Technopreneurship Module 6: Business Model Explained

• Technopreneurship 101, Module 6 discusses the business model
• This module defines the business model and identifies the products or services
• The module explores business plans to sell, identified target markets, and anticipated expenses.
• The learner should be able to: learn time value of money, generate revenue, price structure and price elasticity, distribution channels, and different types of strategic partnerships

Business Model

• Plan for making a profit
• Identifies products/services a business plans to sell and its identified target
• Strategies for customer acquisition and talent recruitment
• Key partnership alliances and business development market strategies

Business Model vs. Business Plan

• A business model describes how an organization creates, delivers, and captures value
• A business plan details strategy and expected financial performance
• Both elements are key to development, growth, succession planning, and decision making
• The business plan is a road map
• The business model is the vehicle

Exploring Business Models

• Potential business Models help determine viability
• Businesses can attract investors and guide overall management strategy
• Established businesses use it as the basis for developing financial forecasts, setting milestones, and setting a baseline for reviewing your business plan.
• A business model has two sides: Backstage and Stage

Key Components of a Business Model

• Creating Value: everything it takes to make something (design, raw materials, manufacturing, labor)
• Delivering Value: everything it takes to sell that thing (marketing, distribution, delivering a service, processing the sale)
• Capturing Value: how and what the customer pays (pricing strategy, payment methods, payment timing)
• The Business Model Canvas was created by Swiss Consultant Alexander Osterwalder, and it was the document that gave birth to the popular Business Model Canvas tool

Business Model Canvas Blocks

• Customer Segments
• Value Proposition
• Distribution Channels
• Customer Relationship
• Revenue Streams
• Key Resources
• Key Activities
• Key Partners
• Cost Structure

Types of Business Models

• Freemium: Basic version of product/service is free to entice consumers to purchase more advanced features in the future.
• Subscription-Based: Consumers are charged monthly/yearly subscription fees to access product/service
• Peer-to-Peer: Acts as a go-between businesses and interested customers; provides platforms, navigate regulations, and set pricing (ex: ride-sharing services)
• Franchise: Provides working for oneself while having security of a company's backing (legal/commercial relationship between franchisor and franchisee)
• Direct Sales: Company employees demonstrate and sell the products/services directly to consumers; eliminates steps within distribution.
• Affiliate Marketing: People promote and sell products from other companies online for a percentage of sales.
• E-Commerce: Companies/individuals buy and sell products/services online; it offers convenience of not needing a physical store.
• Drop-Shipping: Sells products on their websites, but supplying and shipping products is done by a third-party wholesaler
• Vertically Integrated: Company controls both supply and distribution, including costs of production, inventory, marketing, and pricing
• Consulting: Hiring experts/freelancing consultants and charging a fee to provide access to these experts
• Ad-Supported: Emphasizes the importance of advertising and generated sales (platforms: print media, online media, television)
• Enterprise: Specific aspects of a business are modeled, such as infrastructure and asset groups to see what needs to be altered to maximize profits.
• Lock-In: Customer loyalty is increased by locking customers into a product/service, making it difficult to abandon the company.
• Multi-Brand: A parent company offers similar products with different brand names to reduce potential competition.
• Razor and Blade: Sell products/services at a lower price and later sell a related product/service for increased profits; consumers depend on the initial product to use the counterpart
• Distribution Based: Facilitates the distribution of products/services from manufacturers to consumers in the most direct and cost-efficient manner.
• Direct-to-Consumers: Consumers buy products/services directly from a company's website, eliminating the middle-man
• Low-Touch: Minimal interaction with the company; products are consumed/used with little interference from salespersons or customer service
• Fractionalization: partial usage of a product or service to consumers
• Pay-As-You-Go: Consumers pay for a product or service only as they use it, without recurring bills/subscriptions
• User-Generated Content: Users create the content of a content distribution platform, eliminating the need to create content as a primary way to engage visitors

Time Value of Money

• TVM revolves around the changing value of money over time
• The present value of money is greater than its future value
• Money's value is assessed based on potential earning capacity
• Important factors: inflation, risk or uncertainty, and liquidity

Revenue Generations

• Refers to the process of creating sales of products and services, with the goal of creating income

Price Structure

• Approach in product/service pricing which defines prices, discounts, and offers consistent with the organization's goals/strategy
• Types: market penetration, price skimming, economy pricing, psychology pricing, premium pricing

Price Elasticity

• A measure of how consumers react to the prices of products and services
• Types: price elasticity of demand and price elasticity of supply

Distribution Channels

• A chain of businesses/intermediaries through which the final buyer purchases a good or service
• Can be wholesalers, retailers, distributors, & the Internet
• Types: direct, indirect, hybrid

Strategic Partners

• Other business entity with which you form an agreement to share resources with the mission of growth and mutual success
• Types: horizontal, vertical, equity, joint venture, merger, acquisition