ENT | 9

Entrepreneurship Part 9 - Business Models

In this article of the series entrepreneurship we will introduce the concept of business models. Show how the study of business models can inform the entrepreneur. In addition we will see how we can provide a system to characterize business models and discuss the role of business model innovation. To take it right here, in the following article (10) we will have a deep dive on competition evaluation.

To start off let’s define the phrase Business Model

A business model is the description of the way in which a company, a corporate system or an industry creates value on the market.

Bieger and Agost (2001)

Or in other words, a business model is a “story that explains how enterprise work”.

Hence, a good business model has to provide answers to the following questions:

• Who is the customer?

• For what is the customer willing to pay for?

• What is the underlying economic logic that explains how we can deliver value to customers at reasonable costs?

The business model is a structural template that describes the organization of a focal firm's transactions with all of its external constituents in factor and product markets.

Zott & Amit (2008)

The emergence of the network economy provides a multitude of opportunities for new and innovative business models, which is also a challenge for management theory.

The internet as a basic innovation and other technological innovations allow completely new networks. Corporate networks and customer networks allow new divisions of labor and possibilities of communication between companies, customers and suppliers.

One role of business models is hence to providing a set of generic level descriptors, of how a form organizes itself to create and distribute value in a profitable manner.

So what is the deal? Finding opportunities!

To define and find business opportunities we have several steps to take

1 Analysis of the organizational environment

• Macro-economic development and Megatrends

• Juristic and regulatory developments

• Technological developments

• Changes in society

• Natural environment

2 Developments within an industry

• Type

• Growth (today and forecast)

• Market segments

• Marketing standards

• General trends

• Opportunities?

3 Analysis of the competitive environment

• Product systems and services

• Positioning within the industry (strengths and weaknesses)

• Marketing (4P)

• Market share

• Competitors reaction

• Opportunities?

4 Development of a profile for the target market

• Customer needs, product design, distribution, branding …

• Focus on the end customer

• Customer profile

  • Who is my potential customer?

  • How do my customers behave?

  • How do my customers decide to purchase my product or service?

  • What is the decision of my customer influencing?

• Opportunities?

5 Definition of Sales Target

• Use as many formal and informal ways to find a sales target as possible

• Compare your results with external market data

Finally answer the following question:

DO WE AIM AT AN ATTRACTIVE MARKET?

To categorize your business idea following graphics shell support:

Source: McKinsey

So finally the questions is: “Is your Idea an Opportunity?”

Idea generation is only the first part of the process that leads towards the development of a successful business model. To evaluate an idea, five major areas need to be understood:

1. Customers

2. Competitors

3. Suppliers and Vendors

4. Government

5. Broader Global Environment

Global business environment

Whats left is the open question of who is now your customer?

To optimize the features most important to the customer, the first question is who the core customers are. Customer groups can be broken down into two general categories.

Primary Target Audience (PTA)

Is the customer group which is most likely to buy at a price that preserves your margins, and with a frequency that reaches your target revenues. These buyers share common characteristics and behaviors and account for the highest volume of sales.

Secondary Target Audience (STA)

The secondary target audience includes future primary buyers, those buying at a high rate within a small segment and people who influence primary buyers. Their characteristics and buying behaviors usually differ from those of the primary buyers.

Next article of the series in entrepreneurship we will look at how to evaluate your competition. Stay tuned - and thanks for reading.

ENT | 8

Entrepreneurship Part 8 - The innovation process

Welcome back to the next part of the entrepreneurship series. In this article we want to have a look on different ways to develop a business idea. This will also then define the end of the chapter creativity, innovation and entrepreneurship.

In the end we are talking about six different ways and here they are with some examples:

Analyze the state of the art technology
The iPhone is a combination of:
- Telecommunication
- MP3-Player
- Camera
- and much more

Analyze existing products and services
- You can create your own books, calendar, blog, etc. > publishing

Watch science and research
Learn from nature, typically a good advisor, e.g. artificial spider silk:
Advantages:
- biotech chip to replace spinneret
- lighter than cotton, stronger than steel
- perfect eco-balance
Applications:
- Bulletproof vests
- Different kinds of armor
- Aircraft construction
- Automotive construction

Detect trends and mega-trends
- Miniaturization
- Modularization
- Combination
- Instand Operativeness
- Substitution of mechanical systems
- Sustainable/Green energy supply
- Hydrogen as energy supply
- Do we still need human workforce…
- etc.

Monitore demographic trends
- Convenience
- Individualization
- Automation of work
- Need for adventure

Develop new solutions

But how can it be seen, the process model of creativity, innovation and entrepreneurship.

Entrepreneurship as a process

This is all speeded up as new opportunities come across every day as life cycles of goods and services are shortened to the absolute minimum.

Next article of the series in entrepreneurship we will start to have a look at business models and value creation. Stay tuned - and thanks for reading.

ENT | 4

Entrepreneurship Part 4 - ENT as a Process

Welcome back! In part 4 of the series about entrepreneurship we will have a look on entrepreneurship as a process.

In the field of research entrepreneurship is concerned with the following questions:

• Who recoginzes entrepreneurial opportunities?

• How and when does the process of opportunity recognition happen?

• Entrepreneurship as a field is hence closely related to economics, strategic management, sociology, psychology, historical research, anthropology et al.

When we think about a model of the entrepreneurial process it will look something like this:

Model of entrepreneurial process.

So lets think about the model of venture creation

A model of value creation.

The creation of a new venture to exploit an entrepreneurial opportunity is more likely when:

• there are a few incentives for an individual to exploit the opportunity within an existing organization

• incumbent firms in an industry can not achieve high levels of economies of scale and scope

• there are low entry barriers in an industry

Alternative ways to make use of an opportunity could be a management buy-in (MBI) or management buy-out (MBO), the foundation of a joint venture, or a selling of user rights or license.

Values

Readiness for change, or at least the willingness to live with it, is essential of a society is to create wealth and value for its population.

Politics

At a macro level, politics provide a framework for entrepreneurship by organizing a society. However, if chaos impedes entrepreneurship, conversely too much order is just as bad. Successful societies create and manage a tension between order and chaos.

Economic Institutions

Institutions like property rights, stock exchanges, banks, courts, laws of contract et al. are tools used by entrepreneurs to capitalize on opportunities and convert those opportunities into marketable services and products.

This brings us to the question: What are the reasons for new venture creations?

1 Desire for autonomy

Entrepreneurs want to be independent, possibly work at location of their choice and be their own boss.

2 Material rewards

Entrepreneurs want to be rewarded according to their efforts and because of the anticipated financial gains.

3 Creativity

Many entrepreneurs want to take advantage of their own talents, to create something new and to realize their desire to bring something new into existence.

But there are also some reasons that speak against new venture creations:

1 Lack of resources

Many potential entrepreneurs think that they lack competencies in management or marketing. They also have to face the liability of newness and the problems to find sufficient finance.

2 Compliance costs

High taxes and the costs of complying with government legislation are perceived as a major hurdle.

3 Hard reality

The process of venture creation is often harder and riskier than initially expected. The future is perceived as very uncertain and, as a result, a certain fear of failure emerges over while the would-be entrepreneur gathers resources and processes information to launch the venture.

Once this is done we want to show some relevant performance measures:

Relevant performance measures

Hope you enjoyed the read. Next in line will be finding the right growth rate including an entrepreneur’s guide to the big issues.