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Business model

  1. Dr. Shivananda (Shivoo) R Koteshwar Group Director, Synopsys Facebook: shivoo.koteshwar SLIDESHARE: iHUB Feb 2019
  2.  You achieve something significant when you do something insignificant (as seen by others)  Its not just about taking risks. Its about managing risks. Its about minimizing lot of smaller risks within that bigger risk  Data shows it takes 5-7 years for an entrepreneur to make a mark  Breaking Inertia – Comfortable job to entrepreneur vs. Comfortable job to student to entrepreneur  Luck plays a significant role in success. With right attitude, you can learn to be lucky!  Market is not just when you have a willing buyer but also an able buyer is required  First make it work , then make it better  Costs are like fingernails ..cut them constantly
  3. Don’t Give up
  4. Challenges in each step of Entrepreneurship.. ① Identifying and using the opportunities that exist in the market ✓ Market Research, Interviews,Test Bed ② Converting the ideas into action ✓ Team formation, Money, FullTime vs. PartTime ③ Undertaking promotional activities to launch an enterprise ✓ Logo, Registration, Location, Structure, Protocol, Advisory Members, Share Holding ④ Striving for excellence in his/her field of work ✓ Quality, Product Completeness, Documentation, Packaging, Pricing, Selling ⑤ Bearing the risk and uncertainties involved ✓ Money,Team, Partners, Distributors, Multiple pull from different directions ⑥ Harmonizing ✓ How,When ,Who ?
  7.  Slide1 ▪ Company Name ▪ In one sentence tell how your business proposition is useful to mankind  Slide2 -The CoreTeam ▪ Names of the members of the core team ▪ Name the brain child ▪ Name the support members of the CoreTeam with their functionality  Slide3 – Customer Perspectives ▪ Define the current Customer pain areas and how your business proposition will help them  Slide 4 – Market Size ▪ Define the market size both in units and value terms where ever applicable ▪ If it is new concept then work out the estimated market  Slide 5 – Company’sValue Proposition ▪ Define the companyValue proposition ▪ If you have some customer case studies you can exhibit here  Slide 6 – All about the product ▪ Describe the Product (Functionality, features, architecture, what core IP do you have) ▪ Show your Product Development Roadmap
  8.  Slide7 – Business Model ▪ Revenue Model ▪ Pricing  Slide8 - Business Model ▪ Sales and Distribution model ▪ Customer/Pipeline list  Slide9 - Competition ▪ Detail in brief on the completion with the names of the key players and their brands  Slide10 -Financials ▪ Financials during the Incubation Period ▪ Period of incubation = ? Months ▪ Revenues during incubation ▪ Costs during incubation ▪ Net Burn ▪ Sources of Funds- own=?And Borrowed =? (Give Details) ▪ If it is new concept then work out the estimated market  Slide 11 –Why incubate @ IHUB ▪ Give your reasons for choosing the IHUB for incubating your business
  9.  MOTEPPCABE ▪ MO: Market Opportunity ▪ TE:Team ▪ PP: Profit Potential ▪ CA: Comparative Advantage ▪ BE: Barriers to Entry
  10.  Investment  Revenue  Expense  Profit  Loss  Business Plan  Preference Shares and Equity Shares  Convertible Shares  Performance Milestone  Tranche  Cumulative compulsory convertible Preferential share  Preferential Dividend  Cumulative coupon rate  Pre MoneyValuation  Post MoneyValuation  Voting Power  IPO  Observer, Promoter’s Director, Investor’s Director  Termsheet  Due Diligence  Liquidation, Dissolution and winding up  Deemed Liquidation (Merger)  Conversion Form  TagAlong Rights  DragAlong Rights UPGRADE REQUIREDLIMITED DICTION
  11.  Goal:To determine whether the business case is ‘investment grade’ ▪ Gathering and detailed analysis of documentation ▪ Business plan and related documentation ▪ Additional requests for information from management ▪ Market analysis (top down and bottom up) ▪ Search for comparable businesses and business plans ▪ All market and industry information readily available on internet ▪ Consultations with industry contacts/technical experts  In person visits to confirm business case with ▪ Actual or potential customers ▪ Actual or potential suppliers or other financing sources  Decision about next steps ▪ Allocation of tasks, establish project team structure ▪ Fix due diligence/investment timeline ▪ Basic term sheet outline Basic investment decision is made at this level.
  12.  Current Business ▪ To confirm the current state of the company ▪ To determine and manage risks to the current value of the Company ▪ Existing ▪ Contingent  Future Business: ▪ To confirm the business plan in detail ▪ To determine and manage risks to the business plan in detail ▪ Market (External) ▪ Organizational (Internal)  Questions to Answer: ▪ Am I buying what I think I am buying? ▪ Is it worth as much as I believe? ▪ What risks exist to the my acquisition and its value, and can these be managed? ▪ Is there any reason not to do this deal?
  13.  If the chemistry is not right, arithmetic will never work ▪ TEAM  Are you producing a vitamin or a headache tablet ▪ PROBLEM you are solving (Nature, big/small, Market size)  Competition –Who else is doing? How are you better?  Entry Barrier  Value is created in market and not in xls sheet ▪ Financing Risk : Capital Intensity -Capital required for company to reach infliction point (Breakeven or sustainable growth or non linear growth)  Regulation
  14. A business model describes the rationale of how an organization creates, delivers, and captures value. It’s the story that explains how an enterprise works Canvas is a shared language for describing, visualizing, assessing, and changing business models References from the book: Business Model Generation ISBN: 978-0470-87641-1
  15.  FROM Product/Market Segment Oriented Approach ▪ Product and/or service at its center that focuses on a customer’s job-to-be-done – Value Proposition  TO a Holistic Business Model Approach to achieve long term competitive advantage
  16. Customer SegmentationValue Proposition Channels Customer Relationship
  17. Cost Structure Revenue Key Resources Key Activities Key Partners
  18. Cost Structure Revenue Key Resources Key Activities Key Partners Customer Segmentation Value Proposition Channels Customer Relationship
  19.  For your idea/company, write down the business 9 essential pieces of a business model  Fill the canvas
  20.  Mass Market ▪ Consumer Electronics  Niche Market ▪ Car part manufacturers depend heavily on purchases from major automobile manufacturers  Segmented ▪ Citi Bank Platinum and Regular customers : Both segments have similar but varying needs and problems  Diversified  2006Amazon decided to diversify its retail business by selling “cloud computing” services: online storage space and on-demand server usage.Thus it started catering to a totally different Customer Segment—Web companies—with a totally differentValue Proposition  Multi sided platform/markets ▪ A credit card company, for example, needs a large base of credit card holders and a large base of merchants who accept those credit cards
  21.  Newness ▪ Cellphone companies  Performance ▪ Computers  Customization  Getting the job done ▪ Rolls-Royce airline customers rely entirely on them to manufacture and service their jet engines.This arrangement allows customers to focus on running their airlines. In return, the airlines pay Rolls-Royce a fee for every hour an engine runs  Design ▪ Fashion and consumer electronics Industry  Brand/Status ▪ Rolex or LV  Price ▪ No frill airlines or a Nano car  Cost Reduction  Salesforce sells a hosted CRM which relieves buyers from the expense and trouble of having to buy, install, and manage CRM software themselves  Risk Reduction  For a used car buyer, a one-year service guarantee reduces the risk of post- purchase breakdowns and repairs  Accessibility  NetJets popularized the concept of fractional private jet ownership service previously unaffordable to most customer  Convenience/Usability  With iPod and iTunes,Apple offered customers unprecedented convenience searching, buying, downloading, and listening to digital music
  22.  Partner or own  Indirect or direct ▪ Direct: Own Stores, Web stores, Sales force ▪ Indirect:Wholesaler, Partner Sales
  23.  Personal Assistance ▪ May happen onsite at the point of sale, through call centers, by e-mail, or through other means.  Dedicated personal assistance ▪ In private banking services, for example, dedicated bankers serve high net worth individuals  Self Service  Automated Services ▪ Personal online profiles giving customers access to customized services  Communities  Co Creation ▪ Amazon invites customers to write reviews and thus create value for other book lovers. ▪ YouTube solicit customers to create content for public consumption.
  24.  Asset Sale  Usage Fee  Subscription Fee  Lending/Renting/Leasing  Licensing  Brokerage  Advertising
  25.  Physical ▪ Manufacturing facilities, buildings, vehicles, machines, systems, point-of-sales systems, and distribution networks ▪ Walmart  Intellectual ▪ Brands, proprietary knowledge, patents and copyrights, partnerships, and customer databases ▪ Qualcomm (Patent)  Human ▪ Crucial in knowledge-intensive and creative industries  Finance ▪ Cash, lines of credit, or a stock option pool for hiring key employees. ▪ Apartment Selling with preapproved bank loans
  26.  Production ▪ Manufacturing Firms  Problem Solving ▪ consultancies, hospitals, and other service organizations are typically dominated by problem solving activities.Their business models call for activities such as knowledge management and continuous training  Platform/Network ▪ Microsoft’s business model requires managing the interface between other vendors’ software and itsWindows. operating system platform ▪ Key Activities in this category relate to platform management, service provisioning, and platform promotion
  27.  Optimization and economy of scale ▪ Formed to reduce costs, and often involve outsourcing or sharing infrastructure  Reduction of risk and uncertainty ▪ Blu-ray is an optical disc format jointly developed by a group of the world’s leading consumer electronics, personal computer, and media manufacturers. ▪ The group cooperated to bring Blu-ray technology to market, yet individual members compete in selling their own Blu-ray product  Acquisition of particular resources and activities ▪ A mobile phone manufacturer, licensing an operating system for its handsets rather than developing one in-house ▪ An insurer may choose to rely on independent brokers to sell its policies rather than develop its own sales force.
  28.  Broad classes of business model Cost Structures ▪ Cost Driven ▪ low priceValue Propositions, maximum automation, and extensive outsourcing. ▪ No frills airlines ▪ Value Driven ▪ Characteristics: PremiumValue Propositions and a high degree of personalized service  Characteristics: ▪ Fixed Costs: Costs that remain the same despite the volume of goods or services produced. Examples include salaries, rents, and physical manufacturing facilities. ▪ Variable Costs:Vary proportionally with the volume of goods or services produced ▪ Economies of Scale: Cost advantages that a business enjoys as its output expands. Larger companies, for instance, benefit from lower bulk purchase rates. ▪ Economies of Scope:Cost advantages that a business enjoys due to a larger scope of operations. In a large enterprise, for example, the same marketing activities or Distribution Channels may support multiple products
  29. 1. How much do switching costs prevent your customers from churning? 2. How scalable is your business model? 3. Does your business model produce recurring revenues? 4. Do you earn before you spend? 5. How much do you get others to do the work? 6. Does your business model provide built-in protection from competition? 7. Is your business model based on a game changing cost structure?
  30. 1. How much do switching costs prevent your customers from churning? “Thousand songs in a pocket” That was more than a product innovation focusing on storage. It was a business model strategy to get customers to copy all their music into iTunes and their iPod, which would make it more difficult for them to switch to competing digital music players.
  31. 2. How scalable is your business model? How easy it is to expand a business model without equally increasing its cost base ? Of course software- and Web-based business models are naturally more scalable than those based on bricks and mortar By building games like Farmville or Cityville on Facebook, the world’s largest social network, they could benefit from Facebook’s reach (& scale) without having to build it themselves
  32. 3. Does your business model produce recurring revenues?
  33. 4. Do you earn before you spend? By assembling on order after selling directly they managed to escape the terrible inventory depreciation costs of the hardware industry
  34. 5. How much do you get others to do the work? In the bricks and mortar world IKEA gets us to assemble the furniture we buy from them. We do the work.They save money. Facebook gets us to post photos, create and participate in conversations, and “like” stuff. That’s the real value of Facebook, entirely created by users, while they simply provide the platform. We do the work. They earn the sky- high valuations of their shares.
  35. 6. Does your business model provide built-in protection from competition? Apple’s main competitive advantage arises more from its powerful business model than purely from its innovative products. It’s easier for Samsung, for instance, to copy the iPhone than to build an ecosystem like Apple’s appstore, which caters to developers and users alike and hosts hundred thousands of applications
  36. 7. Is your business model based on a game changing cost structure? Bharti Airtel has modified its cost structure by getting rid of their entire network and IT. By buying in network capacity on a variable cost basis from network equipment manufacturer Ericsson and IBM, they can now offer among the lowest prices for mobile telephony globally. Skype provides calls and communication almost like a conventional telecom company, but for free or for a very low cost. They can do this because their model is based on the economics of a software company, while a telecom provider’s model is based on the economics of a network company
  37. All pictures are from flickr. with either no copyright or common creatives
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  39. Dr. Shivananda (Shivoo) R Koteshwar Group Director, Synopsys Facebook: shivoo.koteshwar SLIDESHARE: