DEVELOPING AN

EFFECTIVE BUSINESS
MODEL

BUS 368
LECTURE 11
WHAT IS A BUSINESS
MODEL?
 A firm’s business model is its plan or recipe for how it
creates, delivers, and captures value for its stakeholders
 BUSINESS MODEL

A firm’s business model represents the core aspects of

its business.

It also describes how the core aspects fit together and

support one another.
STANDARD BUSINESS MODELS

Standard business models determine how a firm will

create, deliver, and capture value for their
stakeholders.

This type of model is used commonly by existing firms

as well as those launching an entrepreneurial venture.
Advertising Business Model

Auction Business Model

Bricks and Clicks Business Model

Franchise Business Model

Freemium Business Model

Low-Cost Business Model

Manufacturer/Retailer Business Model

Subscription Business Model

Traditional Business Model

DISRUPTIVE BUSINESS MODEL

Rare, they do not fit the profile of a standard business

model.

They are impactful enough that they disrupt or change

the way business is conducted an industry or,

An important niche within an industry.

BUSINESS MODEL
FRAMEWORK
 CORE STRATEGY
A core strategy describes how a firm plans to compete
relative to its competitors.

The primary elements of core strategy are:

Business Mission

Basis of Differentiation

Target Market

Product/Market scope
 MISSION STATEMENT

Mission Statement
describes why it exists
and what its business
model is supposed to
accomplish.
 BASIS OF DIFFERENTIATION

A company’s basis of
differentiation's what
causes consumers to pick
one company’s product
over another’s.

It is what solves a
problem or satisfies a
customer need.
TARGET MARKET
Identify an emerging or under served niche within a larger market.
 PRODUCT/MARKET SCOPE

A product/market scope defines the products and

markets on which it will concentrate.

Most firms start narrow and pursue adjacent product

and market opportunities as the company grows and
becomes financially secure.
 RESOURCES

Resources are the inputs a firm uses to produce, sell,

distribute, and service a product or service.

Core Competencies

Key Assets
 CORE COMPETENCIES

A Core competency is a
specific factor or
capability that supports a
firm’s business model and
sets it apart from its
rivals.
 KEY ASSETS

These are the assets that a

firm owns that enable its
business model to work.

The assets can be

physical, financial,
intellectual, or human.
 FINANCIALS

The third component of a business model focuses on

its financials.

This is the only section of a firm’s business model that

describes how it earns money- therefore, extremely
important.
 REVENUE STREAMS

A firm’s revenue streams describe the ways in which it

makes money.

Some businesses have a single revenue stream, while

others have several.
 MOST COMMON REVENUE
STREAMS

Advertising

Commissions

Download fee

Product Sale

Renting/Leasing

Subscription Service
 COST STRUCTURE

A business’s cost structure describes the most

important costs incurred to support its business
model.

It costs money to establish a basis of differentiation,

develop core competencies, acquire or develop key
assets, form partnerships, and so on.
 FUNDING
Business models rely on a
certain amount of financing or
funding to bring their business
model to life.

Some entrepreneurs are able to

draw from personal resources to
fund their business.

The business may be simple

enough that it is funded from its
own profits from day one.
 FUNDING

However, in most cases, an initial funding or

financing is required.

In these cases, the business model template should

indicate the approximate amount of funding that will
be needed and where the money is most likely to come
from.
 OPERATIONS
Operations are both
integral to a firms’s overall
business model and
represent day to day
heartbeat of a firm.

Primary elements of
operations are: product or
service production,
channels, and key partners.
 PRODUCT OR SERVICE
PRODUCTION

If a firm sells physical products, the products can be

manufactured or produced in-house, by a contract
manufacturer or via an outsource provider.

This decision has a major impact on all aspects of a

firm’s business model.
 CHANNELS

A company’s channels
describe how it delivers
its products or service to
its customers.

Many businesses sell

direct, through a
storefront and/or online.
KEY PARTNERS
 KEY PARTNERS

The final element of a firm’s business model is key

partners

Most start-ups do not have sufficient resources (or

funding) to perform all the tasks needed to make their
business models work, so they rely on key partners to
perform key roles.