centre for

entrepreneurship

Date 15.09.2014 | 1 1

Business Model
&
Business Model Canvas
 2

Technological innovation
does not guarantee business success
 Intro
3

Entrepreneurs may or may not use new technology,

but they must understand
customer needs, technological possibilities,
and the logic of organization.

(Teece, 2010: 188)

 Business Model
4

It is used to represent core aspects of a business,

including:
a. Purpose
b. Offerings
c. Strategies
d. Trading practices
 5

Creates

Value

Capture Deliver

Business Model: Describes How an Organization

Alexander Osterwalder and Yves Pigneur

 6

A business model describes the design or

architecture of the mechanisms employed for
- value creation
- value delivery
- value capture

Teece, 2010:
 Business Model Defined
7

• The business model is the manager’s logic that

will allow a venture to:

• Capture the market opportunity;

• Mitigate risks;
• Identify the required resource set; and
• Create value for investors and founders.
 1. Value creation: What value for whom?
8

• Products/services defined from customer focus:

• Requires deep understanding customer needs (“deep
truths”)
• Need => offer: customers need solutions, not
products
• Not well enough satisfied by other firms

• Define target customers

• Value for other stakeholders as well

 2. Value delivery
Concerted use of resources in activities/processes 9

• What are the key Activities/Processes?

• For the whole process (whether you can do it or not?)
• Key resources needed?
• Currently available (Haynie et al.), needed, obtainable…
• Network partners?
• What in-house & what by which external partners?
• When are partners better, cheaper or willing to share
risks?
• How much to integrate in the business model?
• How relationships are maintained? Collaborative
community or market?
 Value delivery system
10

Choose the
Produce the value Communicate
value the value

Advertising,
Customer Value Product Service Sourcing, Distributing Sales force Sales
Pricing PR,
value needs positioning development development making servicing message promotion
media
 3. Value capture
11

• Revenues:
• How much are customers willing to pay?
• Do they have the means to do so?
• Costs structure:
• Focal firm’s inputs & processes: fixed and variable
cost
• Additions by partners
• Questions of interest:
• Margin: is value creation profitable?
• When break-even: at what quantity / time period?
• How to divide the pie with partners?
• Is the new venture profitable?
 3. Value capture - Sustainable?
12

• Analyze Profitability
• Per unit sale, per time period
• Understand dynamics: over time, varying quantities
• Analyze Cash flow
• Revenues and costs not synchronized, usually costs first
• Manage risks:
• Can fixed costs be turned into variable costs?
• Out of pocket costs versus opportunity costs
• Balance risks with flexibility
• Do the financial analysis backwards:
• First: how much can I charge customer, then: what costs
needed for reaching profitability? (Johnson et al., 2008)
 Facets of Business Model Analysis
13

• Revenues
• Cash flows and their timing
• Revenue drivers
• Expenses
• Cash flows and their timing
• Investment required through cash flow breakeven
• Working capital
• Maximum financing required and cash flow breakeven timing
• Sensitivity analysis
• Key success factors
 Revenue Analysis
14

• Sources
• Single stream
• Multiple stream
• Interdependent
• Loss leader

• Models
• Subscription/membership
• Unit based
• Licensing
• Transaction fee
 Expense Analysis
15

• Cost structures:
• Payroll
• Direct
• Indirect
• Inventory
• Location
• Marketing

• Cost drivers:
• Fixed, variable or semi-variable
• Scale of fixed cost base
• Anticipated changes to cost drivers
 Investment Analysis
16

• Maximum financing need

• Timing of cash flow breakeven

• Timing to positive cash flow

 Success Factor Analysis
17

• Identify the business factors with the greatest

impact on the cash flows

• An anticipatory business scorecard

 From Business Model to Financial Model
18

Value Financial
Team Advantage
Proposition Implications

Analysis Market Core Competency Internal & Pro Forma

Segmentation External Analysis Analysis

Data Price Expenses Expenses Capital

Units Budgeting &
Timing Cash Flow
Assumptions
Conclusions Risk (k) Risk (k) Risk (k) Viability &
Value
 Business Model v.Business Strategy
19

• The business model bridges idea and action.

• It answers the question of why a venture will be

viable and valuable.

• Business models relate to business strategy as

logic relates to the algorithm.
 Business Models vs. Business Plans
20

The business model

is not burdened with the “how”
questions. These are resolved by the
business plan.
The Business Model Canvas
(Osterwalder, Pigneur & al. 2010)

21
 Role of Business Model Canvas
22

• It helps startups/companies move beyond product-

centric thinking and towards business model
thinking.
 Intro into BMC
23

https://www.youtube.com/watch?v=wlKP-BaC0jA