Building a Business Model

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Speaker: Don Duval, Vice President, Business Services, MaRS

Using a case study example, Don discusses the importance of understanding and refining your business model in order to grow your business and maintain a sustainable competitive advantage in the marketplace.

Part of the MaRS CIBC Presents Entrepeneurship 101 lecture series: http://www.marsdd.com/ent101

Published in: Business, Technology
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Building a Business Model

  1. 1. Follow or Tweet:#ent101
  2. 2. Building a Better Business Model Wednesday, November 4th, 2009 MaRS Discovery District
  3. 3. Objectives There are three key learning objectives for today’s presentation: 1.  Appreciate the importance of clearly defining and understanding your business model 2. Understand the components of a typical business model framework 3. Leverage the learning’s from a case study example and apply and test the concepts with your businesses
  4. 4. What is a Business Model? “A business model describes the rationale of how an organization creates, delivers, and captures value” “Description of 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?" “The architecture for the product, service and information flows.”
  5. 5. Why is this an important discussion? •  A lot of companies, early or later stage, assume that having an interesting product or service will simply “sell itself” •  Without a roadmap and an understanding of how your business will make money and how you will operate…what do you have? “A potentially great product or service…not a business”
  6. 6. Why Business Models Matter… Company • Pets.com was a short-lived online business that sold pet accessories and supplies direct to consumers over the Internet Model • Discount direct-to-consumer sales of pet supplies Results • Successful marketing and advertising • Uncertain market size; limited market research • Lost money on nearly every sale • Went from an IPO (Nasdaq) to liquidation in 268 days • In June 2008, CNET named Pets.com as one of the greatest dotcom disasters in history
  7. 7. Why Business Models Matter… Company • Twitter is a free social networking and micro- blogging service Model • Twitter has a number of “experiments” in progress that could turn into revenue streams: search, Ecommerce, marketing, applications, etc. Results • Twitter has raised US$157 million from venture capitalists (~$100M last month) • Meager revenues through advertising • Projected to have 18M users by the end of 2009 • Partnered with Microsoft to begin indexing and offer search functionality to tweets
  8. 8. Why Business Models Matter… Company • Multinational technology corporation that develops, manufactures, sells, and supports personal computers and other computer-related products. Model • Combination of direct-to-consumer sales and just-in- time manufacturing • Unparalleled success in matching product offerings to consumer demand • No R&D investment; not technology innovator Results • Gains early access to its partners' most innovative products and components • Tests the market using a combination of its web site and direct-to-consumer sales – to push what comes next!
  9. 9. Business Model Components Infrastructu Looked at collectively Offering Customer re to determine appropriate business model to ensure Financial everything fits together! Infrastructure – our core strengths, competencies, and partners that are necessary to execute the business model Offering – our products and services that we offer Customer – who are our customers and how do we get our offering to them Financial – how we make money and how we manage our costs
  10. 10. Case Study Example
  11. 11. Company Snapshot •  Founded in 2002 in Toronto, Ontario by two former management consultants •  Mission statement was to offer an array of strategic and tactical operations and supply chain solutions •  Target customers were growth oriented distribution and product oriented business greater then $250M in revenue •  Started during challenging market conditions •  Tech bubble •  Enron •  September 11th, 2001 •  Was “acquired” in 2007 by US firm to make inroads into the Canadian market
  12. 12. Our Infrastructure Infrastructu Offering Customer re Financial •  Strong strategy and operations background working with Global 1000 companies throughout North America •  Strong understanding of competitors and key differentiation opportunities •  Relatively good connections and network •  Warm customer pipeline •  Two person “show” therefore recognized challenges around implementation or large scale projects
  13. 13. Our Offering Infrastructu Offering Customer re Financial •  Initial offering was focused on consulting opportunities with “warm” clients •  Focused on operational assessments, supply chain strategy, network modeling, strategic sourcing and procurement, and organizational design •  Typically short engagements – two to three month strategy projects •  Offering delivery model attempted to minimize time and cost of sales •  Limited implementation capabilities
  14. 14. Our Customers Infrastructu Offering Customer re Financial •  Customer acquisition was driven nearly entirely by our existing connections and rolodex •  Limited “cold calling” •  Focus was on repeat sales with existing customers; build strong relationships with key decision makers within each customer •  Not a transactional relationship – focus on partnering and supporting our customers achieve their goals •  High degree of focus on customer satisfaction, testimonials, referrals, etc.
  15. 15. Our Financials Infrastructu Offering Customer re Financial •  Project-based work, both hourly and fixed fee •  Traditional consulting model •  Careful management of costs
  16. 16. Refining the Business Model Continuously asked Infrastructu Offering Customer ourselves questions… re Financial 1.  How can we expedite and expand our presence in the marketplace? 2.  Are there solutions that we develop for one customer that we can leverage for others (reduce cost of delivery) 3.  How can we acquire more customers and maintain longer relationships with existing customers? 4.  Are there any creative revenue models we should consider that would better meet the needs of our customers?
  17. 17. Expedite Growth 1. How can we expedite and expand our presence in the marketplace? Where we were… Where we are going… •  No distribution partner •  Two main distribution partners •  No business •  Leverage “connectors” development support •  Team of two •  Build team So what?
  18. 18. Leverage Offerings 2. Are there solutions that we develop for one customer that we can leverage for others (reduce cost of delivery) Where we were… Where we are going… •  Purely service-based •  Technology and service organization solution •  Unrealized in-house •  Confidence to develop other technology skills technology solutions So what?
  19. 19. Acquire More Customers 3. How can we acquire more customers and maintain longer relationships with existing customers? Where we were… Where we are going… •  Traditional fee for service •  “Free” assessment to model define opportunity •  Focused only on client •  Leverage “hall pass” and sponsor relationship build multiple relationships So what?
  20. 20. Creative Revenue Models 4. Are there any creative revenue models we should consider that would better meet the needs of our customers? Where we were… Where we are going… •  Traditional project-based •  Mixed model? License fee for service model technology? Keep it combined with service offering? So what?
  21. 21. Why Business Models Matter Over a 12 month period… 1.  Doubled the size of our team 2.  Enhanced our offering to include both a technology and service 3.  Developed strategic sales and distribution partnerships with two leading organizations 4.  Offered a defined “freemium” solution with a 2 to 3 week “investment” to define the work So What? Increased sales funnel value by 300%, increased revenues by 300%, and increased profit / free cash flow by 400% The trend continued!
  22. 22. Summary 1.  Appreciate the importance of clearly defining and understanding your business model -  Look smart and confident about your business! -  How can you improve if you don’t know how your operate today? -  How can you clearly articulate your competitive differentiation? -  Why will your model work if its failed for others in the past? (e.g. pets.com) Once you have drafted all the elements of your business model, map it out to help you see whether it all fits together
  23. 23. Summary 2. Understand the components of a typical business model framework Infrastructure – our core strengths, competencies, and partners that are necessary to execute the business model Offering – our products and services that we offer Customer – who are our customers and how do we get our offering to them Financial – how we make money and how we manage our costs 3. Using a case study example, apply and test the concepts with your businesses

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