Developing an effective

business model（04）
 Proposing a national online magazine for
college women.

Featuring national content on style,

beauty, health, love, life and career.

Her
Campus Written by 4000-plus college journalists.
Media

Focusing on connecting companies with

college females.

Native advertising, sponsored content,

product sampling, and so on.
Learning Objectives
4.1 Describe business models and discuss their
importance.
4.2 Identify and describe the two general types of
business models—standard and disruptive.
4.3 Explain the components of the Barringer/Ireland
Business Model Template that entrepreneurs can
use to develop a business model for their firm.
Business Models
• Business Model
– A business model is a firm’s plan or recipe for how it creates,
delivers, and captures value for its stakeholders.
– The proper time to develop a business model is following the
feasibility analysis stage and prior to fleshing out the
operational details of the company.
– A firm’s business model is integral to its ability to succeed
both in the short and long term.

Standard Business Models Disruptive Business Models

◼Her campus media creates value by enriching experiences of
female college students, which are written entirely by 4000-plus
college journalists and supported by a dedicated staff at its
Boston headquarters.
◼Her campus media delivers value by offering slideshows, videos,
memes, gifts, quizzes, giveaways, e-commerce, a daily e-mail
newsletter, and social medial communities.
◼Her campus Media captures value for its stakeholders via
connecting companies with college females, and part of their
business model is native advertising, or sponsored content.
Standard Business Models
• Standard Business Models
– Standard business models depict existing plans or recipes
firms can use to determine how they will create, deliver,
and capture value.
– Many of the standard models have been in existence for
many years.
– When selecting a standard business model, an
entrepreneurial venture believes that it can integrate the
elements of that model uniquely as a means of creating
value while competing against rivals
Please describe the business model of the NetEase mail.
Disruptive Business Models
• Disruptive Business Models
– Disruptive business models, which are rare, are ones that
do not fit the profile of a standard business model.
– They are impactful enough that they disrupt or change the
way business is conducted in an industry or an important
niche within an industry.
– A new market disruption finds a firm using a business
model through which it is able to address a market that was
not previously served. (Think of iPhone and cellphone)
– A Low-end market disruption finds a firm using typically
low-cost business model to provide product or service in the
“performance oversupply” market. (Think of Formula 1
Hotel and Starred hotel)
Barringer/Ireland Business Model
Template
• Barringer/Ireland Business Model Template
– Although not everyone agrees precisely on the components
of a business model, many agree that a successful business
model has a common set of attributes.
– These attributes can be laid out in a visual framework or
template so it is easy to see the individual parts and their
interrelationships.
Etsy, the handmade and vintage goods
website
Core Strategy
• Core Strategy
– The first component of the business model is core strategy.
– A core strategy describes how the firm plans to compete
relative to its competitors.
– The primary elements of core strategy are:
▪ Business Mission
▪ Basis of Differentiation
▪ Target Market
▪ Product/Market Scope
• Business Mission
– A business’s mission or mission statement describes why it
exists and what its business model is supposed to
accomplish.
– If carefully written and used properly, a mission statement
can articulate a business’s overarching priorities and act as
its financial and moral compass.
– A well-written mission statement is something that a
business can continually refer back to as it makes important
decisions in other elements of its business model.
◼ Several rules of thumb for writing mission statements.
• Define its “reason for being”
• Describe what makes the company different
• Be risky and challenging but achievable
• Use a tone that represents the company’s culture and values.
• Convery passion and stick in the mind of the reader
• Be hones and not claim to be something that the company
“isn’t”
• Basis of Differentiation
– It’s important that a business clearly articulate the points that
differentiate its product or service from competitors.
– A company’s basis of differentiation is what causes
consumers to pick one company’s products over another’s.
– It is what solves a problem or satisfies a customer need.
– It is best to limit a company’s basis of differentiation to two
to three key points.
– Make sure that your points of differentiation refer to benefits
rather than features.
• Relieving back pain by putting
back-packs on rollers.
• Be sturdy enough for either an
adult or child to sit on.
• Striking the idea balance between
functionality and cool for kids.
• Target Market
– A target market is a place within a larger market segment
that represents a narrow group of customers with similar
interests.
– A firm’s target market should be made explicit in the
business model template.
• Product/Market Scope
– A company’s product/market scope defines the products
and markets on which it will concentrate.
– Most firms start with a narrow (or limited) product/market
scope, and pursue adjacent product and market
opportunities as the company grows and becomes more
financially secure.
– In completing the business model template, a company
should be very clear about its initial product/market scope
and project 3-5 years in the future in terms of anticipated
expansion.
• Launch- single product/ Silicon Valley tech-
savvy users.

• 1-2 years into existence- Single product/

Growing number of Silicon Valley tech-savvy
users and people they tole about the service.

• 3-4 years into existence- Single product/ All

computer and Internet users.

• 5 Yeas into existence- Two products/ All

computer and Internet users.

• 6 Years into existence- Three Products/ All

computer and Internet users.
Resources
• Resources

– Resources are the inputs a firm uses to produce, sell,

distribute, and service a product or service.
– A firm’s most important resources, both tangible and
intangible, must be both difficult to imitate and hard to find
a substitute for.
▪ This stipulation is necessary for an individual company’s
business model to be competitive over the long term.

Core Competencies Key Assets

• Core Competencies
– A core competency is a specific factor or capability that
supports a firm’s business model and sets it apart from
rivals.
– A core competency can take on various forms, such as
technical know-how, an efficient process, a trusting
relationship with customers, expertise in product design,
and so forth.
– Most start-ups will list two to three core competencies in
their business model template.
Creating content of interest to active college-
aged females
Core
Compet
encies Recruiting and managing a volunteer network
for Her
Campus
Connecting active college-aged females with
major brands.
• Key Assets
– Key assets are the assets that a firm owns that enable its
business model to work.

▪ Physical assets include physical space, equipment,

vehicles, and distribution networks.
⽂
▪ Intellectual assets include
本 resources such as patents,
trademarks, copyrights, and trade secrets, along with a
company’s brand and its reputation.
▪ Financial assets include cash, lines of credit, and
commitments from investors.
▪ Human assets include a company’s founder or founders,
its key employees, and its advisors.

Her 4000-plus college females volunteering across the

Campus country writing articles
Financials
• Financials
– This is the only section of a firm’s business model that
describes how it earns money—thus, it is extremely
important.

Financing/ Revenue
Funding Streams

Cost Structure
• Revenue Streams
– A firm’s revenue streams describe the ways in which it
makes money.
– Some businesses have a single revenue stream while others
have several.
– For example, most restaurants have a single revenue
stream. Their customers order a meal and pay for it. Other
restaurants may have several revenue streams—including
meals, a catering service, product sales (such as bottled
barbeque sauce for a barbeque restaurant), and apparel
products with the name of the restaurant on them.
• Cost Structure
– A business’s cost structure describes the most important
costs incurred to support its business model.
– It costs money to establish a basis of differentiation,
develop core competencies, acquire and develop key assets,
and so forth.
– Generally, the goal for this box in a firm’s business model
template is threefold:
▪ Identify whether the business is a cost-driven or value-
driven business.
▪ Identify the nature of the business’s costs.
▪ Identify the business’s major cost categories.
▪Cost-driven business focuses on minimizing costs where
possible.
▪Value-driven business focuses on offering a high-quality
product or personalized service.
• Financing/Funding
– Many business models rely on a certain amount of financing
or funding to bring their business model to life.
– At the business model stage projections do not need to be
completed to determine the exact amount of money that is
needed. An approximation is sufficient.
– There are three categories of costs to consider:
▪ Capital costs.
▪ One-time expenses, such as building a Web site and
training initial employees.
▪ Provisions for ramp-up expenses (most businesses incur
costs before they earn revenues).
Initial capital infusion of $500,000 from founder
Esty Blake Mycoskie.
Profits from business Operations.
Operations
• Operations
– Operations are both integral to a firm’s overall business
model and represent the day-to-day heartbeat of a firm.

Key Product
Partners Production

Channels
• Product (or Service) Production
– This section focuses on how a firm’s products and/or
services are produced.
– For example, if a firm sells a physical product, the product
can be manufactured or produced in-house, by a contract
manufacturer, or via an outsource provider.
▪ This decision has a major impact on all aspects of a
firm’s business model.
– If a firm is producing a service rather than a physical
product, a brief description of how the service will be
produced should be provided.

⚫ Etsy’s secure platform allows small merchants

and artisans that have products to sell to connect
with people interested in buying hand-made
Etsy goods.
⚫ Etsy’s platform was built and is maintained by an
in-house staff of IT professionals.
• Channels
– A company’s channels describe how it delivers its product or
service to its customers.
– Businesses either sell direct, through intermediaries (such
as distributors and wholesalers), or via a combination of
both.

⚫ Esty Website
⚫ Retail partners
Etsy
⚫ Temporary holiday storefronts
• Key Partners
– The final element of a firm’s business model is key partners.
– Start-ups, in particular, typically do not have sufficient
resources (or funding) to perform all the tasks necessary to
make their business models work, so they rely on key
partners to perform important roles.

⚫ Third-party developers
⚫ Local organizations and businesses
Etsy
⚫ Community and business alliances
Chapter Summary
• LO1. A business model is a firm’s recipe for how it intends to create, deliver, and capture
value for its stakeholders. In essence, a business model deals with the core aspects of how
a firm will conduct business and try to succeed in the marketplace. The quality of the
business model a firm develops, as well as the quality of how the model is executed, affect
the firm’s performance in both the short- and long term. How well the different parts or
elements of a business model fit together and are mutually supportive affects its quality.
The best business model is developed and executed in ways that are difficult for
competitors to understand and imitate. Moreover, the greater the difference between a
firm’s business model and those of its competitors, and assuming that the model has been
effectively developed, the stronger the likelihood a firm will be competitively successful.
Thus, an entrepreneurial firm wants to develop a business model that clearly specifies how
the firm intends to be uniquely different from its competitors and create value for
stakeholders as a result.
• LO2. There are several types of business models. However, it is important for an
entrepreneur to understand that no particular type of business model is inherently superior
to any other model. The “best” business model is the one that allows a firm to effectively
describe the value it intends to create for stakeholders and appropriately details the actions
it will take to create that value. Standard and disruptive business models are two well-
recognized categories of business models. Standard business models depict or reveal plans
or recipes firms can use to determine how they will create, deliver, and capture value for
stakeholders. Many of the standard models have been in existence for many years. When
selecting a standard business model, an entrepreneurial venture believes that it can
integrate the elements of that model uniquely as a means of creating value while
competing against rivals. Disruptive business models, which are rare, are ones that do not
fit the profile of a standard business model and are impactful enough that they disrupt or
change the way business is conducted in an industry or in an important segment or niche
of an industry. A new market disruption and a low-end market disruption are the two types
of disruptive models. A new market disruption finds a firm using a business model through
which it is able to address a market that was not previously served (think of Google as an
example). A low-end market disruption is possible when firms already competing in an
industry are providing customers with products or services that exceed their expectations-
 -desires. This “performance oversupply” creates an opportunity for an entrepreneurial
venture to enter an industry to provide customers with a product or service functionality
that more closely approximates what they want. Low-cost business models are often used
to create a low-end market disruption (think of Southwest Airlines in the US and Ryanair in
Europe as examples).

• LO3. Comprehensive in scope, the Barringer/ Ireland Business model template features 4
major categories and 12 individual parts. As a tool, entrepreneurs can use this business
model template to describe, project, revise, and pivot its intended actions until they are
convinced that the model’s elements are integrated in a way that will yield an exciting and
viable business firm. Core strategy, which describes how the firm plans to compete relative
to rivals, is the first of the four major categories. The firm’s mission, the basis of
differentiation, target market, and product/ market scope are the parts of the core strategy
category. Resources, the second category, are the inputs a firm intends to use to sell,
distribute, and service its product or service. Core competency, is a specific factor or
capability that supports a firm’s business model and differentiates it from competitors and
key assets, or the assets a firm owns that enable its business model to work, are the
critical resources a firm needs to execute as called for by its chosen core strategy. The third
category, -
-financials, which is concerned with how the firm intends to earn money. Revenue streams,
which deal with the exact ways a firm earns revenue, cost structure, which includes the
most important costs (both fixed and variable costs) the firm will incur to support the
execution of its business model, and funding/ financing (dealing with how the firm will
support or cover its costs) are the parts of the financials category. Operations is the fourth
and financial category featured in the Barringer/ Ireland Business model Template. The
product (or service) production part of this category details the firm’s intended production
methods. The channels part specifies how products or services will be delivered to
customers, while the key partner part identifies others with whom the firm intends to
collaborate as a means of supporting its operations.