The Role of Business Model in Helping Entrepreneur Focus in Value Propositions

Admittedly entrepreneurs encounter some insurmountable challenges in the initial stage of building a business. Mostly the entrepreneur focuses on commercialization, organization, and financing of the company. Commonly, entrepreneurs engaged in technology-intensive products and services face more obstacles such as more substantial investment in developing the product or short product life cycle and the emergence of many replicators. In other words, an entrepreneur in this sector is in a volatile environment.

It is just one of the many challenges entrepreneurs need to overcome. Nonetheless, the different external environmental features on new ventures required a dynamic business model. Behind all successful new ventures is a business model. A business model depicts the enterprise hypothesis on its customer ideal features of the product, including how to pay for the product. Based on these unmet desires, the entrepreneur organizes resources to meet their customer wants. Accurately, a business model represents the process to deliver value to customers and sustain the activities of the enterprise including the management of the business (Andersén2011.)

Though the business model is the focus of several academic discussions and entrepreneurs, there is an existing literature gap in genuinely understanding the concept of business model. Possibly the difference in the literature is the absence of consensus on the theoretical underpinnings on the satisfactory definition of the term "business model" (Teece, 2010). For instance, the following terms "business model,” "economic model" and "business strategy," are often interchangeably used.

In differentiating these terms, the business strategy is the plan that the enterprise will pursue its objectives after the external environment analysis on opportunities and threats (Nandakumar et al., 2010). In a much broader term, the business model establishes the process of how the firm creates new value and building a competitive advantage (Chesbrough, 2010). Also, the business model act as the driver of the firm performance. It is the element that binds units of analysis for entrepreneurs. For any serious entrepreneurs, the business model design is the crucial ingredient that ties the perception of innovation, business process, and routines (Zott and Amit, 2010).

One useful tool in understanding the business model is to present it in a forthright manner. The business model canvass Alexander Osterwalder, of Strategyzer, found in the site https://www.businessmodelsinc.com/about-bmi/tools/business-model-canvas/ assist entrepreneurs in identifying the value proposition and the process of how the enterprise generates revenue. Also, the business canvass model is a useful tool to understand competitors. The following areas are part of the business canvass model

1. Customer segments are the target customers of the business. The market segment is an essential building block in the business model canvass. One way to do this is to group customers based on their needs, behaviors, traits even demographics. By matching the customer segment with its value proposition, the business can enhance the flow of revenue. Therefore it is fundamental for the company to recognize the trade-off between various customer segments. Later the company can design a value proposition to serve the chosen customer.

2. The customer repeatedly patronizes the business due to the value proposition. The company successfully solves a customer problem or satisfying customer needs. After identifying the target customer, the industry selects the bundle of goods that meet their needs. The value proposition of the business is the summation of benefits offered to the customers. Also, some value propositions are innovative, though similar, but with unique characteristics.

3. Revenue streams are the different sources from which the enterprise generates income from the sale of goods or services. There different types of income recorded on the enterprise account, depending on the activities. Types or kinds of revenue differ based on the type of business. For example, a retail business has more varied revenue compared to other types.

4. The channel describes the process the business communicates with its customer in delivering the value proposition. It is vital to identify the channel the company should reach the target customers.

5. Building customer relationships is based on the business model and significantly affects the entire customer experience. Customer relationship is anchored on the three primary motivators below:

5.1 Customer acquisition is the method of encouraging a customer to choose the product of the business over others. Mostly, entrepreneurs allocate a substantial amount of resources evaluating the trade-off between the cost of gaining a customer and the potential value the customer brings to the company.

5.2 Customer retention is maintaining a sustainable relationship. The business continues with its customers. The more loyal customer the company, has, the higher the chance of the business to accumulate more customers.

5.3 Boosting sales is the process the business undertakes to increase sales, which uses agents to persuade the customer to purchase more products of the company, by utilizing linguistics, packaging, and pricing strategies to ensure that the customer purchase more of the products.

6. The principal activities are the activities business are involved in the primary purpose of generating profit, which include administration, marketing, operation, problem-solving, and production. An entrepreneur continually adjusts key activities depending on the type of business. Similar to other building blocks, key events is the process of seeking the blue ocean strategy to secure market share.

7. Key resources are the tangible and intangible assets of the business in which the entrepreneur can further strengthen the building block. There are two vital resources:

7.1 Physical resources are tangibles, such as machinery and equipment. For instance, Tesla Motors owns the Giga factory that manufactures large batteries, which provide the company with an advantage on the economies of scale.

7.2 Human resource is the most crucial resource of any organization. People are the means the organization transforms resources into the finished product, thus offering a customer value proposition. In most instances, human resources about the skills and knowledge of the employees.

8. Key partners are critical to guarantee that the business model would succeed. The most serious key partnership is entities in the business supply chain. Entrepreneurs often only consider their end-users. However, customers are mostly the next link in the chain. The supply chain is not a direct link but a series of different links horizontal, vertical, and sometimes a 360-degree linkage.

9. Cost structures are the different types of expenses incurred in the operation of the business, which is either fixed or variable costs. All business operations involved cost. However, cost structure differed between companies; therefore, the expense of any business varies according to the cost objective, which includes product type or business activity.

Competition in business is volatile. However, it pays if entrepreneurs are prepared for disruptions. With a plan, spinning is possible. An innovative entrepreneur has to calibrate strategy that directs it to a feasible future business model. The Business Model Canvass is a tool useful to align the activities towards a strong concept of moving the business from the present to the future.

As a tool, the business model canvass facilitates innovation from the abstractness of the theory to the concrete planning phase. For instance, an entrepreneur can match various revenue streams. Or move to a closer examination of any value proposition and place these nearer to target customers.

References

Andersén, J. (2011). Strategic resources and firm performance. Management Decision, 49(1), 87–98.

Belyh, A. (19 September 2019). Business model canvas: Customer Segments. Retrieved from

https://www.cleverism.com/customer-segments-business-model-canvas/#:~:text=Customer%20segments%20are%20the%20community,your%20product%20or%20services%20to.&text=A%20customer%20segment%20may%20also,behavior%2C%20interests%2C%20and%20motivations.

Chesbrough, H. W. (2010). Business model innovation: opportunities and barriers. Long Range Planning, 43(2/3), 354–363.

Nandakumar, M. K., Ghobadian, A., & O'Regan, N. (2010). Business-level strategy and performance: the

moderating effects of environment and structure. Management Decision, 48(6), 907–939.

Teece, D. J. (2010). Business models, business strategy and innovation. Long Range Planning, 43(2/3), 172–194.

Zott, C., & Amit, R. (2010). Business model design: an activity system perspective. Long Range Planning, 43(2/3), 216–226.

https://core.ac.uk/reader/41768756

https://strategyzer.uservoice.com/knowledgebase/articles/1194370-how-do-i-use-the-value-propositions-building-block

https://corporatefinanceinstitute.com/resources/knowledge/accounting/revenue-streams/

https://bmcintroduction.wordpress.com/channels/

https://www.cleverism.com/customer-relationship-block-in-business-model-canvas/

https://www.denis-oakley.com/business-model-canvas-course/key-resources/