Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
Lecture Notes
Chapter 8: Building Business Models
Learning Objectives
• Define the business model.
• Identify the four core areas of a business model.
Notable Quote
• “Today countless innovative business models are emerging. Entirely new industries are
forming as the old ones crumble. Upstarts are challenging the old guard, some of whom
are struggling feverishly to reinvent themselves.”
• -Alexander Osterwalder & Yves Pigneur
Business Model
• A conceptual framework
• Describes how a company creates, delivers, and extracts value.
Notes:
Business models help entrepreneurs generate value and scale. They do this in several ways: by
fulfilling unmet needs in an existing market, by delivering existing products and services to
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
Business Plan
• Formal document
• Provides background information on the company
Four Parts of the Business Model
• The offering
• The customer
The Business Model Canvas
The Offering
• Identifies potential customers
The Customer
• Determine target market
• Plan to reach the target market
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
Customers include the segments of a market that your offering is serving. Entrepreneurs
typically can’t service everyone in a market so you have to choose who best to target. In
The Infrastructure
• People
• Technology
• Products
Critical Thinking Questions
• What do you think are the ethical implications of copycat business models?
• 2. Do you think cloning products and services is good business practice? Why or why
not?
• 3. What would you do if someone else cloned your product or service?
Notes:
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
six months after Rocket introduced a Groupon clone, Citydeal, Groupon bought itfor 14% of its
shares.
Financial Viability
• Discusses revenue
• Outlines cost structure
• Addresses CVP
Notes:
Financial viability defines the revenue and cost structures: how will the firm make money given
The Customer Value Proposition (CVP)
• Most important part of business model
Four Problems Experienced by Customers
• See Figure 8.2: Four Problems Experienced by Customers
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
Addressing the Problems
• Lack of time—CVS Minute Clinic
• Lack of money—IKEA
• Lack of skills—Quickbooks
Three Approaches for Creating CVP
• All-benefits
Three Types of Value Proposition
Notes:
The all-benefits approach to CVP involves listing all the benefits of your business’s product or
service to target customers, usually without any support to back up these claims, and with little
regard to the competition or any real insight into what the customer really wants or needs. This
is the least impactful approach for creating a value proposition because all the focus on is on
your business and how you think your product or service can benefit the customer. Unless you
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
between your products or services in comparison with the competition, but a resonating-focus
Identifying Target Market
Notes:
Types of Customer Segments
• Mass market
• Niche market
Notes:
A mass market comprises a large group of customers with very similar needs and problems.
You may have heard of the phrase “it’s gone mass market,” which means a product or a service
is being purchased by an enormous proportion of customers all looking for the same thing. A
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
A segmented market involves breaking customer segments into groups according to their
different needs and problems. For example, a bank might provide different services to its
A diversified market offers a variety of services to serve two or more customer segments with
different needs and problems, which bear no relationship to each other. Amazon is a good
example of an organization which diversified from its retail business—selling books and other
Business Model Canvas (BMC)
• See Figure 8.4: The Business Model Canvas (BMC)
Notes:
The business model canvas encourages you to find answers to the most important questions
and think about them in a structured way, using the canvas to unlock your creativity. The
Nine Components of the BMC
• CVP
• Customer segments
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
• Channels
• Customer relationships
Notes:
CVP: As described earlier in this chapter, the CVP is designed to solve a customer problem or
meet a need. With regard to your new T-shirt business, ask yourself the following: What value
do we deliver? What bundle of products and services are we offering? What are we helping
customers achieve by providing a new range of T-shirts?
Customer Segments: As defined above, a customer segment is a part of the customer grouping
of a market. For example, gluten-free is a segment of the grouping of customers who buy food;
another segment would be customers who are lactose intolerant. In Chapter 1 we saw that the
caffeine-free ZOOS Greek Iced Tea would appeal to pregnant and new moms. The customer
segmentation questions for the T-shirt business are: Who are your most important customers?
What segment of the market would be most likely to buy your T-shirts?
Channels: The value proposition is delivered through communication, distribution, and sales
Customer Relationships: Relationships can be developed on a one-to–one basis in a brick and
mortar T-shirt store and/or through a purely automated process of selling the T-shirts online.
Customer relationships go beyond just buying and selling; they depend on engendering positive
feelings about your business, building a sense of customer identity (“I am a so-and-so T-shirt
customer”), and motivating customers to want to bring their friends into the relationship. The
key here is one of the most important questions an entrepreneur can answer: How do you
establish and maintain relationships with your customers?
Key Activities: What are the most important activities that the company participates in to get
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
the key activities? If you’re opening up a store, then you need to figure out the location and
Key Partners: Entrepreneurs are not able to do everything by themselves, so partnering with
suppliers, associates, and distributors is a logical option, not only for strategic purposes but also
for efficiency needs. For example, you could partner with a designer who could advise you on
the artwork of the T-shirts as well as providing you with a network into other designers. You
could ask the questions around outsourcing: Could some activities be outsourced? Do you have
a network of suppliers/buyers you could tap into or negotiate with?
Revenue Streams: Revenue is generated if a successful value proposition is delivered. Here you
need to ask: How much are my customers willing to pay? How many customers do I need? How
much cash can be generated through T-shirt sales in the store or T-shirt sales online? How
much does each stream contribute to the total? (We will explore revenue models in further
detail in Chapter 10).
Cost Structure: The cost structure represents all the expenses required to execute and run the
Critical Thinking Question
• In what ways does the division between value creation and value delivery help to clarify
the process of refining the business model?
Create Your Own BMC
• Download a free copy of the Business Model Canvas from
Peer-to-Peer Business Models
• Empowers customers to become business people.
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
Notes:
While transparency and accountability are no doubt essential to the peer-to-peer business
model, peer-to-peer businesses have not been without controversy. Uber has landed in
regulatory hot water on several occasions, sparking protests and bans in several countries.
Critical Thinking Questions
• Do you think the peer-to-peer business model is better than the traditional business
model? Why or why not?
• 2. What do you think the impact will be if traditional businesses fail to adapt to
peer-to-peer business models?