BUILDING BUSINESS MODELS

INTRODUCTION
➢ good product and/or service does not automatically turn into a commercial
success
➢ business model makes the difference between success in the laboratory and
success in the marketplace
➢ business model involves:
1. the product or service offering
2. the targeted customers
3. the economic engine for profitability and growth objectives

WHAT IS A BUSINESS MODEL?

• “how does it plan to generate money”
• who your customer is
• what value you can create/add for the customer
• how you can do that at reasonable costs

TRADITIONAL BUSINESS MODELS

1. Manufacturer- Ajinomoto Philippines, Alaska Milk and Century Pacific Foods
2. Distributor-Auto dealers
3. Retailer-Best Buy, WalMart and
4. Target Franchise-Jollibee, McDonald’s and Pizza Hut
5. Brick-and-mortar- Grocery stores, dentists,gas stations, local grocery and walk- in
banks
6. Bricks-and-clicks- businesses selling apparel and shoes items in Divisoria
7. Direct Sales-Avon, Boardwalk, Dakki, Fern and Forever Living
8. High Touch-Hair salons and auto dealers
9. Family-owned-National Bookstore, ShoeMart, Jollibee and Robinsons

MODERN BUSINESS MODELS

1. Nickel-and-dime-Cebu Pacific
2. Freemium-Zoom, Spotify and Dropbox
3. E-Commerce-Amazon, Flipkart, Shopify, Myntra, Ebay, Quikr, Olx and Alibaba
4. Subscription-Netflix, LinkedIn, Amazon Prime, Dollar Shave Club
5. Aggregator-Airbnb, Zillow and Oyo for Hotels; Uber for taxi service; and Yodlee for
financial service
6. Online Marketplace-Amazon and AlibabaHidden RevenueGoogle, Facebook,
Instagram and Twitter
7. Data Licensing / Data Selling-Twitter sells real-time data to third party users
 8. Agency-Based-Leo Burnett Company is an agency that services United Airlines,
McDonald’s, Kellogg’s
9. Affiliate Marketing- NerdWallet, Capterra, MoneySavingExpert.co mand and the
Wirecutter
10. Dropshipping-Doba, Oberlo, Dropship Direct, and Wholesale 2B
11. Network Marketing- Avon, H and Mary Kay
12. Crowdsourcing-Wikipedia, YouTube, Kickstarter, LEGO ideas, Unilever, Coca
Cola
13. Blockchain-Bitcoin, Ethereum, and Litecoin
14. Low Touch-Ikea and SurveyMonkey
15. Razor and Blade-Razor
16. Consulting-Deloitte, Mckinsey, BCG, software
17. Social Enterprise-Bayani Brew, Coffee for Peace, First Harvest and Liter of
Light

THE BUSINESS MODEL CANVAS

“Business Model Ontology” Alexander Osterwalder, the Business Model Canvas
consisting of nine segments for its building blocks
• business model can be written in a one-page canvas
• focus on every segment or blocks of the business model systematically until the gaps
close
• a block describes the factor that a startup business needs to study
• modify each block as the need arises
• When one block is change, the other blocks are required to be revisited and
changed

SAMPLE BUSINESS CANVASS MODEL FOR A SMALL BAKERY

Key Partners Key Activities Value Customer Customer
Propositions Relationships Segments
1. vendors of 1. introduce 1. freshly 1. Hotline 1. Neighborhood
organic raw organically baked number communities
materials produced breads 2. E-mail for 2. Healthy life
2. packaging bread 2. specialized questions stylist
suppliers 2. marketing inorganic 3. Facebook 3. Neighborhood
3. retail and sales bread page supermarkets
partners 3. branding 3. breads of 4. Loyalty 4. Neighborhood
4. consumer constant discounts bakeries
education quality
4. breads are
served
quickly
5. competitive
priced
breads
6. Halal
certified
7. The
 “Finsbury
bread” of
Manila
Key Channels
Resources 1. Social media
1. Team 2. Rifer delivery
cooperation 3. On call delivery
2. Raw 4. Direct selling using own website
materials 5. Physical store
3. Social 6. Events planner
media
4. Retail
network

Cost Structure Revenue Streams

1. Equipment and facilities 1. Volume sales from supermarket
2. Staff salaries 2. Sales to customers
3. Product ingredients Sales to events such as weddings, birthdays, anniversaries,
etc.

Key partners are the network of suppliers and partners

• Partner with other business, governmental, ornon- consumerentities
• Partnershipscould be a tool toa businesssuccess
• Partnering can be for optimizing the use of resources, forming new resource
streams or lessening risks

TYPES OF PARTNERSHIPS
1. Strategic alliances- between non-competitors to help each other do an equally
advantageous task
- but retaining their independence
2. Coopetition-agreement between competitors to help share the risk
- to gainnew users
3. Joint-ventures- two businesses because of their mutual interest
- for a completely different company
4. Buyer-supplier relationship- the most usual type of partnerships
- dependable spring of supplies coming in
Key activities are the most essential activities inachieving a company’s value proposition
• a bridge between the value proposition and the customer segment
• consider channels and customer relationships
• reliant on business model type

CATEGORIES OF KEY ACTIVITIES

✓ Marketing
✓ Sales
✓ Design
✓ Development
✓ Operations
✓ Distribution
✓ Customer Experience

Key resources describes the most important assetsrequired to make a business model work
• resources that allow an enterprise to create and offer a value proposition
• resources to reach target markets
• resources that can maintain good relationships with customer segments, andgain
revenues

FOUR CATEGORIES OF RESOURCES

1. Physical- resources that a company makeuse of to form its value proposition
2. Intellectual – nonphysical, intangible resources
3. Human – Employees are the biggest and most vital resources
4. Financial – All businesses have key resources in finance

Customer value proposition (CVP) is a business’s way of generating value in their product or
service when targeting potential customers
• value proposition is a statement consisting of the reason/s someone should do
business with the company
• value proposition computed through adding all the benefits that the product
• CVP is a description of the user’s experience

FACTORS CONSIDERED IN THE DEVELOPMENT OF THE CUSTOMER VALUE

PROPOSITION
1. Functional value-product and or service offers the solution to a particular problem (phone
competence offered by an iPhone)
2. Emotional value-sentimental reasons (purchasing locally produced or organic brands)
3. Economic value-offers a financial advantage
4. Symbolic value-a certain type of status given to the customer (Italian Ducati
motorcycle /a cup of Starbucks coffee

DIFFERENT TYPES OF CVPs

Value All benefits Favorable point of Resonating focus
proposition difference
Consist of All benefits All favorable points o f The key point of
customers receive difference a market difference whose
from a market offering hasrelative to improvement will
offering the next best alternative deliver the greatest
value to the customer
for the
foreseeable future
Answers the why should our firm “why should our form “What is the most
customer purchase your purchase your offering worthwhile
question offering?” instead of your for our firm to keep in
competitors?” mind about your
offering?’
Requires Knowledge of own Knowledge of our own Knowledge of how
market offering market offering and next own market offering
best alternative delivers superior
value
to customers compared
with
next bet alternative
Has the potential Benefit assertion Value presumption Requires customer
pitfall value research

Customer relationships are the types of relationship a company forms with its particular
customer segments
• To gain customers
• To keep them
• To grow sales with them

TYPES OF CUSTOMER RELATIONSHIPS

1. Personal assistance communicate with a real salesperson
2. Dedicated personal assistance-assigning a salesperson to an individual customer
3. Self-service-no direct relationship
4. Automated services-a combination of customer self-service and automated
processes
5. Communities-online communities to exchange information
6. Co-creation-customers have the chance to co-create value with the company such as in
designing and innovating products

Customer segments - shared needs, behaviors and other traits can be the bases for
customer segmentation
• customer segment refers to demographics such as age, ethnicity, profession and/or
gender, etc.
• company may select a single group or several groups

TYPES OF CUSTOMER SEGMENTS

1. Mass- an unsegmented market
2. Niche-a customer segment with very distinct characteristics and extremely specific needs
3. Segmented-customer segments that have very small differences in their need
requirements
4. Diversified- differentiated customer segments
5. Multi-sided platformscustomer segments are reliant with each other

Channels are the touch points through which a company communicates with its target
customers
• play a big role in defining the customer experience and providing value
• entrepreneur should understand which channel is appropriate to reach his target
consumers

FIVE PHASES THAT A CHANNEL MAY PASS THROUGH

1. Awareness- marketing and advertising phase
2. Evaluation- customer evaluates, read about or uses the product or avail of the service
3. Purchase-the actual sales process
4. Delivery- when the promised value proposition has reached the customers
5. After Sales- giving customer care and support after purchase

CHANNEL TYPES
Direct Channels
 • the entrepreneur owns or has control over
• could mean added costs
• provide a direct and strong relationship

Indirect channel
• use of intermediary
• wholesalers are considered
• partner channels
• quick to reach the market and less investment in infrastructure

Value proposition canvas aims is to guarantee proper fit of the product and the market-
Alexander Osterwalder
• takes into consideration the values and needs of the customers
• a detailed relationship of the customer segments and value propositions
• tool also to upgrade a product and/or service offering

TWO BUILDING BLOCKS-VALUE PROPOSITION CANVAS

Customer profile Value proposition
points to the customer segment that is a statement consisting of the
the company shall serve reason/s someone should do business
with
the company
created for each customer •reflect on the gain creators,
segment, as each segment pain relievers and the
has distinct gains, pains and products and/
jobs or services to offer them
before making a customer
profile, the various
archetypes

CUSTOMER PROFILE
1. Customer Gains
• all the expectations and needs of customers
 • things that may delight them and other stuffs that may intensify the possibility of these
customers embracing a value proposition
✓ Required gains- the very basic expectations by the customers
(Smartphone to make and receive phone calls)
✓ Expected gains- beyond the basic ones (Smartphone expected to be visually
attractive and fashionable)
✓ Desired gains-sought-after and cherished gains by the customer
(Smartphone, having no trouble in the synching the phone)
✓ Unexpected gains-potential benefits of the product and/or service for which the
customer is unaware (touch screen capability of a Smartphone
2. Customer Pains
• either avoid the customer from getting a job done or the negative experiences
• emotions and risks that the customer experiences before, during or after a job
✓ Productivity pains- include the inefficiency of the businesses that a
customer experiences
✓ Support pains – felt by a customer when he is not assisted when buying
✓ Financial painscustomer spends too much
✓ Process pains-create friction to buyers like substandard processes
3. Customer Jobs/Jobs-to-be-done
• functional, social and emotional tasks customers are trying to do
• challenges they are attempting to resolve and needs they desire to satisfy in their
personal and professional lives
✓ Functional jobs – regular and particular jobs that a customer is trying to do
and is working towards
✓ Social jobs -the manners a customer desires to reflect his image in a social
environment
✓ Personal/ emotional jobs –how a customer works towards feeling a certain
way
✓ Supporting jobs – customers also purchase value, hence doing a
supporting task
✓
THREE ROLES OF CUSTOMERS THAT MAY ASSIST IN SUPPORTING JOBS
1. Buyer of value-from evaluating choices at hand up to paying for the product
2. Co-creator of value-has a direct hand in the manufacture of the product with the
company
3. Transferor of value-the end of the product use such as disposal of product trash or giving
the ownership of the product to another person
THE LEAN CANVAS: A BUSINESS MODEL CANVAS ALTERNATIVE
➢ proposed by Ash Maurya
➢ a developed version of the Business Model
 ➢ more problem- focused approach and appropriate to use by small entrepreneurs
➢ more on customers’ needs, on actionable metrics
➢ offer a fast idea-toproduct transformation

ELEMENTS OF THE LEAN CANVAS MODEL

1. Problem- problems that require solving
2. Solution-look for the effective solution by “getting out of the building”
3. Value Proposition-a marketable promise that the business will solve their problem
4. Unfair Advantage-the competitive advantage that cannot be copied and cannot be bought
5. Customer segments-problem and the customer segments must be connected
6. Channels- ways to reach the customer segments
7. Revenue streams-the money matter of the business
8. Cost structure-the operational costs that the business needs to pay
9. Key Metrics- the assortment of products and/or services the business wants to deliver