Opportunity

Recognition
MODULE
“2”
 Recognizing Opportunities
Sources of Opportunity
Thinking Creatively
Business Model
What is a Business Model?
Different Types of Business Model
Manufacturer
Distributor
Retailer
Franchise
Brick-and-mortar
eCommerce
What Is a Business Plan?
Parts of a Business Plan
7 Steps to a Perfectly Written Business Plan
1. Research, research, research
2. Determine the purpose of your plan
3. Create a company profile
4. Document all aspects of your business
5. Have a strategic marketing plan in place
6. Make it adaptable based on your audience
7. Explain why you care
Market opportunity analysis
Market Opportunity Analysis Steps
CO N T E N T

Sources of Information
Identify the customers or potential customers for a business
Why Is Market Research Important?
10 Steps To Target And Connect With Potential Customers Effectively
Identifying Your Competition
Types of Competition
Other Forms of Competition
Determining Your Competitive Advantage
Gather Competitive Intelligence23
Recognize a value proposition
What Is a Value Proposition?
How to Determine Your Value Propositio
How to Express Your Value Proposition
How Your Value Proposition Attracts Customers
Business Model Canvas
WHAT IS A BUSINESS MODEL CANVAS?
THE TRADITIONAL APPROACH TO A BUSINESS MODEL
THE 9 BUILDING BLOCKS
WHY TO USE THE BUSINESS MODEL CANVAS
APPLYING THE BUSINESS MODEL CANVAS
How do I add Pain Relievers to my Value Proposition Canvas?
Questions to ask
Relevance
Business Model Canvas Examples
Example 1: Google
A Word on Color Coding
Example 2: Skype
Example 3: Gillette
Key Takeaway
Creating Your First Business Model
Summary
ASSESSMENT
Activity
 RECOGNIZING
OPPORTUNITIES

Usually you start a business because you see an opportunity. A busi-

ness opportunity is a consumer need or want that can potentially be
met by a new business. In economics, a need is defined as something
that people must have to survive, such as water, food, clothing, or
shelter. A want is a product or service that people desire.
Sources of
Opportunity

Staying aware of things going on around you can help you recognize po-
tential business opportunities. Here are just a few sources of ideas:

- Problems. Many well-known companies were started because an en-

trepreneur wanted to solve a problem. A problem could be something
you are experiencing personally. Or it could be a problem you observe
others experiencing. What product or service would improve your life or
the lives of others? What would you like to buy that is not available for
purchase in your area?

- Changes. Our world is continually changing—changes in laws and regula-

tions, social customs, local and national trends, even the weather. Change
often produces needs or wants that no one is currently supplying. Consider
climate change and the trend toward taking better care of the environment.
Many new business opportunities have occurred because people are inter-
ested in purchasing “green” products and services.

- New Discoveries. The creation of totally new products and services can
happen by accident. For example, someone who has an enjoyable hobby
can discover something recognizable as a business opportunity. Inventions
also come about because someone wanted to find a way to solve a problem.
Other examples include changes in technology or medical and technological
discoveries that entrepreneurs find ways to convert into products and ser-
vices.
- Existing Products and Services. You can get ideas for opportunities
from businesses that already exist. This is not the same thing as copying a
product or service and then calling it by another name (which can be illegal).
Instead, it means looking for ways to significantly improve a product, per-
haps at a lower price. It could also involve improving the quality and manner
in which customers are served—including such features as better locations,
longer hours, or quicker service.

- Unique Knowledge. Entrepreneurs sometimes turn one-of-a-kind expe-

riences or uncommon knowledge into a product or service that benefits
others. Think about your own knowledge and experiences. Is there anything
unique or unusual that you could use to create.

Thinking Creatively ...

Creative thinking is a thought process that involves looking at a situation
or object in new ways..

Challenge the Usual. Ask lots of “Why?” and “What if?” questions.

Think Backward. Start by imagining the end result you want.

Be Flexible. Force yourself to examine things from different angles.

Judge Later. When brainstorming ideas, don’t worry about being practical.

Draw Idea Maps. Use whiteboards, chalkboards, and

poster boards to sketch out ideas.

Brainstorm in a Group. Ask your friends, family, and class-

mates to help you generate ideas.

Daydream. Letting your mind wander is okay; just make

sure you pick an appropriate time.
 Business Model
Your prototype might be ready for presenting to investors or
licensees but it is worth nothing if you do not have a business model in
place. How are you going to explain to anyone what your product
does/intends to do and how it is going to add/create value for custom-
ers as well as the company?

You need a business model for that.

It is a term people frequently use but most of them don’t truly understand
what it means. Michael Lewis, the author of The New, New Thing: A Silicon
Valley Story, says that a business model is a “term of art”. Most people
know it when they see it but cannot accurately describe it.

What is a Business Model?

A Business Model is a conceptual structure that supports the viability of a product or company
and explains how the company operates, makes money, and how it intends to achieve its goals.
All the business processes and policies that a company adopts and follows are part of the busi-
ness model.

According to management guru Peter Drucker:

Thus a business model is a

a business model is sup- description of the rationale
posed to answer who your of how a company creates,
customer is, what value you delivers and captures value
for itself as well as the cus-
can create/add for the cus-
tomer.
tomer and how you can do
that at reasonable costs.
 ON THE BLOG

The widespread use of business models came into exis-

tence with the advent of the personal computer which let
D Iand
people test S C Omodel
U N T S the different components of a busi-
ness. Successful business models before that were mostly
created by accident and not by design. It’s different for
business plans and business strategies though.
Every business model intrinsically has three parts –

• everything related to designing and manufacturing

the product

• everything related to selling the product, from

finding the right customers to distributing the prod-
uct

• everything related to how the customer will pay

and how the company will make money
There are different types of business models
meant for different businesses. Some of the
basic types of business models are:

Manufacturer
A manufacturer makes finished products from raw ma-
terials. It may sell directly to the customers or sell it to a
middleman i.e another business that sells it finally to the
customer. Ex: Ford, 3M, General Electric.

Distributor
A distributor buys products from manufacturers and
resells them to the retailers or the public. Ex: Auto Deal-
erships.

Retailer
A retailer sells directly to the public after purchasing the
products from a distributor or wholesaler. Ex: Amazon,
Tesco.

Franchise
A franchise can be a manufacturer, distributor or retailer.
Instead of creating a new product, the franchisee uses
the parent business’s model and brand while paying roy-
alties to it. Ex: McDonald’s, Pizza Hut.

Brick-and-mortar
Brick-and-mortar is a traditional business model where
the retailers, wholesalers, and manufacturers deal with
the customers face-to-face in an office, a shop, or a store
that the business owns or rents.

E-Commerce
E-Commerce business model is an upgradation of the
traditional brick-and-mortar business model. It focuses
on selling products by creating a web-store on the inter-
net.
A business plan is a statement of your business goals, the reasons you
think these goals can be met, and how you are going to achieve them.

Types of Business Plans

Business plans have no set format. A plan is developed based on the type of
business that is intended. However, it is also based on the audience.
Businesses need different types of plans for different audiences. There are four
main types of plans for a start-up business:

- Quick Summary. This is a brief synopsis lasting no more than thirty seconds to three
minutes. It’s used to interest potential investors, customers, or strategic partners. It may
seem strange to consider this a type of business plan, but it is. In some cases, the quick
summary may be a necessary step toward presenting a more fully developed plan.
(Examples of this type of summary are the elevator pitch and the twit pitch described
later in this section.)

- Oral Presentation. This is a relatively short, colorful, and entertaining slide show
with a running narrative.
It is meant to interest potential investors in reading the detailed business plan.

- Investor’s Business Plan. Anyone who plans to invest in your start-up business
(banks, investors, and others) needs to know exactly what you are planning. They need
a detailed business plan that is well written and formatted so all the information can be
easily understood. When entrepreneurs talk about a business plan, this is typically the
type of plan they mean.

- Operational Business Plan. Often a start-up business will develop an operational

plan that is meant for use within the business only.
This plan describes in greater detail than the investor’s business plan how the company
will meet its goals. It is also often less formal than an investor’s business plan.
Although there is no set format for a business plan, each type of plan will address The
Three C’s.

• Concept. What is your product or service

and how is it different from similar products
or services?

• Customer. Who will be buying your prod-

uct or service and why?

• Capital. How will you locate the initial

money your business will need? What will be
your costs and what kind of profit can you
expect?
 In this topic you will be focusing on developing an investor’s busi-
ness plan. Bankers and other professional investors need to see
your business plan before they lend you money. You may have a
brilliant idea, but if you do not explain it carefully in a well-written
business plan, no professional investor will be interested.

Professional investors typically see many business plans each year

and make very few investments. They will immediately reject an
incomplete or poorly written plan. Investors are busy people and
don’t have time to read an overly long business plan. Your plan,
including the financials, should be no longer than 20 typed pages
(and many are much shorter). It should require no more than an
hour of reading time.

Most plans will include these seven parts (although the order may differ,
depending on the type of business):
- Business Idea. Not only do you de-
scribe your product or service in this part
of the business plan, but you also talk about
the type of business you will start and the
type of business ownership you will use. Recent-
ly, in this part of the business plan, entrepreneurs
have begun to describe how their business is socially
responsible.

- Opportunity & Market Analysis. Your description of the

market should include an account of the market, its size, its
trends and characteristics, and its growth rate. Describe your
market research. List your competitors and describe your com-
petitive advantage. Provide your marketing plan, your product and
pricing strategies, and your plans for promotion.

- Financial Strategies. This section shows any historical financial data, as

well as projected figures including estimated sales and expenses (typically
extending for five years). This section also describes any financing required by
the business.

- Organizational Structures. In this part of the business plan you discuss the
organizational structure of the company. You can provide profiles of key manag-
ers and, if appropriate, information about your board of directors. You can also
describe how you plan to train and motivate your employees, if appropriate.

- Legal Structures. In this part of the business plan you describe any intellectual
property or contract issues. You also talk about how your business will be pro-
tected by insurance, the affect of taxes on your business, and any relevant gov-
ernment regulations that affect the business.

- Business Management. Describe how the business will be managed (focusing

on production, distribution, operations, purchasing, and inventory).

- Plan for Growth. Here you describe your plans to grow the business and the
challenges it may face. You may also describe your plans to franchise or license
the business, if that is part of its plan for growth.
We recommends that a business plan include:
• Executive summary -- a snapshot of your business
• Company description -- describes what you do
• Market analysis - research on your industry, market and
competitors
• Organization and management -- your business and
management structure
• Service or product -- the products or services you’re
offering
• Marketing and sales -- how you’ll market your business
and your sales strategy
• Funding request -- how much money you’ll need for
next 3 to 5 years
• Financial projections -- supply information like balance
sheets
•List of addenda -- an optional section that includes
résumés and permits
However, getting started may be difficult
to do. So, here are
6 7
5
4
Explain why
you care.

3
Make it
adaptable
Have a based on

2
strategic your audi-
marketing ence.
Document plan in place.

1
all aspects of
your business.
Create a
company
Determine profile.
the purpose
of your plan.
Research,
research,
research.

1. Research, research, research.

“Research and analyze your product, your market and your objective exper-
tise,” William Pirraglia, a now-retired senior financial and management exec-
utive, has written. “Consider spending twice as much time researching, eval-
uating and thinking as you spend actually writing the business plan.

“To write the perfect plan, you must know your company, your product, your
competition and the market intimately.”

In other words, it’s your responsibility to know everything you can about
your business and the industry that you’re entering. Read everything you
can about your industry and talk to your audience.

2. Determine the purpose of your plan.

A business plan, as defined by Entrepreneur, is a “written document describ-
ing the nature of the business, the sales and marketing strategy, and the
financial background, and containing a projected profit and loss statement.”
However, your business plan can serve several different purposes.
As Entrepreneur notes, it’s “also a road map that provides directions so a
business can plan its future and helps it avoid bumps in the road.” That’s im-
portant to keep in mind if you’re self-funding or bootstrapping your busi-
ness. But, if you want to attract investors, your plan will have a different pur-
pose and you’ll have to write a plan that targets them so it will have to be as
clear and concise as possible. When you define your plan, make sure you
have defined these goals personally as well.

3. Create a company profile.

Your company profile includes the history of your organization, what prod-
ucts or services you offer, your target market and audience, your resources,
how you’re going to solve a problem and what makes your business unique.
Company profiles are often found on the company’s official website and are
used to attract possible customers and talent. However, your profile can be
used to describe your company in your business plan. It’s not only an essen-
tial component of your business plan; it’s also one of the first written parts
of the plan.

Having your profile in place makes this step a whole lot easier to compose.

4. Document all aspects of your business.

Investors want to make sure that your business is going to make them
money. Because of this expectation, investors want to know everything
about your business. To help with this process, document everything from
your expenses, cash flow and industry projections. Also, don’t forget seem-
ingly minor details like your location strategy and licensing agreements.

5. Have a strategic marketing plan in place.

A great business plan will always include a strategic and aggressive market-
ing plan. This typically includes achieving marketing objectives such as:
 • Raising prices without cutting into sales figures
• Refining a product
• Having a content marketing strategy
• Enhancing manufacturing/product delivery

“Each marketing objective should have several goals (subsets of objectives)

and tactics for achieving those goals,” states Entrepreneur.

“In the objectives section of your marketing plan, you focus on the ‘what’
and the ‘why’ of the marketing tasks for the year ahead. In the implementa-
tion section, you focus on the practical, sweat-and-calluses areas of who,
where, when and how. This is life in the marketing trenches.”

Of course, achieving marketing objectives will have costs. “Your marketing

plan needs to have a section in which you allocate budgets for each activity
planned," Entrepreneur says. It would be beneficial for you to create sepa-
rate budgets for for internal hours (staff time) and external costs
(out-of-pocket expenses).

6. Make it adaptable based on your audience.

“The potential readers of a business plan are a varied bunch, ranging from
bankers and venture capitalists to employees,” states Entrepreneur. “Al-
though this is a diverse group, it is a finite one. And each type of reader does
have certain typical interests. If you know these interests up-front, you can
be sure to take them into account when preparing a plan for that particular
audience.”

For example, bankers will be more interested in balance sheets and

cash-flow statements, while venture capitalists will be looking at the basic
business concept and your management team. The manager on your team,
however, will be using the plan to “remind themselves of objectives.”

Because of this, make sure that your plan can be modified depending on the
audience reading your plan. However, keep these alterations limited from
one plan to another. This means that when sharing financial projections, you
should keep that data the same across the board.

Explain why you care.

Whether you’re sharing your plan with an investor, customer or team
member, your plan needs to show that you’re passionate and dedicated, and
you actually care about your business and the plan
You could discuss the mistakes that you've learned, list the problems that
you’re hoping to solve, describe your values, and establish what makes you
stand out from the competition.

When I started my payments company, I set out to conquer the world. I

wanted to change the way payments were made and make it easier for
anyone, anywhere in the world to pay anyone with few to no fees. I ex-
plained why I wanted to build this. My passion shows through everything I
do.

By explaining why you care about your business you create an emotional
connection with others so that they’ll support your organization going for-
ward.

Market
Opportunity
Analysis

As you work
on your business plan, a
major section needs to be devoted
to identifying future opportunities for your
company. This is key to developing a long term strategy,
because without any planning you’re likely to only have short term
success. Not something a typical business owner wants to hear. If you’re still wait-
ing to make a start on your business plan.

In essence, a marketing opportunity analysis takes into consideration the financial capabilities,
available technology and your competitive readiness to take action. Its conclusions allow you to
identify new target markets, discover unmet customer needs, and realize your competitive advan-
tages. All good businesses meet their customers’ needs, which is especially in today’s environment
where the level of competition is through the roof.
1. Identify what’s currently happening in the business environment.

In this section you need to look at the economic conditions (growth,

stable or decline) as well as any trends or social changes that could have
an impact on the business. Delve into both the legal and regulatory situ-
ations, as these can often change and you need to be prepared for any
future expected changes as well. Research the latest technology and
state of the art developments, and take into account the natural environ-
ment. Are there any vulnerabilities or limitations on resources that could
hinder your growth?

2. Define the industry and determine the outlook.

Here you need to state exactly the industry that you are operating
within, and make forecasts on the size of the market. Look back over the
last 5 years, and project how you believe it will grow over the next 12
months, 3 years and 5 years. Look to your competition and discover the
marketing practices that are being utilized, and see if you can see any
major trends or shifts within your industry. Here there are major implica-
tions for potential opportunities, as you need to ensure you’re moving in
the same direction as the market.

3. Dive into the details of your competitors.

You need to know what businesses you are competing with, and know
their products inside and out. Go through their product mix, and com-
pare this with the products you are offering. Make sure you’re objective
in your approach, and also identify the relative strengths and weaknesses
of the products from your customers’ point of view. Look at how your
competition is reaching the market, the channels they’re using to both
distribute and market their products, and the level of service that’s being
offered. If you have details on the market share of other businesses in-
clude it here, and sum it all up in a couple of short sentences that outline
the implications of this section regarding the opportunities in the
market.

4. Describe your target market.

You need to build a profile of your ideal customer, so that you can ade-
quately focus your sales and marketing efforts and reach your customers.
If you haven’t built a marketing plan before. In essence you simply need
to look at the needs of your customers, but if you get stuck try asking
yourself one of these questions:

• Who are my potential customers?

• What are my potential customers like as a consumer?
• What are my potential customers looking for?
• When is the product needed?
• Is there a particular channel that the product sells best in?
• How do my potential customers make a decision to buy a product?
• How important is each of my products attributes to my potential customers?
• Are there any outside influences that have an effect on their buying decision?
• Is there any limitations that can influence the level of opportunity?
• What is the competition starting to do?
• How is the market developing and changing?

Thinking and answering these should get the ball rolling, remember the
entire goal is to focus on the end-user, and determine what it is they ac-
tually need. If the need is there, the market is there, and you’ve got the
basic fundamentals for creating success selling your products.

5. Create your projections.

Use a variety of techniques that build on all of the information in your

business plan to set a forecast of your sales. This includes best and worst
case scenario analysis, any intuition or “gut-feelings” you have about
new markets, and compare any results you have seen to date. The final
recommendation in a market opportunity analysis is a simple answer to
this question. Is the project a go? Or a no go?
Identify the customers or potential customers for a business

Why Is Market Research Important?

We live in a world that changes rapidly and frequent-
ly. Because of this, each business must stay informed
about its market. A market is a group of potential
customers people or businesses who are willing and
able to purchase a particular product or service.

Market research is an organized way to gather and

analyze information needed to make business deci-
sions. For example, market research can help you
decide to start a new business. But market research
isn’t just something you do when starting a business.
To ensure a company’s continued success, market re-
search needs to be an ongoing activity.
 10 Steps to Target and Connect With
Potential Customers Effectively

Are you rolling out a new marketing plan or looking to give your current one a face-lift?
Here’s 10 steps to help you connect with customers and foster leads.

Brainstorming an effective marketing strategy is never easy work — you have to make
decisions on who you think your target customers are, then spend an enormous amount
of time gathering and analyzing data about their consumer habits. It’s either time-consum-
ing or expensive, and often it’s both.

However, this time and monetary investment could yield game-changing results for your
company. Are you starting to roll out your marketing plan and netting yourself some cus-
tomers? Follow these 10 steps to be successful.

1 Survey Customers

You won’t be able to connect effectively with your potential customers if you don’t have a
customer in mind. Survey current customers, as well as members of your target market, to
find out how you can better present your product or service, or what aspects might be miss-
ing from what you’re currently offering.

Cast a wide net to capture those you think might be interested in your product or service, and
use their data to shape your brand in a way that better resonates with your target market.
Once you know who your audience is, where they hang out online and what they respond
best to, then you can begin to market.

2 Research Your Competitors And Find Out Who Their Customers Are

An easy way to find out which kind of marketing campaign works and which don’t is by
researching competitors in your industry.

Not only will this inexpensive effort give you some ideas to follow for your own campaigns,
 this research will also reveal dark spots in your competitor’s process and present new direc-
tions for you to take your own marketing strategy.

After all, just by going into business in the same industry, you’ll be going after some of your
competitor’s target market — you might as well use their example to make your service and
product better for their customers.

3 Target Ads

Far cheaper than most methods of advertising, Facebook and Google targeted ads prove that
a little can go a long way.

While most advertising in the real world only reaches whoever comes across a billboard, bus
stop or commercial, these targeted ads can locate the people who are most likely to need
your service based on geographical location, demographics (including age, gender, educa-
tion and relationship status), interests (based on what they’ve shared or “liked”) and browsing
activity.

By investing in targeted ads and paying through their Pay Per Click or Pay Per Impression
method, companies can see a significant bump in their user engagement, conversion and
sales.

4 Smart Social Media

There’s having a presence on social media, and then there’s having a social media presence.
When it comes to keeping customers, a little more effort on Facebook, Twitter and Instagram
really go the distance.

Far too many businesses use their accounts to simply promote their own company, while
smart social media managers strategize relevant posts, link to cool articles, answer customer
questions as soon as they’re asked, and otherwise give online surfers the impression that
there’s actually a human who cares.

These are the companies who retain their customers, give users new ways to use their service
or product and help solve problems as they come up.

5 Respond To Every Email, Tweet, Facebook Comment, And Phone

Call; Adjust Yourself As Necessary

When Paul English was still presiding over Kayak, one of the most valuable practices he insist-
ed on implementing was to keep an extremely annoying, loud phone in the middle of the
office to receive customer complaints. This ensured the calls were answered — by anybody,
including engineers, developers, content managers, or even English himself.

At Zappos, Tony Hsieh values customer service so much that they build in customer service
training for every new hire, regardless of the job. And its customer service has gone to such
lengths as to go to a rival shoe store to get a pair of shoes that the site had run out of.

The point? Always answer calls, always care for your customers, and always fix problems as
they come in — your customers will love you for it.
6 Affiliate Marketing

Affiliate marketing has been around since the early days of the Web, and it’s still an over-
looked but highly effective means to raise your brand awareness significantly.

And with the number of affiliate networks out there, who operate on a PPC (Pay Per Click) or
PPA (Pay Per Action) basis, it has never been easier or safer to find your product being pro-
moted by appropriate publishers.

EBay, Amazon and certain marketing companies offer their own affiliate networks, but you
can also try an exclusive PPA affiliate network.

7 Establish Trust In Your Community: Publish User Reviews, Get Likes,

Syndicate Articles

With so many new, competing businesses congesting almost every industry, it’s getting
increasingly difficult to stand out and grow a decent-sized following. To gain support, compa-
nies first have to establish trust.

As more than 88 percent of consumers trust online reviews as much as personal recommen-
dations, it only makes sense to start by publishing user reviews and sending samples of your
product for trusted bloggers to review.

As your company keeps growing, start placing in-house content in big websites that publish
syndicated content, like Huffington Post, Forbes, FT, Fast Company and Inc. Don’t forget to
use your real name people respond better to a human being than to a corporation.

8 Connect With The Right Influencers

Engaging with big players in your industry can be an extremely effective way to garner a
wider share base. After all, if you can get the attention of a thought leader or an influencer,
you have the chance to capture their fans and friends, as well as establish trust and credibility.
Reach out to appropriate bloggers or entrepreneurs at conferences or over Twitter, send them
relevant and interesting blog content that might pique their interest, and once again be a
human being, not just your company.

9 Post Relevant Content On Blogs

Keeping a practice of continually and diligently publishing relevant and original blog content
not only helps keep your company shining in the warm Google sun, but it also helps potential
customers truly get to know your company and where it’s coming from.

The content doesn’t have to be self-promotional (and shouldn’t be), but it should offer con-
text into why your product or service is important, suggest the best ways to solve industry-re-
lated problems that arise in the everyday lives of your target demographic, impart some valu-
able wisdom, and generally inspire people to share your point of view.

If you don’t have enough resources or writers on staff to keep rolling out a constant stream
of content for your blog, enlist the help of a content marketing platform like [Link] or a
virtual communications platform like Commeta.
10 Affiliate Marketing

One of the most time-consuming aspects of online marketing is generating leads. Often, that
involves analyzing customer demographics and social media activity, putting out ads and
online surveys and updating user data from year to year.

However, new companies are cropping up to simplify the process of lead generation, and, in
some cases like LeadGenius they even do the work for you.

A great way of nurturing prospects is with personalized email newsletters, A/B test advertis-
ing and promotional campaigns. Use the data to fine-tune the efforts that work and scale
your best campaigns.

Types of Competition
In addition to your target market,
another critical area of market Your competitive intelligence will be of two
research involves identifying your types:
competitors. They are the rival
Direct competitors. A business in your market
businesses with whom you are that sells a product or service similar to yours is
competing for the dollars your your direct competitor. McDonald’s® and
target market spends. The data Burger King® are examples of direct competi-
you collect about your competi- tors in the fast food industry, because they sell a
similar line of products. An ice cream shop that
tors is called competitive intelli- also sells hamburgers might also be considered
gence direct competition for McDonald’s and Burger
King. However, the ice cream shop would not be
considered a strong competitor, because its
main focus is on ice cream products. Hamburg-
ers are only a sideline.

Indirect competitors. A business that sells a

different product or service from yours but fills
the same customer need or want is your indirect
competitor. For example, Taco Bell® is in the
fast-food industry, but it is an indirect competi-
tor with McDonald’s and Burger King. This is
because Taco Bell sells fast-food products but
not hamburgers. On a broader level,
non-fast-food restaurants could also be consid-
ered indirect competition because the food they
sell fills the same basic need.
Keep in mind that your target customers may choose options other than
buying from your business, or even your direct and indirect competitors.
For instance, potential customers may decide to cook a hamburger at
home rather than buying it. Purchasing the ingredients of a product at a
local grocery store may be less expensive than buying a prepared version.
In tough economic times, customers may choose to provide a particular
service for themselves rather than pay someone else to do it. Women who
give themselves manicures instead of going to a nail salon are examples
of customers who become the competition. Another example is someone
who changes the oil in the family car, rather than taking it to a service sta-
tion. Indirect competition may include businesses outside your industry if
they provide a product or service that has the same benefit as yours.
Competition can also vary depending on the time of year or a temporary
condition. For example, suppose you own a candy store. Around Valen-
tine’s Day, florists become indirect competition even though they are not
in the same industry at all. This is because flowers and candy both fill a
particular want: to present a gift to your valentine.
 Determining Your Competitive Advantage
Competitive intelligence enables you to compare your competitors’ strengths and
weaknesses with your potential business. During this process you will be looking for
unique ways to provide your product or service to your target market. You will be look-
ing for your competitive advantage: something that puts your business ahead of the
competition.

Gather Competitive Intelligence

Many of the secondary data sources mentioned in Section 7.1 will help you gather
competitive intelligence. Make sure to consider the various places where competitive
products or services might be available to your target market. Some of your competi-
tion may be located nearby in physical stores, but they may also be on the Internet or
in direct-mail catalogs. One way to gather valuable competitive intelligence is to pose
as a customer and gain a sense of what it’s like to buy your competitor’s product or
service (provided you do not cause your competitor to exert a significant amount of
effort if you don’t intend to buy anything). Go at different times of the day and on dif-
ferent days of the week, and note which times were busiest and what kinds of custom-
ers were there. For example, you could visit a competing store posing as a potential
customer. As you walk through, ask yourself these questions:
 Recognize a value proposition
An easy way to find out which kind of marketing campaign works and which
don’t is by researching competitors in your industry.
Not only will this inexpensive effort give you some ideas to follow for your own
campaigns,

What Is a Value Proposition?

A value proposition is the promise you make to deliver products and services
of value to your customers. This promise is what allows you to edge out your
competitors by describing what sets you apart and how you will solve a prob-
lem the consumer has. A value proposition is much more than a slogan or po-
sitioning statement. If your business can live up to your value proposition you
will gain the trust of customers and create long-lasting relationships where
they’ll view your business as the “go-to” for solutions to their problems.

How to Determine Your Value

Proposition
There are a number of questions you need to ask yourself as you create your
value proposition.
Start by outlining what it is your business stands for and determine what you
do best. From there, create a mission statement that includes your business’
core values. What is it that your business values? Do you strive to create
eco-friendly products or will you be known for providing outstanding cus-
tomer service with every interaction?

Use these steps to help you better develop your value proposition:
Identify customer benefits: Make a list of all of the ways your customers can
benefit from your product.
Link benefits to the value offered: Consider the ways in which your products will
bring value to the customer.
Differentiate and position yourself: Clearly establish who your target audience
is, what you are offering them, and how you stand out compared to your com-
petition.
 How to Express Your Value
Proposition
Marketing allows you to showcase your value proposition to the consumer. As
you create a marketing plan, you must make sure it aligns with what your busi-
ness has identified as important. There are four key elements involved in creat-
ing a successful value proposition.

Make it clear - Don’t use industry jargon or talk over the heads of your audi-
ence
Be specific - Tell your customers exactly what they can expect from doing with
you
Showcase differences - What makes you better than the competition?
Make it instant - Customers should have to consider your value proposition it
should simply make sense.

How Your Value Proposition

Attracts Customers
A strong value proposition will tell customers what to expect when engaging
with your business. It explains how you products and/or services can solve their
problems or improve their situations. By explaining ahead of time what custom-
ers will receive, you’re eliminating the uncertainty involved in doing business
with someone unfamiliar to them.
As described in Writing Value Propositions that Work, telling your customers to
“just do it” won’t deliver results. You need to explain why they should do it and
why they should be choosing you over the competition.
Develop a value proposition that is honest and true to your business, and be sure
to follow through on those promises. Misleading your customers with your value
proposition is an easy way to lose business and upset customers.
As you move forward, always remember to think about how your value proposi-
tion will attract customers. Their presence in your business is critical to your suc-
cess and the power of the consumer should never be underestimated.
A business model describes how a company creates, delivers and
captures value. Everyone has their unique way of viewing the
business model. During discussions about this, there has been an
increasing need for an uniform template to define and discuss the
business model. This template should be applicable to new and
old businesses alike, across industries.

what is a business model canvas?

The traditional approach to a busi-

ness model

The 9 building blocks

why to use the business model canvas

Applying the business model canvas.

WHAT IS A BUSINESS MODEL CANVAS?
The Business Model Canvas, developed by Alexander Oster-
walder, is a visual representation of current or new business
models, generally used by strategic managers. The Canvas pro-
vides a holistic view of the business as a whole and is especially
useful in running a comparative analysis on the impact of an
increase in investment may have on any of the contributing fac-
tors.
The Business Model Canvas gives people a common language
through which they can evaluate traditional processes and bring
innovation into their business models.

THE TRADITIONAL APPROACH TO A BUSINESS MODEL

Most startups fail because entrepreneurs put all their faith in the
idea of the product the organization exists to create. In their loy-
alty to this product or service, they fail to give in depth consider-
ation to the business model their organization will follow. Usually
the business model is either a one-size-fits-all model, common in
the industry or it is a random amalgamation of systems and pro-
cesses, created at the spur of the moment to further the main
goal; sell the product or service.
Successful new ventures do not go to market with their first idea;
instead, the product/ service has usually gone through several
iterations before arriving at the final version. Similarly, organiza-
tions are more sustainable if they have considered several busi-
ness models before deciding on a particular one.

THE 9 BUILDING BLOCKS

The Business Model Canvas categorizes the processes and inter-
nal activities of a business into 9 separate categories, each repre-
senting a building block in the creation of the product or service.
These categories represent the four major aspects of a business;
customers, offer, infrastructure, as well as financial viability. All 9
categories are listed and explained below.
 1. Customer Segments

The total customer pie is divided into segments based on the

manner in which an organization’s products or services address a
specific need for the segment. The customer segment is an essen-
tial part of an organization’s business model and is key to ensur-
ing that the product features are aligned with the segments char-
acteristics and needs.
To carry out an effective customer segmentation, a company
must first know its customers, both through their current and
future needs. Then the organization must list its customers in
terms of priority, including a list of potential future customers.
Finally, the company should do a thorough assessment of its cus-
tomers by understanding their strengths and weaknesses and ex-
ploring other kinds of customers who may benefit the company
more if they are to focus on them.
Various customer segments are as below;
Mass Market: An organization opting for this type of customer seg-
ment gives itself a wide pool of potential customers because it feels
that its product is a relevant need amongst the general population.
A potential product for such an organization could be Flour.
Niche Market: This customer segment is based on highly specific
needs and unique traits of its clients. An example of an organization
with a niche customer segment is Louis Vitton
Segmented: Organizations adopting the segmented approach
create further segmentation in their main customer segment based
on slight variations in the customer’s demographics and resultantly,
their needs.
Diversify: An organization with a Diversified Market Segment is flex-
ible in the iterations of its product or service tweaking it to suit the
needs of segments with dissimilar needs or traits.
Multi-Sided Platform/ Market: This kind of segment serves custom-
ers who have a relationship to each other, i.e. blogging sites need a
large group of active bloggers to attract advertisers. And they need
advertisers to create cash flow. Hence, only by creating a pull with
both segments will the blogging site be able to have a successful
business model
 1. Customer Segments

The total customer pie is divided into segments based on the

manner in which an organization’s products or services address a
specific need for the segment. The customer segment is an essen-
tial part of an organization’s business model and is key to ensur-
ing that the product features are aligned with the segments char-
acteristics and needs.
To carry out an effective customer segmentation, a company
must first know its customers, both through their current and
future needs. Then the organization must list its customers in
terms of priority, including a list of potential future customers.
Finally, the company should do a thorough assessment of its cus-
tomers by understanding their strengths and weaknesses and ex-
ploring other kinds of customers who may benefit the company
more if they are to focus on them.
Various customer segments are as below;
Mass Market: An organization opting for this type of customer
segment gives itself a wide pool of potential customers because it
feels that its product is a relevant need amongst the general popu-
lation. A potential product for such an organization could be Flour.
Niche Market: This customer segment is based on highly specific
needs and unique traits of its clients. An example of an organization
with a niche customer segment is Louis Vitton
Segmented: Organizations adopting the segmented approach
create further segmentation in their main customer segment based
on slight variations in the customer’s demographics and resultantly,
their needs.
Diversify: An organization with a Diversified Market Segment is
flexible in the iterations of its product or service tweaking it to suit
the needs of segments with dissimilar needs or traits.
Multi-Sided Platform/ Market: This kind of segment serves cus-
tomers who have a relationship to each other, i.e. blogging sites
need a large group of active bloggers to attract advertisers. And
they need advertisers to create cash flow. Hence, only by creating a
pull with both segments will the blogging site be able to have a suc-
cessful business model

2. Value Propositions
An organization’s value proposition is the combination of prod-
ucts and services it provides to its customers. Osterwalder stated
that these offerings need to be unique and easily differentiated
from competition. Value propositions can be divided into two
categories
Quantitative: this stresses the price or efficiency of the product or
service
Qualitative: this value proposition highlights the experience and
results the product and its use, produce.
The value proposition provides value through a number of attri-
butes such as customization, performance, “getting the job
done”, brand/ status, design, newness, price, cost and risk reduc-
tion, accessibility, as well as convenience/ usability.
When creating your product’s value proposition, the first question
an entrepreneur must ask himself is, what problem he is solving
through his offered product or service. Then one needs to look
into how the product, service or overall experience can be im-
proved so that it provides greater value than the competition.
Finally, it is imperative to identify the core value that your busi-
ness provides. One way to identify this value is for an owner to
specify what he/ she wants customers to remember about their
interaction with the company.

3. Channels

The medium through which an organization provides its value

proposition to its customer segment is known as a channel. There
are various options for channels available to an organization, and
the selection is based on the channel that is the quickest, most
efficient with the least amount of investment required. There are
two basic kinds of channels; Company owned channels such as
store fronts or Partner Channels such as Distributors. A company
can opt to choose either one or employ a combination of both.
For an entrepreneur, the first step in dealing with channels is to
identify the customer channels. Touch points with customers can
be limited or diverse depending on company strategy. Then he/
she needs to evaluate the strength of the channel by conducting
an SWOT analysis on the channel. Finally, the company can identi-
fy and build new customer channels.

4. Customer Relationships

An organization must select the kind of relationship it will have

with its customer segment in order to create financial success and
sustainability. Customer Relationships can be categorized as fol-
lows;
Personal Assistance: In this kind of relationship the company inter-
acts with the customer directly through an employee who provides
the human touch by assisting the customer presale, during the sale
and even may provide after sales services.
Dedicated Personal Assistance: This kind of relationship is charac-
terized by a very close interaction between the customer and the
company through a dedicated representative who is assigned a set
of clients and is personally responsible for the entire experience the
customer has with the company.
Self-Service: Self-Service places the onus of the customer experi-
ence on the tools the company provides for the customer to serve
him or herself.
Automated Services: These are customized self-service relation-
ships where the historical preference of the customer is taken into
account to improve the overall experience.
Communities: In today’s electronic age creating communities of
clients allows organizations to communicate with them directly. This
allows for an enhanced client experience because the community
allows clients to share their experiences and come up with common
challenges and solutions.
Co-creation: The customer has a direct hand in the form the com-
pany’s product or service will take.
For an entrepreneur, the priority is to identify the type of relation-
ship he/ she has with the customer. Then the value of the customer
must be evaluated in terms of the frequency of his expenditure on
the firms product and services. Loyal customers are relationships
that the company should aim to invest in as they will yield steady
revenue throughout the year.

5. Revenue Streams

A revenue stream is the methodology a company follows to get

its customer segments to buy its product or service. A revenue
stream can be created through the following ways;
Asset Sale: the company sells the right of ownership over the good
to the customer.
Usage Fee: the company charges the customer for the use of its
product or service.
Subscription Fee: the company charges the customer for the regu-
lar and consistent use of its product or service.
Lending/ Leasing/ Renting: the customer pays to get exclusive
access to the product for a time-bound period.
Licensing: the company charges for the use of its intellectual prop-
erty.
Brokerage Fees: companies or individuals that act as an intermedi-
ary between two parties charge a brokerage fee for their services.
Advertising: a company charges for others to advertise their prod-
ucts using their mediums.
When setting up revenue streams, it is important to recognize that
an effective price for the product and/or service will be arrived at
through the process of elimination. Different iterations of prices
should be listed and evaluated. It is important, in the end to take a
break ad reflect on possible avenues open to you as a business.

6. Key Resources

These are the assets of the organization fundamental to how it

provides value to its customers. Resources can be categorized as
human, financial, physical and intellectual.
For an entrepreneur, it is important to begin with listing your
resources. This gives you a clear idea of what final product or ser-
vice your company needs to create for the customer and which
resources are dispensable, resulting in cost savings for your com-
pany. Once the final list of resources is available, the company can
decide on how much it needs to invest in these key resources to
operate a sustainable business.

7. Key Activities

Activities that are key to producing the company’s value proposi-

tion. An entrepreneur must start by listing the key activities rele-
vant to his/her business. These activities are the most important
processes that need to occur for the business model to be effec-
tive. Key activities will coincide with revenue streams. Now it is
important to evaluate which activities are key by adding or
removing some and evaluating their impact.

8. Key Partnerships

To create efficient, streamlined operations and reduce risks asso-

ciated with any business model, an organization forms partner-
ships with its high-quality suppliers. Key partnerships are the net-
work of suppliers and partners who complement each other in
helping the company create its value proposition. Partnerships
can be categorized as follows;
Strategic alliance between competitors (also known as coopetition),
Joint ventures
Relationships between buyers and suppliers.
An entrepreneur must begin by identifying its key partners followed
 by making future partnership plans. This can be done through an
evaluation of the partnership relationship to judge which character-
istics of the relationship need improvement and what kind of future
partnerships will be required.

9. Cost Structure

This defines the cost of running a business according to a particu-

lar model. Businesses can either be cost driven i.e. focused on
minimizing investment into the business or value driven i.e.
focused on providing maximum value to the customer.
Following are some traits of common cost structures;
Fixed Costs: costs that remain the same over a period of time
Variable Costs: as the name suggests, these costs vary according to
a variance in production
Economies of Scale: costs decrease as production increases
Economies of Scope: costs are decreased by investing in business-
es related to the core product.

The first step for an entrepreneur is to obviously identify all costs

associated with the business. A realistic understanding of the costs
of the business is one of the hallmarks of a good business model.
After identification, it is important to list all the costs on the canvas,
so they are visually present and then create plans for each cost.
Some costs may be decreased through certain measures while
others may go up if you decide that an investment in a particular
section will result in future gains.
 WHY TO USE THE
BUSINESS MODEL CANVAS
Visual Thinking: The tool allows for easy, visual representation for deci-
sion makers to ponder upon. The tool provides a neat breakdown of the
major considerations impacting the business and also makes clear the
direction the organization is taking through its business model.

Iterate Quickly: If a poster sized of the canvas printout is taken, it can be

used in combination with sticky notes for executives to evaluate current
and potential tweaks in the business model and their impact.

Grasp the relationship between the 9 blocks: The Business Model Canvas
allows the executive team to understand how the 9 building blocks relate
to each other and the different ways these relationships can be changed to
increase efficiency or effectiveness. An opportunity or innovation can be
spotted through the use of this tool.

Short and Succinct: The tool encourages teams to keep their suggestions
short and simple enough to fit on post-it notes.

Easy to circulate: The tool allows easy access and sharability. Pictures of
the completed canvas or simply physically passing it around so people can
grasp its gist as well as add to it, if need be, make the Canvas a very porta-
ble and convenient tool.

APPLYING THE BUSINESS MODEL CANVAS

The biggest Business Model success story is Apple. Apple was a game
changer when it introduced the iPod to the world. Through iTunes,
Apple integrated device, software and an online store into an experi-
ence that set the music industry on its ear.

Even though Apple was in no way the first entrant into the mp3 player
market, its unique and well-executed business model ensured lasting
success. This business model was in essence the seamless coming to-
gether of the key components of the business model canvas to lever-
age its distinctive value proposition. Apple has lasting partnerships
through the deals it negotiated with music producers so it could sell
their music through its store.

Apple revenue stream comes from the sale of its iPods. However, the
added benefit of the online store creates a package that competitors
have been hard pressed to match.
 How do I add Pain Relievers to
my Value Proposition Canvas?
Pain relievers describe how your products
and services alleviate specific customer pains.
They explicitly outline how you intend to
eliminate or reduce some of the pains that
annoy your customers before, while, and after
they are trying to get a job done. Typically,
great value propositions alleviate only a limit-
ed number of severe customer pains but do
that very well. Make sure you focus on pains
you have identified in the customer profile.

Questions to ask
The following list of trigger
questions can help you think
of different ways your prod-
ucts and services may help
your customers alleviate
pains. Ask yourself if they:

Produce savings? E.g. in terms of time, money, or efforts.

Make your customers feel better? E.g. by killing frustrations, an-
noyances, things that give customers a headache.
Fix underperforming solutions? E.g. by introducing new features,
better performance, or better quality.
Put an end to difficulties and challenges your customers en-
counter? E.g. by making things easier or eliminating obstacles.
Wipe out negative social consequences your customers en-
counter or fear? E.g. in terms of loss of face, lost power, trust, or
status.
Eliminate risks your customers fear? E.g. financial, social, tech-
nical risks, or what could go awfully wrong.
Help your customers better sleep at night? E.g. by helping with
big issues, by diminishing concerns, or eliminating worries.
Limit or eradicate common mistakes customers make? E.g. by
helping use a solution the right way.
Get rid of barriers that are keeping your customer from adopt-
ing solutions? E.g. lower or no upfront investment costs, flatter
learning curve, or the elimination of other obstacles preventing
adoption.

Relevance
A pain reliever can be more or less relevant to the customer.
Make sure you differentiate between substantial pain relievers
and nice-to-haves

Business Model Canvas Examples

That’s the theory out of the way. However, the Business

Model Canvas comes to life when you see it in action.

So let’s look at three different examples of the Business

Model Canvas so you can see just how useful it can be.
 Example 1: Google

The first thing you should know about Google’s busi-

ness model is that it is multi-sided. This means that it
brings together two distinct but related customers.
In Google’s case, its customers are its search users and
its advertisers. The platform is only of interest to ad-
vertisers because search users are also present. Con-
versely, search users would not be able to use the
platform free of charge were it not for advertisers.
The Business Model Canvas for Google is shown
below:

As you can see the diagram gives you an immediate un-

derstanding of the key parts of Google’s business model.
We can see that:
• Google makes money from the advertiser customer
segment, whose ads appear either in search results or
on web pages.
• This money subsidizes a free offering to the other
two customer segments: search users and content
owners.
Google’s business model has a network element to it. That is,
the more ads it displays to web searchers the more advertisers
it attracts. And the more advertisers it attracts the more content
owners it attracts.
Google’s Key Resource is its search platform including goo-
[Link], Adsense (for content owners) and Adwords (for adver-
tisers).

The key strategic activities that Google must perform are man-
aging the existing platform including its infrastructure.

Google’s key partners are obviously the content owners from

whom a large part of its revenues is generated. OEMs (Original
Equipment Manufacturers) also form a key partner.

OEMs are companies who produce mobile handsets to whom

Google provides its Android operating system to for free. In
return, when users of these handsets search the internet they
use the Google search engine by default, thus bring more users
into the ecosystem and generating even more revenue.

A Word on Color Coding

There are no hard and fast rules when it comes to using color
within your canvas. Some people prefer to use color to repre-
sent the links between elements.
Others like to use different colored elements or sticky notes to
represent related elements.
The choice is up to you. What is important is that any relation-
ships between elements are easy to identify and easy to under-
stand.
 Example 2: Skype

In the diagram below you can see the Business Model

Canvas for Skype.

From the Business Model Canvas, we can see that Skype has
two key value propositions:

• The ability to make calls over the Internet, including

video calls, for free.
•T he ability to make calls to phones cheaply.
Skype operates a freemium business model, meaning the ma-
jority of Skype’s users (the Free Users customer segment) use
the service for free to make calls over the internet, with just 10%
of users signing up to the prepaid service.

We can see from the customer relationship building block that

customers typically have a help themselves relationship with
Skype. Typically, this will be by using their support website.

The channels Skype uses to reach its customers are its website,
[Link], and partnerships with headset brands.

Looking at key partnerships, key activities, and key resources

together, the main thing to notice is that Skype is able to sup-
port its business model of offering cheap and free calls because
it doesn’t have to maintain its own telecoms network like a tra-
ditional telecoms provider. Skype doesn’t need that much infra-
structure at all, just backend software and the servers hosting
use accounts.
 Example 3: Gillette

The Business Model Canvas for Gillette is shown

below:

Gillette’s business model is based on the “Bait & Hook” busi-

ness model pattern. This model is characterized by an attrac-
tive, inexpensive or even free initial offer that encourages ongo-
ing future purchases of related products or services. With this
business model, the bait is often provided at a loss, subsidized
by the hook.

In Gillette’s case, an inexpensive razor handle forms the bait,

and continued purchases of the blades represent the hook.
The business model is very popular in SaaS (Software as a Ser-
vice) businesses, where typically a free initial month leads to a
monthly subscription.

In the diagram above we have used the thickness of the arrows

to indicate the size of revenue generated. In Gillette’s case, all
revenues are generated by just one customer segment, but the
vast majority of revenues come from Frequent Blade Replace-
ments, with just minor revenues coming from the purchase of
handles.

If you look at the left-hand side of Gellettes Business Model

Canvas you will notice how all major costs are aligned with de-
livering the value proposition. For example, marketing costs
help to build Gillette’s strong brand and R&D costs help to
ensure that the blade and handle technology is unique and
proprietary.
Key Takeaway
Through these three Business Model Canvas examples, you should
be able to see just how easy it is to represent the complete busi-
ness model of any company on just one single sheet of paper.

Creating Your First Business Model

If you’re going to do create your first Business Model Canvas, then
here are some tips to help you get started:

• Don’t go it alone: Don’t try to create your model singlehandedly.

Instead get a small team of 3-5 people together so you can brain-
storm ideas.

• Use a whiteboard if you can.

• Have plenty of different colored whiteboard pens and sticky

notes handy.

• Plan on the process taking about an hour to complete your first

draft Business Model Canvas.

• Decide which building block you’re going to fill in first. Usually, it

makes sense to start with Customer Segments or Value Proposi-
tion and then work from there.

Summary
The Business Model Canvas provides a way to show the key ele-
ments of any business model on a single sheet of paper. The
canvas is based on nine building blocks and the interrelationships
between them. You can use the canvas regardless of whether you
are trying to understand a startup with two employees or a For-
tune 500 company with over 50,000 employees.
ASSESSMENT
1. Describe the two types of competitors.
2. What is a competitive advantage?
3. In order, list the six basic steps used in market re-
search.

Activity
- Compare the advantages and disadvantages of
buying an independent business versus buying a
franchise.

How are these business opportunities alike? How are they

different?

- What type of business opportunities match well

with your current goals, both financial and non-
financial?