Copyright © 2008 by Robert B. Carton 1 Developing a Business Model.

Copyright © 2008 by Robert B. Carton1

Developing a Business ModelDeveloping a Business Model


What is a business model?What is a business model?

A company’s unique value proposition, for customers in the form of a sustainable competitive advantage, and for stakeholders as how the firm can create value specific to their unique interests. It presents a logical and internally consistent approach to

the design and operations of the venture, and documents this approach for all stakeholders

It identifies the key performance indicators for the business

It presents the value opportunity for resource providers

It provides parameters for determining the appropriateness of strategic and tactical actions

The Customer Mode of ThinkingThe Customer Mode of Thinking

The business model answers these questions in forming the basis for the unique market position the firm will seek.

What was your problem?

What was the solution you purchased?

What were the alternatives (competition)?

Why did you choose to buy what you did (better)?

How did the enterprise earn your business?

How much profit did they make on the sale?



The Business Model FrameworkThe Business Model Framework

The model must be reasonably simple, logical, and measurable, while still being comprehensive and able to be operationalized How will the firm create value?

For whom will the firm create value?

What is the firm’s internal source of advantage?

How will the firm differentiate itself from competitors?

How will the firm make money?

What are the entrepreneur’s time, scope, and size ambitions?


How Will the Firm Create Value?How Will the Firm Create Value?

Addresses the products/services offered, product mix, and the relative depth and breadth of the mix. What is the value proposition for the customer?

• What are they really buying? What is their need you are solving?

Primary products and/or service offerings

Broad, medium or narrow product line

A la carte or a bundled offering

Distribution channels

Internal mfg or service delivery, outsourcing, licensing, reselling, value added reselling


For Whom Will the Firm Create Value?For Whom Will the Firm Create Value?

The nature and scope of the target market(s) Who is the customer?

Who is the consumer?

Business-to-business and/or Business-to-consumer

Geographic scope

Transactional or relationship business


What is the Firm’s Internal Source of Advantage?What is the Firm’s Internal Source of Advantage?

What part of the value chain leads to your advantage? Is it valuable?

Is it rare?

Is it costly to imitate?

Is the organization organized to exploit it?


How Will the Firm Differentiate Itself?How Will the Firm Differentiate Itself?

How does the company differ from its competition in ways that are valuable to the customer? Equal value at a lower cost

• Efficiency, lower cost

• Quality

Greater value

• Image

• Selection, features, availability

• Relationship/customer service


How Will the Firm Make Money?How Will the Firm Make Money?

Revenues Price vs. volume

Repeat vs. single sale relationship

Operating leverage Extent of fixed vs. variable costs

Breakeven point

High, medium, or low margins


What are the Entrepreneur’s Ambitions?What are the Entrepreneur’s Ambitions?

Subsistence model Survival by meeting basic financial obligations Often associated with a lifestyle/hobby business

Income model Generate a living wage

Growth model Opportunity to continue to invest and build value

Speculative model Proof of concept and then sell the business

Copyright © 2008 by Robert B. Carton 1 Developing a Business Model.

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