Business Model

Raj Shankar
ichiban Group

Purpose of A Business

The main purpose of a business is to create value

Purpose of A Business

The main purpose of a business is to create value

What is a Business Model?

A Business Model is a link between social domain where economic rents
are generated and creative domain where products and services are
conceptualized- Craig S. Fisher and Babette E. Bensoussan
A Business Model is a core logic of value creation
Details how the business will make money

Business Model & Business Plan- Key Differences

Business Model

Business Plan

Ascertains how a business

works in reality

Provides a section wise

details of your business

Creates an opportunity map

for your business idea

The business plan is drawn

up based on your business
model

It gives different shapes to

a single business idea and
more practical in terms

It is more literary in terms

and does not reflect the
practical shape that a
business would take in
reality

Why should we model before the plan?

Profitability is designed from the inside of the business

Most industries are moving from single dominant models

to multiple models

Allows clear visualization of Cost and Price Equilibrium

Studies the economics of business and viability of the
business
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Functions of a Business Model

Value Creation
Enterprise exist because they create value
Success of the enterprise is predicated on how many consider the
value generated useful
Customers are willing to pay a price based on how important they
consider this value

Value Capture
How much of earnings that the enterprise can retain to carry on and
deliver this value?
What are the broad margins that an enterprise can earn through
conducting the business?
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Ubiquitous Business Model

The Barter System

Exchange of goods between two people is one of the old models

The Kirana Stores

They have certain credit cycles built into products

The Razor Blade Model (Gillette)

The Reverse Razor Blade Model (i-Tunes)

Business Model Double Ellipse

Double Elipse
The product needs to be made available to the customer for purchase

Value Creation :Businesses exist only when they create value

Distribution
Activities
Resources : Businesses
will use resources to create this value that the customers find useful
Channels

Customer

PRICE
ELLIPSE

Value
Proposition

COST
ELLIPSE

Resources

Communication
Management
TheCustomer
value that: the
business
offers
needs
to
be
communicated
Businesses
need someone to feel the usefulnesstoofthethecustomer
value
Channels
To
activities
one wouldhas
need
level
of management
Tocoordinate
deliver thethe
value
the organization
to appropriate
execute some
activities
resources and controls
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Business Influencer
Industry
Distribution
Channels

Customer

Price
Ellipse

Activity

Value
Proposition

Communication
Channels

Cost
Ellipse

Resources

Management

Competition
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Attributes

Customer
Value Proposition
Resources
Communication channels
Distribution channels
Activity
Management

Influencers

Industry
Competition

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Value Proposition
Value proposition is defining the value being created and
delivered to the customer

From customers perspective

What will it help the customer achieve
Should be narrow
Should identify with one of the three value discipline

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Customer
Defining the beneficiary of the value

Understanding User / Sponsor and Influencer

Characteristics of ideal customer
Typical buying cycle
Customer Volumes

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Communication Channels
Communication channels are used to inform the
customer about the proposed value that is being
delivered by the service or the product so that they can
make a well informed purchase
Points of aggregation
Cost of communication
Level of customer maturity

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Distribution Channels
Distribution channel should consider how the product or
service can be delivered:
Number of levels
Need for partners
Supply chain costs

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Resources
These are the resources needed for delivering the value

Nature of resource (man / material / ip / infrastructure etc)

Partners
Is the resource differentiated?
Resource criticality
Access / Owned / Leased

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Activity
To create value the resources have to be involved in
executing certain activities
Functional Activities ( S&M / HR / Accounts etc)
Operational Activities (Manufacturing / Customer relationship
management / purchase / infrastructure management etc)
Strategic Activities ( Outsourcing / Partnering etc)

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Management
Management means positions, designation, utilisation of
resources to deliver value, overseeing of activities,
involvement in activities, etc
Structure
Over heads
Board / Advisory

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Business Model- Interpretation

Business design is a constant state of stretching and
skewing between the two ellipses - the price ellipse and
the cost ellipse

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Benefits of a Business Model

Articulate the
value
proposition
in a clear
manner
Formulate
a good
competitiv
e strategy

Identify the
market
segments
profitable to
operate

Business
Model
Position
the firm
within the
overall
ecosystem

Structure
the value
chain
Estimate
the cost
structure,
revenue
and profit
models

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Thank You..

Key Source: Entrepreneurship Theory and Practice, Raj

Shankar
For all your queries and suggestions,
Please contact: ichiban.raj@gmail.com

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