Business Models For Dummies (Jim Muehlhausen, 2013)

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Introduction
  • Good business model = good business plan + experience + intelligence + hard work
  • Business models: creation of profitable revenue and the delivery required to keep the revenue flowing.
  • Business plan
    • Presupposes the existence of a strong business.
    • Clarity of purpose and passion.
    • Explain why the business model work, not how.
  • Cost leadership
    • Access to natural resources
    • Scale
    • Vertical integration
    • Technological leverage
    • Proprietary processes
  • Differentiation
    • Superior branding (Rolex)
    • Unique supplier relationships (Eddie Bauer Edition Ford Explorer)
    • First mover advantage (iPad)
    • Location ("location, location, location)
    • Scale (Boeing)
    • Intellectual property (Intel)
  • Market niche
    • Tesla on electric vehicles (EVs)
    • Taiwan semiconductor on fabrication
    • Amgen on biopharmaceuticals
    • Starbucks on coffee
    • Amazon on books
    • Rally on hamburger
    • Doctor on heart surgery
Business models
  • Common aspects
    • What problem are you trying to solve?
    • Who needs this problem solved?
    • What market segment is the model pursuing?
    • How will you solve this problem better, cheaper, faster, or differently than other offerings?
    • What is the value proposition?
    • Where does your offer place you n the value chain?
    • What is your revenue model?
    • What is your competitive strategy?
    • How will you maintain your competitive edge?
    • What partners or other complementary products should be used?
    • What network effects can be harnessed?
  • Model break down
    1. What is the offering?
    2. How will you monetise the offering?
    3. How will you create sustainability?
  • Types of business models
    • Razor and blades
      • Low-margin item with expensive replacement
      • Gillette, HP printers
    • Inverted razor and blades
      • High-margin item with cheap consumables
      • iTunes
    • Cheap chic
      • Stylish but inexpensive merchandise
      • IKEA
    • Bricks and clicks
      • Extension of in-store shopping to online
      • BestBuy
    • Multilevel marketing
      • Leverage on personal network 
      • Amway
    • Franchise
      • Sell the rights to use the business model
      • McDonald's
    • Anticipated upsell
      • Purchase more than what they expected
      • Homebuilders, car dealerships
    • Loss leader
      • A very low margin with anticipation of additional revenue
      • Gas stations, $2 shop
    • Subscription model
      • Recurring revenue based on renting a significant asset
      • Health clubs, cloud services
    • Collective
      • Similar to franchise with aggregate buying, no royalties
      • CarQuest
    • Productisation of services
      • Standardising bundle
      • Consultation at packaged price instead of per hour
    • Servitisation of products
      • Making a product part of a larger service offering
      • Rolls-Royce aircraft maintenance
    • Long tail
      • Serve a tiny niche market till it grows
      • Micro-breweries, left-handed store
    • Direct sales
      • Bypass traditional channels
      • Outlet mall, door-to-door sales
    • Cut out the middle man
      • Removal of intermediaries in a supply chain
      • Dell Computer, farmer's market
    • Freemium business model
      • Product is free, typically 8% of users will upgrade
      • Angry Birds, sharewares, Antivirus
    • Online auction
      • Auction run by community
      • eBay
    • Hotel California model
      • Must-have product to trap customer into buying
      • Amusement parks, cinemas, sporting events
    • Network effect
      • Value of product become higher with more users
      • Fax machines, social network
    • Crowdsourcing
      • Leverage on users to co-create products
      • YouTube, Angie's List
    • Users as experts
      • Give access to technology, similar to white label
      • Cook-your-own-steak restaurants, Lego
    • Premium
      • Offer high-end products
      • McLaren, Hermes
    • Nickel and dime
      • Price cost-sensitive items as low and charge something extra
      • Airlines
    • Flat fee
      • Opposite of nickel and dime, bundle everything
      • Resorts, travel agency
Creating business model
  • Winning model
    • Offering
      • Market attractiveness
        • Unserved and underserved market
      • Unique value proposition
    • Monetisation
      • Profit model
      • Sales performance model
    • Sustainability
      • Graceful exit
      • Pitfall avoidance
      • Innovation factor
      • Ongoing competitive advantage
  • Business model canvas
    • Key partners
    • Key activities
    • Key resources
    • Value propositions
    • Customer relationships
    • Channels
    • Customer segments
    • Cost structure
    • Revenue streams
  • Four box model
    • Customer value proposition
    • Profit formula
    • Key resources
    • Key process
Unique value proposition
  • Example factors
    • Convenience
    • Emotions the product invokes
    • Expertise
    • Higher quality
    • Longer-lasting
    • One-stop-shop/integration
    • Physical location
    • Pricing
    • Product attribute
    • Scale
    • Service
    • Speed
  • Main content
    • Audience
    • Problem
    • Uniqueness
  • Marketable product = unique selling proposition (USP) + unique value proposition (UVP)
    • Specific
    • Succinct
    • Meaningful
  • Blue ocean strategy
    • Create an uncontested market
    • Make the competition irrelevant
    • Create and capture new demand
    • Break the value - cost trade-off
    • Align the whole system of a firm's activities in pursuit of differentiation and low cost
  • Brand considerations
    • Do you have a compelling price/value combination?
    • What is your current market share?
    • Can you pass the Warren Buffett test? If you don't have the power to raise pricing, you're in the wrong business.
    • Is the overall market expected to grow/shrink?
Monetising business model
  • Increasing your business margin
    1. Access
    2. Access to resource
    3. Better clients
    4. Branding
    5. Control of the distribution channel
    6. Convenience
    7. Desire
    8. Feelings
    9. First mover
    10. Focus
    11. Guts
    12. Innovation
    13. Location
    14. Lower cost structure
    15. Move up the value chain
    16. Problem-solving
    17. Product mix
    18. Proprietary features/patents
    19. Status
    20. Strategic vendor
    21. Strong brand
    22. Value chain
    23. Vertical integration
  • Decreasing the business costs
    1. Economies of scale
    2. Timing of market entry
    3. Degree of vertical integration
    4. Ability to learn
    5. Capability utilisation
    6. Interrelationships among business units
    7. Linkages among activities
    8. Firm's policy of costs of differentiation
    9. Geographic location
    10. Institutional factors such as regulation, taxes, union activity and so on
    11. Eliminate costs
    12. Outsource
    13. Insource
    14. Customer self-service
    15. Transparency
    16. Consolidation of vendors
    17. Collapsing the value chain
Sales business model
  • Groupon test: are your business desperate enough or poor in marketing that you have to sell your soul?
Sustainable business model
  • Intellectual property (IP)
    1. Patents, trademarks, and copyrights.
    2. Unpatented ideas or processes.
    3. In-house sales training program.
    4. Personal or organisational connections.
    5. Organisational wisdom.
    6. Better ways of doing business.
    7. Marketing prowess.
    8. Strong branding.
    9. First to use emerging technology.
  • Defensive tactics
    1. Moats
      • Spending hefty revenue on advertising
    2. Intransparency
      • Need to know basis
    3. Updates
      • Constant upgrade of system
    4. Guarding assets
      • IP, talent and brand like gold
    5. Legalities
      • Non-competition and non-disclosure
    6. Falling on the price sword
      • Lower the margin
    7. Being offensive
      • Offence is the best defence
  • Offensive tactics
    1. Innovation
      • Constant changing
    2. Speed
      • Move faster than competitors
    3. Culture
      • Grow competitive advantage
    4. Talent
      • Competitors' talent
    5. Bet on change, not lack of it
      • Dynamics
    6. Rope-a-dope
      • Let competitors thought they are winning first
Weakening business model
  • Reasons
    1. Competition
    2. Economics
    3. Technology
    4. Innovation
    5. Buying habits
    6. Government
    7. Market maturity
Terrific business models
  1. Build once, sell many
  2. Create a must have brand
  3. Get customers to create goods for free
  4. True competitive advantage as the low-cost provider
  5. Extraction of natural resources
  6. Valued intellectual property with legal or practical protection
  7. Technological destruction of existing model
  8. Gold plating the current gold standard
  9. Playing to customers' ever-increasing sense of self
  10. Ultra niche player

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