Simon EntrepreneursPresents

Articulating Your Concept and Constructing Business Model

Prototypes

Instructor: Adam Bates (adam.bates@simon.rochester.edu)

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"Smart people (like smart lawyers) can come up with very good explanations for

mistaken points of view.“- Richard P. Feinman

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• Support ideas with fact and demonstrated results • Introduce a “Scientific” approach

• Identify a need/issue in a market• Make educated assumptions• Prove/disprove them in an objective manner

• Provide frameworks for:• Articulating your idea and validating market demand for it • Constructing your business model and validating its underlying assumptions

• Answer questions:• Is my idea a viable business opportunity? • Am I ready and able to play a role in its implementation? If so, what is that role?

Purpose of the Workshop

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• Introduce concepts and questions you need to answer

• Provide practical guidance in doing so through examples and introduction of resources you can tap into

• Will require independent research that you'll need to coordinate on your own

• Reach out to instructor and/or Simon Entrepreneurs with questions

Workshop Format

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Iterative Ideation

Brilliant Idea

Research

Brick Wall

Eventually Leads to…

Breakthrough!!

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• Need early focus, but…

• Solution: develop 2-3 business model prototype designs• Market potential, risks, viability, key assumptions and issues

• Goal is to find the optimal business model

Optimal business model = highest reward/risk ratio

Business Model Prototype

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More succinctly: “How you gonna make money” - Lil John (2008)

What exactly is a business model?

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Don’t get caught up in the terminology…just try to get a feel for how to connect the dots between you, your partners & suppliers, and your customers

Components of a business model

Infrastructure * core capabilities: The capabilities and competencies necessary to execute a company's business model. * partner network: The business alliances which complement other aspects of the business model. * value configuration: The rationale which makes a business mutually beneficial for a business and its customers.

Offering * value proposition: The products and services a business offers.

Customers * target customer: The target audience for a business' products and services. * distribution channel: The means by which a company delivers products and services to customers. This includes the company's marketing and distribution strategy. * customer relationship: The links a company establishes between itself and its different customer segments. The process of managing customer relationships is referred to as customer relationship management.

Finances * cost structure: The monetary consequences of the means employed in the business model. A company's DOC. * revenue: The way a company makes money through a variety of revenue flows. A company's income.

Source: http://en.wikipedia.org/wiki/Business_model

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Example Prototype – OSA online music service

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• Is there a known or accepted problem? For example:

“Many service and retail businesses want to provide an experience that is enhanced with just the right music. However, dealing with administration of performance royalties is a hassle, and non-compliance can result in fines.”

What is the critical need?

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• What do you think will satisfy the need or solve the problem? For example:

“By packaging customizable, performance-rights-compliant music into a single service, businesses can have the music they want and not have to worry about royalty payments.”

(It also doesn’t hurt that <company> already has contractual relationships with tens of thousands of these potential customers and they can undercut their competition’s cost structure through an Internet-based service)

What is your hypothesis?

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• Now bring it all together:

“OSA provides an online music delivery service targeting retail and service outlets. Its product also includes administration of performance rights royalties, removing this ‘hassle’ from its customers. Using an Internet-based distribution and service mechanism, OSA not only provides a more customizable solution than competitors, but it is also able to do so at dramatically lower costs.”

Articulation of the business idea (1): Say it simply

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• If you can’t draw it, you can’t sell it. a few examples…

Articulation of the business idea (2): Draw it.

Product Sketch

Service Diagram

Web page mockup

Nightclub Promotional Flyer

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Summary of Assignments

• Answer the questions:• What is the critical need?• What is my hypothesis for addressing that need?

• Sketch out 2-3 business model prototypes.• Articulate your business idea simply.• Draw/depict your product or service.• Know your industry and be able to summarize it with an overview statement and current trends.

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Resources to build the knowledge base

• Where do you learn about your industry?• http://www.library.rochester.edu

• click “Databases”, then “Business”• Many to choose from depending on industry, but “NetAdvantage Industry Surveys” and “Marketline” provide good overviews• “Lexis Nexis” is a good source for trends

• Do some Googling• http://finance.yahoo.com -> provides company and industry information• Look at competitors websites and annual reports

• Where do you learn about consumers?• Encyclopedia of Associations• American Demographics: http://adage.com/americandemographics• More Googling and above-mentioned databases• Direct contact, surveying, and prototyping -> this is the topic of the next workshop

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Appendix

A couple of aids to ideation

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Knowledge Base FirstThinking through the venture with using four knowledge groups

• General Business Knowledge - an understanding of conventional business functions: Marketing, finance, operations, people topics, business law and accounting.

• General Entrepreneurship Knowledge –Specialized information within each functional base.

• Opportunity-Specific Knowledge- Knowledge of existing industry gaps based on observations and research

• Venture-Specific Knowledge- Functional knowledge needed to understand key variables that influence outcomes. (Food & Beverage, Broadcasting, Thixo)

Learning curves are costly and may result in venture failure

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D.I.V.E. Model

• Discover an industry gap that is not being delivered or is delivered poorly

• Innovate a venture solution that may respond to the gap

• Validate your hypothesis through research and make clear, defined assumptions

• Evaluate the findings and engage in planning

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Why you? Why now?

• Who needs it?• Why do they want it?• What’s better?• Who gives it to them now?• How do they get it?• What could change?• When could I deliver?• How could I deliver?

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S.C.A.M.P.E.R.

• S Substitute• C Combine• A Adapt• M Modify/ Magnify• P Put to other uses• E Eliminate• R Rearrange

Isolate the challenge or subject you want to think about.

Ask SCAMPER questions about each step of challenges and see what new ideas emerge.

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SCAMPER Questions

• What procedures can I substitute?

• How can I combine prospecting with another procedure?

• What can I adapt to the website to make it user friendly?

• How can modify existing hair salons to improve the experience?

• What can I magnify to impress consumers about Eastman?

• What other uses can be applied to the widget?

• Should we eliminate packaging from deodorant?

• Could we rearrange schedules to accommodate more part-time students.• One manufacturer substituted plastic for metal, added color and produced

multi-colored paper clips so that papers could be color-coded, applying another use!