COURSE LEARNING MODULE

ENTR 1013 – The Entrepreneurial Mind

AY 2024-2025

Lesson 4: Development of the Business Plan via a Business Model

Topic: The Business Model

Learning Outcomes: At the end of this module, you are expected to:

1. Create a sense of direction for future entrepreneurs.

2. Discover the importance of business planning via a business model.

LEARNING CONTENT

Introduction:

Understanding the problem, you are solving for your customers is undoubtedly the biggest challenge
you’ll face when you’re starting a business. Customers need to want what you are selling and your
product needs to solve a real problem. But, ensuring that your product fits the needs of the market is only
one part of starting a successful business.

The other key ingredient is figuring out how you’re going to make money. This is where your business
model comes into play.

The term business model refers to a company's plan for making a profit. It identifies the products or
services the business plans to sell, its identified target market, and any anticipated expenses. Business
models are important for both new and established businesses. They help new, developing companies

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attract investment, recruit talent, and motivate management and staff. Established businesses should
regularly update their business plans or they'll fail to anticipate trends and challenges ahead. Business
plans help investors evaluate companies that interest them.

Lesson Proper:

BUSINESS MODEL DEFINED

At its core, your business model is a description of how your business makes money. It’s an explanation
of how you deliver value to your customers at an appropriate cost. According to Joan Magretta in “Why
Business Models Matter,” the term business model came into wide use with the advent of the personal
computer and the spreadsheet.

These tools let entrepreneurs’ experiment, test, and, well, model different ways that they could
structure their costs and revenue streams. Spreadsheets let entrepreneurs make quick, hypothetical
changes to their business model and immediately see how the change might impact their business
now and in the future.

In their simplest forms, business models can be broken into three parts:
1. Everything it takes to make something: design, raw materials, manufacturing, labor, and so
on.
2. Everything it takes to sell that thing: marketing, distribution, delivering a service, and
processing the sale.
3. How and what the customer pays: pricing strategy, payment methods, payment timing, and
so on.

As you can see, a business model is simply an exploration of what costs and expenses you have and
how much you can charge for your product or service. A successful business model just needs to
collect more money from customers than it costs to make the product. This is your profit—simple as
that.

New business models can refine and improve any of these three components. Maybe you can lower
costs during design and manufacturing. Or, perhaps you can find more effective methods of marketing
and sales. Or, maybe you can figure out an innovative way for customers to pay.

Keep in mind, though, that you don’t have to come up with a new business model to have an effective
strategy. Instead, you could take an existing business model and offer it to different customers. For
example, restaurants mostly operate on a standard business model but focus their strategy by
targeting different kinds of customers.

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What is a Business Model?
- A description of the means and methods a firm employs to generate sales revenue, profit, and
cash flow, while providing a template for the business to scale up.
- It has 10 building blocks subdivided into two parts – the offering model and the operating model,
with the definition of terms of each building block.

A business model helps shape a company's marketing and sales plans, its growth potential, and its
ability to attract investors. Investors use business models to assess a company’s profit potential while
entrepreneurs use them to shape their ideas into a sound business structure.

A business model provides a framework for a company's monetization strategies. It focuses on defining
the audience (customer segment), unique selling proposition, brand positioning, method of delivery, and
distribution channels to create a profit-making formula.

Business models shape all aspects of a company's development and growth. Therefore, they may
change over time to adapt to new marketplace opportunities, technologies, or distribution channels.

The offering model is composed of what people in the marketing and sales departments typically handle
– target market, value proposition, channel, customer bonding strategy and revenue model.
∞ Target Market – The intended recipients of a firm’s products or services.
∞ Value Proposition – The relevant and unique benefit that the consumer gets from buying or owning
the firm’s product or services.
∞ Channel – The distribution system where products or services will be made available to the
customers.
∞ Customer Bonding Strategy – The relationship as well as the solution that will be established with
buyers and end users.
∞ Revenue Model – The compensation a firm will get for providing its value proposition to support its
intended profit.

The operating model, on the other hand, is what people in the operations department t, like supply chain
and customer fulfillment. Oversee – value chain, resources and processes, complementors, configuration
and cost.
∞ Value Network – The strategic linkage of extended supply chain for the firm to provide specific
products or services to the customers.
∞ Resources and Processes
o Resources: The hard and soft assets deployed by the firm to carry out its value proposition
for the customers.
o Processes: The critical repetitive activities that are routinized by the company to deliver the
value to the customers and to the company in a sustainable way.

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 ∞ Complementors – People or groups who will help both directly and indirectly, to enhance the value
proposition.
∞ Configuration – Rearrangement of resources, processes, activities and offerings that can help
enhance the profit goal of the company.
∞ Cost – The monetary consequences of the means to carry out the value proposition.

NOTE: To improve a firm’s profit, the entrepreneur looks at maximizing his revenue in the offering model
while minimizing cost in the operating model.

KEY QUESTIONS TO ASK ABOUT YOUR BUSINESS MODEL

Offering model
∞ Target Market
✓ Market Space – Who is the target market that has the greatest potential for the firm?
∞ Value Proposition
✓ Novelty – What are the biggest unmet needs we should satisfy in a novel way?
∞ Channel
✓ Go-to-market – Where do we make our products conveniently available consistent with the
target market’s buying pattern?
∞ Customer Bonding Strategy
✓ Organization – How do we have a customer-centric organization that can engage, deliver
solutions and build positive relationships with customers better than competition?
∞ Revenue Model
✓ Price – What will be the most attractive pricing scheme that can leapfrog demand and
meet our objectives (revenue, profit or social cause)?

Operating model
∞ Value Network
✓ Linkage Structure – How are activities linked & sequenced?
∞ Resources and Processes
✓ Capabilities – What assets should we leverage & what activities should we perform
well to unlock value?
∞ Complementors
✓ Lock-in – What will make it appealing to start and stay as complementors or partners?
∞ Configuration
✓ Efficiency – How do we reorganize to provide value without over- or under-spending?
∞ Cost ✓ Infrastructure – What is the infrastructure cost that will carry out value proposition?

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THE 7 ELEMENTS OF A STRONG BUSINESS MODEL

Creating a business model isn’t simply about completing your business plan or determining which
products to pursue. It’s about mapping out how you will create ongoing value for your customers.

Where will your business idea start, how should it progress, and when will you know you’ve been
successful? How will you create value for customers? Follow these simple steps to securing a strong
business model.

1. Identify your specific audience.

Targeting a wide audience won’t allow your business to hone in on customers who truly need and want
your product or service. Instead, when creating your business model, narrow your audience down to two
or three detailed buyer personas. Outline each persona’s demographics, common challenges and the
solutions your company will offer.

As an example, Home Depot might appeal to everyone or carry a

product the average person needs, but the company’s primary
target market is homeowners and builders.

2. Establish business processes.

Before your business can go live, you need to have an understanding of the activities required to make
your business model work. Determine key business activities by first identifying the core aspect of your
business’s offering. Are you responsible for providing a service, shipping a product or offering consulting?
In the case of Ticketbis, an online ticket exchange marketplace, key business processes include
marketing and product delivery management.

3. Record key business resources.

What does your company need to carry out daily processes, find new customers and reach business
goals? Document essential business resources to ensure your business model is adequately prepared
to sustain the needs of your business. Common resource examples may include a website, capital,
warehouses, intellectual property and customer lists.

4. Develop a strong value proposition.

How will your company stand out among the competition? Do you provide an innovative service,
revolutionary product or a new twist on an old favorite? Establishing exactly what your business offers
and why it’s better than competitors is the beginning of a strong value proposition. Once you’ve got a few

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value propositions defined, link each one to a service or product delivery system to determine how you
will remain valuable to customers over time.

5. Determine key business partners.

No business can function properly (let alone reach established goals) without key partners that contribute
to the business’s ability to serve customers. When creating a business model, select key partners, like
suppliers, strategic alliances or advertising partners. Using the previous example of Home Depot, key
business partners may be lumber suppliers, parts wholesalers and logistics companies.

6. Create a demand generation strategy.

Unless you’re taking a radical approach to launching your company, you’ll need a strategy that builds
interest in your business, generates leads and is designed to close sales. How will customers find you?
More importantly, what should they do once they become aware of your brand? Developing a demand
generation strategy creates a blueprint of the customer’s journey while documenting the key motivators
for taking action.

7. Leave room for innovation.

When launching a company and developing a business model, your business plan is based on many
assumptions. After all, until you begin to welcome paying customers, you don’t truly know if your business
model will meet their ongoing needs. For this reason, it’s important to leave room for future innovations.
Don’t make a critical mistake by thinking your initial plan is a static document. Instead, review it often and
implement changes as needed.

Keeping these seven tips in mind will lead to the creation of a solid business plan
capable of fueling your startup’s success.

Risks and Profit Potential Vary Among Business Models

Entrepreneurs launching a new company often compare various business models and select one that is
likely to generate the best revenues.

The Business Model Canvas

In the early 2000s, Alexander Osterwalder invented the business model canvas to help businesses
develop and analyze potential business frameworks.

The business model canvas features nine sections or "building blocks" that define customer segments,
value propositions, revenue streams, distribution channels, customer relationships, key activities,
resources, partners, and cost structures. The model also guides users through the major areas of
consideration for a business's structure and strategy.

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 BUSINESS MODEL CANVAS Designed for: Designed by: Date:

KEY PARTNERS KEY ACTIVITIES VALUE CUSTOMER CUSTOMER

PROPOSITIONS RELATIONSHIPS SEGMENTS

KEY RESOURCES CHANNELS

COST STRUCTURE REVENUE STREAMS

MORE ABOUT THE BUSINESS MODEL CANVAS

The Business Model Canvas reflects systematically on your business model, so you can focus on your
business model segment by segment. This also means you can start with a brain dump, filing out the
segments the spring to your mind first and then work on the empty segments to close the gaps. The
following list with questions will help you brainstorm and compare several variations and ideas for your
next business model.

1. KEY PARTNERS
i. Who are your key partners/suppliers?
ii. What are the motivations for the partnerships?

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 2. KEY ACTIVITIES
i. What key activities does your value proposition require?
ii. What activities are important the most in distribution channels, customer relationships,
revenue stream…?
3. VALUE PROPOSITION
i. What core value do you deliver to the customer?
ii. Which customer needs are you satisfying?
4. CUSTOMER RELATIONSHIP
i. What relationship that the target customer expects you to establish?
ii. How can you integrate that into your business in terms of cost and format?
5. CUSTOMER SEGMENT
i. Which classes are you creating values for?
ii. Who is your most important customer?
6. KEY RESOURCE
i. What key resources does your value proposition require?
ii. What resources are important the most in distribution channels, customer relationships,
revenue stream…?
7. DISTRIBUTION CHANNEL
i. Through which channels that your customers want to be reached?
ii. Which channels work best? How much do they cost? How can they be integrated into
your and your customers’ routines?
8. COST STRUCTURE
i. What are the most cost in your business?
ii. Which key resources/ activities are most expensive?
9. REVENUE STREAM
i. For what value are your customers willing to pay?
ii. What and how do they recently pay? How would they prefer to pay?
iii. How much does every revenue stream contribute to the overall revenues?

Diversified Business Models

Combining multiple business models (or using a variety of business models) in a single company is called
a diversified business model. As companies mature, they often shift from their original business model
to a diversified model to embrace technological advances, open new markets, or add product categories.

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Examples of Diversified Business Models

Walmart began as a “dime store” offering high-value, low priced products

in a single brick and mortar location. Gradually, Sam Walton expanded
the number and location of brick and mortar stores. The company eventually
shifted to a diversified model incorporating ecommerce, brick and mortar,
and third-party sellers through their online shopping portal.

Publishers sell magazines and newspapers via subscription. In addition, they

may use three or more additional models to generate profits: retail
(individual copies available for purchase at newsstands or supermarkets),
advertising revenue, and freemiums (giving away free copies to doctors and
dentists for their waiting rooms).

How Investors Analyze Business Models

Business models offer insights into a company's long-term profit potential. Investors tend to focus on
several areas before choosing companies to add to their portfolios: This is especially true of market size,
product demand, scalability, and the ability to add new channels.

These components have the most significant potential to impact net income, which is the accurate way
investors measure a company's wealth-generating potential. If net income increases, the company is
doing well and can be a good investment.

Market Size and Product Demand

Business models include insights into the marketplace, like customer demand, potential for reaching new
customers, and expansion opportunities. These insights help investors and analysts understand whether
a company has long-term profit potential.

By expanding their product line beyond collectibles, the company has increased its customer base to
both the collector market and parents of small children. They improved their opportunity to increase gross
profit while sustaining their USP as a brand for people who love horses.

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Scalability

Scalability refers to a company's ability to expand or grow with the same amount of resources. If a
company is limited by geography, customer demand, service delivery, or product availability, its potential
for growth and profitability is also limited unless the business model shifts.

*** END of LESSON ***

REFERENCES

Textbooks

Go, Josiah and Escareal-Go, Chiqui (2018) Entrepreneurship: Starting an Enterprise. Having an
Innovation Mindset

Online References [Link]

[Link]

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