Business Model

THE BUSINESS MODEL
BUSINESS MODEL
• The term business model refers to a
company's plan for making a profit. It
identifies the products or services the
business plans to sell, its identified target
market, and any anticipated expenses.
Business models are important for both new
and established businesses
• a design for the successful operation of a
business, identifying revenue sources,
customer base, products, and details of
financing.
TRAFFIC LIGHTS IN DEVELOPING A
BUSINESS MODEL
• THE GREEN LIGHTS-positive signals that can
help entrepreneurs develop ideal business
models and eventually succeed
• 1. Target the high-value customers-someone
who is easy to find, willing to pay a price that
will reasonably profit the entrepreneur,
someone who is easy to persuade with the least
promotional effort and someone who can join
the bandwagon of customers when
consolidated, can generate a substantial amount
of revenues.
BUSINESS MODEL
2. Offer products or services with great value-
the value proposition and unique value
proposition should always kick in as
compelling reasons for customers to choose
your product or your service. The
entrepreneur must position the unique
attributes his product or service, devise
efficient distribution system, and attractive,
reasonable price.
3. Value Proposition (VP)- a simple statement
that summarizes why a customer would
choose your product or service and it
communicates the clearest benefit that
customers receive by giving you their
business
4. Unique Value Proposition (UVP) the core
benefit or solution that differentiates your
product or service from the competition and
positions it as the best possible option on the
market.
5. Offer products or services with reasonable
profits- there are two ways of achieving
reasonable profits: a) increasing mark-up and b)
decreasing operational cost. Decreasing
operational cost is a controllable strategy in
increasing profits of the business as lower cost
means higher profit margin. Devise efficient
distribution system, lessen necessary manpower
efforts as much as possible, apply lean
manufacturing processes and add support
products or auxiliary services that can increase
revenue without adding substantial cost.
BUSINESS MODEL
• The Red Lights - negative signals that
entrepreneurs should wary of.
1. Satisfying the customer becomes too costly
and irrational – there are numerous
associated after sales costs that can even
exceed the profit margin (lifetime value of a
customer, customer satisfaction costs)
-warranty
-after sales costs-technical support, installation,
and customer service
2. Being a market leader is difficult to sustain- one of the
characteristics of an ideal business model is capitalizing on
the business stature as market leader through improving
the features and benefits of its existing products or
services, adding new product lines or services, or
expanding by tapping new customers.
Difficult to sustain if the following conditions exist:

-if there are major customers purchasing the entrepreneur’s
product or services,
-major players in the industry that control the majority of the
distribution network,
-if technology has changed the way the entrepreneur operate, -if
technology replaces the need for the entrepreneur’s products or
service
-if the competitors can easily tap the market of the entrepreneur.
3. Return of Investment (ROI)-it validates that the
business is doing well and that money is flowing in as
expected during the planning stage. An ideal business
model is characterized by a reasonable ROI earned at
the right time and with the right amount.
Not operating as ideal business model:
-if ROI is less than approximately 25% in the first three
years of business operation
-present capacity is also not capable to produce or
handle new commitments; therefore, additional
investments must be made to accommodate the new
demands.
Not all entrepreneurs became
successful the first time they ventured
into business. All of them went
through failures and used these
failures to their advantage.

Business Model

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THE BUSINESS MODEL

Difficult to sustain if the following conditions exist:

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