Entrepreneurship and Small Business Management Lecture 5

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Entrepreneurship and Small
Business Management

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Chapter 4:
Developing an Effective
Business Model

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Learning Objectives
 Describe business models and discuss
their importance.
 Identify and describe the two general
types of business models—standard and
disruptive business models.

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Learning Objectives
 Explain the components of the Barringer/
Ireland Business Model Template that
entrepreneurs can use to develop a
business model for their firm.

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 A firm’s business model is its plan or
process for how it creates, delivers,
and captures value for its
stakeholders.
 A firm’s business model represents
the core aspects of its business.
Business models and their
importance.

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 Initial Validation of Business Business
Idea
 Preparation of Business Model
 Operating the firm
How determine a firm’s
Business Model

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 There are two general categories of
A. Standard business models
B. Disruptive business models
General categories of business
models

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 This type of model is used commonly by
existing firms as well as by those launching
an entrepreneurial venture.
 Standard business models depict existing
plans to determine how they will create,
deliver, and capture value for stakeholders.
Standard business models

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 In fact, many of the business models
utilized by online firms were originally
developed by offline firms, and simply
transferred to the Internet.
 For example, Amazon did not invent a new
business model. It took the mail order
business model, pioneered years ago by
Sears Roebuck and Company, and moved it
online.
Standard business models

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 What Amazon.com did do, however, which
is common among successful, is adopt a
standard business model and build upon it
in one or more meaningful ways to produce
a new way of creating value.
 Advertising Business Model (Business model based
on providing advertisers access to highly targeted customer).
Standard business models

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 Franchise Business Model (A business model in
which a firm that has a successful product or service (franchisor)
licenses its trademark and method of doing business to other
businesses (franchisees).
Standard business models

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 Disruptive business model disrupts/change
the market by addressing to those demands
which the current industry has failed to
deliver.
Disruptive business models

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 New market disruption
Address a market that previously wasn’t served. Example
Google and its AdWords program. AdWords allows an advertiser
to buy keywords on Google’s home page, AdWords was a new
market-disruptive business model in that it provided a way for
small businesses, in large numbers, to advertise online.
Types of Disruptive business
models

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 Low-end market disruption
Low-end disruptive business models are also introduced to offer
a simpler, cheaper, or more convenient way to perform an
everyday task. Example, Uber not only offers a cheaper and
more convenient way to perform an everyday task .
Types of Disruptive business
models (conti..)

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 Core strategy (Business Mission, Target market and
Product scope)
 Resources (Core Competency, key Assets)
 Financials (Cost structure, Financing/funding)
 Operations (Production, supply channels)
Barringer/ Ireland Business
Model Template