Business Model& Business Plan

Business Model and Business Plan
Basic survival skills at YEF
瞿志豪 Michel Chu
michel.chu@gmail.com

Who Am I
Some personal backgrounds
 Current Positions
 Veteran angel investor with 10+ angel investments
 Volunteer at NTU, YEF, Garage+, NTUEA … etc.
 Chairman of VSense Limited
 Disruptive medical diagnosis biochip, first ever NTU spin-off
 Proud full part-time dad of one two daughters
 Member, NTU Investment Committee
 Adjunct teacher at NTU leadership program (台大領導學程)
 Previous Positions
 Co-founder, Executive VP and CTO of GigaMedia Limited (NASDAQ: GIGM)
 Judge/speaker/mentor at YEF and TIC 100 entrepreneurial contests
 Deputy CEO of NTU EMBA Foundation
 Board director of Gamania (遊戲橘子), SoftStar (大宇) , 重聚典, Cambridge Entertainment Software Limited… etc.

 Single Sentence Version
 A Business Model explains how you make money on a solution
 Slightly Longer Version
 A firm‟s business model is its plan for how it competes, uses its resources, structures its relationships,
interfaces with customers, and creates value to sustain itself on the basis of the profits it generates
 Bullet point version
 A business model explains how you convert your idea/technology into economic value
 Value Proposition
 Market Segment and Target Audience
 Value Chain
 Revenue Generation & Margins
 Business Environment
 Competitive Advantage
What is Business Model

• A shopkeeper setting up a store in a place where potential customers are likely to be and displaying a good or
service
Shopkeeper Business Model
• Only one provider or a good or service and there are no competitors and a lack of viable substitute goods
Monopoly Business Model
• Where a company integrates offline and online presences.
• For example an electronics store may allow the customer to order online and pick up at a local store.
Bricks & Clicks Business Model (O2O)
• Products are not sold individually but a subscription sells monthly use of or access to a good or service
Subscription Business Model
Some Basic Business Models

Heroin Business
Model
•Give away the product for
now, then charge later
•Sounds familiar?
•Freeium model
•Online games
•Subscription model
•Item mall model
Bundled Goods
Business Model
•Give away razors and sell
blades
•Game Consoles
•Printers
•What happens if there
are clone toners?
Captive Audience
Business Model
•Give away basic product in
exchange for user’s
attention
•Sell access to users for
revenue
•TV, Google, Facebook
Pyramid Scheme
Business Model
•Buying in to the right to
sell places to other people
wanting to join the
scheme
Other More Sophisticated Business Models

• Innovation, innovation, innovation
• Small firms are by default faster and more agile than established firms
• Faster response
• Faster move toward market niches
• More flexibility
• Leveraging the innovator‘s dilemma
Coping with Resource Constraints

Technology
Entrepreneurship
Brave New
Frontier
Business Model
Innovation
New Market
Discovery
Matrix of Innovation Strategies for Startups
NewExisting
Technology
Market
Existing New

 Features of technology entrepreneurship model of startups
 New technology provides a faster, cheaper and better way to serve an existing market
 Most easy model for entrepreneurship
 Business model protected by technology uniqueness
 Major source of risk – technology feasibility
 It will be great if we can have 任意門, but can we?
 A faster, cheaper, better technology may necessarily not sell by itself
 Key issues to address in business plan
 Establishing the feasibility of the technology
 Intellectual property strategy for the technology
 Competitive strategy with existing products / incumbents
 Market assessment, niche selection
 Sales, channel and distribution strategy
Technology Entrepreneurship
Technology
Entrepreneursh
ip
Brave New
Frontier
Business Model
Innovation
New Market
Discovery

 Features of new market discovery model of start-ups
 Extending existing technology to a new market / type of application
 E.g. applying automation technology in the IT industry for agriculture / fishery / husbandry industry
 Major source of risk – market development
 How easy is it to extend an existing technology to penetrate a new market?
 First mover‟s disadvantage – substantial cost of market education
 Incumbents as copycats
 Detailed understanding of the new market
 Establishing the applicability of the technology to the new market
 Detailed plan of market development
 If it‟s so obvious, why nobody has done that before?
New Market Discovery
Technology
Entrepreneurshi
p
Brave New
Frontier
Business Model
Innovation
New Market
Discovery

 Features of new brave new frontier model of start-ups
 Inventing a new technology that allows things to be done in a way the was never before
 E.g. Facebook
 Major sources of risk – both technology feasibility and market development
 Does the technology work?
 Development risks of entering a new market
 Easily lead to a lot of question marks
 Achieve credibility of the business plan by eliminating uncertainties
 Need to establish the feasibility on both the technology and the market
 Data, evidence and pilot studies as supporting evidence
Brave New Frontier
Technology
Entrepreneurshi
p
Brave New
Frontier
Business Model
Innovation
New Market
Discovery

 Features of new business model innovation start-ups
 Existing technologies, existing market
 Do the same things in a better, more creative way
 Major sources of risk – reinventing the existing business model
 How do you make the entire things work?
 A detailed explanation of existing value chain and the different value
propositions of the new model
 What are the business model innovations?
 How to effect the change?
Business Model Innovation
Technology
Entrepreneurshi
p
Brave New
Frontier
Business Model
Innovation
New Market
Discovery

Paths to Business Model Innovation
Industry model
Innovation
• Innovating the industry
value chain by:
• moving into new industries
• redefining existing ones
• creating entirely new value
chains
Revenue Model
Innovation
• Innovating how revenue is
generated through:
• new value propositions
• pricing models
Enterprise model
Innovation
• Innovating value chain roles
by:
• changing the extended
enterprise to be more
integrated or specialized
• transforming networks with
employees, suppliers,
customers, and others
Business Model Innovation

Examples of Business Model Innovation
Business
Model Innovation
Enterprise model
Innovation
What business am I in?
„making fundamental choices‟
Revenue model
Innovation
• Gillette innovated the
pricing model by giving
away razors and making
money on the blades
• Netflix shifted the revenue
model from product /
rental based to a
subscription based annuity
model
PRICING / REVENUE MODEL
VALUE PROPOSITION
• Cirque du Soleil
reconfigured offering and
value elements to transform
the circus experience
Industry model
Innovation
INDUSTRY TRANSFORMATION
• Moving from one value chain to
another, leveraging its brand
across industries including airline,
media and telecoms
HORIZONTAL MOVES
• Apple transformed the music
industry through a new way of
connecting hardware with
software to download music with
iPods/iTunes product & service
combination
• Dell redefined the PC value chain
and industry model by using a
direct to customer sales model
INTEGRATION
• Zara‟s Fast Fashion model is
supported by a highly integrated
business model along its value
chain
SPECIALIZATION
• Bharti created a highly specialized
Telco business model by focusing
only on its key differentiators –
marketing, sales and distribution –
and partnering for everything else
EXTERNAL COLLABORATION
• P&G‟s innovative R&D collaboration
model “connect & develop”, sourcing
over 50% of ideas externally

Some Words about the Platform Business Model
 Importance of multi-sided platforms
 Multi-sided market is of paramount importance in modern economy
 Credit cards, realtors, Apple, Windows, eBay, night club …etc.
 Functions of the ‗Platform‘
 Facilitate interaction across users
 Establish and enforce components and rules of user interactions
 Platform value depends on the number of users in other groups
 Chicken and Eggs Problem
 Members from Group A will have little incentive to join if there is not enough
members from Group B, and vice versa
 What is the critical mass for platforms? (and how to reach the critical mass?)
Market
Group A
Group B
Same-group
network
effects
Cross-group
network
effects

Breaking the Chicken and Egg Problem
Subsidizing
Consumers
(Acrobat /
PS3 model)
Effects of subsidy
Subsidizing
Developers
(Windows /
Ladies’ night model)
Effects of subsidy

Key Issues in the Platform Business Model
Path to Critical MassExchange Relationships
Consoles
Players Developers
Buy apps from developers
Pay for
Game Console
Pay for
Development Kit
AppStore
Users Developers
Buy apps
Revenue
Share

 Win the YEF Competition?
 Pass a class to get credits?
 Start a business?
 Make a living?
 Fame & fortune?
 Make a difference?
 Learn?
What Are You Trying to Accomplish?

 Invention  Innovation
 Good Plan  Winning Plan  Good Business Model  Successful Business
 Good Business Model  Big $
 A Plan  The Answer
Common Misconceptions

A Business Plan Need to Address Many Key Items
Market Need
Alternatives
‗Go to Market‘
Strategy
Management
Team
Exit Plan
Sustainability
Product / Service
Delivery & Execution
Financing & Capital
Needs
Plan to Scale &
Leverage
Financial Projections

And the Key Items Need to Fit Together Logically
Market Need
Alternatives
‗Go to Market‘
Strategy
Management
Team
Exit Plan
Sustainability
Product / Service
Delivery & Execution
Financing & Capital
Needs
Plan to Scale &
Leverage
Financial Projections

 Identify the customer „pain‟ or problem
 Indicate how the product addresses that problem
 Quantify the „value‟ of the product from the customer‟s perspective
 Understanding ‗value‘ is KEY!
 Generally wholly unrelated to your cost base.
 What is the value of a bottle of Coke?
 What is the value of a painkiller?
Value Proposition

 Identify the specific group of customers (aka ‗market segment‘) you will target
 Demonstrate an understanding that different market segments have different needs,
preferences and purchasing criteria
 Customer Classification
 Target Customer
 Ideal Customer
 Customer Segmentation
 Explain why you have chosen the specific market segment
 Quantify, Quantify, Quantify
 Important to be able to point to a present demand from an identifiable and targetable market
segment
Market Segment

 How do you add value?
 Reseller
 Value-added reseller
 Systems integrator
 Service provider
 Product designer
 Product manufacturer
 Do you require the availability of others?
 If you are reliant on others, how will you capture your part of the value created?
 If you require other technologies, how do you overcome consumer inertia?
Value Chain

 How is revenue generated?
 Sell Product
 License Product
 Lease Product
 Subscription to Product
 Advertising (Free Product)
 Service Product
 „Freemium‟ model?
 How does that tie back to the value chain?
 Who pays what and why?
 Specific customer groups
 Sell price - why reasonable?
 Volume
 Initial, ramp up rate, reasonable potential
Revenue Generation

 What is your cost structure?
 COGS
 Gross Profit ($ & %)
 Distribution Costs
 Marketing Costs
 Support Costs
 Net Potential
 What are your target profit margins?
Cost and Margins

 Who are your competitors?
 There is ALWAYS a competitor (even if it is just consumer inertia).
 Who are you complementors?
 Is there a substitute product/service?
 Does the product become more valuable to customer as a result of network
effect?
 Are there any ‗force multipliers‘ that can be utilised?
 Position on portal
 Viral distribution / Word of Mouth
Business Environment

 Identify critical factors
 Which aspects of the business are most critical?
 Which aspects need to be done well and which ones exceptionally well?
 Which aspects, if done marginally, could sink the business
 What is your source of sustainable competitive advantage?
 Examples: Costs, product differentiation, market insight, superior execution or niche strategy.
 Sustainable competitive advantage is a must have for investment
 First to market not always sustainable.
 Market insight is not always sustainable.
 IP protection not always sustainable, and is dependent on your ability to finance enforcement.
Competitive Advantage

 What talent / expertise is needed to meet critical needs of business?
 How will you attract that talent?
 Begin with needs and align talent with it
 Don‟t start with people available
Management

 Business Plan = Your Business In a Nutshell
 If you cannot explain it in 50 words or less, you don‘t yet fully understand
your business
 Summarize, summarize, and summarize again
 Throw away verbiage, get to the essence (e.g. “We cure cancer”).
 Concise, powerful summary needed:
 Elevator pitch
 Investor pitch
 Customer pitch
 Friends & Family (“What is it that you do?”)
Explaining Your Business Model

 Simple enough business that you can make it work
 Adds value in the ecosystem so others members of the ecosystem benefit
 Not a commodity product
 Same crafts at 100 booths
 Overcomes market failure problems
 Serves a specific niche market
What Makes a Good Business Model

 Business models often work great in theory, but fail in the ‗real world‘.
 Why?
 Assumptions (e.g. People think like me)
 Research is often „backwards looking‟
 Rapidly changing business environment
 Talk to customers – LOTS OF CUSTOMERS:
 Confirm their „pain‟ + interest in your product
 Confirm their pricing sensitivity
 Get confirmation in writing, if possible.
 Early mistakes are much easier to remedy
 Be oblique (―What if there was a product that did X?‖)
The Need for Validation

10. Develop a logical story
9. Be an actor
8. Make sure the numbers add up
7. Answer the question: ―How do I know …?‖
6. Answer the question: ―How would I find out?‖
5. Get testimonials / references from those in the know
4. Sell one (or more)
3. Realize the product / service is only relevant through the market‘s eyes
2. Define the bet
1. Constantly learn and adjust
Building a Viable Business Plan

Tool for Business Model Development

 Product Definition
 What is your product / technology?
 Market Segment
 Which part of the market do you want to serve?
 Target Audience
 Who do you plan to (initially) sell to?
 How do you benefit your customers?
 Competitive Analysis
 How do you compare with other alternatives
 Background Analysis
 What is the general business environment?
Before You Plan Your Business Model

1. How do you acquire customers?
2. After you have landed a new customer, how do you plan to relate to that customer and manage the
relationship (if at all)?
3. How do you charge your customers? What is your revenue model?
4. How much do you charge your customers? Can you calculate your revenues for the next month,
quarter and year?
5. What assets are available to you or under your control?
6. Who are your key partners?
7. What key activities do you need to engage in to deliver your value proposition?
8. What are your fixed costs?
9. What are your variable costs? Can you calculate your total cost for the next month, quarter and year?
10. Does your revenue forecast demonstrate increased profitability towards the end of the forecast
period?
Activity 1: Key business model questions

VALUE
PROPOSITIONS
CHANNELS
CUSTOMER
RELATIONSHIPS
CUSTOMER
SEGMENTS
REVENUE STREAMSCOST STRUCTURE
KEY
PARTNERS
KEY
RESOURCES
KEY
ACTIVITIES
Activity 2: Create your own business model
<< insert your value
proposition here>>
<< Describe your cost structure here>>
<< list your partners
here>>
<< describe your revenue streams here>>
<< list the key resources
available to you here>>
<< describe your key
activities here>>
<describe how you plan to
establish and manage the
relationship between the
customer and your brand
here>>
<< describe 1) how you
plan to acquire customers,
2) how you plan to deliver
your value proposition to
them and 3) how you
plan to communicate
with your customers >>
<< describe your
target customer
segment here>>

 Does it work? Do the revenues outweigh the cost? Try estimating revenues and cost for the
next month ( or the first month of sales, if you are without revenue for now)
 What are the risks to your business model? What parts of your business model are most
critical for your business to grow in a profitable manner?
 Are there things that can or should be changed to strengthen the business model or reduce
its risk?
Activity 3: Consider your business model

 How do you know what you wrote in each building block is true? Have you made an
assumption or do you have solid evidence—in the form of documented facts?
 In the cases you have facts, label the response as “Fact” and make a note of your evidence.
 In the cases you have made assumptions, label the response as “Assumption.”
 Complete the activity by listing all the assumptions regarding your business model
Activity 4: Clarify your business model assumptions

 Sales materials
 Website
 Product information
 Customer presentation
 Other (demo/prototype/case study)
 Description of channel strategy
 Sales process description
 Economic buyer
 Other stakeholders involved in customer‟s buying process
 Steps in and duration of sales process
 Expected deal size
 Pricing options
Activity 5: Prepare to meet customers

 Who are the stakeholders involved in the customer's buying process?
 Who typically plays the roles of influencer and economic buyer?
 What are the stages and the length of the sales cycle?
 What is the profile of the typical buyer?
 What is the best sales strategy?
 Create your positioning statement using the following template.
 For…
 Who….
 Our product is…
 That provides…
 Unlike…
 We have assembled/created/invented a product that….
Activity 6: Update your documentation

Activity 7: Plan your next steps
No. Activity Deliverable Deadline Responsible
1. Develop a revenue forecast
2. Put together a marcom strategy
to generate demand and shorten
your sales cycles
3. Create a product roadmap
4. Continue to engage with
customers on your “initial target
list”
5. Plan for growth

Gillette
Razor Handle
Blades
Retail
Built-in
“Lock-in”
Customers
1 x handle purchase
Frequent blade replacement
Marketing
Manufacturing
Logistics, R&D
Brand patents
Marketing
R&D
Logistics
Manufacturers
Retailers

Line
Free Text and
Voice Calls
Group Chat
Ease-to-use AppStore /
Google Play
Viral Distribution
Mass Customized Smart Phone Users
Social network
groups
Free to use for basic services
Pictures / icons
Sponsorships from enterprises
Games
Software development
Infrastructure
Software
Developers
Icon
Designers
Marketing &
Promotion
Software
DevelopmentAppStore
GooglePlay
Marketing Partners

Template for Business Plan Presentation

Mission / Vision [optional]
 Vision
 What is your big vision?
 What problem are you solving and for whom?
 Where do you want to be in the future?
 Mission Statement
 Select a mission statement that is achievable, but not yet achieved.
 Bad mission statements:
• "To create the world's largest software company." [too broad and unrealistic to practically guide decision-making]
• "To develop the world's best technology for defending DNS servers from worm attacks." [er, you said you've already done that,
right? Mission accomplished!]
 A clear mission statement also includes a clear idea of what the startup will NOT do...
• "Healthia will operate America's most widely used comparison shopping portal for consumer driven healthcare, enabling
businesses and their employees to choose health plans, ancillary health benefits, and medical services objectively and
transparently.“
• "Prolexic will create and dominate a new network service category that defends web applications from distributed-denial-of-
service attacks.“
 Sometimes the white space on the slide is filled with customer logos or testimonials.

Market / Problem [must have]
 Without yet getting into your product or service, describe the nature of the problem you
address
 Emphasize the pain level and the inability of incumbents to satisfy the need
 What is your market opportunity and how big is it?
 How big is the market opportunity you are pursuing and how fast is it growing?
 How established (or nascent) is the market?
 Do you have a credible claim on being one of the top two or three players in the market?

53
Product / Solution [must have]
 Introduce your product, and the benefits (which should obviously address the market
problem you just described).
 What is your product/service?
 How does it solve your customer‟s problem?
 What is unique about your product/service?

Underlying Technology [optional]
 Elaborate on the technology or methodology you have developed to enable your unique
approach.
 If appropriate, mention patent status.

Target Customer and Value Proposition [must have]
 Who is your customer?
 Who are your existing customers?
 Who is your target customer?
 What defines an "ideal" customer prospect?
 Who actually writes you the check?
 Use specific customer examples where possible.
 What is your value proposition?
 What is your value proposition to the customer?
 What kind of ROI can your customer expect by using buying your product/service? What pain are you
eliminating?
 Are you selling vitamins, aspirin or antibiotics? (I.e. a luxury, a nice-to-have, or a need-to-have)

Selling and Customer Acquisition [must have]
 What is your selling strategy?
 What does the sales process look like and how long is the sales cycle?
 How will you reach the target customer? What does it cost to "acquire" a customer?
 What is your sales, marketing and distribution strategy?
 What is the current sales pipeline?
 How do you acquire customers?
 What is your cost to acquire a customer?
 How will this acquisition cost change over time and why?
 What is the lifetime value of a customer?
 Marketing plan

Management Team [must have]
 Who is your management team?
 Who is the management team?
 What is their experience?
 What pieces are missing and what is the plan for filling them?

Revenue Model [must have]
 Who is your revenue model?
 How do you make money?
 What is your revenue model?
 What is required to become profitable?

Competition [must have]
 Who is your competition?
 Who is your existing & likely competition?
 Who is adjacent to you (in the market) that could enter your market (and compete) or could be a
co-opted partner?
 What are their strengths/weaknesses?
 Why are you different?
 Competitive landscape
 Be sure to anticipate competitive responses, and never deny that you have competitors, no matter
how unique you think you are

Partnerships [optional]
 What partnerships do you have?
 Who are your key distribution and technology partners (current & future)?
 How dependent are you on these partners?

Others [optional]
 Other
 What assumptions are key to the success of the business?
 What "gotchas" could change the business overnight? New technologies, new market entrants,
change in standards or regulations?
 What are your company‟s weak links?

Milestones / Financials / Projections [must have]
 Projections and milestones
 For each time period, add headcount and cash balance. It should be clear how you expect the
company to perform top line and bottom line three years out, and how much capital will be
required now and later.
 Prepare lots of backup slides to illustrate the assumptions behind these financials.
 Okay, so you might need an 11th or even 12th slide to cover all the financials, to describe the
follow-on businesses that may arise, or to provide a timeline if you have a complex product road
map.

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