Nuts and Bolts of NewVentures/Business PlansMIT Course 15.S21

Business Models

Richard Kivel• Chairman Rhapsody Biologics

• Former Chairman MIT Enterprise Forum & SeniorManager Bridgewater Associates

• kivel@mit.edu / Twitter: @Kivel1

January 23rd 2013

The Business Model

"A business model is nothing else thana representation of how an organization

makes (or intends to make) money.“Peter Drucker

A business model describes the rationale ofhow an organization creates, delivers and

captures valueBusiness Model Generation

Highly Complex

Simplified

Your Business Model is NOTyour Business

Business Model Innovation iscritical to developing a quality

business, attacking newmarkets and driving profitability

Components of theBusiness Model

Components of theBusiness Model

1. Value Proposition2. Market Segment3. Value Chain Structure4. Position in the Value Network5. Revenue Generation and Margins6. Competitive Strategy7. Stage of Development

Value Proposition

• A description of the customer problem• The solution that addresses the problem• The value of this solution from the

customer's perspective (price, speed,design)

Market Segment

• The target audience• Recognizing that different market

segments have different needs

Value Chain Structure

• The firm's position in the value chain• Activities in the value chain• How the firm will capture part of the

value that it creates in the chain.

Position in the Value Network

• Identification of competitors• Identify complementary companies and

technology• Identify network-effects that can be

utilized to deliver more value to thecustomer.

Revenue Generation and Margins

• How revenue is generated(sales, leasing, subscription, support, etc.)

• The cost structure• Target profit margins.

Competitive Strategy

• How will the company attempt to developa sustainable competitive advantage?

• How will it use that advantage to improvethe competitive position in the market?

Different types of CustomerSegments

MassMarket

NicheMarket

SegmentedMarket

Diversified

Multi-sidedPlatforms

Different Types of CustomerSegments &

Different Models to Evaluate

Different Models to Evaluate

Direct Mass Media

Retail Telemarketing/ PhoneSales

Channels, Distributorsand Partners

Trade Shows andConferences

OEM Channels Internet - Web

Direct SalesConsumer or Business

Positives:

• High Contact

• Customer relations

• More Control

• Multi Purpose

• Experts in the field

Negatives:

• Free Consulting

• May not like rep or repleaves firm

• High Cost

• Retention

Distributors & Channel Partners

Positives:

• Cost of Sale is Low

• Hands-off Sales

• Exposure in newmarkets

• Credibility

• Competitive Edge

Negatives:

• Up-front fees

• No control

• Distant clients

• Performance

• Technical Pressure

• Require lots ofattention andtraining

OEM Channels(Original Equipment Manufacturer)

Positives:

• Prestige andPublicity

• List Sharing

• Royalties / steadyrevenue stream

• Increase MarketPresence

• Technical Control

Negatives

• Competitor envy

• Technical pressure

• Channel Conflict

• Your reputationsare linked

Other Examples

• Retail

• Internet

• Service Providers…….

What Business Model and Why?

What Business Model and Why?

• Apple - Dell

• Citibank - American Express

• SouthWest - Virgin Air

• Patek Philippe - Swatch

• Cuisinart – Nespresso

• Bentley – Cadillac

• Vertu – Nokia

• AT&T vs. SKYPE

Standard Coffee Maker vs.Keurig

Nespresso…

http://www.youtube.com/watch?v=DfyeXrdZZ1o

Swatch vs. Movado…

Super high-end

Summary

• Value Proposition• Market Segment• Value Chain Structure• Position in the Value Network• Revenue Generation and Margins• Competitive Strategy• Stage of Development

Thank you

Richard Kivel

kivel@mit.edu

Twitter: @kivel1