1. Business Models Definition, BuildingBlocks, InnovationRemus Tomatomaremus@gmail.com@RemusTomahttp://ro.linkedin.com/in/remustoma

2. Are they right?! today, business models are one of the most sloppyused terms in business; they are often stretched tomean everything and end up meaningnothing (Magretta, 2002)! a business model is like the old saying about teenagesex: everyone talks about it all the time; everyone boastsabout how well he or she is doing it; everyone thinkseveryone else is doing it; almost no one reallyis; (TechCrunch, 2011) @RemusToma* http://tcrn.ch/P9MWpT 3. Apparently so A recent study (Zott et al. 2010) showed that out of 103 business model publications: 37% dont define theconcept at all 44% define the model butwithout overlaps The restquote others@RemusToma 4. Why should we know what a Business Model is?! To know what the heck were talking about with investors! To helps focus your start-up/company employees! To give you a framework to think about your business! To obtain a shared understanding! To obtain a shared language! To be able to innovate and create great Business Models @RemusToma 5. So, what is a Business Model?! The business model is a diagram that escribes the logic behind how yourbusiness functions.OR! A business model describes the rationale of how an organization creates,delivers, and captures value (Ostervalder & Pigneur, 2009:14)! So, the business model comprises of several elements: product/service, distribution, customers, financial viability Delivers Value CompanyCustomer (value(valuecreator)receiver) CapturesValue @RemusToma 6. What are the components of a Business Model?! 9 building blocks (Osterwalder & Pigneur 2002): Pillar Business Model Block The Product Value Proposition Customer Segment The CustomerDistribution Channel Customer Relationship Key Resources Infrastructure Management Key Activities Key Partnerships Revenue Streams Financial Aspects Cost Structure @RemusToma 7. Building Netflixs Business Model! Netflix allows renting an unlimited number of movies, for an unlimited period of time, choosing from a huge variety of movies, in exchange for a monthly payment, and deliver them through a convenient and fast mail delivery. @RemusToma 8. 1. Customer Segment ! Who are you creating value for? Who are the customersthat you wish to reach and serve? Who are your mostimportant customers? ! Identify customer needs and desires and segment themarket ! Most common market segmentation techniques of userswith common needs: ! By geography! By demographics (age, sex, income, occupation, etc.)Netix Segmentation: By personality, lifestyle, social class, interests.! ! By behavior how they use the product, brand loyalty, etc. Avid movie explorers ! Etc.that prefer convenient delivery @RemusToma 9. 2. Value proposition! The product/service that is useful for your customersegments -> why customers love you! Answers the question: what value do I deliver? Whichproblems or needs are we solving/satisfying?! Value is what the customer gets for what he gives2, but canbe influenced by: ! Performance ! Customization Netix VP: ! Design ! Brand/status Providing high- ! Price diversity, unlimited ! Etc. movie rentals through post oce @RemusToma 10. 3. Distribution Channel! How do you communicate and deliver the product/service! Different options, different trade-offsNetix Distribution: Channel Types The USPSSales force Direct OwnedWeb salesOwned Store Indirect Partner Stores PartnerWholesaler @RemusToma 11. 4. Customer Relationship! Chose the relationship type, based on your customer segment! Types of relationships: ! Personal assistance Netix customer relationship: ! Dedicated personal assistance ! Self-serviceAutomated movie ! Automated servicesrecommendations based on client reviews ! Co-creation @RemusToma 12. 5. Key Resources! What resources do I need for my business to function?! Types of key resources: ! Physical: buildings, machines, etc. ! Intellectual: brands, patents, copyrights, customer databases ! Human ! FinancialNetix resources:- Patentedrecommendation system- Ecient employees@RemusToma 13. 6. Key Activities! What key activities does our business require in order to function?! E.g. production, design, finding solutions, etc. Netix activities: - Internetrecommendations - Inventorymanagementthrough queue analysis @RemusToma 14. 7. Key Partnerships! What suppliers and partners does my business need to work?! Why should you do a partnership? ! Obtain resources ! Economies of scale ! Reduce riskNetix partnerships:- Indie Producers- Mainstream producers- USPS Distribution@RemusToma 15. 8. Revenue Streams! How will your business make money?! What kind of revenue systems can you use?! One time sales: Starcraft 2! Recurrent sales: ! Usage fee sim card telecom operators, Datasift ! Subscription fees: SocialBroNetix revenues: ! Renting: Rent a car ! Licensing: Google Maps for iPhone L Monthly subscription ! Brokerage fees AirBnBfees ! Advertising: Google! How do you set the price? Three foundations: ! Costs lowest price you can set ! Competition undifferentiated products [gas] ! Value to customer ! Dynamic pricing - Wizzair @RemusToma 16. 9. Cost Structure! Types of costs:! Fixed costs: rent,! Variable costs: energy, fuel, groceries (restaurants)! Economies of scale: decrease with volume -! Economies of scope: diversity leads to lower costsNetix costs:- USPS delivery Costs- Customer acquisitioncosts@RemusToma 17. The 9 building blocks: TheBusiness Model Canvas Day Month Year No.Who are our Key Partners? What Key Activities do our Value Propositions require?What value do we deliver to the customer? What type of relationship does each of our CustomerFor whom are we creating value?Who are our key suppliers?Our Distribution Channels?Which one of our customers problems are we helping to solve? Segments expect us to establish and maintain with them?Who are our most important customers?Which Key Resources are we acquiring from partners? Customer Relationships? What bundles of products and services are we offering to each Customer Segment? Which ones have we established?Which Key Activities do partners perform? Revenue streams?Which customer needs are we satisfying? How are they integrated with the rest of our business model?How costly are they? How? What?Who?What Key Resources do our Value Propositions require? Through which Channels do our Customer SegmentsOur Distribution Channels? Customer Relationships?want to be reached?Revenue Streams?How are we reaching them now?How are our Channels integrated?Which ones work best?Which ones are most cost-efficient?How are we integrating them with customer routines?What are the most important costs inherent in our business model?For what value are our customers really willing to pay?Which Key Resources are most expensive?For what do they currently pay?Which Key Activities are most expensive? How are they currently paying? How would they prefer to pay? How much? How much does each Revenue Stream contribute to overall revenues?This work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License.To view a copy of this license, visit http://creativecommons.org/licenses/by-sa/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. @RemusToma 18. Netflixs Business Model Canvas Day Month Year No. Who are our Key Partners? What Key Activities do our Value Propositions require? What value do we deliver to the customer?Customer relationship:What type of relationship does each of our CustomerFor whom are we creating value?Activities: Who are our key suppliers?Our Distribution Channels? Which one of our customers problems are we helping to solve? Segments expect us to establish and maintain with them?Who are our most important customers? Which Key Resources are we acquiring from partners? Customer Relationships?What bundles of products and services are we offering to each Customer Segment? Which ones have we established? Which Key Activities do partners perform? Revenue streams? Which customer needs are we satisfying? How are they integrated with the rest of our business model?- Internet recommendationsHow costly are they? Automated movie- Inventory managementrecommendations through queue analysis based on client reviews VP:Partnerships: Customers: Providing high-- Indie Producers diversity, Avid movie explorers that- Mainstream producers What Key Resources do our Value Propositions require?Through which Channels do our Customer Segments unlimited movie Our Distribution Channels? Customer Relationships? want to be reached?prefer convenient delivery Revenue Streams? How are we reaching them now?- USPS DistributionHow are our Channels integrated?Which ones work best?Resources:rentals throughWhich ones are most cost-efficient?How are we integrating them with customer routines?- Patented post oceDistribution: recommendation systemThe USPS- Ecient employees What are the most important costs inherent in our business model? Which Key Resources are most expensive? For what value are our customers really willing to pay? For what do they currently pay? Costs: Which Key Activities are most expensive?How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues? Revenues:- USPS delivery Costs - Customer acquisition costs Monthly subscription feesThis work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License.To view a copy of this license, visit http://creativecommons.org/licenses/by-sa/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. @RemusToma 19. Business Model Canvas Explained! http://www.youtube.com/watch?v=QoAOzMTLP5s@RemusToma 20. How to create great businessmodels? The ProcessBefore you start burning cash, make sure you got the right BM!1. Start with the customer your insight, idea, hidden need, etc.2. Move from that and think of all the components of the business model3. Sketch out your business model by using the canvas and see how everythinglinks together4. Co-create with other people, brainstorm, look for alternatives and improveyour model5. Your BM is just a set of hypotheses, TEST IT WITH CLIENTS!6. Reiterate on their feedback until you are able to sell a minimum viableproduct (ideally)@RemusToma 21. Value Innovation Cirque du Soleil! Industry conditions: ! Long term declining industry ! Alternative entertainment options video games ! Increased pressure from animal activists ! Entertainer supply was scarce! Cirque du Soleil Result? ! Profits increased by 22x in 10 years ! More profits than the main competitorsHow did they do it? Certainly not technology@RemusToma 22. Value Innovation RedOcean, Blue Ocean Strategy*Red Ocean StrategyBlue Ocean StrategyCompete in existing market spaceCreate uncontested market spaceBeat the competitionMake the competition irrelevantExploit the existing demand Create and capture new demandMake the value/cost trade-off Break the value/cost trade-offAlign the whole system of company Align the companys system ofactivities with the strategic choice of activities to choose differentiationdifferentiation or low cost AND low costConditions for a Blue Ocean Strategy: Attract a new demand Offer more value for the customer Have a lower cost structure*Kim & Mauborgne (2004)@RemusToma 23. Value Innovation Blue Ocean Strategy cont.Sounds awesome!!! Buthow?!?1. Look at a product or service2. Identify the top most important features/attributes (what the customer really values)3. Sketch out these attributes and their level of importance (strategy canvas) @RemusToma 24. Value Innovation BlueOcean Strategy cont.210 My product86420 Attribute 1 Attribute 2Attribute 3 Attribute 4Attribute 5 And then.@RemusToma 25. Value Innovation Blue Ocean Strategy cont. 3 Eliminate RaiseReduce Create@RemusToma 26. Netflixs strategy canvas@RemusToma 27. Web Business Models*! The Freemium Model Offer a minimum product and charge forpro features! Linkedin, SlideShare, etc.! The Affiliate Model Direct traffic, leads or sales to anotherwebsite! Subscription Model pay a recurring fee to access the product! Virtual Goods Model selling virtual goods online in a game orwebsite! Advertising Model high traffic websites sell ads for their traffic@RemusToma*http://bitly.com/A8kYr 28. Thats it!Q&A Thank you!@RemusToma 29. References! Kim W.C. Mauborgne, R. 2004. Blue Ocean Strategy. Harvard Business Review, 82: 76-84.!Magretta, J. 2002. Why Business Models Matter. Harvard Business Review, 80(5): 86-92!Zott, C., Amit, R., & Massa, L. 2011. The business model: Recent developments and future research. Journal of Management, 37: 1019-1042.! Osterwalder A, Pigneur Y. 2010 Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, Switzerland: OSF.! Osterwalder, A. Pigneur, Y. 2002, An e-Business Model Ontology for Modeling e-Business, Proceedings of the 15th Bled Electronic Commerce ConferenceRecommended future reading: Business Model Generation:A Handbook for Visionaries, Game Changers, andChallengers, Osterwalder A, Pigneur Y. 2010,http://businessmodelgeneration.com/book@RemusToma