1. CHAPTER FOUR CHAPTER FIVE
DEVELOPING A BUSINESS MODEL & CONDUCTING A FEASIBILITY ANALYSIS
CHAPTER FOUR CHAPTER FIVE

2. Concept Quick Test
Am I really interested in this business opportunity?
Is anyone else interested?
Will people pay for what is being offered?
Why me?
Why now?

3. Developing a Business Concept
A business concept is a concise description of an opportunity that contains four essential elements:
The customer definition – Who is the customer
The value proposition – What is the benefit to the customer
The product/service
The distribution channel – delivery to the customer
Concept Statement
Creating a clear and concise concept statement is not difficult but telling a compelling story can be.
A compelling story consists of a problem and a solution.
The problem being solved should be presented in a simple clear way.
The Value Proposition
The compelling story is the benefit that the customer derives from the product or service
It is often intangible
The compelling story answers the questions:
Why the interest?
What problem does this solve?

4. The Business Model Two fundamental activities Venture creates value
Differentiating itself from competitors
Meets an unserved need/problem in the market
How to make money from the products and services offered: (Capturing Value)
How will value be created for stakeholders
How to sustain efficacy of the model over time

5. Building a Business Model
What are the size and importance of Revenue Streams
What costs most affect the model (cost drivers)
Capital requirements
Critical success factors (CSF)
Firm
Industry

6. Business Concept and Business Model: & Integration
Ø      The customer definition – Who is the customer
Ø      The value proposition – What is the benefit to the customer
o       What is the un-served need/problem
Ø     The product/service
o       Capability: the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective.
o       Where is the firm situated in its’ industry’s value chain
o       How does the firm capture value (make money)
o       How does the firm differentiate itself from competitors
o       How does this capability stand up to the four criteria
Bus Concept
A business concept is a concise description of an opportunity that contains four essential elements:
The customer definition – Who is the customer
The value proposition – What is the benefit to the customer
The product/service – the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective. (Capability)
The distribution channel – delivery to the customer
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Bus Model
Two fundamental activities
Venture creates value
Differentiating itself from competitors
Meets an unserved need/problem in the market
How to make money from the products and services offered: (Capturing Value)
How will value be created for stakeholders
How to sustain efficacy of the model over time

7. Why Business Models Fail
Lack a compelling story
Model is not carefully conceived
Numbers do not make sense
Model is not executed well

8. Why Business Models Fail
“It ain’t what you don’t know that hurts you. It’s what you know that ain’t true!” (Solow)
ASSUMPTIONS

9. Feasibility Analysis
Is there a customer base and a market of sufficient size to make the concept viable?
Can an appropriate start-up or founding team be assembled to effectively execute the concept?
Do the capital requirements to start, based on estimates of sales and expenses, make sense?

10. Areas To Be Analyzed And Questions To Ask Integrated with Timmons Model
The Opportunity
Business Concept
Industry And Market/Customer
Product/Service
Founding Team
Resources
Financial Needs Assessment
Business Concept
Who is the customer?
What is the value proposition?
What is the product/service being offered?
What does the value chain look like?
Which distribution channel alternatives are available, and which customers will be served by them?
Are there ways to innovate in the distribution channel?
Industry And Market/Customer
What are the demographics, trends, patterns of change, and life cycle stage of the industry?
Are there any barriers to entry? If so, what are they?
What is the status of technology and R&D expenditures?
What are typical profit margins in the industry?
Who are the opinion leaders in the industry and how do they affect the industry?
What are distributors, competitors, retailers, and others saying about the industry?
What are the demographics of the target market?
What is the profile of the first customer? Are there other potential customers?
Have you talked with customers?
Who are your competitors, and how are you differentiated from them?
Product/Service
What are the features and benefits of the product or service?
What product development tasks must be undertaken, and what is the timeline for completion?
Is there potential for intellectual property rights?
How is the product or service differentiated from others in the market?
Founding Team
What experience and expertise does the team have?
What are the gaps and how will you fill them?
Financial Needs Assessment
What are your start-up capital requirements?
What are your working capital requirements?
What are your fixed cost requirements?
How long will it take to achieve a positive cash flow from the revenues generated?
What is the break-even point for the business?

11. Feasibility Analysis Outline
Cover
Executive Summary
Title Page
Table of Contents
Feasibility Decision
The Business Concept
Industry/Market Analysis
Founding Team
Product/Service Development Plan
Financial Plan
Timeline
Bibliography
Appendices

12. Anchors of Superior Businesses
They create or add significant value to a customer or end user
They solve a significant problem, or meet a significant want or need, for which someone is willing to pay a premium

13. Anchors of Superior Businesses (Ctd.)
They are a good fit with the founder(s) and management team at the time and marketplace and with the risk-reward balance

14. Anchors of Superior Businesses (Ctd.)
They have robust market, margin, and moneymaking characteristics
Large enough ($50 million+)
High growth (20 percent +)
High margins (40 percent +)

15. Anchors of Superior Businesses (Ctd.)
They have robust market, margin, and moneymaking characteristics
Strong and early free cash flow (recurring revenue, low assets, and working capital)
High profit potential (10 to 15 percent + after tax)
Attractive realizable returns for investors
(25 to 30 percent + IRR)

16. The Threshold Concept
The odds for survival and a higher level of success change dramatically if the venture meets certain thresholds:
At least 10 to 20 people
$2 to $3 million in revenues
Currently pursuing opportunities with growth potential
$50,000 to $100,000 of sales per employee annually

17. END
END

18. What a Firm Does
In essence, we are talking about a firm’s capability /ies
A Capability represents:
“the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective.” 34

19. What a Firm Does Evaluation Criteria
Valuable
Rare
Costly to Imitate
Nonsubstitutable 34

20. Evaluation Criteria Valuable Rare Costly to Imitate Non-substitutable
Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment
Rare
Capabilities that are possessed by few, if any, current or potential competitors
Costly to Imitate
Capabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity
Non-substitutable
Capabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships 42

21. What Makes a Service or Product Costly to Imitate?
Unique Historical Conditions
An unusual evolutionary pattern of growth may contribute to the development of competencies in a manner that is unique to those particular circumstances
Causal Ambiguity
This occurs when competitors are unable to detect how a firm uses its competencies as a foundation for competitive advantage
Social Complexity
Occurs when the firm’s capabilities are the result of complex social phenomena, such as interpersonal relationships, trust and friendships among managers or a firm’s reputation with suppliers and customers 41

22. Implication of a Firm’s Capability/ies
Valuable
Rare
Costly to Imitate
Nonsub-stitutable
Competitive Consequences
Performance Implications NO
Competitive
Disadvantage
Below Average
Returns
YES NO
YES/NO
Competitive
Parity
Average
Returns
YES NO
YES/NO
Temporary
Competitive
Advantage
Aver./Above Average
Returns
Above
Average
Returns
YES
Sustainable
Competitive
Advantage 46

23. Human Resource Management Technological Development
Firm Value Chain
Firm Infrastructure
Human Resource Management
Support
Activities
MARGIN
Technological Development
Procurement
Service
Inbound
Logistics
Outbound
Logistics
Marketing
& Sales
MARGIN
Operations
Primary Activities

24. Value Chains as Part of a Total Value System
Supplier Value Chain
Firm Value Chain
Channel Value Chain
Buyer Value Chain
Upstream Value
Each firm must eventually find a way to become a part of some buyer’s value chain
Perform valuable activities that complement the firm’s activities
Ultimate basis for differentiation is the ability to play a role in a buyer’s value chain
This creates VALUE!!
Value chains vary for firms in an industry, reflecting each firm’s unique qualities:
History
Strategy
Success at Implementation 73

25. The Value Chain and the Concept
Forces affecting the nature of distribution channels and thus the value chain:
The Internet
Reduced transaction costs
Disintermediation

26. Screening Methodologies
Quick Screen
Provides a broad overview of an idea’s potential
Enables the entrepreneur to conduct a preliminary review and evaluation of an idea in a short period of time

27. Quick Screen Part A: Market and Margin Related Issues

28. Quick Screen Part B: Competitive Advantages
Part II of figure on page 121

29. Quick Screen Part C: Value Creation and Realization Issues

30. Quick Screen Part D: Overall Potential
Part IV of figure on page 122