In a nutshell: What is a Business Model
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The document discusses the difference between a business model and a business plan. A business model focuses on identifying the customer, what the customer values, how the business will make money, and the underlying economic logic. It reveals the largest income generator and services customers value. In contrast, a business plan provides business details, marketing strategy, financial projections, and goals to support the business model. Together, the business model acts as a blueprint and foundation, while the business plan serves as a roadmap for bringing the business idea to fruition.
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In a nutshell: What is a Business Model
- 2. What is a Business Model? What is a Business Plan? How does the Business Model and Plan work together? Agenda
- 3. What is a Business Model?
- 4. busi·ness mod·el noun a design for the successful operation of a business, identifying revenue sources, customer base, products, and details of financing.
- 5. Who is the customer? What does the customer value? How do we make money in this business? What is the underlying economic logic? Business Model Reveals
- 6. Focuses on the largest income generator Determines the services that customers value Identifies how business makes money Business Model V
- 7. Business Model: Example The business model reflects the sale of groceries to the customer, which generates income at the time of the customer’s purchase. GROCERY STORE PRIME INCOME GENERATOR Groceries Lottery Check cashing
- 8. Harvard Business Review Case Example
- 9. What is a Business Plan?
- 10. Business Plan Business Plan Provides business details Explains needed equipment and staff Explains marketing strategy Explains the financial stability Focuses on business goals Supports the business model
- 11. Where are we now? Where do we want to be? How are we going to get there? Business Plan: Requisite A business plan is usually developed around the answers to three common questions:
- 12. To test the feasibility of business idea Business Plan: Requisite A business plan is written for one or more of these five reasons: To develop strategies ahead of time To get funding, such as a bank loan To attract investors To have a roadmap to follow
- 13. How does the Business Model and Planwork together?
- 15. Business Model and Business Plan: Components Business Model: A blueprint Business Plan: A roadmap Business concept Value chain position Marketing Plan Customer value Revenue sources and cost drivers Startup Expenses Management and Organization Competitive advantage Products and Services Operational Plan
- 16. Business Model and Business Plan: Importance Business idea Company Customers This Doesn’t imply this
- 17. Business Model and Business Plan: Importance Business Model Business Plan Successful Business
- 18. Business Model: Examples McDonald’s MailChimp eBay Netflix Allstate Evernote Airbnb Salesforce Planet Fitness LinkedIn Amazon Comcast Franchise Freemium Marketplace Subscription
- 19. Reflection Do you have a clear Business Model
Editor's Notes
- INTRODUCTION SLIDE
- busi·ness mod·el noun a design for the successful operation of a business, identifying revenue sources, customer base, products, and details of financing. "many of the free sites have either shifted their business model or have gone out of business completely" A good business model is a story “ They are, at heart, stories—stories that explain how enterprises work”
- A business model answers these fundamental questions Who is the customer? And what does the customer value? How do we make money in this business? What is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost?
- Your small business’ business model ascertains how your business makes money. It identifies the services that your customers value and shows the reciprocation of funds for the services your small business renders to your customers. Of course, your small business may have more than one method of generating income. Still, the business model simplifies the money process by focusing on the largest income generator.
- Example: For instance, a grocery store sells many items. It may also provide additional services, such as lottery and check cashing. The business model only recognizes the majority income generator, which is the sale of grocery inventory. Therefore, the business model will reflect the sale of groceries to the customer, which generates income at the time of the customer’s purchase.
- Consider the story behind one of the most successful business models of all time: that of the traveler’s check. During a European vacation in 1892, J.C. Fargo, the president of American Express, had a hard time translating his letters of credit into cash. “The moment I got off the beaten path,” he said on his return, “they were no more use than so much wet wrapping paper. If the president of American Express has that sort of trouble, just think what ordinary travelers face. Something has got to be done about it.”1 What American Express did was to create the traveler’s check—and from that innovation evolved a robust business model with all the elements of a good story: precisely delineated characters, plausible motivations, and a plot that turns on an insight about value. The story was straightforward for customers. In exchange for a small fee, travelers could buy both peace of mind (the checks were insured against loss and theft) and convenience (they were very widely accepted). Merchants also played a key role in the tale. They accepted the checks because they trusted the American Express name, which was like a universal letter of credit, and because, by accepting them, they attracted more customers. The more other merchants accepted the checks, the stronger any individual merchant’s motivation became not to be left out. As for American Express, it had discovered a riskless business, because customers always paid cash for the checks. Therein lies the twist to the plot, the underlying economic logic that turned what would have been an unremarkable operation into a money machine. The twist was float. In most businesses, costs precede revenues: Before anyone can buy your product, you’ve got to build it and pay for it. The traveler’s check turned the cycle of debt and risk on its head. Because people paid for the checks before (often long before) they used them, American Express was getting something banks had long enjoyed—the equivalent of an interest-free loan from its customers. Moreover, some of the checks were never cashed, giving the company an extra windfall.
- The business plan provides the details of your business. It takes the focus of the business model and builds upon it. It explains the equipment and staff needed to meet the details of the business model. It also explains the marketing strategy of your small business, or how your business will attract and retain customers, and deal with the competition. Furthermore, the business plan explains the financial stability of your small business at a particular point in time, as well as in the forecasted future. Overall, the business plan supports the business model and explains the steps needed to achieve the goals of that model. The business plan is completely dependent upon the business model. If you change the business model, you will also need to change the business plan.
- A business plan is usually developed around the answers to three common questions: Where are we now? Where do we want to be? How are we going to get there?
- And is usually written for one or more of these five reasons: To test the feasibility of your business idea and work out any bugs on paper first. To develop strategies ahead of time for marketing, finance, operation and human resources, instead of when you’re in the fast-paced start-up stage. To get funding, such as a bank loan. To attract investors. To have a roadmap to follow for at least the first year in business.
- What is the difference between a business model and a business plan ? The U.S. Small Business Administration refers to the business model as a company’s foundation and the business plan as its structure. The foundation, or business model, is the original idea for your business and a general description of how it functions. The structure, or business plan, elaborates on the details of your business idea. The business model is a blueprint for the business, outlining how you’re going to run your business, and how you’re going to make money. A business plan is a formal written document that includes a description of the business you want to run, your business goals, and the plan for reaching those goals.
- Where a business model is a blueprint, a business plan is a roadmap. There are five elements of a business model: Business concept: A short description of an opportunity, including a description of your average customer; the benefit of your product or service to the customer; the product or service; and the way you’re going to get your product or service to the customer. Value chain position: Your business’ position on the chain of activities through which products and services pass to get from you all the way to the end user. Calculating customer value: An estimate of the value of the tangible benefits your customers will receive by purchasing your product or service. Revenue sources and cost drivers: Identifying your sources of revenue, and activities that come at a cost. Competitive advantage: The state when customers perceive your products or services to be superior to your competition. Business plan A business plan is a detailed document that contains sections such as: Marketing Plan, Startup Expenses and Capitalization, Management and Organization Products and Services, and Operational Plan
- Why does your small business need both a business model and a business plan? It’s easy to come up with business ideas, but just because you build a company, that doesn’t mean customers will come. A great deal of time and effort should be spent planning before your new company’s products and services ever reach the market. You need a good foundation and planning before you invest all your time and money.
- Why does your small business need both a business model and a business plan? It’s easy to come up with business ideas, but just because you build a company, that doesn’t mean customers will come. A great deal of time and effort should be spent planning before your new company’s products and services ever reach the market. You need a good foundation and planning before you invest all your time and money.
- Often when you are thinking about a business, you are really thinking about the business model. Some examples of business models that you may have heard of. Franchise: McDonald’s, Allstate, Planet Fitness Freemium: MailChimp, Evernote, LinkedIn Marketplace: eBay, Airbnb, Amazon Subscription: Netflix, Salesforce, Comcast
- Things to think about: Do you have a clear business model? If not, click this link to take a quiz to find out what is missing from your business model.