Copyright © 2008 by Robert B. Carton 1 Developing a Business Model

Copyright © 2008 by Robert B. Carton 2 What is a business model?  A company’s unique value proposition, for customers in the form of a sustainable competitive advantage, and for stakeholders as how the firm can create value specific to their unique interests.  It presents a logical and internally consistent approach to the design and operations of the venture, and documents this approach for all stakeholders  It identifies the key performance indicators for the business  It presents the value opportunity for resource providers  It provides parameters for determining the appropriateness of strategic and tactical actions

The Customer Mode of Thinking The business model answers these questions in forming the basis for the unique market position the firm will seek.  What was your problem?  What was the solution you purchased?  What were the alternatives (competition)?  Why did you choose to buy what you did (better)?  How did the enterprise earn your business?  How much profit did they make on the sale? Copyright © 2008 by Robert B. Carton 3

4 The Business Model Framework  The model must be reasonably simple, logical, and measurable, while still being comprehensive and able to be operationalized  How will the firm create value?  For whom will the firm create value?  What is the firm’s internal source of advantage?  How will the firm differentiate itself from competitors?  How will the firm make money?  What are the entrepreneur’s time, scope, and size ambitions?

Copyright © 2008 by Robert B. Carton 5 How Will the Firm Create Value?  Addresses the products/services offered, product mix, and the relative depth and breadth of the mix.  What is the value proposition for the customer? What are they really buying? What is their need you are solving?  Primary products and/or service offerings  Broad, medium or narrow product line  A la carte or a bundled offering  Distribution channels  Internal mfg or service delivery, outsourcing, licensing, reselling, value added reselling

Copyright © 2008 by Robert B. Carton 6 For Whom Will the Firm Create Value?  The nature and scope of the target market(s)  Who is the customer?  Who is the consumer?  Business-to-business and/or Business-to-consumer  Geographic scope  Transactional or relationship business

Copyright © 2008 by Robert B. Carton 7 What is the Firm’s Internal Source of Advantage?  What part of the value chain leads to your advantage?  Is it valuable?  Is it rare?  Is it costly to imitate?  Is the organization organized to exploit it?

Copyright © 2008 by Robert B. Carton 8 How Will the Firm Differentiate Itself?  How does the company differ from its competition in ways that are valuable to the customer?  Equal value at a lower cost Efficiency, lower cost Quality  Greater value Image Selection, features, availability Relationship/customer service

Copyright © 2008 by Robert B. Carton 9 How Will the Firm Make Money?  Revenues  Price vs. volume  Repeat vs. single sale relationship  Operating leverage  Extent of fixed vs. variable costs  Breakeven point  High, medium, or low margins

Copyright © 2008 by Robert B. Carton 10 What are the Entrepreneur’s Ambitions?  Subsistence model  Survival by meeting basic financial obligations  Often associated with a lifestyle/hobby business  Income model  Generate a living wage  Growth model  Opportunity to continue to invest and build value  Speculative model  Proof of concept and then sell the business