business model

1. Business Model
Development
UNIT-3

2. Business Model
A business model describes the basis of how an
organization creates, delivers, and captures
value, in economic, social, cultural or other
contexts.
The process of business model construction and
modification is also called business model
innovation and forms a part of business strategy.

3. Types of Business Model
1. MARKET PLACE
2. SPONSORSHIP
3. FRANCHISE
4. RESELLER
5. WHITE LABELLING/PRIVATE LABELLING
6. DISINTERMEDIATION
7. SUBSCRIPTION
8. LEASING
9. PRE-ORDER
10. PAY-PER-USE
11. FREEMIUM
12. BAIT AND HOOK

4. 1. MARKET PLACE
 Business Model Definition
A Marketplace business model is defined as a business that
charges a transaction fee via a platform for buyers and sellers.
 Why Does This Business Model Work For Startups?
• There isn’t much cost to run a server these days, and the costs
only get lower.
• It’s just connecting supply and demand rather than dealing
with inventory (a lot less risk).
 Example Companies Using This Business Model
• Amazon
• Uber

5. 2. SPONSORSHIP
 Business Model Definition
• The sponsorship business model is defined as a business that
makes money from sponsors, where the users do not have to
pay.
 Why Does This Business Model Work For Startups?
• Great products that are free tend to attract millions of users
• People do not mind unobtrusive ads or logo placements.
 Example Companies Using This Business Model
• Online Services – Youtube, Gmail, Wikipedia
• Sports Industry – Football teams, Sports Associations

6. 3. FRANCHISE
 Business Model Definition
• Franchisees (the borrower) pay royalties (a percentage of revenue)
to the Master Franchise to use the brand, and to get access to
operations and know-how.
• Usually for location restricted businesses or capital restricted
businesses.
 Why Does This Business Model Work For Startups?
• Rapid growth can be achieved without much capital vs full
ownership
• By franchising, there will be a steady stream of income without the
need for too much additional capital.
• Local knowledge from each franchisee helps to adapt the business
to different environments.
 Example Companies Using This Business Model
• Any retail business: Fast Food Chains, Fitness Centres

7. 4. RESELLER
 Business Model Definition
• The Reseller Business Model is defined as a business that
gets ‘reselling agents’ to sell products on their behalf.
 Why Does This Business Model Work For Startups?
• Lower inventory risk, which is passed on to the reselling
agent
• Fewer salespeople needed, which reduces a lot of HR cost.
 Example Companies Using This Business Model
• Website hosting companies: Godaddy, Bluehost
• Multi-Level Marketing Companies: Avon, Amway

8. 5. WHITE LABELLING/PRIVATE LABELLING
 Business Model Definition
• The White Labelling/Private Labelling Business Model is
defined as a business that allows ‘agents’ to use their own
branding.
 Why Does This Business Model Work For Startups?
• Lower risk of damaging your own brand
• You can focus on product development or manufacturing
 Example Companies Using This Business Model
• OEM (original equipment manufacturer) manufacturers:
Foxconn
• SaaS companies: Godaddy, Talkwalker

9. 6. Disintermediation
 Business Model Definition
• The Disintermediation Business Model is defined as a business
that cuts out the middleman.
 Why Does This Business Model Work For Startups?
• Cutting out the middleman reduces a lot of cost for the end-
user.
• It creates a competitive advantage over more traditional
businesses that had to rely on middlemen in the past due to
reach constraints.
 Example Companies Using This Business Model
• Manufacturers: Dell, Tesla, Xiaomi
• Wholesalers: Walmart, Alibaba
• Direct Sales: Amway, Avon

10. 7. SUBSCRIPTION
 Business Model Definition
• The Subscription Business Model is defined as a business that sells a
product on a subscription basis rather than a one-off basis
 Why Does This Business Model Work For Startups?
• Stable, recurring cash flows for the lifetime of each customer can be
achieved, creating a financially healthy business.
• Certain segments of customers want to pay in many small chunks rather
than one large chunk, in case they might want to cancel soon.
• No need to re-order products regularly
 Example Companies Using This Business Model
• SaaS companies: Google Apps
• Media Companies: Magazines, Online Content

11. 8. LEASING
 Business Model Definition
• The Leasing Business Model is defined as a business that
rents out costly assets at high margins.
 Why Does This Business Model Work For Startups?
• Not everyone can afford expensive assets such as homes,
cars, or jets.
 Example Companies Using This Business Model
• Car Leasing: GoCar (Malaysia)
• Timeshare Companies: Jet Timeshares

12. 9. PRE-ORDER
 Business Model Definition
• The Preorder Business Model is defined as a business that sells products
before it is made or delivered.
 Why Does This Business Model Work For Startups?
• Getting cash up front is always good for cash flows in any business.
• Businesses can order exact materials from suppliers since they can now
know the demand ahead of time.
• Businesses pre orders gave an advantage over those that don’t since
they would get the sales first.
 Example Companies Using This Business Model
• Custom-Made Goods: Online Jewellery Businesses, Online Flower
Businesses

13. 10. PAY-PER-USE
 Also known as the Pay as You Go Business Model.
 Business Model Definition
• The Pay-Per-Use Business Model is defined as a business that collects money up
front for users to use over time.
 Why Does This Business Model Work For Startups?
• Customers love it when they only pay when they use, so it is usually easier to
get customers on board.
• Businesses that use a credit based pay-per-use system benefit from upfront
cash payments.
• There is no need for upgrades as the users will just pay more for extra usage.
 Example Companies Using This Business Model
• Telco’s: Phone Credits

14. 11. FREEMIUM
 Business Model Definition
• The Freemium Business Model is defined as a business that offers a low-
tier product for free (some businesses even lose money on this) and
forces users to pay for higher-tier products or upgrades.
 Why Does This Business Model Work For Startups?
• Free-tier products are the bait to get users to sign up, to self-learn about
the product, and then to get ‘stuck’ with the product when all their hard
work cannot be transferred to a competing service.
• Once users are stuck with you, they will hopefully upgrade once they hit
the free tier limits.
 Example Companies Using This Business Model
• Gmail for Businesses (Google Apps)
• Adobe PDF Reader

15. 12. BAIT AND HOOK/ Hub and Spoke
 Business Model Definition
• The Bait and Hook Business Model is defined as a business that sells a highly
needed service/product cheap (or if it is free, then this is known as the
Freemium Business Model) and then makes money with complimentary
products or upsells that will be required in the future.
 Why Does This Business Model Work For Startups?
• Baits work very well, with a very low entry point for customers to purchase the
product/service.
• The Hook works when the user has fully used up a complimentary product that
has a lifetime, e.g. razors, or requires additional services
• Unlike the Freemium Business Model (above), businesses have the option to
break even on their initial sales rather than lose money.
 Example Companies Using This Business Model
 Consumable Products: Razors & Blades, Printer & Ink

16. 1. Customer segment2. Problem
3. solution
4. Unique value
proposition
5. Channels
6. How to get
money (Adv.,
premium)
6. Cost str.
7. Key matrics
8. Unfair
advantages

18. Establishing the Right Business Model
1. Size the value of your solution in the target segment.
2. Confirm that your product or service solves the problem.
3. Test your channel and support strategy.
4. Talk to industry experts and investors.
5. Plan and execute a pilot or local rollout.
6. Focus on collecting customer references.
7. Target national trade shows and industry association
groups.

19. 1. Size the value of your solution in the target
segment.
 Customers often complain that existing approaches are
not intuitive or integrated, but old solutions may be
familiar and locked in.
 Estimate your costs, including a 50 percent gross margin,
as a lower bound on a price.
 Products too expensive for the market won’t succeed,
and prices too low will leave you exposed.
 Match with competitor prices and market demographics.

20. 2. Confirm that your product or service
solves the problem.
 Once you have a prototype or alpha version, expose it
to real customers to see if you get the same excitement
and delight that you feel.
 [Alpha Versions: a version of a piece of software that is
made available for testing, typically by employees of
the company that is developing it, before its general
release.]
 Look for feedback on how to make it a better fit.
 If it doesn’t relieve the pain, or doesn’t work, no
business model will save you.

21. 3. Test your channel and support strategy.
 Now is the time to pitch the entire business model to a
group of customers or a specially selected focus
group.
 This is not just a product pitch, but must include all
elements of your pricing, marketing, distribution and
maintenance.
 Here again is your chance to make pivots for almost no
cost.

22. 4. Talk to industry experts and investors.
 A small advisory board of outside people
with experience in your domain can give you the
unbiased feedback you need, as well as connections
for setting up distribution and sales channels.
 It’s also valuable to talk to potential investors for their
views, even if you are bootstrapping the effort.

23. 5. Plan and execute a pilot or local rollout.
 Good traction on a limited rollout is great validation of
a business model.
 It allows you to test costs, quality and pricing in a few
stores or a single city, with minimum risk and maximum
speed for recovery and corrections.
 Save your viral campaign and major inventory buildup
for later.

24. 6. Focus on collecting customer references.
 Give extra attention to those first few customers, and ask
for publishable testimonials and word-of-mouth support
in return.
 If you can’t get their support, even with your personal
efforts, take it as a red flag that the business will
probably not scale at the rate you projected.

25. 7. Target national trade shows and industry
association groups.
 You need positive visibility, credibility and feedback from
these organizations as a final validation of your business
model, as well as your product model, in the context of
major competitors.
 This may also be a great source for leads as a key part of
that final rollout and scale-up effort.