Business Modeling Quarter

Business Modeling Quarter (hereinafter, the Quarter) is the first of four lectures of Operations Quadrivium (hereinafter, the Quadrivium):

• The Quarter is designed to introduce its learners to enterprise discovery, or, in other words, to concepts related to obtaining data needed to administer the enterprise effort; and
• The Quadrivium examines concepts of administering various types of enterprises known as enterprise administration as a whole.

The Quadrivium is the first of seven modules of Septem Artes Administrativi, which is a course designed to introduce its learners to general concepts in business administration, management, and organizational behavior.

Outline

The predecessor lecture is Feasibility Study Quarter.

Recitals

Strategy design is the enterprise effort undertaken in order to design the strategy out of the concepts analyzed during strategy analysis. The design can be divided in four batches:

1. To discover most feasible concepts analyzed during strategy analysis;
2. To analyze which of most feasible concepts and how can be arranged in a new strategy;
3. To approve the new strategy or, at least, its layout and key points;
4. To formulate the approved strategy for their further implementation or, in other words, as the input for strategy implementation.

Concepts

1. Commerce transaction.
   • Business-to-consumer.
   • Business-to-business. This describes a business that is targeting another business with its product or services. B2B technology is also sometimes referred to as enterprise technology. This is different from B2C which stands for business to consumer, and involves selling products or services directly to individual customers.
   • Business-to-government.
   • Business-to-employee.
2. Enterprise. (a) An endeavor undertaken in order to create something or develop somebody, or (b) an undertaking that includes several endeavors and may or may not represent an entire business or organization. The enterprise assumes some level of enterprise effort.
   • Business. Either an individual's regular occupation, profession, or trade, or the practice of making one's profit by engaging in commerce.
   • Departmentalization. The basis by which jobs in an enterprise are grouped together.
3. Segmentation.
   • Sector. The market that a startup companies product or service fits into. Examples include: consumer technology, cleantech, biotech, and enterprise technology. Venture Capitalists tend to have experience investing in specific related sectors and thus tend not to invest outside of their area of expertise.
4. Competitive strategy. A formulated strategy for how a strategic business unit is going to compete. This formulation usually states which one of four types of competitive strategies the strategic business unit is going to pursue, what it considers as its competitive advantage or advantages, defines its business model, and may or may not include (a) what products, (c) resulted from what production, (d) at what price, (e) using what presentation and promotion, (f) on what market or markets with regard to the region or regions and/or segment or segments of customers, (g) with what front-end office personnel, (h) with what level of enterprise's support this enterprise is going to offer, as well as (i) what financial results and/or competitors' actions would trigger what changes in those decisions. Rarely, a mature enterprise formulates just one competitive strategy; usually, there are several competitive strategies in the enterprise portfolio since different strategic business units are supposed to have their own competitive strategies.
   • Cost leadership strategy.
     1. Mass production. The production of items in large batches.
     2. Mass customization. Providing customers with a product when, where, and how they want it.
     3. Exporting. Making products domestically and selling them abroad.
     4. Importing. Acquiring products made abroad and selling them domestically.
   • Differentiation strategy.
     1. First mover. An enterprise that's first to bring a product innovation to the market or to use a new process innovation.
   • Focus strategies.
   • Competitive advantage. What sets an enterprise apart; its distinctive edge.
5. Innovation. Taking change ideas and turning them into new products, product features, production methods, pricing strategies, and ways of enterprise administration.
   • Sustaining innovation. Small and incremental changes in established products rather than dramatic breakthroughs.
   • Disruptive innovation. Innovations in products, services, or processes that radically change an industry's rules of the game.
     1. Disruption. Also known as disruptive innovation. An innovation or technology is disruptive when it "disrupts" an existing market by doing things such as: challenging the prices in the market, displacing an old technology, or changing the market audience. “An innovation that helps create a new market and value network, and eventually goes on to disrupt an existing market and value network (over a few years or decades), displacing an earlier technology. The term is used in business and technology literature to describe innovations that improve a product or service in ways that the market does not expect, typically first by designing for a different set of consumers in the new market and later by lowering prices in the existing market.” (Source: Wikipedia) The term ‘disruptive technologies’ was coined by Clayton M. Christensen and articulated in his book The Innovator’s Dilemma. The term ‘disruption’ is now often used by startups to describe any product or idea that may change existing markets or products (planned or unplanned). However to be used correctly it should link to Christensen’s original theory. The confusion is best explained here. An example is the disruption Wikipedia caused to the Encyclopedia market.
6. Value chain. The entire series of organizational work activities that add value to each step from raw materials to finished product.
   • Value. The performance characteristics, features, and attributes, and any other aspects of goods and services for which customers are willing to give up resources.
   • Value. The benefit enjoyed by the stakeholders of the system when the system is in operation.
   • Service profit chain. The service sequence from employees to customers to profit.
   • Technology. The way in which an organization transfers its inputs into outputs.
   • Cloud computing. Refers to storing and accessing data on the Internet rather than a computer's hard drive or a company's network.
   • Internet of things. Allows everyday "things" to generate and store and share data across the Internet.
   • Sharing economy. Business arrangements that are based on people sharing something they own or providing a service for a fee.
7. Business development model.
   • Product development model.
   • Customer development model. “The ‘traditional’ way to approaching business is the Product Development Model. It starts with a product idea followed by months of building to deliver it to the public.” (Source: Find The Tech Guy) However the Customer Development Model begins by talking to prospective customers and developing something they are interested in purchasing/using. These concepts are promoted strongly by Steve Blank and Eric Ries who encourage startups to get early and frequent customer feedback before developing their products too far (in the wrong direction). The four steps to the model (Source: Find The Tech Guy): 1. Customer Discovery 2. Customer Validation 3. Customer Creation 4. Company Building
8. Business strategy. A strategy that determines the behavior of the enterprise on a particular segment of its market.
   • Growth strategy. A business strategy that's used when the enterprise wants to expand the number of markets served or products offered, either through its current business(es) or through new business(es).
   • Innovation strategy. A business strategy that emphasizes the introduction of major new products and services.
   • Stability strategy. A business strategy in which an enterprise continues to do what it is currently doing.
   • Cost-minimization strategy. A business strategy that emphasizes tight cost controls, avoidance of unnecessary innovation or marketing expenses, and price cutting.
   • Imitation strategy. A business strategy that seeks to move into new products or new markets only after their viability has already been proven usually by competitors.
   • Startup pivot. The act of a startup quickly changing direction with its business strategy. For example, an enterprise server startup pivoting to become an enterprise cloud company.
9. Optimization. The process of choosing the best alternative that will satisfy the needs of the stakeholders under the constraints given (e.g. cost, schedule and available technology).
10. Exit strategy. This is how startup founders get rich. It's the method by which an investor and/or entrepreneur intends to "exit" their investment in a company. Commons options are an IPO or buyout from another company. Entrepreneurs and VCs often develop an "exit strategy" while the company is still growing.
    • Exit strategy. A business strategy that seeks to withdraw an enterprise out of a particular business at the lowest cost and biggest gain.
    • Buyout. A common exit strategy. The purchase of a company's shares that gives the purchaser controlling interest in the company.
    • Liquidation. The process of dissolving a company by selling off all of its assets (making them liquid).
    • IPO. Initial public offering. The first time shares of stock in a company are offered on a securities exchange or to the general public. At this point, a private company turns into a public company (and is no longer a startup).
    • Harvesting. Exiting a venture when an entrepreneur hopes to capitalize financially on the investment in the future.

Roles

• Entrepreneur. “An entrepreneur is an individual who accepts financial risks and undertakes new financial ventures. The word derives from the French “entre” (to enter) and “prendre” (to take), and in a general sense applies to any person starting a new project or trying a new opportunity.” (Source: wiseGEEK)
• Intraprenuer. “Coined in the 1980s by management consultant Gifford Pinchot, intrapreneurs are used by companies that are in great need of new, innovative ideas. Today, instead of waiting until the company is in a bind, most companies try to create an environment where employees are free to explore ideas. If the idea looks profitable, the person behind it is given an opportunity to become an intrapreneur.” (Source: Investopedia) ‘Intrapreneurs’ hold many similar characteristics to ‘Entrepreneurs’ any may well leave their jobs to pursue a career as an entrepreneur. Companies seek out intrapreneurs to effect change within their organizations.
• Lead investor. A venture capital firm or individual investor that organizes a specific round of funding for a company. The lead investor usually invests the most capital in that round. Also known as "leading the round."

Methods

1. Lean startup. “Lean startup is a term coined and trade marked by Eric Ries. His method advocates the creation of rapid prototypes designed to test market assumptions, and uses customer feedback to evolve them much faster than via more traditional product development practices, such as the Waterfall model. It is not uncommon to see Lean Startups release new code to production multiple times a day, often using a practice known as Continuous Deployment.” (Source: Wikipedia) You should note the slight differences between lean and bootstrapping. “Bootstrapping provides a strategic roadmap for achieving sustainability through customer funding (i.e. charging customers), lean startups provide a more tactical approach to achieving those goals through validated learning.” (Source: Ash Maurya) An Example of 3 Stages of a Lean Startup (Source: Ash Maury): 1. Customer Discover (Problem/Solution Fit) 2. Customer Validation (Product/Market Fit) 3. Customer Creation (Scale) Note that a bootstrap and lean startup have differences and bootstrapping does not mean spending any money.
   • Lean. Also referred to as: lean manufacturing, lean enterprise, lean production. “The core idea is to maximize customer value while minimizing waste. Simply, lean means creating more value for customers with fewer resources.” (Source: Lean Enterprise Institute) The definitions and usage of ‘lean’ vary depending on context and application. The origin of the word in business can be linked back to the 90’s. “Lean manufacturing is a management philosophy derived mostly from the Toyota Production System (TPS)”. (Source: Wikipedia) The key focus is around the reduction of waste whiling focusing on delivering value to the customer.
   • Bootstrap startup. “Bootstrapping involves launching a business on a low budget. Practically this means that you’ll outsource (most likely offshore) your design and development, you‚’ll rent your servers, you won‚’t have an office and you’ll have no salary. Prior to launch, the only expensive professional services which you’ll buy will be your legal advice and accountancy services. Everything else, you’ll have to pick up yourself and learn as you go along.” (Source: RWW) An Example of 3 Stages of a Bootstrap (Source: Ash Maurya): 1. Ideation (Demo) 2. Valley of Death (Sell) 3. Growth (Build) Note that a bootstrap and lean startup have differences and bootstrapping does not mean spending any money. “Bootstrapping and Lean Startups are quite complementary. Both cover techniques for building low-burn startups by eliminating waste through the maximization of existing resources first before expending effort on the acquisition of new or external resources. While bootstrapping provides a strategic roadmap for achieving sustainability through customer funding (i.e. charging customers), lean startups provide a more tactical approach to achieving those goals through validated learning.” (Source: Ash Maurya)
2. Action design. A change process based on systematic collection of data and then selection of a change action based on what the analyzed data indicate.
3. AIDA technique.
4. User feedback loop. Ideas are put in front of users, who provide their feedback, which is used to refine the design, and then the process repeats.

Instruments

1. Business Model Canvas. “The Business Model Canvas is a strategic management template for developing new or documenting existing business models. It is a visual chart with elements describing a firm’s value proposition, infrastructure, customers, and finances. It assists firms in aligning their activities by illustrating potential trade-offs.” (Source: Wikipedia) A business model is a dynamic document that describes how your company creates, delivers and captures value. The 9 Business Model Canvas Building Blocks (Source: Business Model Generation): 1. Customer Segments 2. Value Propositions 3. Channels 4. Customer Relationships 5. Revenue Streams 6. Key Resources 7. Key Activities 8. Key Partnerships 9. Cost Structure
2. Orientation mix.
   • Product orientation.
   • Production orientation.
   • Sales orientation.
   • Customer orientation.
   • Society orientation.
3. Marketing mix.
   • Core product.
   • Price.
   • Delivery.
   • Presentation.
   • Promotion.
   • Personnel.
   • Packaging.
   • Branding.
   • Financing.
4. Promotional mix.
   • Personal sales.
   • Sales promotion.
   • Public relations.
   • Advertising.
   • Channel partnership.
5. Incubator. An organization that helps develop early stage companies, usually in exchange for equity in the company. Companies in incubators get help for things like building their management teams, strategizing their growth, etc.
   • Ground floor. A reference to the beginning of a venture, or the earliest point of a startup. Generally considered an advantage to invest at this level.

Results

1. Business model. The core part of the strategic plan that suggests how an enterprise is going to make money in its business. The business model usually answers two key questions: how the enterprise is going to earn and how it is going to spend in a particular business or a group of them. Its competitive strategy may answer the question about its earning. Its business strategy may answer the question about its spending. Because an enterprise can be involved in several businesses, it can have several business models.
   • Model. An abstraction of reality, a simplified representation of some real-world phenomenon.
     1. Model(s). A representation and simplification of reality developed to convey information to a specific audience to support analysis, communication and understanding.
   • Business domain model. A conceptual view of all or part of an enterprise focusing on products, deliverables and events that are important to the mission of the organization. The domain model is useful to validate the solution scope with the business and technical stakeholders. See also model.
2. Business architecture. A subset of the enterprise architecture that defines a business' current and future state, including its strategy, its goals and objectives, the internal environment through a process or functional view, the external environment in which the business operates, and the stakeholders affected by the business' activities.

Practices

The successor lecture is Chief Execution Quarter.