Getting Started: Designing Business Models

Getting Started
Chapter 3
Designing Business Models
Business
Models
Licensing &
Franchising
Outsourcing
Network
Models
Patterns of Entrepreneurship Management
4th Edition, Chapter 3
Copyright 2013 Jack M. Kaplan & Anthony C. Warren

Presentation Outline
Chapter 3 • Definition of Business Models

Business
Models
• Tools for Development
• Examples
Licensing &
Franchising • Licensing and Franchising
Outsourcing • Outsourcing
Network • Models Based on Networks
Models

Business Model Definitions
• With the business environment evolving in such a

Chapter 3 dynamic and rapid way, it is no longer sufficient for a
company to build a company solely around a new
Business
Models product or service idea.
Licensing & • A business model is a description of how your

Franchising
company intends to create value in the marketplace. It
Outsourcing includes that unique combination of products,
services, image and distribution that your business
Network carries forward. It also includes the underlying
Models organization of people, and the operational
infrastructure that they use to accomplish their work.

Business Models
Chapter 3
More Simply:
Business
Models
“A business model is the way a company
Licensing & applies knowledge to capture value.”
Franchising
Outsourcing
Network
Models

Business Model Components
Requires blending of multiple business aspects:

Chapter 3
Business
Models • Manufacturing
• Finance
Licensing &
Franchising • Marketing
Outsourcing
• Information
• Suppliers and Customers
Network
Models • Product and Service development

Attributes of a Good Business Model
• A Business Model states how a company creates VALUE in the

Chapter 3 market
Business • A Business Model is more than just strategy – it is the fundamental

Models architecture of a business
• Good Business Models are:

Licensing & - SCALABLE
Franchising - Create BARRIERS TO FOLLOWSHIP
- Align the Interests of ALL STAKEHOLDERS
Outsourcing - Provide VALUE to ALL STAKEHOLDERS
- Use NETWORK effects
Network - Are CAPITAL efficient
Models - Provide sustainable high GROSS MARGINS

The Five Component Model
1. Articulate the Value Proposition—what value

Chapter 3 are you creating for the end user?
2. Identify a Market Segment—who the product
Business
Models or service is useful to and for what purpose?
3. Define structure of Value/Supply Chain—who
Licensing & are the stakeholders and what’s needed to
Franchising
succeed?
Outsourcing 4. Estimate the Cost Structure and Profit
Network
Potential
Models 5. Formulate the Competitive Strategy—how will
the firm gain and hold advantage over its rivals?
Business Model Canvas
(Osterwalder Model)
Chapter 3
Business
Models
Licensing &
Franchising
Outsourcing
Network
Models

Example - Disrupting the Supply
Chain
Chapter 3
Business • Used pioneering “Direct Model” in this

Models
industry that allows them to provide a
customized product, superior technology, and
Licensing &
Franchising
superior service, for a low-cost.
Outsourcing
• Model based on: One-to-one customer contact,
Network Accountability, Made-to-Order, and Non-
Models Unique Products (modularity)

Example –
Re-structuring
the Supply Chain
Greif becomes Center of Synergistic Supplier Network

Shifts from a Product Supplier to a Problem Solver
Chapter 3
Greif New Vendor
Business Bros. Management/
Models Software/Models
Licensing & Palex

Franchising (Pallet and
Drum
Delta Chemical
Refurbishers)
Outsourcing Services
(Environmental
Network IBC Analyses)
Models
GPS
(Drum
Truckers
Cleaners)
Example – Netflix
Use of Data-Mining
Chapter 3
Business
Models
Licensing &
Franchising
Outsourcing
Network
Models

Example – Netflix, (contd.)
Early-mover Advantage and Accumulation of Customer
Data Provides Sustainable Business Model
Chapter 3
Business
Models
Licensing &
Franchising
Outsourcing
Network
Models

Example - DBI Inc.
Using Accumulated Data
to Build Customer “Lock-in”
Chapter 3
Business
Models
Licensing &
Franchising
Outsourcing
Network
Models

Example - DBI Inc.
Unique Vehicle + Database of Vegetation
Allows Fast Service – Important for Railroads.
Chapter 3
Business
Models
Licensing &
Franchising
Outsourcing
On-Off Road/Rail Truck with Robotic “Spot” Sprayers, GPS

Network
Mapping of Vegetation Types Allows Continuous Efficiency
Models
Improvements. Database Maps Create Customer Lock-in.

Licensing and Franchising
• Licensing and Franchising are two valuable

Chapter 3 components of a business model
Business
• Both are agreements between an issuer—a
Models licensor or franchisor—and a receiver—a
licensee or franchisee.
Licensing &
Franchising • These contracts grant the receivers certain
rights to access certain “intellectual properties”
Outsourcing
such as patents, trademarks, trade secrets, and
Network copyrights
Models

License Agreements
Chapter 3
Business License agreements allow a licensee to

Models
use intellectual property under certain
Licensing & conditions as spelled out in the
Franchising
agreement.
Outsourcing
Network
Models

License Agreements: Key Issues
1. Licensee and Licensor are identified together

Chapter 3 on the basis of their reasons for entering into
an agreement
Business
Models 2. The licensed Intellectual Property (IP) is
precisely defined
Licensing &
Franchising 3. The granted rights to the IP are carefully
defined
Outsourcing
4. The “territory” allowed for practice of the
Network rights is defined
Models
5. The level of exclusivity is defined
License Agreements: Key Issues
6. In exchange for gaining certain rights, the

licensee pays fees to the licensor. These
Chapter 3 usually include up-front fees, running
Business royalties, or periodic payments
Models
7. Other items considered: term of the
Licensing &
agreement, confidentiality, payment
Franchising scheduling, need for audit, treatment of
Outsourcing
breaches of contract, warranties, liabilities,
indemnifications, and other general legal
Network requirements
Models

Example: James Dyson Licensed Asian Rights
to “Bootstrap” his Company. He Later Bought Them Back.
Hoover Turned Down his Licensing Offer!
Picture Copyright Dyson Inc.
Chapter 3
Business
Models
Licensing &
Franchising
Outsourcing
Network
Models

Example-Ultrafast’s Business Model with Multiple
Licenses to Complementary Tool Companies Solving
both Marketing and Funding Problems
Fastener Makers
Ultrafast Inc.
Technology Development
Car Assembly
Chapter 3 Plants
Applications Engineering
Licensing Office
Business Coating
Models
Licensing &
Franchising Segmented Licenses
Outsourcing
Assembly Tool After Market Tool
Companies Companies
Network
Models

Franchise Agreements
A franchise is a legal and commercial

Chapter 3 relationship between the owner
Business (franchisor) of a trademark, service
Models
mark, trade name, or advertising symbol
Licensing & and an individual or group (franchisee)
Franchising
wishing to use that identification in a
Outsourcing business.
Network
Models
Example:
Franchise Agreements: Key Issues
1. Franchisee and franchisor are defined

Chapter 3 together for the reason they are entering into
Business the agreement
Models
2. The business of the franchise is stated, and
the deliverables that the franchisor must
Licensing &
Franchising provide to the franchisee are specified
Outsourcing 3. The franchisor my offer to fund part of the
start-up costs
Network
Models 4. The commitments of the franchisee are
defined

Franchise Agreements: Key Issues
5. In exchange for entering into the agreement

Chapter 3
and receiving support from the franchisor,
Business the franchisee pays fees to the franchisor
Models
6. Items stating under what terms a franchisee
Licensing & can sell its business
Franchising
7. Other terms: term of agreement, conditions
Outsourcing for renewal, confidentiality, payment
scheduling, need for audit, treatment of
Network
Models breaches of contract, warranties, liabilities,
indemnifications, other legal requirements

Example - Chemstation’s Unique Business Model
Built on Regional Franchises
Chapter 3
Business
Models
Licensing &
Franchising
Outsourcing
Network
Models

Outsourcing
Has become a viable option due to the following:

Chapter 3 • To realize cost efficiencies/economies of scale
Business • To realize core competencies
Models
• To leave specialized tasks to the specialists
Licensing & • To free up essential resources from non-core
Franchising functions
Outsourcing
Network
Models

Outsourcing: The Choice
Checklist for whether you should outsource:

Chapter 3 • Is the activity central to the company’s
Business
success?
Models • Can the outsourcing lead to a loss of
intellectual property rights or a leakage of
Licensing &
Franchising valuable trade secrets to competitors of their
suppliers?
Outsourcing
• Is the task routine and wasteful of your staff’s
Network time?
Models
• Is this a one-off or periodic need?
Checklist (continued):
Chapter 3 • Is it less expensive to have an outsider do it
Business
rather than in-house?
Models • Alternatively, will the task cost less in-house
BUT use resources that are more valuable
Licensing & elsewhere?
Franchising
• Is the skill so specialized that it’s impractical
Outsourcing to have a full-time employee provide the best
Network
input?
Models If none of these questions elicit concern, you
should consider outsourcing the task.

Tips for finding an external resource:

Chapter 3 • Ask around for recommendations
Business • Choose a company that understands your
Models needs and can meet them
Licensing &
• Outsourcing implies a loss of direct control, so
Franchising clearly communicate the performance
standards
Outsourcing
• Meet regularly
Network
Models • Have a backup plan

Social Networks in Business Models.
Example - Threadless
Chapter 3
Business
Models
Social Networks in Business Models
Licensing &
Franchising
Outsourcing
Network
Models
Threadless.com – customers design products for free, sales generated
prior to manufacture.

Example - Vocalpoint
Chapter 3
Business
Models
Licensing &
Franchising
Outsourcing
Network
Models
P&G’s Social Network for Moms with Kids

provides new ideas and viral marketing.
P&G Launches eStore to sell Tide direct to
Customers
Chapter 3
Business
Models
Licensing &
Franchising
Outsourcing
Network
Models
Idea and Initial Market Research undertaken via Vocalpoint

Getting Started: Designing Business Models

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Getting Started

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

Chapter 3 • Definition of Business Models

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

• With the business environment evolving in such a

Licensing & • A business model is a description of how your

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

Requires blending of multiple business aspects:

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

• A Business Model states how a company creates VALUE in the

Business • A Business Model is more than just strategy – it is the fundamental

• Good Business Models are:

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

1. Articulate the Value Proposition—what value

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

Business • Used pioneering “Direct Model” in this

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

Greif becomes Center of Synergistic Supplier Network

Licensing & Palex

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

On-Off Road/Rail Truck with Robotic “Spot” Sprayers, GPS

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

• Licensing and Franchising are two valuable

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

Business License agreements allow a licensee to

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

1. Licensee and Licensor are identified together

6. In exchange for gaining certain rights, the

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

Picture Copyright Dyson Inc.

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

A franchise is a legal and commercial

1. Franchisee and franchisor are defined

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

5. In exchange for entering into the agreement

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

Has become a viable option due to the following:

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

Checklist for whether you should outsource:

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

Tips for finding an external resource:

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

P&G’s Social Network for Moms with Kids

Idea and Initial Market Research undertaken via Vocalpoint

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

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