The Nuts and Bolts of Business Plans MIT IAP 15.975 Business Models

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The Nuts and Bolts of Business PlansMIT - IAP
15.975Business Models

• Richard P Kivel
• CEO
• TheraGenetics Inc.
• rich_at_kivel.net
• January 15th 2009

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The Right Ingredients

• A Team with Relevant Experience
• Market Size
• Technology
• Reasonable Projections
• Competitive Advantage
• Exit Strategy

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Stage of Growth / Development
Stage 1 Early Growth Sales Driven

Flexible/Agile/Creative Loose
controls and procedures Stage 2 Rapid Growth
Delegation team changes Operations
Driven heavy PL focus Focus is internal on
growth - clients Stage 3 Late Growth What
worked earlier no longer does. Systems
become obsolete. Lose touch with
customers Focus externally, MA or
International Markets
expansion
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The Business Model

• def A method by which a firm uses its resources
  (cash, technology and people) to offer its
  customers better value than its competitors and
  make money doing so.
• It tells who pays, how much and how often.

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Simple and Elegant
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Business model design template Osterwalder
model
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Six Components of the Business ModelHenry
Chesbrough and Richard S. Rosenbloom

• Value Proposition
• Market Segment
• Value Chain Structure
• Revenue Generation and Margins
• Position in the Value Network
• Competitive Strategy

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Value Proposition

• A description of the customer problem
• The solution that addresses the problem
• The value of this solution from the customer's
  perspective

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Market Segment

• The group to target
• Recognizing that different market segments have
  different needs.

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Value Chain Structure

• The firm's position in the value chain
• Activities in the value chain
• How the firm will capture part of the value that
  it creates in the chain.

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Revenue Generation and Margins

• How revenue is generated
• (sales, leasing, subscription, support, etc.)
• The cost structure
• Target profit margins.

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Position in the Value Network

• Identification of competitors
• Identification complementors
• Identify network effects that can be utilized to
  deliver more value to the customer.

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Competitive Strategy

• How will the company attempt to develop a
  sustainable competitive advantage?
• How will it use that advantage to improve the
  enterprise's competitive position in the market?

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Different Models to Evaluate
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Three Examples
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Direct SalesConsumer or Business

• Negatives
• Free Consulting
• May not like rep or rep leaves firm
• High Cost
• Retention

• Positives
• High Contact
• Customer relations
• More Control
• Multi Purpose
• Experts in the field

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Distributors. Channel, Partner Sales

• Positives
• Cost of Sale is Low
• Hands-off Sales
• Exposure in new markets
• Credibility
• Competitive Edge

• Negatives
• Up-front fees
• No control
• Distant clients
• Performance
• Technical Pressure
• Require lots of attention and training

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OEM Channels

• Positives
• Prestige and Publicity
• List Sharing
• Royalties / steady revenue stream
• Increase Market Presence
• Technical Control

• Negatives
• Competitor envy
• Technical pressure
• Channel Conflict
• Your reputations are linked

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Other Examples

• Retail
• Internet
• Service Providers.

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FedEX
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What Business Model and Why?

• Citibank vs- American Express
• Jet Blue -vs- Virgin Air
• Wal-Mart (1962) -vs- Neiman Marcus (1907)
• Dell -vs- e-Machines
• Piaget -vs- Swatch
• Amazon.com -vs- Barnes Noble

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Summary Six Components

• Value Proposition
• Market Segment
• Value Chain Structure
• Revenue Generation and Margins
• Position in the Value Network
• Competitive Strategy

Simple and Elegant
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Thank youRichard Kivelrich_at_kivel.net