Management Essentials
Introduction to Business Model
Fall 2018/19
Week 1 & 2 (Make-up Class)
Sunghan Ryu
(shryu@[Link])
ILOs of This Lecture
• Define the concept and the elements of business model
• Classify and compare different types of business model
• Analyze and explain business model of a company
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Business Model?
• What happened to Apple between 2003 and 2007?
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Business Model?
• What happened to Apple between 2003 and 2007?
► 2003: iPod & iTunes store launching
► 2007: $10B revenue with iPod/iTunes (50% of total avenue)
► Apple’s market cap increased from $1B (2003) to $150B (2007)
A good product wrapped
in a great business model!
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Small Group Discussion
• Question: Suppose you plan to start a new business.
What kind of components should be considered in
planning the new business? List up TWO most important
components and explain why they are important.
► Tips: Just assume that you will explain your business plan to friends
and family. What do you think they want to hear from you?
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Business Model Components
• Business model?
► A firm’s way of creating value for its customer and shareholders
• Core Components (Johnson, Christensen & Kagermann, HBR, 2008)
► Customer value proposition:
Target customer, Needs to be satisfied, Solution provided, etc.
► Profit formula:
Revenue model, Cost structure, Margin model, etc.
► Key Resources:
People/culture, Technology, Knowledge, Brand, Partnerships, etc.
► Key processes:
Operational processes, Organizational control, Policy, etc.
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Business Model Components
• Four interdependent factors critical to every new venture
(Sahlman, HBR, 1997)
► The People
► The Opportunity
► The Context
► Risk and Reward
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Business Model Components
• The People
► Founders starting and running the venture
► Outside parties providing key services or important resources
• The Opportunity: Profile of the business itself
► What it will sell and to whom
► Whether the business can grow and how fast
► Who and what stand in the way of success
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Business Model Components
• The Context: The big picture
► The regulatory environment, demographic trends, inflation
► The factors that inevitably change but cannot be controlled
• Risk and Reward
► Assessment of everything that can go wrong and right
► Discussion of how the entrepreneurial team can respond
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Business Model Components
• Nine Questions About the Business Every Business Plan
Should Answer
► Who is the new venture’s customer?
► How does the customer make decisions about buying this product or
service?
► To what degree is the product or service a compelling purchase for the
customer?
► How will the product or service be priced?
► How will the venture reach all the identified customer?
► How much does it cost (in time and resources) to acquire a customer?
► How much does it cost to produce and deliver the product or service?
► How much does it cost to support a customer?
► How easy is it to retain a customer?
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Business Model Components
• Value proposition & Operating model (By BCG)
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Business Model Canvas
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Business Model Canvas
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Business Model Canvas
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Business Model Canvas
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Business Model Canvas
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Business Model Canvas
• Business model canvas exercise
► Form 3-4 person group, choose one of the companies below and draw
a business model canvas of the company (15 mins)
► Company list: YouTube, Marvel, Starbucks, Disney Land
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8 Key Elements of a BM Planning
• Value proposition
• Revenue model
• Market opportunity
• Competitive environment
• Competitive advantage
• Market strategy
• Organizational development
• Management team
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1. Value Proposition
• “Why should the customer buy from you?”
• Good example of value propositions
► Personalization/customization
► Reduction of product search, price discovery costs
► Facilitation of transactions by managing product delivery
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2. Revenue Model
• “How will you earn money?”
• Major types of revenue models:
► Advertising revenue model
► Subscription revenue model
» Freemium strategy
► Transaction fee revenue model
► Sales revenue model
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2. Revenue Model
• Revenue model in CCI
► Hard Copy/Ticket Sales
» CD, DVD, game pack, concert ticket
► Pay per view/download
» Amazon, Apple, HBO
► Subscription model
» Netflix, Pandora
► Advertisement model
» YouTube, Hulu, CBS
► Freemium (Free + Premium) model
» Spotify, Facebook app
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3. Market Opportunity
• “What marketspace do you intend to serve and what is
its size?”
► Marketspace: Area of actual or potential commercial value in which
company intends to operate
► Realistic market opportunity: Defined by revenue potential in each
market niche in which company hopes to compete
► E.g. Platform for college students
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4. Competitive Environment
• “Who else occupies your intended marketspace?”
► Other companies selling similar products in the same marketspace
► Includes both direct and indirect competitors
• Influenced by:
► Number and size of active competitors
► Each competitor’s market share
► Competitors’ profitability
► Competitors’ pricing
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5. Competitive Advantage
• “What special advantages does your firm bring to the
marketspace?”
► Is your product superior to or cheaper to produce than your
competitors’?
• Important concepts:
► First-mover advantage
► Monopolies versus perfect competition
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6. Market Strategy
• “How do you plan to promote your products or services
to attract your target audience?”
► Details how a company intends to enter market and attract customers
► Best business concepts will fail if not properly marketed to potential
customers
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7. Organizational Development
• “What types of organizational structures within the firm
are necessary to carry out the business plan?”
• How firm will organize work
► Typically, divided into functional departments
► As company grows, talent acquisition moves from generalists to
specialists
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8. Management Team
• “What kind of backgrounds the company’s leaders
have?”
• A strong management team:
► Can make the business model work
► Can give credibility to outside investors
► Has market-specific knowledge
► Has experience in implementing business plans
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8 Key Elements of a BM Planning
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Other Critical Points
• Raising Capital
► Seed capital
► Traditional sources: Angel investors, venture capital firms
► Commercial banks
► Crowdfunding
» E.g. Kickstarter
► Accelerator
» E.g. Y-combinator
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Other Critical Points
• Timing…
► TED Talk of Bill Gross (Founder of Idealab)
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Categorizing Business Model
• From e-business perspective
• Focusing on B2C (vs. B2B)
► Business-to-consumer (B2C): Business sells products or services
directly to individual consumers
► E.g., [Link], Apple store
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Common B2C Business Models
• E-tailer
• Community provider (social network service)
• Content provider
• Portal
• Transaction broker
• Market creator (platform)
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B2C Models: E-tailer
• Online version of traditional retailer
• Revenue model
► Sales of products and service
• Low barriers to entry
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B2C Models: Community Provider
• Provide online environment (social network) where peop
le with similar interests can transact, share content, and
communicate
► Examples: Facebook, LinkedIn, Twitter, Pinterest
• Revenue models
► Typically hybrid: Combining advertising, subscriptions, sales, transacti
on fees, and so on
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B2C Models: Content Provider
• Digital content on the Web
► News, music, video, text, artwork
► Variations: Web aggregators
• Revenue models
► Use variety of models, including advertising, subscription, and sales of
digital goods
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B2C Models: Content Provider
• Change of channels in providing content (music)
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B2C Models: Portal
• Search plus an integrated package of content & service
• Revenue models
► Advertising, referral fees, transaction fees, subscriptions for premium
services
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B2C Models: Transaction Broker
• Process online transactions for consumers
► Primary value proposition—saving time and money
• Revenue model:
► Transaction fees
• Industries using this model:
► Financial services
► Travel services (e.g. Ctrip)
► Job placement services
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B2C Models: Market Creator (Platform)
• Create digital environment where buyers and sellers can
meet and transact
► E.g., Priceline, eBay, [Link]
• Revenue model
► Transaction fees, fees to merchants for access
• Sharing economy (On-demand economy)
► Platforms that allow people to transact goods and services
► E.g., Didi (Uber), Airbnb
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B2C Models: Market Creator (Platform)
• Explosion of Platform Business
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B2C Models: Market Creator (Platform)
• Platforms Overtaking Energy and Banking
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B2C Models: Market Creator (Platform)
• Linear Pipeline VS. Triangular Platform
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Poster Presentation
• When?
► Next Wednesday (19 Sep) Make-up Class (in the afternoon)
• What?
► You will choose one of the 2 topics
» IT-embedded cultural/creative (physical) product
» Software-based service in the cultural and creative domains
► Prepare a poster (or 5-8 PowerPoint slides) explaining the work you
have done on your topic (Divided into 2 or 3 groups)
► You will post your presentation in the classroom (e.g., on the wall,
whiteboard, etc) and discuss your project with the professor and other
students (1~2 min presentation and 1 min Q&A)
► Materials should also be submitted via E-mail before the class
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Poster Presentation
• How?
► Research a new product in the cultural and creative domains
► Should be a product most of your peers will not be familiar with
» E.g. Oculus Rift VR Headset, Patreon
► In your poster, explain…
» What organization or individual created it
» How it works
» What the business model is (e.g., value proposition, revenue model, target
market, etc.)
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Poster Presentation
• Grade and Assessment
► This assignment is worth 10 points (among 100)
► Grades will be determined by
» How well you address the questions and criteria listed for your topic
» The quality of your presentation
» How well you answer questions on your work
► Grades will be determined by instructor and peer assessment
Criteria Below Average Above
Average Average
Substantive content (how interesting and informative was the infor
mation presented? Was it thorough?)
Presentation (was it professional quality? Were there errors, typos?
Was the information presented in a logical and coherent manner?)
Questions (was the presenter able to answer questions effectively?)
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Q&A
Questions & Answers
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