Model—plan or diagram that used to make or describe somethingHow is your firm competing in the market place?
Business Model—its plan or diagram for how it competes, uses it resources,structures its relationships, interfaces customers, and creates value to sustain itselfon the basis of the profits it generates
A business model goes beyond your own wall. It is not just within your company. InDell’s case, it needs the cooperation of its suppliers, customers, and many others tomake its business model possible.
Dell’s Approach to Selling Personal Computers:
How many computers do we need? What timing? What about the holidays?
Zip Car—how about more like a car sharing service? You can rent it by the hour. Wepark it around different places. This is a business model innovation.
Starbucks—coffee chains out there are franchise. They started saying they wanted tocontrol the quality. That is how they changed the coffee. They had a differentcustomer experience. They wanted to control it from the bean all the way up to thecup.
Netflix—DVDs are small, we can put them into a small sleeve and mail those throughthe mail and it will be so much cheaper. They could have their own customersholding their inventory as long as you were holding three at a time.
Blockbuster—to have all the retail stores everywhere and actual physical DVDs;huge cost involved in real estate, labor, inventory, etc.
The Value Chain—string of activities that moves a product from the raw materialstage, through manufacturing and distribution, and ultimately to the end user
Where am I going to create the value? Starbucks actually manufactures their coffee.Southwest says they buy their plans, and then their employees work for them. Youhave to decide what part of the value chain are you going to do. Where in the valuechain am I going to create value?
A typical start-up is not going to have their own lawyer. Most use legal services, andaccounting services, etc. that they outsource.
Take inputs and create outputs to create a profit margin.
Starbucks—we have to treat our employees in the retail stores actually really well.We are not afraid to give them great human resource attention. They could innovatethrough the value chain at the retail level.
Zappos—firm infrastructure was the culture that they created value. Then theyimproved all aspects here.
Fatal Flaw—render a business model untenable from the beginning:
- A complete misread of the customer
- Utterly unsound economics
- Example: online version of Home Depot; burned money and cataloged
thousands of items; they found that a box of nails is small but its so heavy; the
shipping cost was over the top
- Example: Pets.com;
Core Strategy—how are you competing in the market place
Mission Statement—simply, briefly, clearlyWhy the firm exists? What is its model?