Utilium

When you have finished studying this module, you will be able to fulfill the following learning objectives:

• Identify the entrepreneur’s most important tasks at start up.
• Describe the necessary elements of a business model.
• Illustrate what is meant by value creation.
• Compare and contrast revenue models and their effects.
• Argue the importance of strategy apart from business models.
• Explain competitive differentiation and sustainable competitive advantage.
• Perform an industry analysis, including a target market, industry structure, and competitive landscape.
• Analyze case studies of ventures with successful business models and strategies.

This module opens with Jimmy Wales discussing the creation of Wikipedia, the largest encyclopedia in the world. What can be learned from this story about Wikipedia to apply to the start-up of other non-profit and commercial ventures?

Make meaning, make mantra, get going, define your business model, and weave a MAT (Milestones, Assumptions and Tasks)! According to Guy Kawasaki, the author of the Art of the Start, these five tasks are the first tasks you should consider when starting a venture.

Why is it important to “make meaning”?

What are the advantages of a “mantra” over a more traditional mission statement?

What is the right mix of planning versus action?

Why is a revenue model critical?

What types of milestones, assumptions, and tasks can you envision for a new venture you are interested in starting?

What additional dos and don’ts can we learn from other entrepreneurs who have started new ventures?

A business model encompasses a value proposition and a revenue model (Magretta, 2002). Both are critical for starting a successful new venture. A value proposition includes two components: (1) who is your target customer for your product or service? and (2) how will you provide value to this customer by solving a problem or appealing to an unmet desire? A revenue model is about how you plan to make money. For example, will you make money by selling or renting a product, through advertising, or by selling services.

What are some recent trends regarding revenue models for online businesses?

“Business model” is sometimes used interchangeably with “revenue model,” but a business model really involves more than a revenue model. The term business model may also describe the operational activities a company performs to create and deliver valuable products and services and generate revenue (e.g., production processes, distribution, and marketing).

Why is a business model so integral to starting or evaluating a company or venture?

What are the benefits of a strong value proposition? What steps can you follow to create a strong value proposition?

What steps can you take to validate your business model?

To apply what you are learning in this section, consider the value propositions of LinkedIn and YouTube. Who are the customers and what problems does the company solve? How does the company translate its value proposition into a revenue stream? Are there alternative revenue models the companies could employ?

While the central focus for business models is the customer (i.e., the value proposition and the revenue model), strategy is about the competition (Porter, 1996). How do you plan to differentiate your product or service from that of competitors? You might have a solid business model, but if you are competing intensely with existing companies on the same playing field, you will face significant challenges.

In traditional models, you can be differentiated in two primary ways. (1) You can offer a product that is superior to competing products on one or more dimensions that customers value. This situation allows you to charge a premium price or to charge the same price as competitors and increase your market share. (2) You can offer the same or similar product or service as competitors and charge a lower price. Many new ventures find it difficult to compete on price because they lack the economies of scale that benefit larger companies.

There is a third way to compete, and that is to render existing competitors irrelevant by developing and offering products and services in a new market space where there are no competitors. W. Chan Kim and Renee Mauborgne refer to this as a Blue Ocean strategy (Harvard Business School Press, 2005).

Use the resources in this section to answer the following questions: What is meant by business strategy?

What happens to a new venture if it lacks a strategy and finds that it is competing head on with other companies in the industry?

Why is a Blue Ocean strategy potentially more lucrative than competing with other companies on product differentiation or price?

In what ways have globalization and technological change affected new venture strategy?

As part of developing a business strategy, analyzing the competition is an important task. Competitors include the organizations that offer products or services that are similar to yours in terms of their value propositions. Competitors can be for-profit companies, non-profits, or government agencies. In addition, organizations offering substitute products also constitute potential competitors.

Why is competition analysis crucial for the success of new ventures?

What are some sources of competitive advantage?

When is it better to cooperate or ally with organizations that otherwise might be considered competitors? What are the benefits and disadvantages of cooperation over competition?

The industry and market in which you compete has a significant effect on your chances for survival and success. Industry analysis is important to gain a deep understanding of the industry structure (Porter, 2008).

How can you conduct an industry analysis? Who are the suppliers and buyers for your product? Who are the primary competitors and how intense is the rivalry? What substitute products exist? How likely is it that new entrants will emerge within the industry?

Market analysis is important for gaining a deep understanding of the target market (Berry, 2005)

How can you conduct a market analysis? What is the size and composition of the different customer segments in your target market? What is the demographic, geographic, and socioeconomic distribution of the segments? What types of services and products do customers currently purchase and through what distribution channels? How do these customers obtain information to facilitate their buying decisions for new products or services?

Most important, market analysis helps you determine if there is a good fit between your product concept and your target customer; that is, the strength of your value proposition.

How does the Malcolm Gladwell video in this section embody the meaning of market analysis and the importance of its outcomes?

Select an industry that appeals to you because of your interests and experience. What are the key forces shaping that industry?

Is this industry attractive for a new venture? Why or why not?

If you developed a product or service in this industry, who would be your target customer?

How is your market segmented? What important demographic or socioeconomic factors shape this market segmentation?

How would information from your industry and market analysis affect your decisions as an entrepreneur?

Identify the characteristics of successful business models and strategies through a detailed comparative analysis of two of the following cases.