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Step 1 - Familiarize with the business model elements
This will help us to learn more about the details for each of the nine (9) Business Model Items. We need to first become familiar with each element so that we can later complete analyses for each (repeatedly).

Step 2 - Utilize a business development process
This section will provide a process that we can use for analysis. A Business Model Log file is provided to help get you started. Also, a detailed process is explained. The process can be completed in as quickly as 9 days, but it is recommended that you spend up to 60 days for optimal results.

Step 3 - Final evaluation considerations
This last step in the process outlines how we can complete the process of Business Model development.


Business Model Development - Can be used to Start up a business, or to Revitalize a business

There are nine Business Model Items. Examine each below, to gain an understanding.

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Here we want to focus on potential partners. Partners may be investors, corporate sponsors, corporate licensors/franchisors, corporate suppliers, industry/trade associations, or government/non-profit agencies

Who might be an appropriate partner?
Identify those that might help us to access:
- Particular resources
- Particular customer segments
- Financial resources
- Functional and technical expertise
- Industry experience (learning curve)

How can we partner with them?
Examine what they might bring:
- Outsourcing/Offshoring capability
- Financial resources
- Management expertise
- Technical expertise
- Branding
- Market access
- Piggyback distribution
- Merger/acquisition
- Sales capability
- Production/operations capability

Here we want to focus on what we must do to be successful. A key question to ask ourselves is:

What must we do, and do well, in order to survive and thrive in our business?

This is an examination of our Critical Success Factors. The answers can span many functional areas of a business, and may evolve over time (along with our markets). Experience with our market, operations and customers will be of critical importance. For a pure start-up it is meaningful to talk with many people within the industry to glean their insight. A great place to obtain this information is to click here: Entrepreneur Interviews External Link. Select an Industry and then "Success Factors" to see responses relative to your industry.

Here we want to focus on the value we might provide to our customers. What types of needs do they have that we can satisfy (see item #5 to identify Customer Segments). The key here is to identify How we intend to provide value to each.

Identify what we can provide that our customers might value. A great place to help brainstorm is to click here: Sustainable Competitive Advantage Tool External Link. This interactive web tool will help us to identify customer segments, identify what each segment might like to retain or change/add, and then identify product/service enhancements based on perceived customer preferences.

In esssence, this interactive web tool will help us to identify a Plus - Delta. In other words, what might need to be improved/developed, while at the same time, not taking away things that customers want to retain. This will avoid providing new products/services that replace products/services that customers still value.

Here we want to focus on the types of customer relationships that we might like to establish. Each of the customer segments we identified (Item #5) may have multiple types of relationships with our company. What are the possibilities for them to interact with us? Here we need to explore various ways to develop on-going interaction with our customer segments:
- Web- based information/resources
- Web-based shopping carts/catalogs
- Telephone assistance
- Web-based chat
- Mobile communications (e.g., Skype)
- Tutorials (video, document)
- Discussion forums/BLOGS
- Social media
- Customer feedback/surveys
- Personalized re-order automation
- Promotional codes/coupons
- Segment-specific products/service bundles

An interactive web tool to help you design a customer-centric web presence can be found here: Web Segmentation eCRM Tool External Link.

Here we want to focus on customer segments. They should be profitable, measurable, have particular preferences, and allow for a targeted approach.

Explore and brainstorm various types of customers segments:
- Demographics (age, income, etc)
- Geography (zip code, climate, etc.)
- Clubs/organizations
- Interests/Opinions/Activities
- Occupation/Industry
- Memberships
- Educational Institution
- Familiarity with brand
- Spending patterns (quality vs. value)
- Size of company (sales, revenue, etc.)
- Buying predisposition
- Frequency of use
- Volume vs. single item buyer
- New vs. Repeat Customer
- Long-term vs. One-off buyer

The idea is to focus on customer segments whereby a company-wide strategy to optimize both, profitability and their satisfaction, can be achieved.

Here we want to focus on asset requirements. There are several types of assets that should be matched to other Business Model items:
- Equipment, vehicles, plant, technology
- Brands and blue sky value
- IP (patent, trademark, copyright)
- Cash
- Inventory
- Credit lines
- Equity and Bonds
- Human resource talent/skill
- Make vs. buy
- Buy vs. lease
- Available partner-related assets

Here we want to focus on promotion and distribution strategies.

Promotion
Explore methods to:
- Communicate with customers (see item #4)
- Create demand
- Allow evaluation/trial
- Access reviews/feedback
- After-sales services

Distribution
Explore methods to:
- Deliver products/services
- Create distribution channels
- Outsource/partner distribution channels
- Transportation modes

Here we want to focus on our costs. We need to assess costs relative to Key Partners (item #1), Key Activities (item #2), Customer Relationships (item #4), Key Resources (item #6) and Channels (item #7)?

We need to identify:
- Low cost vs. differentiated
- Assess fixed costs
- Assess variable costs
- Assess costs related to partnerships
- Critical success factor cost assessment
- Customer communication cost assessment
- Assess asset costs
- Assess financing costs
- Assess promotional costs
- Assess payroll costs
- Assess operating costs
- Assess distribution costs
- Economies of scale vs. warehouse costs
- Assess mass production vs. personalization

Here we want to focus on our our revenue. What are our customer segments (item #5) willing to pay for the value we provide?

We need to assess revenue stream sources:
- Sales of product/servce
- Subscription/membership
- Licensing
- Advertising/web clicks
- Broker commissions
- Leasing/rentals

We also need to assess pricing methods
- One-off vs. recurring pricing
- Fixed prices vs. negotiated
- Demand-driven pricing
- Follow the leader pricing
- Bundled price packages
- Auction/bidding pricing
- Discount pricing
- Tiered pricing
- Revenue stream vs. overall revenue
- Price lining vs. loss leader
- Penetration pricing
- Prestige pricing


For each business model item above, ask yourself the following 4 questions:

- What improvements can we make to this area (in comparison to what is currently being offered)?
- What can we do that is currently not being done (or is being done in other industries)?
- What can we eliminate, that may not be important to our customers (that can help us reduce costs)?
- What can we reduce, that may not be important to our customers (that other companies might be providing)?

Developed by Dr. Ralph Jagodka © 2015-2021 Based on the work: Business Model Generation by Alexander Osterwalder and Yves Pigneur, Blue Ocean Strategy by Renée Mauborgne and W. Chan Kim, and Diffusion of Innovations by Everett M. Rogers


Brainstorm and keep notes in a log (organized by chapter - Business Model Item #)

Complete on a rotating basis - one item a day.

For each Business Model Item (see Step 1), ask yourself the following 4 questions:
- What improvements can we make to this area?
- What can we do that is currently not being done (or is being done in other industries)?
- What can we eliminate, that may not be important to our customers?
- What can we reduce, that may not be important to our customers?


Suggested process:

Create a log book (word processing file) - example here: Business_Model_Log.docx External Link
On cover page, list name and describe the original business idea.


Morning Brainstorm:

Start off in the morning by focusing on one Business Model Item with 15-20 minutes of thought using the 4 questions above (log results). Take your original business idea (from cover page in the log file), and ask the 4 questions above as they relate to Business Model Item #1 (see Step 1 for details regarding that particular item). Focus on that item for the entire day. Make a mental note that insights will come to mind throughout the day. Throughout the day, continue to log results whenever "inspiration strikes". Similar to a 3:00 am "Ah-hah" moment, the subconscious will produce sparks of insight throughout the day, without conscious effort on our part. Continue to log these insights as they are received throughout the day, or make a note of them, and enter them into the log file that evening. Each time we repeat a Business Model Item (starting Day 11), please first read old log notes for that item (chapter), then continue to develop more throughout the day. (see the possible progression below).


Possible progression:

Day 01: Brainstorm off and on throughout the day on Business Model Item #1 only. Create a chapter in the log file titled "Key Partners" and log ideas, building on the original business idea (from cover page of log file).
Day 02: Brainstorm off and on throughout the day on Business Model Item #2 only. Create a chapter in the log file titled "Key Activities" and log ideas, building on the original business idea (from cover page of log file).
              This web page may help generate ideas for Key Activities - see what others might be doing
Day 03: Brainstorm off and on throughout the day on Business Model Item #3 only. Create a chapter in the log file titled "Value Propositions" and log ideas, building on the original business idea (from cover page of log file).
              This web page may help generate ideas for Value Propositions - what to modify/what to keep
Day 04: Brainstorm off and on throughout the day on Business Model Item #4 only. Create a chapter in the log file titled "Customer Relationships" and log ideas, building on the original business idea (from cover page of log file).
              This web page may help generate ideas for Customer Relationships - how to personalize customer experiences
Day 05: Brainstorm off and on throughout the day on Business Model Item #5 only. Create a chapter in the log file titled "Customer Segments" and log ideas, building on the original business idea (from cover page of log file).
Day 06: Brainstorm off and on throughout the day on Business Model Item #6 only. Create a chapter in the log file titled "Key Resources" and log ideas, building on the original business idea (from cover page of log file).
Day 07: Brainstorm off and on throughout the day on Business Model Item #7 only. Create a chapter in the log file titled "Channels" and log ideas, building on the original business idea (from cover page of log file).
Day 08: Brainstorm off and on throughout the day on Business Model Item #8 only. Create a chapter in the log file titled "Cost Structure" and log ideas, building on the original business idea (from cover page of log file).
Day 09: Brainstorm off and on throughout the day on Business Model Item #9 only. Create a chapter in the log file titled "Revenue Streams" and log ideas, building on the original business idea (from cover page of log file).
Day 10: After completing the rotation (each of the nine business model elements) this web page may help generate ideas regarding how we intend to position the company - what we can do to ensure consistency and strategic compatibility
Day 11: Brainstorm off and on throughout the day on Business Model Item #1 only (this is a repeat iteration). Scan read the "Key Partners" chapter in the log file prior to completing the morning brainstorm. Continue to write in the log file chapter titled "Key Partners". Ideas will begin to build upon one another, as we brainstorm an item for the 2nd time or more.

Continue the rotation for a full 60 days. This will ensure that we spend a day examining each Business Model Item (and overall company positioning) at least 6 times. (100 days is optimal, time permitting, so that we can examine each Business Model Item (and overall company positioning) 10 times).
It is common to find that new ideas in a chapter tend to build upon previous ones. Often new "out of the box" ideas emerge.

Developed by Dr. Ralph Jagodka © 2015-2021 Based on the work: Business Model Generation by Alexander Osterwalder and Yves Pigneur, Blue Ocean Strategy by Renée Mauborgne and W. Chan Kim, and Diffusion of Innovations by Everett M. Rogers


After completing Steps 1 and 2, we need to put it all together.

1) Review and Familiarize log notes
Scan read all of the chapters in the Business Model Log file. It is preferable to do this in one sitting. This will allow us to quickly gain an overview for innovative thinking.


2) Determine Starting Point of Emphasis

Ask this question:
What is our strongest area of impact? Which Item of the 9 [items] do we consider to be our starting point of strength?


3) Complete Preliminary Competitive Analysis

Start with the answer to the question above. Determine which Business Model Item will be emphasized. After we know which Item will be emphasized, then it is time to complete a brief competitive analysis. We should look at both direct (can substitute for us) and indirect (satisfies customer needs in different way) competitors. Using an Internet search engine will help us to identify these companies. We need to identify the products/services they offer. Look not for similarities, but for the varieties of subtle differences among competitors in the industry and geographic footprint for the proposed market. Focus on the Business Model Item chosen and examine how companies compete in subtle unique ways. After this analysis we will have a much greater estimate regarding the types and extent of competition we can expect to find, and if there are any unexploited competitive spaces open for us.
It is also helpful to explore the history of our major competitors. A great tool to use is the WayBackMachine External Link, which is essentially an archive of every web site that was ever built. Find your main competitors' web sites and go back in time to see how they started, and evolved to become the companies they are today. Examining their evolution can bring many insights into niche choices and decisions that might have been made along the way.

4) Put together a business model
Once a Business Model Item has been identified for emphasis, and a competitive analysis has been completed, then it is time to read through the log for each of the other 8 Business Model Items and begin to put together a business model. This process will take time. It is especially helpful to focus on a business model (outlining details for each of the 9 Business Model Items) that can provide the following benefits:

  • Is difficult to imitate (sophisticated solutions with multiple components)
  • Creates high barriers to market entry (creates strong customer relationships, or provides strong cost leadership)
  • Can be patented or copyrighted (branded solutions, licensing, patent protection)
  • Incrementally “bundle” (create "solution" bundles for specific customer segments)

To increase the probability that our proposed customers will embrace our offerings, we should strive to:

  • Make it better (better than what exists)
  • Compatible with existing offerings (use similar standards, values and experiences)
  • Easy to understand (make it easy to understand and learn to use)
  • Easy to try (allow experimentation on a limited basis - "try it before you buy it")
  • Easy to view others' experiences (make results and reviews visible to customers)

Asking these four questions should be considered the last (and vital) step to the business model development process:

  1. Do we have passion (for our product/service or functional role), skill (technical and general business skills) and a market (solve a problem, or better yet - a need)?
  2. Who are the customers we intend to serve?
  3. What is our value proposition?
  4. How do we intend to make money?

Developed by Dr. Ralph Jagodka © 2015-2021 Based on the work: Business Model Generation by Alexander Osterwalder and Yves Pigneur, Blue Ocean Strategy by Renée Mauborgne and W. Chan Kim, and Diffusion of Innovations by Everett M. Rogers