Jonathan Chee EEM 3450 Engineering Innovation and

Entrepreneurship 22nd September 2016

Lean Launch Pad- Business Model Generation

With over 28 years of experience in private equity, M&A, investment management, corporate finance and operations in USA and Asia. A member of the Investment Committee in Shenzhen Capital Group (深圳创新投资公司) and Huawei Technology.

Jonathan’s Profile

Jonathan’s profile Previous Experiences

• Chief Investment Officer, Eagle Ride Investment, Listed in HK (0901.HK)

• Head of PE/VC, Huawei Technology

• Partner, CIVC Management Company

• General Manager, Shenzhen Capital Group & UOB-Shenzhen Capital JV

• Managing Director, Standard Chartered Private Equity

• Assistant Vice President, Vertex Management Inc., (USA)

Education

• BSc. in Physics. (National University of Singapore)

• MSc. In Communications Engineering (University of Bradford, UK)

What we will cover

The Business Model Canvas

The 9 Building Blocks

Definition of a

Business Model

Business Model Definition

A business model describes the underlying reasons of how an organization creates, delivers, and captures value for the shareholders.

The 9 Building Blocks

1. Customer Segments (CS)

2. Value Propositions

(VP)

3. Channels (CH)

4. Customer Relationships

(CR)

5. Revenue Streams (R$)

6. Key Resources

(KR)

7. Key Activities (KA)

8. Key Partnerships

(KP)

9. Cost Structure (C$)

1. Customer Segments (CS)

Separate segments if: Needs require a distinct offer Different Distribution Channels Different types of relationships Substantially different profitability Willing to pay for different aspects of the offer

The different groups of people or

organizations an enterprise aims to serve

Examples of Customer Segments

• One large group of customers with broadly similar needs and problems

Mass market

• Specific, specialized CS – often found in supplier-buyer relationships

Niche market

• Segments with slightly different needs and problems

Segmented

• Two unrelated CS with different needs and problems

Diversified

• Two or more essential and interdependent CS

Multi-sided platforms (or multi-sided markets)

2. Value Propositions (VP)

Each VP caters to the requirements of a specific CS, and can be: Innovative/New or disruptive offer Similar to existing market offers, but with added features and

attributes

Bundle of products and services that create

value for a specific Customer Segment

Possible sources of value creation

• Satisfy a set of needs that customers previously didn’t perceive (no prior similar offering) Newness

• Improving product or service performance Performance

• Tailoring products and services to the specific customers’ needs Customization

• Helping a customer get certain jobs done “Getting the job done”

• Delivering a product with superior design Design

• Creating a brand that customers value using and displaying Brand/Status

• Offering similar value at a lower price (for price-sensitive CS)

Price

• Helping customers reduce costs Cost reduction

• Reducing customers’ risks incurred when purchasing products or services

Risk reduction

• Making products and services available to customers who previously lacked access to them

Accessibility

• Making things more convenient or easier to use Convenience/Usability

3. Channels (CH)

Channels serve several functions, including: Raises consumer awareness about a company’s products and services Helps customers evaluate a company’s VP Allows customers to purchase products and services Delivers a VP to customers Provides post-purchase customer support

How a company communicates with its Consumer

Segments to deliver a Value Proposition

Channel Types Channel Phases

Ow

n

Dir

ect

Sales force 1. Awareness How do we raise awareness about our company’s products and services?

2. Evaluation How do we help customers evaluate our organization’s Value Proposition?

3. Purchase How do we allow customers to purchase specific products and services?

4. Delivery How do we deliver a Value Proposition to customers?

5. After sales How do we provide post-purchase customer support?

Web sales

Ind

ire

ct

Own stores

Par

tne

r Partner stores

Wholesaler

4. Customer Relationships (CR)

Customer relationships may be driven by the following motivations:

Customer acquisition Customer retention Boosting sales (upselling)

The types of relationships a company

establishes with specific Customer Segments

• Customer representative who provides help during the sales process or after purchase completion Personal assistance

• Dedicated customer representative to an individual client

Dedicated personal assistance

• No direct relationship with customers – provides all necessary means for customers to help themselves Self-service

• Mixes customer self-service with automated processes – can simulate a personal relationship when done well

Automated services

• Online user communities maintained by companies to facilitate knowledge exchange and mutual problem solving between users

Communities

• Companies co-creating value with customers Co-creation

5. Revenue Streams (R$)

A business model can involve two different types of Revenue Streams:

Transaction revenues resulting from one-time payments Recurring revenues from ongoing payments

The cash a company generates from each

Customer Segment

Ways to generate Revenue Streams

• Selling ownership rights to a physical product Asset sale

• Providing the use of a particular service (charged according to usage amount)

Usage fee

• Selling continuous access to a service Subscription fees

• Temporarily granting someone the exclusive right to use a particular asset for a fixed period Lending/Renting/Leasing

• Giving customers permission to use protected intellectual property Licensing

• Performing intermediation services on behalf of two or more parties

Brokerage fees

• Advertising a particular product, service, or brand Advertising

Two main types of pricing mechanisms: Fixed Menu Pricing Predefined prices are based on static variables

Dynamic Pricing Prices change based on market conditions

List price Fixed prices for individual products, services, or other VP

Negotiation (bargaining) Price negotiated between two or more partners depending on negotiation power and/or negotiation skills

Product feature dependent

Price depends on the number or quality of VP features

Yield management Price depends on inventory and time of purchase

Customer segment dependent

Price depends on the type and characteristic of a CS

Real-time-market Price is established dynamically based on supply and demand

Volume dependent Price as a function of the quantity purchased

Auctions Price determined by outcome of competitive bidding

6. Key Resources (KR)

Key Resources can be: Physical Financial Intellectual Human

The most important assets required to

make a business model work

Categories of Key Resources

• Such as manufacturing facilities, buildings, vehicles, machines, systems, point-of-sales systems, and distribution networks

Physical

• Such as brands, proprietary knowledge, patents and copyrights, partnerships, and customer databases Intellectual

• All enterprises require human resources (particularly prominent business models such as knowledge-intensive and creative industries)

Human

• Financial resources and/or financial guarantees, such as cash, line of credit, or a stock option pool for hiring key employees

Financial

7. Key Activities (KA)

The most important things a company

must do to make its business model

work

Activities differ depending on business model type, e.g.: Software maker Microsoft: software development PC manufacturer Dell: supply chain management Consultancy McKinsey: problem solving

Examples of Key Activities

• Related to designing, making, and delivering a product in substantial qualities and/or of superior quality Production

• Related to coming up with new solutions to individual customer problems (e.g. knowledge management and continuous training)

Problem solving

• Related to platform management, service provisioning, and platform promotion (applicable in business models designed with a platform as a Key Resource)

Platform/Network

8. Key Partnerships (KP)

Four different types of partnerships: Strategic alliances between non-competitors Coopetition – strategic partnerships between competitors Joint ventures to develop new businesses Buyer-supplier relationships to assure reliable supplies

The network of suppliers and partners –

alliances that help to optimize business

models, reduce risk, or acquire resources

Three motivations for creating partnerships

• Optimizes allocation of resources and activities, through outsourcing or sharing infrastructure – reduce costs

Optimization and economy of scale

• Competitors may form a strategic alliance in one area while competing in another – reduces risk

Reduction of risk and uncertainty

• Relying on other firms for particular resources or to perform certain activities – helps to acquire knowledge, licenses, or access to customers

Acquisition of particular resources

and activities

9. Cost Structure (C$)

All costs incurred to operate a business model –

such as creating and delivering value, maintaining

Customer Relationships, and generating revenue

Two broad classes of C$s (many business models fall in between these two extremes)

• Minimizing costs wherever possible – using low price VPs, maximum automation, and extensive outsourcing. Cost-driven

• Value creation – Typically premium VPs and a high degree of personalized service Value-driven

Cost structures can have the following characteristics:

• Costs that remain the same despite the volume of goods or services produced (e.g. salaries, rents) Fixed costs

• Costs that vary proportionally with the volume of goods or services produced Variable costs

• Cost advantages as output expands (e.g. lower bulk purchase rates)

Economies of scale

• Cost advantages due to larger scope of operations (e.g. in a large enterprise, Distribution Channels may support multiple products)

Economies of scope

The Business Model Canvas The nine Building Blocks form the basis of the Business Model Canvas - A hands-on tool that fosters understanding, discussion, creativity, and analysis

Example – Joy Sprouts

Problem: Lack of quantifiable data to track development of preschoolers Solution: Technology that gives parents a tailored learning profile of their child through a single dashboard in an app: • School: Collect info from children’s

wearable devices & from teachers through classrooms’ mobile devices

• Home: Collect info from child’s interaction with games and activities

Example – Joy Sprouts

Business model: • School: allows for real-time

tailored feedback to parents (monthly subscription fee of US$750 per school)

• Home: allow consumers to purchase individual game module (price range of US$3-$10 per Sprout, or a monthly subscription of US$17).

Online: APP O2O: children’s wearable devices and classroom mobile devices Offline: signed up and selling of games etc.

Example – Joy Sprouts

• Parents • Teachers • Children