APS1015H Class 5 - Business Modelling and Assessing Business Potential for Social Enterprise


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This lecture focuses on providing an overview of the business modeling process. Students will apply this concept to building a business model around their entrepreneurial idea.

Students will be exposed to methods for evaluating the “business potential” of their entrepreneurial idea, and evaluate some of the challenges associated with synthesizing market data and applying this data to business decisions.


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APS1015H Class 5 - Business Modelling and Assessing Business Potential for Social Enterprise

  1. 1. APS 1015H: Social Entrepreneurship Class 5: Business Modeling and Assessing Business Potential for Social Enterprise Wednesday, October 12, 2011Instructors:Norm Tasevski (norm@socialentrepreneurship.ca)Karim Harji (karim@socialentrepreneurship.ca) 1
  2. 2. © Norm Tasevski & Karim Harji
  3. 3. © Norm Tasevski & Karim Harji
  4. 4. © Norm Tasevski & Karim HarjiAgenda•  Centre for Social Innovation•  Idea Jam – Recap•  Business modeling your social venture•  Assessing business potential•  What did we learn – Today?•  Next week 4
  5. 5. © Norm Tasevski & Karim HarjiRecap 5
  6. 6. Business Modelling for SocialEnterprise… 6
  7. 7. © Norm Tasevski & Karim HarjiA Caveat… When we business model for social enterprise, we focus on the “business”, not the “social”… But don’t worry, we will come back to the “social” later… 7
  8. 8. © Norm Tasevski & Karim HarjiA Second Caveat… “Business   “Business Form/Legal   Model” Structure”   8
  9. 9. © Norm Tasevski & Karim HarjiA Third Caveat… “Business “Business   Model” Plan”   Business  Model  1st!!!   (Business  Plan  2nd)   9
  10. 10. Why business model 1st and plan 2nd? 10
  11. 11. © Norm Tasevski & Karim HarjiBecause…It is a cure for “We Need a Plan-itis” 11
  12. 12. © Norm Tasevski & Karim HarjiAnd…It is a Quick way to assess Profitability/Sustainability –  Why spend months building a plan if you don’t have a real sense of profitability/sustainability? –  If your model doesn’t make money, even with the most ideal conditions… …STOP! (…and rethink your business model) 12
  13. 13. © Norm Tasevski & Karim HarjiOne More…It breaks down highly complex business ideas intoeasily digestible (and visual) chunks –  Gets to the heart of what you need to know to: Make a Go No- Go Decision Set Strategy Make Potential Investors/funders (and business partners) Happy :) 13
  14. 14. Business Plans Business ModelsAre big and complex Are small and visual (often 50-100+ pages) (1 page with about 10 supporting pages)Cover many topics Focus on a few topics(business description, financials,marketing strategy, HR strategy, (Will you make $$? How do theOperations Strategy management team, pieces fit together?)etc, etc, etc)Take weeks/months to Take a few days (possiblycreate hours) to create Are necessary for Feed the business plan!! investors, funders, business partners, etc 14
  15. 15. © Norm Tasevski & Karim HarjiOur Goal for Today We’ll be building business models for YOUR business idea… 15
  16. 16. © Norm Tasevski & Karim Harji 16
  17. 17. © Norm Tasevski & Karim HarjiSome Definitions•  “A business model describes the rationale of how an organization creates, delivers and captures value – economic, social, or other forms of value” Wikipedia•  “A description of the means and methods a firm employs to earn the revenue projected in its plans. It views the business as a system and answers the question, “How are we going to make money to survive and grow?” BusinessDictionary.com•  “A business model describes the specific way the business expects to make money. While a business plan is on paper (lots of paper!) a business model should be small enough to stay in the heads of the owner and staff. If a business model is on paper, it should be one page, and it would be more clearly shown as a diagram than as words.” AudienceDialogue.net 17
  18. 18. © Norm Tasevski & Karim Harji 18
  19. 19. © Norm Tasevski & Karim HarjiCustomer SegmentsWhat you need to care about is…–  Customer “Pain”–  Difference between a “customer” and a “client” 19
  20. 20. © Norm Tasevski & Karim HarjiEmpathy Mapping
  21. 21. © Norm Tasevski & Karim Harji Who are your customers?What does their Empathy map look like? 21
  22. 22. © Norm Tasevski & Karim HarjiValue Proposition (the “Offer”)What you need to care about is…–  The “value” you are creating for customers (in terms of products/services), and the “pain” you are alleviating–  An exchange of value 22
  23. 23. © Norm Tasevski & Karim HarjiQuick… What is the last thing you bought? 23
  24. 24. © Norm Tasevski & Karim HarjiCustomer Utility 24
  25. 25. © Norm Tasevski & Karim HarjiWhat is your value proposition? 25
  26. 26. © Norm Tasevski & Karim HarjiChannelsWhat you need to care about is…–  How the customer receives the offer/value prop–  The physical “movement” of the offer into the hands of the customer 26
  27. 27. © Norm Tasevski & Karim HarjiRelationshipsWhat you need to care about is…–  Personal and impersonal interaction with the customer–  The “movement” of information (e.g. marketing, communication) 27
  28. 28. © Norm Tasevski & Karim Harji What Channels will you use?What relationships will you make with your customers? 28
  29. 29. © Norm Tasevski & Karim HarjiRevenue StreamsWhat you need to care about is…–  Cash!!! (specifically, how cash flows into the enterprise) – “Money In”–  Pricing models 29
  30. 30. © Norm Tasevski & Karim HarjiKey ResourcesWhat you need to care about is…–  Assets…–  …and how these assets create value–  Includes human, physical, intellectual, and financial resources 30
  31. 31. © Norm Tasevski & Karim HarjiKey ActivitiesWhat you need to care about is…–  Actions (specifically, the actions you plan to take to generate value)–  Both “direct” and “indirect” 31
  32. 32. © Norm Tasevski & Karim HarjiWhat are your key activities?What are your key resources? 32
  33. 33. Break 33
  34. 34. © Norm Tasevski & Karim HarjiKey PartnersWhat you need to care about is…–  People/organizations that are integral to enabling you to do business–  How you partner, and what you partner on 34
  35. 35. What makes a good partnership? 35
  36. 36. © Norm Tasevski & Karim Harji A Common Commitment Vision! to Invest in the Partnership!Same CoreValues! Discreet Missions! 36
  37. 37. © Norm Tasevski & Karim HarjiWho do you need to partner with? 37
  38. 38. © Norm Tasevski & Karim HarjiCost StructureWhat you need to care about is…–  Fixed costs, variable costs, economies of scale…“money out”–  At this stage, focus on your cost assumptions! (don’t worry about actual $$) 38
  39. 39. © Norm Tasevski & Karim Harji 39
  40. 40. So…whatdoes acompletedBusinessModelLookLike??? 40
  41. 41. © Norm Tasevski & Karim Harji Lending and Personal collecting $$ s $$ MicroloanGovernment BOP rs Entrepreneu Branches -Branches -Brand -Capital -People Interest rates ts-Capital Cos 41
  42. 42. © Norm Tasevski & Karim HarjiTip…•  Be a Business Model “Alchemist” – You need to go through the business model process many times in order to figure out which model best fits 42
  43. 43. © Norm Tasevski & Karim Harji“Sticky Ideation”… What we know! What we Don’t Know! Bridging the Gap! ! (turning what we don’t know into what we know)! 43
  44. 44. Assessing Social Enterprise BusinessPotential… 44
  45. 45. © Norm Tasevski & Karim HarjiA Caveat… When we assessbusiness potential, …we also carewe don’t just care about… about… …and… 45
  46. 46. © Norm Tasevski & Karim HarjiOur Strategy…1.  Assuming the perfect scenario, does our business model generate money?If yes…2.  Does the model still make money once real world conditions are factored in? 46
  47. 47. © Norm Tasevski & Karim HarjiWhat is a “Perfect” Scenario? –  Porter’s 5 Forces line up perfectly (i.e. low to no entry barriers) –  You operate absolutely efficiently (e.g. resources used to their maximum capacity) –  The business runs flawlessly (i.e. no mistakes are made anywhere along the value chain) 47
  48. 48. © Norm Tasevski & Karim HarjiWhy Use a “Perfect” Scenario?Most Importantly: –  If you can’t make money even with the most ideal conditions… …STOP! (…and rethink your business model)Also: –  The perfect scenario is often the easiest to build a financial model from –  It provides a baseline – All other scenarios can be measured against this ideal case 48
  49. 49. Ready?… 49
  50. 50. © Norm Tasevski & Karim HarjiStep 1:Identify Cost Drivers and Revenue Sources! 50
  51. 51. © Norm Tasevski & Karim HarjiStep 2:Calculate your margin! -???! -???! 51
  52. 52. © Norm Tasevski & Karim HarjiWhat Do You Need To Calculate YourMargin? Data!!!! 52
  53. 53. © Norm Tasevski & Karim HarjiData Sources Call key industry players (suppliers, competitors, etc) Search databases (industry, scholastic, etc) Ask people!!! Conduct web search (friends, potential customers, etc) 53 (Google, etc)
  54. 54. © Norm Tasevski & Karim HarjiA point on “asking people”…There are… Lovers Haters Don’t give a %&$#ers Listen to HALF of what they say!!! 54
  55. 55. © Norm Tasevski & Karim HarjiWhat did we learn? 55