What is a business model?What is a business model?

Summary from

And other resources

"A business model is the proprietary

methodology used to acquire, service, and retain customers.” --

Jim Muehlhausen Author “The 51 Fatal Business Errors and How to Avoid Them”

"A business model is the proprietary

methodology used to acquire, service, and retain customers.” --

Jim Muehlhausen Author “The 51 Fatal Business Errors and How to Avoid Them”

Your business model is:• your secret sauce.

• what makes your business unique.

• the formula you use to outsmart your competitors, provide ongoing value to customers, and continually grow your business.

• your secret sauce.

• what makes your business unique.

• the formula you use to outsmart your competitors, provide ongoing value to customers, and continually grow your business.

Business Model

Eight essential areas to a business model

• Must have excellent margins• Must be easy to sell• Must have The Four Capitals©: Intellectual Capital,

Financial Capital, Human Capital and Brand Capital• Must be able to maintain ongoing competitive

advantage• Must have quality customers• Must have longevity of the industry• Must provide for the owner’s graceful exit• Must avoid pitfalls

• Must have excellent margins• Must be easy to sell• Must have The Four Capitals©: Intellectual Capital,

Financial Capital, Human Capital and Brand Capital• Must be able to maintain ongoing competitive

advantage• Must have quality customers• Must have longevity of the industry• Must provide for the owner’s graceful exit• Must avoid pitfalls

Criteria #1: Excellent MarginMargin is the fuel that drives the business.Allmeaningful components of your business are paid for with a sufficient dollar volume of margin:• Marketing/Branding/Sales• Paying quality staff• Rent/Equipment/Facilities• R & D, Business Development• Fair return on your equity

Margin is the fuel that drives the business.Allmeaningful components of your business are paid for with a sufficient dollar volume of margin:• Marketing/Branding/Sales• Paying quality staff• Rent/Equipment/Facilities• R & D, Business Development• Fair return on your equity

Margin is oxygen for a business. Without adequate margin, all functions in your business will be short of breath.

Criteria #2: Easy to sell• Is your product or service offering

“sellable?” • Relatively easy to sell and have a

proven and repeatable sales process.• “Selling ice to Eskimos,” the market is

telling you something: either “We don’t like your current offering that much,” or “We have better options than yours,” or “Your value proposition is so weak that you have to add an ingredient called a talented salesperson into the mix in order to make your offering worth bothering with.”

• With ordinary skill can sell a reasonable amount.

• Is your product or service offering “sellable?”

• Relatively easy to sell and have a proven and repeatable sales process.

• “Selling ice to Eskimos,” the market is telling you something: either “We don’t like your current offering that much,” or “We have better options than yours,” or “Your value proposition is so weak that you have to add an ingredient called a talented salesperson into the mix in order to make your offering worth bothering with.”

• With ordinary skill can sell a reasonable amount.

Criteria #3: The Four Capitals©Intellectual Capital• Patents, trademarks, copyrights, business processes, best practices and

trade secrets. • Intimate knowledge of customers, vendors, or a good CEO.Financial Capital• Strong balance sheet • Strong cash position• Low break even• Likelihood additional fundraising will be needed• Good cash flowHuman Capital• The ability to attract and retain top talent• Talent of ownershipBrand Capital• Is your brand meaningful to the market? • Your brand is what your product or service “means” to your customers and

prospects.

Intellectual Capital• Patents, trademarks, copyrights, business processes, best practices and

trade secrets. • Intimate knowledge of customers, vendors, or a good CEO.Financial Capital• Strong balance sheet • Strong cash position• Low break even• Likelihood additional fundraising will be needed• Good cash flowHuman Capital• The ability to attract and retain top talent• Talent of ownershipBrand Capital• Is your brand meaningful to the market? • Your brand is what your product or service “means” to your customers and

prospects.

Criteria #4: Ongoing competitive advantage

• Harvard Professor Michael Porter determined that competitive advantage occurs when an organization acquires or develops an attribute or combination of attributes that allows it to outperform its competitors.

• Access to natural resources• Access to highly trained and skilled

personnel human resources. • New technologies and information

technology either to be included as a part of the product, or to assist making it.

• Harvard Professor Michael Porter determined that competitive advantage occurs when an organization acquires or develops an attribute or combination of attributes that allows it to outperform its competitors.

• Access to natural resources• Access to highly trained and skilled

personnel human resources. • New technologies and information

technology either to be included as a part of the product, or to assist making it.

The Five Forces Model

Michael Porter

Criteria #5: Quality Customers

Quality customers are important because:• Price-conscious customers tend to be not only

lower-margin customers, but typically are more demanding of customer service and organizational resources

• Quality customers create the financial foundation of your business

• If you never create a base of quality customers, you will spend the bulk of organizational resources attracting new customers

Quality customers are important because:• Price-conscious customers tend to be not only

lower-margin customers, but typically are more demanding of customer service and organizational resources

• Quality customers create the financial foundation of your business

• If you never create a base of quality customers, you will spend the bulk of organizational resources attracting new customers

Some of the factors that do NOTconstitute a quality customer are: high percentage of your total revenues, high cost of attraction, slow pay, stressful for customer service employees, or could

become a competitor.

Some of the factors that do NOTconstitute a quality customer are: high percentage of your total revenues, high cost of attraction, slow pay, stressful for customer service employees, or could

become a competitor.

Criteria #6: Longevity of business/industry

• Over half of the startup businesses fail after four years.

• If you continue “business as usual,” you will always have to worry about how much longer your business can last.

• What similar customers can you serve?

• What related offerings can you attack?

• Over half of the startup businesses fail after four years.

• If you continue “business as usual,” you will always have to worry about how much longer your business can last.

• What similar customers can you serve?

• What related offerings can you attack?

Criteria #7: Graceful Exit

• King vs Rich• Over 30% of small business are never sold, but

there are no employees or children to take over the business and it simply closes.

There are many ways to gracefully exit a business:• Using a business broker• Selling to a competitor or vendor• Initial Public Offering• Transfer or Sell to a Key Employee• Take the CEO Emeritus Role

• King vs Rich• Over 30% of small business are never sold, but

there are no employees or children to take over the business and it simply closes.

There are many ways to gracefully exit a business:• Using a business broker• Selling to a competitor or vendor• Initial Public Offering• Transfer or Sell to a Key Employee• Take the CEO Emeritus Role

Criteria #8: Avoidance of Pitfalls

• Hiring cheap employees.• Focusing on only one area of your business.• Not testing or measuring anything.• Trying to cost-cut your way to success.• Competing on price and price alone.• Taking on a wrong business partner.• Thinking the business idea will make the

company.• Thinking too small.

• Hiring cheap employees.• Focusing on only one area of your business.• Not testing or measuring anything.• Trying to cost-cut your way to success.• Competing on price and price alone.• Taking on a wrong business partner.• Thinking the business idea will make the

company.• Thinking too small.

What is a Business Plan?

A feasible Business Model

+

A FinancingModel that aligns the purposes of Stakeholders

and Entrepreneurs

© Wong Poh Kam

A feasible Business Model

+

A FinancingModel that aligns the purposes of Stakeholders

and Entrepreneurs