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

Published in: Business, Economy & Finance

Building a business model

  1. 1. A passionatetalk on building a business model<br />Lightbulb Sessions II - Erik Vanhauwaert<br />
  2. 2. New business / product / service<br />- “Is this a profitable venture?”<br />?<br />?<br />?<br />?<br />?<br />?<br />?<br />?<br />Can I make money with this?<br />
  3. 3. Definition<br />Business Model<br />Linked to a (set of) products/services!<br />≠ Business Strategy<br />Long term, broader scope<br />≠ Business Plan<br />Implementation plan with financial evaluation<br />“ describes how one creates, delivers and capturesvalue ”<br />
  4. 4. Road guide to the money question<br />3 frameworks that don’t give you answers, but that let you ask the right questions.<br />i. Value Network<br />
  5. 5. Value Network<br />An eco-system of actors, which perform roles and who interact with others.<br />Use:<br />Identify all roles<br />Identify possible actors<br />Map actors on roles<br />Indicate required interactions<br />
  6. 6. Value Network<br />Goal:<br />Think about different configurations<br />Are all roles fulfilled by a happy actor?<br />Example 1: the anvil<br />Finds resourcesBuilds anvilsGets paid<br />Gets anvil<br />Pays<br />Delivery<br />Create <br />Buy & use<br /><br />Payment<br /><br />Instructions<br />Company X<br />Blacksmiths<br />
  7. 7. Value Network<br />Example 2:<br />WebCo designs a site for clients to sell their products online, for a margin on the sales.<br />Create site <br />Buy product<br />WebCo<br />Consumers<br />Payment<br />Delivery<br />Product info<br />Margin share<br />Handle sales<br />Provide product<br />Company X<br />
  8. 8. Road guide to the money question<br />ii. Canvas Model (Österwalder)<br />i. Value Network<br />
  9. 9. Business Model Canvas<br />What?<br />How?<br />Who?<br />$?<br />
  10. 10. Business Model Canvas<br />Price?Performance?Design?Newness?…<br />Product OfferorValue Proposition<br />How?<br />Who?<br />$?<br />
  11. 11. Business Model Canvas<br />Mass Market?Segmented?Multi-sided?Diversified?<br />…<br />Product Offer<br />How?<br />CustomerSegments<br />$?<br />
  12. 12. Business Model Canvas<br />AwarenessEvaluationPurchaseDeliveryAfter-sale<br />Product Offer<br />How?<br />CustomerSegments<br />DistributionChannel<br />$?<br />
  13. 13. Business Model Canvas<br />CRM<br />Self-service?Personal assistance?<br />Community?…<br />Product Offer<br />How?<br />CustomerSegments<br />DistributionChannel<br />$?<br />
  14. 14. Business Model Canvas<br />CRM<br />Product Offer<br />How?<br />Sale?Pay per use?<br />Lease?License?…<br />CustomerSegments<br />DistributionChannel<br />RevenueStreams<br />
  15. 15. Business Model Canvas<br />PhysicalHumanIntellectualFinancial<br />CRM<br />Product Offer<br />CustomerSegments<br />KeyResources<br />DistributionChannel<br />RevenueStreams<br />
  16. 16. Business Model Canvas<br />CRM<br />ProductionProblem SolvingPlatform or network<br />Product Offer<br />KeyActivities<br />CustomerSegments<br />KeyResources<br />DistributionChannel<br />RevenueStreams<br />
  17. 17. Business Model Canvas<br />ResourcesRisk reductionEconomy of scale<br />CRM<br />Product Offer<br />KeyActivities<br />Key Partners<br />CustomerSegments<br />KeyResources<br />DistributionChannel<br />RevenueStreams<br />
  18. 18. Business Model Canvas<br />CRM<br />Product Offer<br />Cost vs. value drivenFixed vs. variableEconomies of scale & scope<br />KeyActivities<br />Key Partners<br />CustomerSegments<br />KeyResources<br />DistributionChannel<br />RevenueStreams<br />Cost Structure<br />
  19. 19. Business Model Canvas<br />Detail of one actor in the Value Network<br />CRM<br />Product Offer<br />KeyActivities<br />Key Partners<br />CustomerSegments<br />KeyResources<br />DistributionChannel<br />RevenueStreams<br />Cost Structure<br />
  20. 20. Example: Apple<br />CustomerSegments<br />CRM<br />KeyActivities<br />Key Partners<br />Product Offer<br />Lovemark<br />HW & SW design<br />Record companies<br />Seamless music experience<br />Switching costs<br />Marketing<br />Mass market<br />OEMs<br />DistributionChannel<br />KeyResources<br />Apple brand<br />People<br />apple.com<br />iPod hardware<br />Retail stores<br />Content and agreements<br />iTunes store<br />iTunes<br />RevenueStreams<br />Cost Structure<br />Large hardware revenues<br />Some music revenues<br />People<br />Marketing<br />Manufacturing<br />
  21. 21. Road guide to the money question<br />iii. Business Plan<br />ii. Canvas Model<br />i. Value Network<br />
  22. 22. Business Plan<br />Internal planning + financial evaluation of Business Model<br />CRM<br />Product Offer<br />KeyActivities<br />Key Partners<br />CustomerSegments<br />KeyResources<br />DistributionChannel<br />RevenueStreams<br />Cost Structure<br />
  23. 23. Business Plan<br />VISION<br />What is the goal of the business?<br />STRATEGY<br />How will you reach it?<br />Operations<br />Legal<br />Marketing<br />Human Resources<br />Financial<br />PLANNING<br />Plan of action, based on assumptions & estimates<br />
  24. 24. Financial Business Plan<br />- Costs<br />Serve to create your product and sell your product  minimize costs<br />+ Revenues<br />= price * amount sold  optimize price<br />= Profit (loss)<br />What is earned from the product  maximize profit<br />
  25. 25. Financial / Accounting<br />Company A:<br />Creates anvils monthly for $1.000 and sells them for $800<br />Has $10.000 in cash and is debt-free.<br />Company B<br />Creates anvils monthly for $1.000 and sells them for $1.200<br />Has $5.000 in cash, but has a debt of $10.000 that expires next year<br />Which company do you invest in?<br />
  26. 26. Financial / Accounting<br />Company A:<br />Creates anvils monthly for $1.000 and sells them for $800<br />Has $10.000 in cash and is debt-free.<br />Next year: $10.000 - $12.000 + $9.600 = $7.600 of cash<br />Company B<br />Creates anvils monthly for $1.000 and sells them for $1.200<br />Has $5.000 in cash, but has a debt of $10.000 that expires next year<br />Next year: $5.000 - $12.000 - $10.000 + $14.400 = - $2.600 of cash<br /><ul><li>The bank may force bankruptcy on company B and seize its assets.
  27. 27. CASH = KING</li></li></ul><li>Profit vs Cash<br />Profit = accounting term<br />Costs & revenues are recognized on a specific date, which may not be the actual data of cash exchange!<br />“Kosten” & “opbrengsten” vs. “uitgaven” & “inkomsten”<br />E.g. I sell a car today<br />= recognized revenue of 20.000EUR today<br /> Actual payment could be 2 months from now<br />
  28. 28. Making a profit while losing cash<br />Process:<br />Buy raw materials = cash out<br />Process materials into product = cash out<br />Store finished goods = cash out<br />Sale contract = official income realized (profit)<br />Cash payment possibly 1-3 months later = cash in<br />Specifically in times of rapid growth<br />First three steps continuously demand more cash<br />Each product sold at a profit, but still a cash drain<br />
  29. 29. Cash Flow Model<br />Part 1: Assumptions<br />Estimates of all costs<br />Estimate of consumer price<br />Estimate of # goods sold (monthly, quarterly,…)<br />
  30. 30. Estimate costs – what costs?<br />Several phases in launching a product/service<br />Company start-up? Legal requirement & costs<br />Planning: decide what/how/when to act<br />Design & implementation: preparations<br />Operational phase: produce, sell & provide support<br /> Don’t forget to take all of these into account<br />
  31. 31. Revenues<br />First test: Break-even analysis<br />Revenues<br />€<br /><br />Total cost<br />Variable<br /><br />e.g. raw materials<br />Fixed<br />e.g. rent<br />Break-even<br /># products produced & sold<br />
  32. 32. Timing issue<br />Time = money, literally<br />$1.000 today = $1.050 next year (5% interest rate)<br />$1.000 next year = $952 today<br />Ideally, we have a more detailed model of incoming and outgoing money<br /> use a spreadsheet<br />Valuet+n = Valuet * (1+rate)n<br />
  33. 33. Cash Flow Model<br />Part 1: Assumptions<br />Estimates of all costs<br />Estimate of consumer price<br />Estimate of # goods sold (monthly, quarterly,…)<br />Part 2: Time chart<br />A row for each type of cost/revenue<br />Production ≠ sale<br />Sale ≠ immediate cash input<br />
  34. 34. Example result<br />Payback period<br />How much money do I need to have/loan<br />
  35. 35. Scenario analysis : e.g. price -25%<br />
  36. 36. Conclusion<br />iii. Business Plan<br />ii. Canvas Model<br />i. Value Network<br />How will I organize myself?How do I earn / spend money?<br />
  37. 37. Conclusion<br />iii. Business Plan<br />Who could/should be involved?What do they do?<br />ii. Canvas Model<br />i. Value Network<br />
  38. 38. Conclusion<br />iii. Business Plan<br />ii. Canvas Model<br />How much do I need to sell at what price to become profitable?<br />i. Value Network<br />

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