partners
    CustomerSegments
    KeyResources
    DistributionChannel
    RevenueStreams
    Cost Structure
  • Example: Apple
    CustomerSegments
    CRM
    KeyActivities
    Key Partners
    Product Offer
    Lovemark
    HW & SW design
    Record companies
    Seamless music experience
    Switching costs
    Marketing
    Mass market
    OEMs
    DistributionChannel
    KeyResources
    Apple brand
    People
    apple.com
    iPod hardware
    Retail stores
    Content and agreements
    iTunes store
    iTunes
    RevenueStreams
    Cost Structure
    Large hardware revenues
    Some music revenues
    People
    Marketing
    Manufacturing
  • Road guide to the money question
    iii. Business Plan
    ii. Canvas Model
    i. Value Network
  • Business Plan
    Internal planning + financial evaluation of Business Model
    CRM
    Product Offer
    KeyActivities
    Key Partners
    CustomerSegments
    KeyResources
    DistributionChannel
    RevenueStreams
    Cost Structure
  • Business Plan
    VISION
    What is the goal of the business?
    STRATEGY
    How will you reach it?
    Operations
    Legal
    Marketing
    Human Resources
    Financial
    PLANNING
    Plan of action, based on assumptions & estimates
  • Financial Business Plan
    - Costs
    Serve to create your product and sell your product  minimize costs
    + Revenues
    = price * amount sold  optimize price
    = Profit (loss)
    What is earned from the product  maximize profit
  • Financial / Accounting
    Company A:
    Creates anvils monthly for $1.000 and sells them for $800
    Has $10.000 in cash and is debt-free.
    Company B
    Creates anvils monthly for $1.000 and sells them for $1.200
    Has $5.000 in cash, but has a debt of $10.000 that expires next year
    Which company do you invest in?
  • Financial / Accounting
    Company A:
    Creates anvils monthly for $1.000 and sells them for $800
    Has $10.000 in cash and is debt-free.
    Next year: $10.000 - $12.000 + $9.600 = $7.600 of cash
    Company B
    Creates anvils monthly for $1.000 and sells them for $1.200
    Has $5.000 in cash, but has a debt of $10.000 that expires next year
    Next year: $5.000 - $12.000 - $10.000 + $14.400 = - $2.600 of cash
    • The bank may force bankruptcy on company B and seize its assets.
    • CASH = KING
  • Profit vs Cash
    Profit = accounting term
    Costs & revenues are recognized on a specific date, which may not be the actual data of cash exchange!
    “Kosten” & “opbrengsten” vs. “uitgaven” & “inkomsten”
    E.g. I sell a car today
    = recognized revenue of 20.000EUR today
     Actual payment could be 2 months from now
  • Making a profit while losing cash
    Process:
    Buy raw materials = cash out
    Process materials into product = cash out
    Store finished goods = cash out
    Sale contract = official income realized (profit)
    Cash payment possibly 1-3 months later = cash in
    Specifically in times of rapid growth
    First three steps continuously demand more cash
    Each product sold at a profit, but still a cash drain
  • Cash Flow Model
    Part 1: Assumptions
    Estimates of all costs
    Estimate of consumer price
    Estimate of # goods sold (monthly, quarterly,…)
  • Estimate costs – what costs?
    Several phases in launching a product/service
    Company start-up? Legal requirement & costs
    Planning: decide what/how/when to act
    Design & implementation: preparations
    Operational phase: produce, sell & provide support
     Don’t forget to take all of these into account
  • Revenues
    First test: Break-even analysis
    Revenues


    Total cost
    Variable

    e.g. raw materials
    Fixed
    e.g. rent
    Break-even
    # products produced & sold
  • Timing issue
    Time = money, literally
    $1.000 today = $1.050 next year (5% interest rate)
    $1.000 next year = $952 today
    Ideally, we have a more detailed model of incoming and outgoing money
     use a spreadsheet
    Valuet+n = Valuet * (1+rate)n
  • Cash Flow Model
    Part 1: Assumptions
    Estimates of all costs
    Estimate of consumer price
    Estimate of # goods sold (monthly, quarterly,…)
    Part 2: Time chart
    A row for each type of cost/revenue
    Production ≠ sale
    Sale ≠ immediate cash input
  • Example result
    Payback period
    How much money do I need to have/loan
  • Scenario analysis : e.g. price -25%
  • Conclusion
    iii. Business Plan
    ii. Canvas Model
    i. Value Network
    How will I organize myself?How do I earn / spend money?
  • Conclusion
    iii. Business Plan
    Who could/should be involved?What do they do?
    ii. Canvas Model
    i. Value Network
  • Conclusion
    iii. Business Plan
    ii. Canvas Model
    How much do I need to sell at what price to become profitable?
    i. Value Network