Business Model& Business Plan

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Business Model and Business Plan Basic survival skills at YEF 瞿瞿瞿 Michel Chu [email protected]
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Transcript of Business Model& Business Plan

Page 1: Business Model& Business Plan

Business Model and Business PlanBasic survival skills at YEF

瞿志豪 Michel Chu

[email protected]

Page 2: Business Model& Business Plan

Who Am ISome personal backgrounds

Current Positions Veteran angel investor with 10+ angel investments Volunteer at NTU, YEF, Garage+, NTUEA … etc. Chairman of VSense Limited

Disruptive medical diagnosis biochip, first ever NTU spin-off Proud full part-time dad of one two daughters Member, NTU Investment Committee Adjunct teacher at NTU leadership program (台大領導學程 )

Previous Positions Co-founder, Executive VP and CTO of GigaMedia Limited (NASDAQ: GIGM) Judge/speaker/mentor at YEF and TIC 100 entrepreneurial contests Deputy CEO of NTU EMBA Foundation Board director of Gamania (遊戲橘子 ), SoftStar (大宇 ) , 重聚典 , Cambridge Entertainment Software Limited…

etc.

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Business Models

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Single Sentence Version A Business Model explains how you make money on a solution

Slightly Longer Version A firm’s business model is its plan for how it competes, uses its resources, structures its relationships,

interfaces with customers, and creates value to sustain itself on the basis of the profits it generates

Bullet point version A business model explains how you convert your idea/technology into economic value

Value Proposition Market Segment and Target Audience Value Chain Revenue Generation & Margins Business Environment Competitive Advantage

What is Business Model

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• A shopkeeper setting up a store in a place where potential customers are likely to be and displaying a good or service

Shopkeeper Business Model

• Only one provider or a good or service and there are no competitors and a lack of viable substitute goods

Monopoly Business Model

• Where a company integrates offline and online presences. • For example an electronics store may allow the customer to order online and pick up at a local store.

Bricks & Clicks Business Model (O2O)

• Products are not sold individually but a subscription sells monthly use of or access to a good or service

Subscription Business Model

Some Basic Business Models

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Heroin Business Model

• Give away the product for now, then charge later

• Sounds familiar?• Freeium model• Online games• Subscription model• Item mall model

Bundled Goods Business Model

• Give away razors and sell blades

• Game Consoles• Printers• What happens if there

are clone toners?

Captive Audience Business Model

• Give away basic product in exchange for user’s attention

• Sell access to users for revenue

• TV, Google, Facebook

Pyramid Scheme Business Model• Buying in to the right to

sell places to other people wanting to join the scheme

Other More Sophisticated Business Models

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• Innovation, innovation, innovation

• Small firms are by default faster and more agile than established firms

• Faster response

• Faster move toward market niches

• More flexibility

• Leveraging the innovator’s dilemma

Coping with Resource Constraints

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Technology Entrepreneurship

Brave New Frontier

Business Model Innovation

New Market Discovery

Matrix of Innovation Strategies for Startups

New

Existi

ng

Tech

nolo

gy

Market

Existing New

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Features of technology entrepreneurship model of startups New technology provides a faster, cheaper and better way to serve an existing market Most easy model for entrepreneurship Business model protected by technology uniqueness

Major source of risk – technology feasibility It will be great if we can have 任意門 , but can we? A faster, cheaper, better technology may necessarily not sell by itself

Key issues to address in business plan Establishing the feasibility of the technology Intellectual property strategy for the technology Competitive strategy with existing products / incumbents Market assessment, niche selection Sales, channel and distribution strategy

Technology EntrepreneurshipTechnology

Entrepreneurship

Brave New Frontier

Business Model Innovation

New Market Discovery

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Features of new market discovery model of start-ups Extending existing technology to a new market / type of application E.g. applying automation technology in the IT industry for agriculture / fishery / husbandry industry

Major source of risk – market development How easy is it to extend an existing technology to penetrate a new market? First mover’s disadvantage – substantial cost of market education Incumbents as copycats

Key issues to address in business plan Detailed understanding of the new market Establishing the applicability of the technology to the new market Detailed plan of market development If it’s so obvious, why nobody has done that before?

New Market DiscoveryTechnology

Entrepreneurship

Brave New Frontier

Business Model Innovation

New Market Discovery

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Features of new brave new frontier model of start-ups Inventing a new technology that allows things to be done in a way the was never before E.g. Facebook

Major sources of risk – both technology feasibility and market development Does the technology work? Development risks of entering a new market

Key issues to address in business plan Easily lead to a lot of question marks Achieve credibility of the business plan by eliminating uncertainties Need to establish the feasibility on both the technology and the market Data, evidence and pilot studies as supporting evidence

Brave New FrontierTechnology

Entrepreneurship

Brave New Frontier

Business Model Innovation

New Market Discovery

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Features of new business model innovation start-ups Existing technologies, existing market Do the same things in a better, more creative way

Major sources of risk – reinventing the existing business model How do you make the entire things work?

Key issues to address in business plan A detailed explanation of existing value chain and the different value

propositions of the new model What are the business model innovations? How to effect the change?

Business Model InnovationTechnology

Entrepreneurship

Brave New Frontier

Business Model Innovation

New Market Discovery

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Paths to Business Model Innovation

Industry model Innovation

• Innovating the industry value chain by:• moving into new industries• redefining existing ones • creating entirely new value

chains

Revenue Model Innovation

• Innovating how revenue is generated through:• new value propositions• pricing models

Enterprise model Innovation

• Innovating value chain roles by:• changing the extended

enterprise to be more integrated or specialized

• transforming networks with employees, suppliers, customers, and others

Business Model Innovation

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Examples of Business Model Innovation

Business Model Innovation

Enterprise model Innovation

What business am I in?‘making fundamental choices’

Revenue model Innovation

•Gillette innovated the pricing model by giving away razors and making money on the blades

•Netflix shifted the revenue model from product / rental based to a subscription based annuity model

PRICING / REVENUE MODEL

VALUE PROPOSITION•Cirque du Soleil reconfigured offering and value elements to transform the circus experience

Industry model Innovation

INDUSTRY TRANSFORMATION

•Moving from one value chain to another, leveraging its brand across industries including airline, media and telecoms

HORIZONTAL MOVES

•Apple transformed the music industry through a new way of connecting hardware with software to download music with iPods/iTunes product & service combination

•Dell redefined the PC value chain and industry model by using a direct to customer sales model

INTEGRATION•Zara’s Fast Fashion model is supported by a highly integrated business model along its value chain

SPECIALIZATION•Bharti created a highly specialized Telco business model by focusing only on its key differentiators – marketing, sales and distribution – and partnering for everything else

EXTERNAL COLLABORATION•P&G’s innovative R&D collaboration model “connect & develop”, sourcing over 50% of ideas externally

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Some Words about the Platform Business Model

Importance of multi-sided platforms Multi-sided market is of paramount importance in modern economy Credit cards, realtors, Apple, Windows, eBay, night club …etc.

Functions of the ‘Platform’ Facilitate interaction across users Establish and enforce components and rules of user interactions Platform value depends on the number of users in other groups

Chicken and Eggs Problem Members from Group A will have little incentive to join if there is not enough

members from Group B, and vice versa What is the critical mass for platforms? (and how to reach the critical mass?)

Market

Group A

Group B

Same-group network effects

Cross-group network effects

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Breaking the Chicken and Egg Problem

Subsidizing Consumers

(Acrobat /PS3 model)

Effects of subsidy

Subsidizing Developers

(Windows /Ladies’ night model)

Effects of subsidy

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Key Issues in the Platform Business Model

Path to Critical MassExchange Relationships

Consoles

Players Developers

Buy apps from developers

Pay for Game Console

Pay for Development Kit

AppStore

Users Developers

Buy appsRevenue

Share

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Developing Business Plans

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Win the YEF Competition?

Pass a class to get credits?

Start a business? Make a living? Fame & fortune? Make a difference?

Learn?

What Are You Trying to Accomplish?

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Invention Innovation

Good Plan Winning Plan Good Business Model Successful Business

Good Business Model Big $

A Plan The Answer

Common Misconceptions

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A Business Plan Need to Address Many Key Items

Market Need

Alternatives

‘Go to Market’ Strategy

Management Team

Exit Plan

Sustainability

Product / Service Delivery & Execution

Financing & Capital Needs

Plan to Scale & Leverage

Financial Projections

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And the Key Items Need to Fit Together Logically

Market Need

Alternatives

‘Go to Market’ Strategy

Management Team

Exit Plan

Sustainability

Product / Service Delivery & Execution

Financing & Capital Needs

Plan to Scale & Leverage

Financial Projections

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An Example: Elbum

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Value Proposition Identify the customer ‘pain’ or problem Indicate how the product addresses that problem Quantify the ‘value’ of the product from the customer’s perspective

Understanding ‘value’ is KEY! Generally wholly unrelated to your cost base. What is the value of a bottle of Coke? What is the value of a painkiller?

Value Proposition

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Identify the specific group of customers (aka ‘market segment’) you will target

Demonstrate an understanding that different market segments have different needs, preferences and purchasing criteria

Customer Classification Target Customer Ideal Customer Customer Segmentation

Explain why you have chosen the specific market segment

Quantify, Quantify, Quantify

Important to be able to point to a present demand from an identifiable and targetable market segment

Market Segment

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How do you add value? Reseller Value-added reseller Systems integrator Service provider Product designer Product manufacturer

Do you require the availability of others? If you are reliant on others, how will you capture your part of the value created? If you require other technologies, how do you overcome consumer inertia?

Value Chain

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How is revenue generated? Sell Product License Product Lease Product Subscription to Product Advertising (Free Product) Service Product ‘Freemium’ model?

How does that tie back to the value chain?

Who pays what and why? Specific customer groups Sell price - why reasonable?

Volume Initial, ramp up rate, reasonable potential

Revenue Generation

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What is your cost structure? COGS Gross Profit ($ & %) Distribution Costs Marketing Costs Support Costs Net Potential

What are your target profit margins?

Cost and Margins

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Who are your competitors? There is ALWAYS a competitor (even if it is just consumer inertia).

Who are you complementors?

Is there a substitute product/service?

Does the product become more valuable to customer as a result of network effect?

Are there any ‘force multipliers’ that can be utilised? Position on portal Viral distribution / Word of Mouth

Business Environment

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Identify critical factors Which aspects of the business are most critical? Which aspects need to be done well and which ones exceptionally well? Which aspects, if done marginally, could sink the business

What is your source of sustainable competitive advantage? Examples: Costs, product differentiation, market insight, superior execution or niche strategy.

Sustainable competitive advantage is a must have for investment First to market not always sustainable. Market insight is not always sustainable. IP protection not always sustainable, and is dependent on your ability to finance enforcement.

Competitive Advantage

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What talent / expertise is needed to meet critical needs of business?

How will you attract that talent?

Begin with needs and align talent with it Don’t start with people available

Management

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Business Plan = Your Business In a Nutshell

If you cannot explain it in 50 words or less, you don’t yet fully understand your business

Summarize, summarize, and summarize again Throw away verbiage, get to the essence (e.g. “We cure cancer”).

Concise, powerful summary needed: Elevator pitch Investor pitch Customer pitch Friends & Family (“What is it that you do?”)

Explaining Your Business Model

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Simple enough business that you can make it work

Adds value in the ecosystem so others members of the ecosystem benefit

Not a commodity product Same crafts at 100 booths

Overcomes market failure problems

Serves a specific niche market

What Makes a Good Business Model

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Business models often work great in theory, but fail in the ‘real world’.

Why? Assumptions (e.g. People think like me) Research is often ‘backwards looking’ Rapidly changing business environment

Talk to customers – LOTS OF CUSTOMERS: Confirm their ‘pain’ + interest in your product Confirm their pricing sensitivity Get confirmation in writing, if possible.

Early mistakes are much easier to remedy

Be oblique (“What if there was a product that did X?”)

The Need for Validation

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10. Develop a logical story

9. Be an actor

8. Make sure the numbers add up

7. Answer the question: “How do I know …?”

6. Answer the question: “How would I find out?”

5. Get testimonials / references from those in the know

4. Sell one (or more)

3. Realize the product / service is only relevant through the market’s eyes

2. Define the bet

1. Constantly learn and adjust

Building a Viable Business Plan

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Tool for Business Model Development

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Product Definition What is your product / technology?

Market Segment Which part of the market do you want to serve?

Target Audience Who do you plan to (initially) sell to?

Value Proposition How do you benefit your customers?

Competitive Analysis How do you compare with other alternatives

Background Analysis What is the general business environment?

Before You Plan Your Business Model

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1. How do you acquire customers?

2. After you have landed a new customer, how do you plan to relate to that customer and manage the relationship (if at all)?

3. How do you charge your customers? What is your revenue model?

4. How much do you charge your customers? Can you calculate your revenues for the next month, quarter and year?

5. What assets are available to you or under your control?

6. Who are your key partners?

7. What key activities do you need to engage in to deliver your value proposition?

8. What are your fixed costs?

9. What are your variable costs? Can you calculate your total cost for the next month, quarter and year?

10. Does your revenue forecast demonstrate increased profitability towards the end of the forecast period?

Activity 1: Key business model questions

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VALUEPROPOSITIONS

CHANNELS

CUSTOMERRELATIONSHIPS

CUSTOMERSEGMENTS

REVENUE STREAMS COST STRUCTURE

KEYPARTNERS

KEYRESOURCES

KEYACTIVITIES

Activity 2: Create your own business model

<< insert your value proposition here>>

<< Describe your cost structure here>>

<< list your partners here>>

<< describe your revenue streams here>>

<< list the key resources available to you here>>

<< describe your key activities here>>

<describe how you plan to establish and manage the relationship between the customer and your brand here>>

<< describe 1) how you plan to acquire customers, 2) how you plan to deliver your value proposition to them and 3) how you plan to communicate with your customers >>

<< describe your target customer segment here>>

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Does it work? Do the revenues outweigh the cost? Try estimating revenues and cost for the next month ( or the first month of sales, if you are without revenue for now)

What are the risks to your business model? What parts of your business model are most critical for your business to grow in a profitable manner?

Are there things that can or should be changed to strengthen the business model or reduce its risk?

Activity 3: Consider your business model

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Does it work? Do the revenues outweigh the cost? Try estimating revenues and cost for the next month ( or the first month of sales, if you are without revenue for now)

What are the risks to your business model? What parts of your business model are most critical for your business to grow in a profitable manner?

Are there things that can or should be changed to strengthen the business model or reduce its risk?

Activity 3: Consider your business model

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How do you know what you wrote in each building block is true? Have you made an assumption or do you have solid evidence—in the form of documented facts?

In the cases you have facts, label the response as “Fact” and make a note of your evidence. In the cases you have made assumptions, label the response as “Assumption.”

Complete the activity by listing all the assumptions regarding your business model

Activity 4: Clarify your business model assumptions

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Sales materials Website

Product information

Customer presentation

Other (demo/prototype/case study)

Description of channel strategy

Sales process description Economic buyer

Other stakeholders involved in customer’s buying process

Steps in and duration of sales process

Expected deal size

Pricing options

Activity 5: Prepare to meet customers

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Who are the stakeholders involved in the customer's buying process?

Who typically plays the roles of influencer and economic buyer?

What are the stages and the length of the sales cycle?

What is the profile of the typical buyer?

What is the best sales strategy?

Create your positioning statement using the following template. For…

Who….

Our product is…

That provides…

Unlike…

We have assembled/created/invented a product that….

Activity 6: Update your documentation

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Activity 7: Plan your next steps

No. Activity Deliverable Deadline Responsible

1. Develop a revenue forecast

2. Put together a marcom strategy to generate demand and shorten your sales cycles

3. Create a product roadmap

4. Continue to engage with customers on your “initial target list”

5. Plan for growth

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Gillette

Razor Handle

Blades

Retail

Built-in“Lock-in”

Customers

1 x handle purchase

Frequent blade replacement

Marketing

Manufacturing

Logistics, R&D

Brand patents

Marketing

R&D

Logistics

Manufacturers

Retailers

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Line

Free Text and Voice Calls

Group Chat

Ease-to-use AppStore /Google Play

Viral Distribution

Mass Customized Smart Phone Users

Social network groups

Free to use for basic servicesPictures / icons

Sponsorships from enterprisesGames

Software development

Infrastructure

Software Developers

Icon Designers

Marketing &Promotion

Software DevelopmentAppStore

GooglePlay

Marketing Partners

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Template for Business Plan Presentation

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Mission / Vision [optional]

Vision What is your big vision?

What problem are you solving and for whom?

Where do you want to be in the future?

Mission Statement Select a mission statement that is achievable, but not yet achieved.

Bad mission statements:

• "To create the world's largest software company." [too broad and unrealistic to practically guide decision-making]

• "To develop the world's best technology for defending DNS servers from worm attacks." [er, you said you've already done that,

right? Mission accomplished!]

A clear mission statement also includes a clear idea of what the startup will NOT do...

• "Healthia will operate America's most widely used comparison shopping portal for consumer driven healthcare, enabling businesses

and their employees to choose health plans, ancillary health benefits, and medical services objectively and transparently.“

• "Prolexic will create and dominate a new network service category that defends web applications from distributed-denial-of-service

attacks.“

Sometimes the white space on the slide is filled with customer logos or testimonials.

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Market / Problem [must have]

Without yet getting into your product or service, describe the nature of the problem you

address Emphasize the pain level and the inability of incumbents to satisfy the need

What is your market opportunity and how big is it? How big is the market opportunity you are pursuing and how fast is it growing?

How established (or nascent) is the market?

Do you have a credible claim on being one of the top two or three players in the market?

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Product / Solution [must have]

Introduce your product, and the benefits (which should obviously address the market

problem you just described). What is your product/service?

How does it solve your customer’s problem?

What is unique about your product/service?

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Underlying Technology [optional]

Elaborate on the technology or methodology you have developed to enable your unique

approach. If appropriate, mention patent status.

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Target Customer and Value Proposition [must have]

Who is your customer? Who are your existing customers?

Who is your target customer?

What defines an "ideal" customer prospect?

Who actually writes you the check?

Use specific customer examples where possible.

What is your value proposition? What is your value proposition to the customer?

What kind of ROI can your customer expect by using buying your product/service? What pain are you

eliminating?

Are you selling vitamins, aspirin or antibiotics? (I.e. a luxury, a nice-to-have, or a need-to-have)

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Selling and Customer Acquisition [must have]

What is your selling strategy? What does the sales process look like and how long is the sales cycle?

How will you reach the target customer? What does it cost to "acquire" a customer?

What is your sales, marketing and distribution strategy?

What is the current sales pipeline?

How do you acquire customers? What is your cost to acquire a customer?

How will this acquisition cost change over time and why?

What is the lifetime value of a customer?

Marketing plan

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Management Team [must have]

Who is your management team? Who is the management team?

What is their experience?

What pieces are missing and what is the plan for filling them?

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Revenue Model [must have]

Who is your revenue model? How do you make money?

What is your revenue model?

What is required to become profitable?

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Competition [must have]

Who is your competition? Who is your existing & likely competition?

Who is adjacent to you (in the market) that could enter your market (and compete) or could be a

co-opted partner?

What are their strengths/weaknesses?

Why are you different?

Competitive landscape Be sure to anticipate competitive responses, and never deny that you have competitors, no matter

how unique you think you are

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Partnerships [optional]

What partnerships do you have? Who are your key distribution and technology partners (current & future)?

How dependent are you on these partners?

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Others [optional]

Other What assumptions are key to the success of the business?

What "gotchas" could change the business overnight? New technologies, new market entrants,

change in standards or regulations?

What are your company’s weak links?

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Milestones / Financials / Projections [must have]

Projections and milestones For each time period, add headcount and cash balance. It should be clear how you expect the

company to perform top line and bottom line three years out, and how much capital will be required

now and later.

Prepare lots of backup slides to illustrate the assumptions behind these financials.

Okay, so you might need an 11th or even 12th slide to cover all the financials, to describe the

follow-on businesses that may arise, or to provide a timeline if you have a complex product road

map.