Business Models

Introduction

A business model is a written plan that maps out key strategies for each element of the business, how they link together and how they access the market. This lays out the implementation of the idea that drives the business and sets a path to creating value. The ultimate goal of a business model in the start-up phase is to make the company survive long enough to become self-sustaining.

Models of models

In this course, we consider three different models for how to think about and structure business models.

The first is by some guy called Stokes. He drew up a simple table that explained the design elements for meeting customer needs, what the company is actually offering and the operations to bridge the gap in between those two. It also detailed the costs involved and how revenue will be generated.

The second is even simpler, with three boxes containing details of resources, transactions and value. This works in a similar way as above by making clear where the company is, where the customers are and how the company will bridge those.

The final model we look at is called the business model canvas. This is a larger sheet with nine boxes exploring everything key partners and resources to customer segments and value propositions. A far more detailed approach like this is often helpful when working with significantly new products and innovations to reason from first principles.

Growth strategies

There are five different strategies that new ventures can adopt to try to grow their business. The effectiveness of these varies widely depending on the type of product and the target markets.

• Hustle
  This strategy applied well to large and potentially crowded markets. It relies on an increase in speed and efficiency to win where there is little product differentiation. These are often in service-oriented sectors such as fast food where you can scale through replication.

• Niche
  This is almost the opposite to hustle, looking more at small and sparse markets. It requires specialised knowledge to produce a product to meed specific targeted needs. This is typically a low growth strategy and has a risk of technological leapfrogging if someone else enters the market.

• Propagator
  This strategy uses incremental innovations driven by other larger innovations. That means that while the market can be very large, it is completely reliant on other players to even exist. The phone case industry is a great example of this.

• Speculator
  This strategy involves a large investment in what is often a completely new idea and comes with a high degree of risk. It often takes many years but if the rare and specialised knowledge comes to fruition in a scale market then it can become a great success.

• Revolutionary
  This strategy involves a dramatic innovation in technology, where significant investment is often needed up front. However, the large risk also means that the rewards for success are even greater and this strategy has often produced the highest growth examples in history.