# warvarRD| BUSINESS |SCHOOL 9-802-048, Note on Business Model Analysis for the Entrepreneur Introduction "easy evyone has te, ard and employe the tr basins ode but how many people really undersind what mane? The rm 3 tandard pra inthe lean of bine mage, et the rm exes defiton In mat book ales, busines lars and anal epost ‘sued that burst ages only underrtad the trn Base mo but abet thy {ow ho ony, ase dere thm Thole Severs the pinay elements ig ‘Sora of otpanys usinesnael tom the perspective of an entepene. In ordre ase potential asnes del enteprencue mast uncover he atte of prt ‘gine’ wih often scared by ambos ancl and market pron Entrees mst ‘tema whether tein concept canbe tenant ints viable prabe bstess ‘eave ané how mich ca wi ake achieve tht rl Thy, tno nodes Several Sly chngus tenable an enroprenear naw the flowing qeson: 1) How I the ins on cash fw poste? 2) How mach ane rogue we fampop te revenae det {otumesch fw poste? 2) How lage an ivestnent erg o para he buns mel?) ‘What ae teenie sce factors al ssa ka? aon preparing te eepenet ‘oansver thse quest, ths ote aso proves evra strate buss model to suppor the ‘aly amerona posed Business Model Definition Many badnespoope and academics have ofa caberst definitions fr the tm bsiness mode” This noe propose 2 more fosed defiion ofthe term and specie aed st ‘Serpeeamun who fu desde whether spac unes mae! artes an ietnt Hlt {ime and rsarcs In the conn busines ode defined a seman oh cre sie ‘Asis a af ample by 8 company osm rot Arroch every entered must “nde th pic uses econ a scompaying de of tht eed i the eto ‘fabs ofa In genet thse Doses Soon and trade-off int four rope evene uo key expec vette and cl score factorsoon ao it Mae Arh ere Revenue sources How many dfn venue sex wil the bass mol generate? Whats he sure of ch ‘venue Sream bales sree fay advertising, subsopton? What ithe relate sear portance ofeach een sam? How qu isaac ven stream is tog? Cos Drivers ‘What cos divershave the gente impact on the ot trutare? Are he cons ed, amar, {ube oy nowaring? What the eaten and impestance? Wil he at ever ange ‘overtine? Investment Size Hove mich ash egies to lunch te business ods” How mach working ep ieque: 1 fli the busines" Wat av th ining fee cash eed? Wl cst expended pou 2 inl bane ry? Chita Sues Factors Which coments company’ busines model ae most inprtan oacieving ts prof goss? Which ofthe cmens re the mont dial eat? WH ty changeover Sie? Framework for Analyzing a Business Model A ramewark hr nalyring bss nodes mst be ppb the numerous busines mols in he marta inert year the numberof esse modes has inctessed dramatic or ‘vera mnt talon eid the want of business model acters gografic oundaren, Sond chnsogral advancements ih ar he internet have tered Ue development [Tho buon re Faye ge nin of prose captain new vents as elped to Spur the cation of new, innovative sies oder suc, Busnse eel anal eu 2 ‘Simon snting point tnt ually apple anafactringbuxnes oa Inter ase ‘Sites. To tind smpany’s fal ttmantthe alnce sect icome Staten ul ste alceve a anda start po or bases ode! anal Foren sg compas, the pro ora or budgeted ancl statement ar required and for ‘suing cmpants a combinton aa financial tates and pro formas ar requ. et Sts finan cee isc ane vee at fa Upraing princes oft company of which ay be found fs business plan anol ear, Pr pings or mdi i To bein thy basnes sel analy, the fling sep shoul be + Determine the company’s acu and project rverucs and the ig ofthe ch ine. Dieggzeae vedas unl you have uncovered he Yvene er ote ey om tine fot evens + Detemine the company’s cal ado expenses and the timing ofthe ash ‘atone Daagyryate cx data ino dsr cos vr + Dternine the total investment sequel f0 achive a postive cash flow poston ‘dadng working cata+ Pht cath flow vers ine to gente 8 cash curve. This curve wil state he amu fancng nods ah the ning of ple csh awe and ch raven, ‘+ Peso systematic sensvity analy ofthe busines mavdel to Sent the ees seco fits or the fvers that have Bh atest impact othe sath flows the company. A prolininury analysis ofthe company's evens sure, ort divers nvestnent egies and ‘te scars intr fom the bas of busied ales. The following sets wil fae ore dete analysand provide state case expe for ea hy lmet of he snes motel Revenue Sources Definition ‘Ther ae our dst evene streams tht under al business model! Single steam: company ris on one pedainant even sis stemming fom one oduct Matiple streams: company colts muliple revenues sams fom diferent prucs oF services Eh evens sae engi faves meaning impact en rota Inereperdent company sl ne/several proce ovis inert simu erenes ‘tom aot tf prac or servlets. Example ofitrdopendent even see dears na sor acs Prins nd pine calor Lows tender: company celles multiple revenue stams but not evry revenue sa lndependertyprotabie One or several fevene ams may sve ss deste ie ie \ospur ote prchass. Combined al revenue scams enable te cmnany to achcve poi ‘An exampl oe ender evens sa grocery soe eg lu Stern elo cs Crdrto state oh purse Revenue Motels Busnes mols can incorporate ope ot several diferent revenue steams depending on the _gungany's proc indsty and customers. The flowing revenge dee a acl he the four diferent ene seus can be ane ina Passe mode Subscitc/Membership: Customers pay fied amount at mga intervals (week, cont, ee) n advice of tecatng the prod or service Emmys ice eying a sou ‘bcp lors mapasine te ites cb memes, ‘olume or Unit-Baed: Customers pay a fa pri peru nd eve a proto ese ‘exchange: tapes incu talents suchas restating chop oben pb {Ae Md Sl Yl de Diy et a Mal apts eesoos eto nt a Are teeth Advertsing Tate End-user is usually exp rom paying oo pays fe equivalent only «action of he oe value a he predator mie sare le network tevin sas acne we ss ‘censing& Syndication: Customer pay onetine atning o sya fe tobe be tose rs the profictAlaively the buyer may pay #seprnte lenin or Tye ee ht ‘unease tansscton, ee example, phate fem may Heese dy on 2 ‘oto fm. Teantaction Fe Customer pays the company tat falas the wanton 3 fd 6 ce 8 pcetag oft tl value ofthe Mansion. Examples indude brokerage fms on aon sian ‘Revenue Model Analysis ns anewering the following gusto, the entrepreneur an gin grate insight Ino the ee ‘usin devise and tadeotsundeing a company’ teverue oll and tte and sve "parans of eu even sea Revenve Steams ‘+ Is thebusins mol base on sage, mle ora os ade revenue ra? + 1 company fu ss ender revenue team, how ikl ete lnc ob covered by + Isthe business model based on asinge or hybrid venue mal? + Inthe cv fyb model, what are the underying evened subi teasscon adverts ov qui wil he evens? Ar th ny bares o revenue growth? 1+ How log des take tcl sh lowing sae? case Example ‘The seven moe employed by the lgenary sce rock bind The Graf Deno The Dat demrtats eval the encpes a revere anais. The Da war on ofthe Nghe rssh bands fl ie ut ad ony one Top 10 ht and at oe ofthe 10 sue ever climbed ihe than No.2 on th: chars ned of eeating Na to dive reed ely, The Da even ‘ote expla he underlings and economics te mundus “The high cot msc production and dsebution sytem run bythe sc aes ere oly sil orton of alum venues forthe musa and the evened ut semana ae the Ibe spl ut all accrand expanse In conta the Teor companies have no ca ‘eer revendes-compied of cet ahd eran ale. These acre ety fo he outing * at gh “nme La he Deo Ane Ang,et on ain Mel ns fe Eeprte soos ban and arepid win ty days in response to the favorable sono ring an ling ‘merchandise fe Da developed willy seal even adel ‘The Dd sential gave aay thr muse At ve show, The Dl vite fans wih een eves 1 pl them ino te engineer soundboar, allowing them 9 bur CD guy eeonsings fore Mover The Dent encouraged the Spying ad tring a concert spe Muse wes te Inook or los lender proverbial fe tos oie fst 108 peopl to ope a bank cu. Instead the ed toured feuorly eh ot loyal tne cole Deadha who flle te nd acs he oun and tend there stows Te Da oie ahve one $80 iin nana let reves Thor equ We concerts melted dem forehand the bind develop ine of merchanne-tce with th sigue nts were sol each lve cont To discourage bogged merchandise, The Dee wae non oie cy puronel wlo scoured the pking oof cnet venues tenors thetrademare wih pope legal selig anikensed merturdse, On average, The Da gered ah adil $70 da revenue pryrrinmerchundae wen Wil mos banc stra to gneiteenaugh lum sso cover he abs mae an depurtnent scoured ot {ny aloft 2300 employes inthe minnetos Iam, Sever even Japan drastaly ced {he cot andra of Seveloping nd implementing a uperie sya by een parneras with ‘eftwre an ara upped of baling he capt ous By the mit-inte, Sever leven Jain’ inmoatveappronch to cot reduction Pap 42 ‘econ the fate groving snd mont profil convent tre chain apa, Halo payed 3k Snporant ok inthe pene conan by elping to ite IT lo soll Sees ant 36 2 stent fone for toning pans dtm chanel ‘A Gshbone diagram (Se Exe 2) laste the cost srt of Seven kv Japan ind the <4erstnancing ech major cs. hor oC Men Cpa oir Hanan Uy Fn 5 S85soa ec aint Mie Ane pt Investment Size Definition Mein ire eh tm of sh i pny hi pat ah an as lon ene pn ah Spor po loves ene en” a ape ph SCE Taped ameane ices ae, Aa for Sopen penn Seine aluecagines easy a A cash ow digram can be vats bse on lowing carci Maximum Finding Ness Wat isthe maximum cing no of he business model, ‘how deep isthe csh Wough? Over wha eid of tie the nvsnent sued? afar at ant dst ow ect at? Ho ing Cash Benen When does the company achieve cis beskeven (i. what doce time eat when he curve crscthe xa? How des th slope he cash curve change after breakeven Exuomples of Toll Investment Size The flowing examples describe typ of busines made with mark ieet invest rogue Sofware: Lae upon invetment i eg to bul a inl software prt he prot sce oly rately nal flow invest ole, un and custo ‘sce are requel csptres lrg software ove se al, Capital reguiements rings ps ned wth ee ret convent and pal. Prancg nods en ately onsen ore ine " Small Consung Hem: Very small pot invest for space, compute an phone ine ee neces to beg Serving ents the Sm r rac le fw-n inven ay ‘led oe aoa at ese ge ifs spac an ld infestace Case Example Metical deviestar-up can be ust state how varius burns model hacen ping, manfatring and disbton~can alec the total niente aged ch Pte nh ow, Many med devs companies sl ro nerdepencent prot) een {instruments eed wo perform «procedure onan ongoing bse ith» price fen raging mh Samoan 3 apn ace tn ed diy ech nile its pie ranging fom $810 to $200. Fora medal deve company ales ofthe spose rod ie deperdet om th to mune of nnn In fesp Ad ne the pee ‘teach insu’ or equpment i sglcaly higher antec of ech cepa, the png, ‘manufacturing an dsrbton of the strument or equipment ae» igen pact he a ‘Sah eutenentao th buns,‘The strane or eulpment canbe sold ata prot sl conto ven aay few the apres ar necy ays sold aa profit A medial devices company tht sl the aut ‘or euipmen!at a proftsseuming the matali wing 0 py are igtandy calor nh ough fan ene tht giver Sway ln ions ted dies company that als the instrument or equpment ats proftansmng fewer scar will fo py fork an tet ot frce=wil hve more en upwardsloping ash carve than company ht ge the retue ‘ay and generates» tape volume of dopa sls rm is arger tala! bee a sr See EIhbi fr ash ow diagram fo hypoth mesial eve vente). Anther facto affecting ttl investment si i the dicison shout whether to eusource manufacturing ofthe intuit or equipment. company tht eutsurns reduton wile 2 Sigel dalower ach tough than neta ues manages own manos ol, Stuart a company at octuources the sles and distur oe pu oa Ines tbr wi avoid investnents elated 0 Bldg ining and araging sles for od wal therefore havea shallower sah bough than a company wie own ies force However butturcing production and saler—heo cil fancy win a moda devi compen an ‘ul in fut eanagement probleme of colin ours that may ost the altar of Tower nested se ‘The mil device case eample sree how bins model chee elated 1 pring, ‘manufacturing and dstebutlon can haves major impact onthe fl invstnent reared ere Pastve cath flow. And, wile burner model Gee shuld be wean’ the torent of ‘Svestnent sa he etepreneur sbi also cone hw machen evalu the vente on ‘hehe tebsnessmedel ccs confer ng compat adranage oh fm, Critical Success Factors Definition Acta sce factor cam operation faction or cmpetncy that cmpany st pomenin order for tbe utaabl and prota There the sacs oa snes model depen th the cetton of vale Dsinss model andthe scr execution of mile operon ‘ctor Critica Sucoss Factor Analysis ies business mos provies sigh into undetying even and ot diver sme these ‘tt ce prt han te: Fs» tent mapa on uncover the parameters oscars actors that have the eet inpeston th moat ad Hi the cash Nowa The ares with the greet impact Dest fecal sures faethe bsnest mode. The following tps eat enzo phrase nae + Coosa business model that stats the Wining and size ofthe cath nls and 1 See he or four parameters (ss gow, new customer acquisition ae inventory ‘ar) wth he ratet prose pat tl ih owe iss olvou Ne on sine Made An be tp 1+ Seat a reasonable range fr each parameter a then mesure the pat of changing the atametr aca the ete ange) + Repent th procs foreach params ad note which variables have the mst sgiant Impact White company’s sues factors may change ove tne pefring sent anlss cables the emepene messre he impact + lsat fists ven pit ne, addon the tity analpscan so fp managers Ode whe to fus tha forth er for th acoso have the reste impacton the in dal Examples of Ciel SuccessFactors by Revenue Model itn sce flrs vary by busines mods industry and stage of development. For eam 2 growing comp’ sucess may ret op fe ably ofp ese now asomer oft ep "pprction fat enough omc demas A matte compen ce may ret pon yw [sthove high apusty isadon orice ut cnt fer than competion The follow ng ‘eamples usta he cits ators rte dent snes nels Subsition Member: The abit ora customers fr lang prio of ine: the abil to sci new case at low cst he sty #0 cnt iene share of walt ith Teanstcontim: The aly to command « price poemium fora product/service witht ‘omersrate nase incor the abit to explo exam fae tower fies cate ‘ale volume neces ng as: The ability to maintain advertsngrevenses daring countencycial exononie period the sity nae adveriang ending stor,Nee sn Mt Aaa rte ep ExNBWLT Fshtone Diagram for The Gel Dead Revene Modelsna Nets ene Amir apne Exhibit? Fahtone Diagram for Sever Hleven Japan Cost Ste [Pricer Cost of Goods Saia_| +{ #ofSunptirs Inventory Tors Development Costs infomation Tectnoleay_|—}[ implementation Costs [Maintenance Payroll b4 bod Empoyess/Store [Dai Waaetémeoyee Feciios | Square Footagestore_| PricerSquare Foot Markeing! ‘Advertsing CosStore Aversing ‘Companywide SpendNeto nn Mod Ana he pee sou [shit Cumulative Cash Flow Diagram fora New Vente