Slide 1

6-1Chapter 6Entrepreneurship: Successfully Launching New Ventures, 2/eBruce R. BarringerR. Duane Ireland

Case Study International food delivery franchise - delivers foods from Malaysian top restaurants to homes and offices within one hour. Launched in 2003 - has partnership with 95 restaurants in delivering food to customers in Klang Valley and Penang. Provides convenient service to over 21,000 customers with a monthly turnover of approximately RM 300,000. 6-2

Caters to over 200 blue chip companies for office luncheon, training and board meetings. Cater to a majority of the middle income bracket, heads of corporations, high income individuals and even ministers. 6-3In summary:Allows the customers to order favorite food from favorite takeaway or restaurant.Delivers foods to the customers home or office within one hour.Guarantees menu prices as same as takeaways and restaurants.Sets a minimum order of RM 20 and delivery charge of RM 10 regardless of the order size.

6-41. What is a Business Model?A model is a plan or diagram used to make or describe something.Business model on the basis of generating profits.how it competesuses resourcesstructures relationshipsinterfaces with customers creates value to sustain6-5Easy to understand. No standard.Term business model is used to include all activities - define how a company participates in a marketplace To generate RM 6-6Dells Business Model6-7

Important takes beyond its own boundaries. Almost all companies partner with others to make business models work. In Dells case - needs cooperation - suppliers, shippers, customers and many others

Can vary substantially from other companies in the same industry.Dell is one of the best examples of both a good story and an excellent business model.Didnt need plants and equipment to build the components.Eliminated most of costs and risks associated with carrying inventories of finished goods.Products were sold before made.Customers got exactly computer they wanted - with latest technology.6-86-9

Timing?During feasibility analysis stage Before writing a business planBefore you decide for your new venture

6-10After feasibility analysis was conducted - knows a product or service with potential - business model addresses how to surround it with:A core strategyA partnership networkA customer interfaceDistinctive resourcesAn approach to create value - represents a viable business.

6-112. Importance of a Business Model6-12 Serves as an ongoing extension of feasibility analysis. A business model continually asks the question:Does this business make sense? Focuses attention on how all the elements of a business fit together and constitute a working whole. Describes why network of participants needed to make a business idea viable are willing to work together. Articulates a companys core logic to all stakeholders, including the companys employees. Show differentiation between your business model and competitors.

3. How Business Models Emerge Value chain is a model developed by an academic researcher - many businesses and entrepreneurs use to identify opportunities and enhance their competitive strategies.Is string of activities - moves a product from the raw material stage, through manufacturing and distribution, and ultimately to the end user. E.g. Hewlett Packard6-13By studying a product or services value chain, an organization can identify ways to create additional value and assess whether it has the means to do so.

Value chain analysis - helpful in identifying opportunities for new businesses and in understanding how business models emerge.6-146-15

Inbound logistics: involves a company relationship with its suppliersOperations: involves all activities required to manufacture a productOutbound logistics: involves all activities required to store and ship a finished productEntrepreneurs look at value chain to pinpoint where it can be made more effective or to spot where additional value can be added.This type of analysis may focus on:a single primary activity of the value chain (e.g marketing and sales) interface between one stage of the value chain and another (interface between operations and outbound logistics) or one of support activities (human resource management). 6-164. Potential Fatal FlawsTwo fatal flaws:A complete misread of the customer needs.Utterly unsound economics.Pets.comConvenient for customers to have petfood delivered to their homesOrders took several days to arriveFailed to realize - fast delivery was essential6-17

Pets.com sported an unsound business model, and failed.5. Components of a Business Model6-18Four Components

a. Core StrategyDescribes how a company competes relative to its competitors.Primary Elements of Core StrategyMission statement.Product/market scope. E.g. Anti-aging serum with stem cell for Muslim market segmentsBasis for differentiation. E.g. Halal + Affiliate + Free Delivery6-196-20Business MissionProduct / Market ScopeWhy it exists and what its business model is supposed to accomplish. E.g. To produce a high quality halal age reviving serum delivered free to our customers and offer a rewarding commission to our distributors"Defines products and markets on which it will focus. because choice of products has an important impact add values bottom line6-21Basis of DifferentiationDifferentiate from competitors is IMPORTANT to its customers and NOT EASY TO COPY. If a new companys products or services arent different from those of its competitors, why should anyone try them? Differentiate - cost leadership strategy or a differentiation strategy.E.g Halal, affiliate, free delivery

b. Strategic ResourcesNot able to implement a strategy without adequate resourcesHas affect its business model substantially.

For a new venture, its strategic resources competencies of its foundersopportunity identified and unique way to serve the market.6-22Unique skill / capability - exceeds products / markets makes a significant contribution to the customers perceived benefits.6-236-24Two Important Strategic ResourcesCore CompetenciesStrategic AssetsA resource or capability - serves as a source of a companys competitive advantage E.g. capitalising budget marketing to sell age reversing productAnything rare and valuable a company owns - plant and equipment, location, brands, patents, customer data, a highly qualified staff, and distinctive partnerships. E.g. Smart partnership with a contract manufacturer - natural based, Halal, hygienic and affordable, passionate management teamNew ventures - combine core competencies and strategic assets to create a sustainable competitive advantage. This factor - one that investors pay close attention to when evaluating a business. A sustainable competitive advantage is achieved by implementing a value-creating strategy - unique and not easy to imitate. E.g online recurring system

6-25c. Partnership NetworkNew ventures - do not have the resources to perform key roles. Does not do everything because majority of tasks needed to build a product or deliver a service are not core to a companys competitive advantage.A companys partnership network includes:Suppliers and other partners.6-266-27SuppliersOther Key RelationshipsA supplier (vendor) is a company provides parts or services to another company. Mibelle Biochemistry a primary supplier for stem-cell apply technology. Collaborative relationships with suppliers and finding ways to motivate them to perform at higher levels.Along with suppliers, companies partner with other companies to make business models work. E.g Online social media experts, JAKIMAn entrepreneurs ability to launch a company achieves a sustainable competitive advantage may rely on partners skills and expertise. 6-28Most Common Types of Business Partnerships

d. Customer InterfaceThe way a company interacts with its customers indicates on how it chooses to compete.E.g. Amazon.com sells books over the Internet while Barnes & Noble sells through its traditional bookstores and online.Dell sells strictly online while HP sells through retail stores.Three elements:Target customer, Fulfillment and support, and Pricing model. 6-296-30Target MarketFulfillment and SupportLimited group of individuals or businesses that it goes after or tries to appeal to. Will affect everything it does, from the strategic assets it acquires to the partnerships it forges to its promotional campaigns.Describes the way a companys product or service goes to market or how it reaches its customers. Also, channels a company uses and what level of customer support it provides. These issues impact shape and nature of a companys business model.6-31Pricing StructurePricing models vary, depending on a companys target market and its pricing philosophy. Daily flat rate, flat fee per service, and hourly rate.

Value-based, cost-basedRecap: The Importance of Business ModelsVery useful - to look at itself in a holistic manner Must construct an effective business modelEveryone, from its customers to its partners - on a voluntary basis. Must motivate its customers and its partners.Close attention to each of the primary elements of a companys business model is essential for a new ventures success.6-32Revision6-33