Prof. Alon Rozen © 2013
Business modeling
Representing how a company orchestrates diverse activities to:
(1) deliver value
(2) to customers
(3) in a sustainable manner.
Prof. Alon Rozen © 2013
Business model vs Strategy
There is a general confusion between the notions of business models and strategy.
Business Model
• Focus = value “orchestration”
Strategy
• Focus = outdo competitors
Prof. Alon Rozen © 2013
Business Modeling (made simple)
1/ Create a model 2/ Test it 3/ Revise
Narrative Test
•Does the story make sense?
Numbers Test
•Does the story make cents?
Prof. Alon Rozen © 2013
Why is the biz model so important?
If done right
Creates a virtuous cycle that is difficult to copy
Generates super-profits and a competitive moat
Ex. Apr 23: “Apple sees profits fall for first time in a decade but cash pile rises to $145bn”
If done wrong:
It doesn’t make sense, cents or profits…
It is not sustainable…
Ex: May 9: “Sony makes 1st net profit in 5 years”
Prof. Alon Rozen © 2013
Business Model - examples Subscriptions (gym, magazine, public transport, cinema)
Razor & blades (razors, printers, cell phones)
Bricks & Clicks (retail + online) (Gap, FNAC, Apple)
Loyalty (frequent flyer miles)
Industrialization of services (restaurant tickets, vouchers)
Low-cost (EasyJet, LIDL, IKEA)
Crowdsourcing - (mymajorcompany, Kickstarter)
Freemium (free+paid services) (online newspapers)
Prof. Alon Rozen © 2013
Modern business model = Freemium
Freemium = free + premium
End-user is given a free “hook” and then sold (“upsold”) to paid extras (e.g. apps)
The Global Guru (financial newsletter)
Free newsletter (200,000 subscribers)
Paid newsletter $100/year (15,000)
Premium newsletter $1000/year (1,000)
Prof. Alon Rozen © 2013
One term, many approaches
Geoffrey Moore
• Volume- or complexity-based models
Alexander Osterwalder
• Business model canvas
Ash Maurya
• Lean business model canvas
Alon Rozen
• Business model worksheet
Business Model Volume-based Complexity-based Mixed
General description of the business model including the 6 W’s (what, who, where, how, when, and why
© Alon Rozen 2012
Customer modelWho are the
customers? Who are the end-users? Early
adopters?
Cost model
What are the main costs? Are
costs mostly variable or
fixed? How do they scale?
Margin model
A high margin or low margin business by
nature? Margin structure?
Operating model
What type of operations? Logistics?
Outsourcing? HR?
Working K model
Cash positive business? Cash flow issues (CAPEX, OPEX? CCC)?
Sales & Marketing model
Approach to sales and
marketing? Sales model?
Distribution? Marketing
model?
Growth model
How will the business grow?
Speed? Scalability?
Organic growth or M&A? Self-
financed or new investment
needed?
Revenue modelHow is revenue
generated – who pays what, when?
Business Modeling: your turn! Cacau Show
Prof. Alon Rozen © 2013
Business modeling: old and new
Deconstruct an existing business
Model a business from scratch: start-ups
Prof. Alon Rozen © 2013
Biz model description: Cacau ShowCacau Show operates a volume-based business model by which it sells branded chocolate to its franchisees, to department stores and, recently, to supermarkets (what)indirectly to mass-market “class C” and even “B” consumers (who),using in-store direct sales via franchises (captive market) and intermediated distribution via supermarkets and department stores (how & where). This allows Cacau Show to optimize inventory (a base of guaranteed sales) all year long and maximize sales during peak seasons (Easter) (when), thus allowing Cacau Show to practice low margins while maintaining healthy cash flow, strengthening the brand, attracting new franchises (+franchise management fees) and easily fund future growth (why).
Biz model: a truly key success factor!
Biz model optimization is a KSF!
Two types of successful biz model:
Simple and efficient
Innovative
The true heart of any business
A weak heart means a weak business
Even if it looks healthy!
But – no magic business models
They have to evolve over time!