MODULE -5

Business Model

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 Business Model
Meaning:

The business model con be defined as:

A business model is essentially a blueprint of how the business will add value and make money in the
existing market environment. Most business models can be separated into three distinct parts: planning
and manufacture, sales and marketing, and revenue management.
OR
A business model is a company's core strategy for profitably doing business. Models generally include
information like products or services the business plans to sell, target markets, and any anticipated
expenses. The two levers of a business model are pricing and costs.
OR
The term business model refers to a company's plan for making a profit. It identifies the products or services
the business plans to sell, its identified target market, and any anticipated expenses. Business models are
important for both new and established businesses.

What Is a Business Model?

The term business model refers to a company's plan for making a profit. It identifies the products or
services the business plans to sell, its identified target market, and any anticipated expenses. Business
models are important for both new and established businesses. They help new, developing companies
attract investment, recruit talent, and motivate management and staff. Established businesses should
regularly update their business plans or they'll fail to anticipate trends and challenges ahead. Business
plans help investors evaluate companies that interest them.

The important aspects of business model are:

➢ A business model is a company's core strategy for profitably doing business.

➢ Models generally include information like products or services the business plans to sell, target
markets, and any anticipated expenses.

➢ The two levers of a business model are pricing and costs.

➢ When evaluating a business model as an investor, ask whether the idea makes sense and whether
the numbers add up.

Understanding Business Models

A business model is a high-level plan for profitably operating a business in a specific marketplace. A
primary component of the business model is the value proposition. This is a description of the goods or

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services that a company offers and why they are desirable to customers or clients, ideally stated in a way
that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the
target customer base for the business, marketing strategy, a review of the competition, and projections of
revenues and expenses. The plan may also define opportunities in which the business can partner with
other established companies. For example, the business model for an advertising business may identify
benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price
and a sustainable cost. Over time, many businesses revise their business models from time to time to
reflect changing business environments and market demands.

When evaluating a company as a possible investment, the investor should find out exactly how it makes
its money. This means looking through the company's business model. Admittedly, the business model
may not tell you everything about a company's prospects. But the investor who understands the business
model can make better sense of the financial [Link] business plan. If expenses are out of control,
the management team could be at fault, and the problems are correctable. As this suggests, many analysts
believe that companies that run on the best business models can run themselves.

In their simplest forms, business models can be broken into three parts:

1. Everything it takes to make something: design, raw materials, manufacturing, labor, and so on.
2. Everything it takes to sell that thing: marketing, distribution, delivering a service, and
processing the sale.
3. How and what the customer pays: pricing strategy, payment methods, payment timing, and so
on.

As you can see, a business model is simply an exploration of what costs and expenses you have and how
much you can charge for your product or service.

A successful business model just needs to collect more money from customers than it costs to make the
product. This is your profit simple as that.

New business models can refine and improve any of these three components. Maybe you can lower costs
during design and manufacturing. Or, perhaps you can find more effective methods of marketing and
sales. Or maybe you can figure out an innovative way for customers to pay.

Keep in mind, though, that you don’t have to come up with a new business model to have an effective
strategy. Instead, you could take an existing business model and offer it to different customers. For
example, restaurants mostly operate on a standard business model but focus their strategy by targeting
different kinds of customers.

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Business Model Analysis

Analyzing your business model can help to determine whether a venture is, or will be, viable and
valuable. After completing a Business Model Canvas for a current or future business model, designers
often ask the following questions:

✓ Where are our revenues coming from?

✓ What value is delivered to which markets?
✓ What costs are involved in delivering that value?
✓ Are our perceived key activities and key resources as important for gaining revenue as we think
they are?
✓ If we change our model in a specific way, what are the effects?

This requires insight into several elements of the business model, attributes of these elements and the
relations between different elements. Analyzing these elements will provide the foundation for business
model change and innovation in an organization. You can analyze a business model from several different
perspectives. In our example, each possibility is analyzed from a different perspective, and answers a
specific question.

Business Model Design

Business model design generally refers to the activity of designing a company's business model. It is part
of the business development and business strategy process and involves design methods

The process of business model design is part of business strategy. Business model design and innovation
refer to the way a firm (or a network of firms) defines its business logic at the strategic level. In contrast,
firms implement their business model at the operational level, through their business operations.

A business model describes the value an organization offers to its customers. It illustrates the capabilities
and resources required to create, market and deliver this value, and to generate profitable, sustainable
revenue streams.

An important misconception to point out, the product does not make a business. The product is often an
essential part of the business; however, the product does not encompass all the business. There is alwaysa
tension between the business model and the product, as they constantly influence and rely on each other.

There is a common business model used for defining a company’s business model, it is the Alexander
Osterwalder’s Business Model Canvas:

➢ Value Propositions: what you offer to a customer in each segment, and the customer needs you
satisfy.

➢ Channels: How you plan on reaching your various customer segments, and which group you
would like to target most.

➢ Customer Relationships: You need to plan on maintaining customer relations effectively.

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 ➢ Revenue Streams: what are your customers paying for? How much? How would they prefer to
pay?

➢ Key Resources: what resources are essential to deliver your Value Propositions through the
Channels and maintain our Customer Relationships?

➢ Key Activities: what are the most important things you must do to make your business work?

➢ Key Partnerships: who are our Key Partners and why? What Key Resources do they provide and
what Key Activities do they carry out? What’s in it for them? What relationship should we have?

➢ Cost Structure: what costs are implied by our Business Model? Which are largest? What is fixed
and what is variable? What drives them?

All business model design projects are unique and present a challenge to the participants because there is
no one formula or prediction for how they will evolve.

The process consists of five phases; mobilize, understand, design, implement, and manage. This process
provides a framework which all businesses regardless of their industry or context can apply to themselves

Business Plans.

Introduction
A business plan is a roadmap and blueprint of the project. A business plan is a written
document that describes in detail how a business is going to achieve its goals.
It is a document that explains, a business opportunity, identifies the market to be served, and
provides details about how the entrepreneurial organization plans to pursue it.
Ideally, the business plan describes the unique qualifications that the management team
brings to the effort explains the resources required for success, and provides a forecast of
result, over a reasonable time horizon.
A business plan is based on estimates and explains the importance and purpose of business

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plan, provides the contents of a business plan, and gives the process of preparing and
presenting a business plan. It includes two sample business plans and gives a step-by-step
procedure for starting a business enterprise.

Scope and Need of Business Plan

A business plan is the written representation of an entrepreneur's vision for his/her business.
A business plan is a written document between 20-10 pages in length that describes where a
business is beading and how it hopes to achieve its goals and objectives.
A workable business plan should determine the direction of the company; highlight the
challenges in the path of the business: and formulate strategies and contingencies to keep the
business on track in order to reach predetermined goals and objectives.
A business plan is not just for a start-up company but also for those which are growing. It prepares for
a spin-off from a parent firm, or even for a project within an established organization. It can be used
to establish realistic goals or targets to achieve, and to determine the current position.

A business plan is used to help make crucial start-up decisions, to reassure investors, to measure
operational progress, to test planning and assumptions, to adjust forecasts, and to set the standard for
good operational management.

The need for preparing a business plot arc given below:

✓ Entrepreneurs reap benefits from the planning activity itself.

✓ A business plan is used to get finance from banks or to get equity funding from
angel investor, or venture capitalists.
✓ It can also be used to attract business partners and key employees or to make
business alliances
✓ If the business plan is prepared within a large organization, then it enables the board
of directors, to make capital investment decisions.
✓ The act of writing the plan will force the entrepreneur and his team to think through
all the key elements of the business.
✓ The plan provides a basis for measuring actual performance against expected
performance.
✓ The plan's financial projections can be used as a budget. Actual results that fall
short of planed results will prompt the entrepreneur to investigate and take
corrective action.

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 ✓ The plan acts as a vehicle for communicating to others what the business is trying to
accomplish.

Financial Plan

The financial plan is a critical section of the business plan as it translates all the other parts of the
business into anticipated financial results. The financial plan section is the section that determines
whether or not your business idea is viable, and is a key component in determining whether or on your
business plan is going to be able to attract any investment in your business idea.
Basically, the financial plan section of the business plan consists of an analysis of
Financial statements such as
• The income statement,
• The cash flow projection,
• Projected balance sheet,
• Break-even charts,
• Cost of the project,
• Sources, and
• Uses of funds.

A financial plan is simply an overview of your current business financials and projections for growth.
Think of any documents that represent your current monetary situation as a snapshot of the health of your
business and the projections being your future expectations.

It helps you, as a business owner, set realistic expectations regarding the success of your business. You’re
less likely to be surprised by your current financial state and more prepared to manage a crisis or
incredible growth, simply because you know your financials inside and out.

And aside from helping you better manage your business, a thorough financial plan also makes you more
attractive to investors. It makes you less of a risk and shows that you have a firm plan and track record in
place to grow your business.

Components of a successful financial plan:

All business plans, whether you’re just starting a business or building an expansion plan for an existing
business, should include the following:

1) Profit and loss statement

2) Cash flow statement
3) Balance sheet
4) Sales forecast
5) Personnel plan
6) Business ratios and break-even analysis

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Marketing Plan

The term "market is often used to describe the various elements of the total business environment. The
market is where the company's product or service will be sold. The marketing plan is written after
conducting a market analysis. This section provides information on assessing the market’s size and
growth, defining the target market, and articulating the value proposition. The value proposition gives the
unique set of benefits that the customers will get if they choose to purchase the company offerings over
its competitor's offerings.

Stakeholders know that marketing is the activity most associated with success or failure. A company that
is not able to connect with its customers will fail even if it offers attractive products or services. A sound
and realistic marketing plan is the best guarantee that a solid customer connection will be made. The
marketing plan should be supported with a solid market intelligence report forth, plan to be credible.

The plan should be clear about all aspects of marketing, including price, position, promotion, place,and
customer value proposition. The marketing plan provides strategies to sell the company's productor
service. The marketing plan should be a dynamic plan used to monitor the progress of the business.

9 Key Elements for an Entrepreneur to Create a Successful Business Marketing Plan

A Business Marketing plan is very important for any product or company, in order to achieve
individual and organizational goals. A Business Marketing plan is a drafted document which
gives the overall summary of the market. It clearly states how the firm plans to achieve its goals
as planned. It also contains detailed guidelines regarding how the product will perform in each
life cycle and the budget allocated for the same. And of course, it should be achievable and must
be able to respond positively to changing market conditions.

1. Overall Summary of the Business Model

Without prior knowledge regarding what the business is supposed to do, an entrepreneur can’t achieve his
or her goals.

The executive summary should define the overall details of what the business is all about and the goals
and objectives.

It should be clear with the core values and the positioning in the market. It must clearly explain how the
brand will enter the local market followed by the international market – if ultimate ambitions stretch that
far. This can be done by maintaining its equipment base, input/output process and the good quality of
items. It further focuses on the generation of financial resources.

2. A Strategy That Must Be Followed

You should be clear with your product strategy, which must be based on consumer needs. He/she should
survey the situation using various details of their customers.

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A few of the elements that must be included are:

• Company or product mission

• Marketing and Financial objectives
• Resource availability
• Cash flow analysis
• Competitive analysis

3. Availability of Products and Services

Entrepreneurs should have a full understanding of how their products or services will reach their target
audience.

Designing good products and services to customers is just one part of the whole plan, however. The aim
must be making it available that too much in a cost-effective manner. And it should be the goal of an
entrepreneur. It can be achieved by making the best use of the team, promotional activities used for sales,
advertising methods and other tools that are being used for communication.

4. Pricing Strategy

The most important stage of any business model is its pricing. Price can be the maker or breaker of a
product. It is the one element of the marketing mix that produces revenue. All other elements fall on the
opposite side of the ledger. People should design their product or brand so that it commands a premium
price and reaps big profits. It should also reflect a value that the consumers are willing to pay and [Link] a
benefit

5. Awareness of the Product

Always plan how you intend to make your product or service known to your intended customer base. You
could have the best offering in your industry or place, but if nobody has heard of it or you, you’re as good
as in trouble.

The time to plan your social media, content marketing and advertising campaigns is not when you are
ready to go to market! that outweighs the cost

6. Who Will Benefit from Your Offering?

Segmentation, targeting and positioning are the essences of Marketing. Your target customer base will go
some way to determining the price you can ultimately charge. It will also determine how you can best
communicate your offering to them and where you will find them.

7. Short Term and Long-Term Objectives

Entrepreneurs must have a clear vision of their mission, marketing and financial objectives. They need to

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be specific about how their brand will satisfy the target market. Nobody can expect immediate profit. But
planning must include short, medium and long-term goals. You need to be clear regarding how your
business will proceed as per the life cycle of whatever you are selling. And you need input from other areas
of marketing. Nobody can think of or execute everything entailed in pushing an offering to market.

8. SWOT Analysis

Before designing a complete project, a pilot project needs to be designed and implemented. An
entrepreneur should know everything – including any flaws that may become apparent. Also, the project
strength, shortcomings, appropriate options for progressing and warnings can be tested in the pilot project
itself for the successful completion or execution of the main project. For this, you need to do a thorough
SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis.

9. PEST Analysis

SWOT Analysis will give you the inner view of the business model. However, it is very important to
determine how a business will run in the changing economic scenario. Hence, a detailed PEST
analysis needs to be done to know how your model will run in the changing Political, Economic, Social
and Technological Environment.

Your Business Marketing plan can be the key to success in any field, no matter the offering.
Inadequate planning almost guarantees failure.

A Business Marketing plan is a drafted document which gives the overall summary of the market. It
clearly states how the firm plans to achieve.

Human resource planning

Human resource planning allows companies to plan so they can maintain a steady supply of skilled
employees. That's why it is also referred to as workforce planning. The process is used to help companies
evaluate their needs and to plan to meet those needs.

What Is Human Resource Planning (HRP)?

Human resource planning (HRP) is the continuous process of systematic planning ahead to achieve
optimum use of an organization's most asset—quality employees. Human resources planningensures
the best fit between employees and jobs while avoiding manpower shortages or surpluses.

There are four key steps to the HRP process. They include

✓ Analyzing present labor supply

✓ Forecasting labor demand,
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 ✓ Balancing projected labor demand with supply, and
✓ Supporting organizational goals.

HRP is an important investment for any business as it allows companies to remain both productive and
profitable.

Human resource planning needs to be flexible enough to meet short-term staffing challenges while
adapting to changing conditions in the business environment over the longer term. HRP starts by
assessing and auditing the current capacity of human resources.

The challenges to HRP include forces that are always changing, such as employees getting sick, getting
promoted or going on vacation. HRP ensures there is the best fit between workers and jobs, avoiding
shortages and surpluses in the employee pool.

To satisfy their objectives, HR managers have to make plans to do the following:

• Find and attract skilled employees.

• Select, train, and reward the best candidates.
• Cope with absences and deal with conflicts.
• Promote employees or let some of them go.

Investing in HRP is one of the most important decisions a company can make. After all, a company is
only as good as its employees, and a high level of employee engagement can be essential for a company's
success. If a company has the best employees and the best practices in place, it can mean the difference
between sluggishness and productivity, helping to bring the company profitability.

Production planning

Production plan serves as a guide for your company's production activities. It establishes and sequences
activities which must be carried out to achieve a production target, so that all staff involved are aware of
who needs to do what, when where and how.

Production Planning in 5 Steps

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Production planning is “the administrative process that takes place within a manufacturing business and
that involves making sure that sufficient raw materials, staff and other necessary items are procured and
ready to create finished products according to the schedule specified”, as defined by the Business
Dictionary.
A production plan serves as a guide for your company’s production activities. It establishes and sequences
activities which must be carried out to achieve a production target, so that all staff involved are aware of
who needs to do what, when where and how.
A production plan will help you meet product demand while minimizing production time and cost by
improving process flow, reducing the waiting time between operations, and optimizing use of plant,
equipment and inventory. To do this, you must align your production plan to your business strategy and
business plan, and support production planning by coordinating with other departments, such as
procurement, finance and marketing.
The diagram above shows the production planning and control process divided in five steps:

Key factors of a production plan

✓ Forecast market expectations. To plan effectively, you will need to estimate potential sales with
some reliability. ...
✓ Inventory control. ...

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 ✓ Availability of equipment and human resources. ...
✓ Standardized steps and time. ...
✓ Risk factors

Product and service plan

The products and services section of your business plan outlines your product or service, why it's needed
by your market, and how it will compete with other...

The products and services section of your business plan is more than just a list of what your business is
going to provide. Especially if you intend to use your business plan to get funding or find partners, your
products and services section needs to showcase the quality, value, and benefits your business offers.

The products and services section of your business plan outlines your product or service, why it's needed
by your market, and how it will compete with other businesses selling the same or similar products and
services. Your product and services plan should include:

✓ A description of the products or services you are offering or plan to offer

✓ How your products and services will be priced
✓ A comparison of the products or services your competitors offer in relation to yours
✓ Sales literature you plan to use, including information about your marketing materials
and the role your website will play in your sales efforts
✓ A paragraph or so on how orders from your customers will be processed or fulfilled
✓ Any needs you have in order to create or deliver your products, such as up-to-date
computer equipment
✓ Any intellectual property, such as trademarks, or legal issues you need to address
✓ Future products or services you plan to offer

This is the part of your business plan where you will describe the specific products or services you're
going to offer. You'll fully explain the concept for your business, along with all aspects of purchasing,
manufacturing, packaging, and distribution.

Product Planning is the ongoing process of identifying and articulating market requirements that define a
product's feature set. Product planning serves as the basis for decision-making about
price, distribution and promotion. Product planning is the process of creating a product idea and following
through on it until the product is introduced to the market. Additionally, a small company must have
an exit strategy for its product in case the product does not sell. Product planning entails managing the
product throughout its life using various marketing strategies, including product extensions or
improvements, increased distribution, price changes and promotions.

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 The Business Plan Format

There is no standard format for the presentation of a good business plan. Business plans vary in content
and size of the business concerned and on the emphasis that is placed on certain critical areas as opposed
to others.

THE CONTENTS

Every business plan should address several fundamental issues without which it would not be complete.
These issues can be grouped under six major areas that are the pillars of every business activity whether
large or small. These are:

• Sales and Marketing

• Operations
• Human Resources
• Finance
• Information & Communication Technologies (ICT)
• Information Management
Essential contents of a business plan in a simple format
The table below lists the important elements of a business plan and offers some simple points that need to
be taken into consideration in regard to each section. It is worth noting that these points are by no means
exhaustive and are meant to serve only as examples. The table is intended to provide you with a simple
format upon which to base your business plan.
The format provides you with a framework for presenting your thoughts, ideas and strategies in a logical,
consistent and coherent manner. In other words, the business plan format helps you to clarify your own
ideas and present them clearly to others.

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Content of business plan format

SLN.O CONTENT REMARK

1 Executive summary A snapshot of your business
2 Company description Describes what you do.

3 Market analysis Research on your industry, market, and

competitors.
4 Organization and Your business and management
management structure.
5 Service or product The products or services you’re
offering.
6 Marketing and sales How you’ll market your business and
your sales strategy.

7 Funding request How much money you’ll need for next

3 to 5 years.

8 Financial projections Supply information like balance sheets.

9 Appendix An optional section that includes
résumés and permits.

Project Report preparation and presentation

A Project Report is a document which provides details on the overall picture of the proposed business.
The project report gives an account of the project proposal to ascertain the prospects of the proposed
plan/activity. It contains data based on which the project has been appraised and found feasible.

The project report is an important document and should be prepared carefully. Banks and other financial
institutions decide whether a loan should be granted, and if granted, the amount that should be sanctioned
on the basis of this report. The project report is generally prepared to cover the following broad segments:

I .General information: The following information should be provided,

➢ Name of the unit and address.

➢ Name of product/service.
➢ Constitution of the unit.
➢ Name of the promoter.
➢ Educational qualification.
➢ Experience.

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II. Details of the project: The following information should be provided.

➢ Product/service details.
➢ Details of machinery.
➢ Details of raw material.
➢ Utility.
➢ Manpower requirement.
➢ SWOT ( Strengths, Weaknesses, Opportunities, and Threats) analysis.

III .Market survey: The market survey report should be enclosed.

VI. Cost of project: The following details should be provided.

➢ Fixed cost: Land/building, machinery, office equipment, miscellaneous items.

➢ Working capital: Stock in raw material, semi-finished goods, finished goods, bills
receivable, working expenses.

➢ Total investment: Fixed capital, working capital, preliminary and preoperative

expenses, interest during implementation, contingency.

➢ Means of finance: Term loan, working capital loan, own investment (with incentives).

➢ Profitability: Revenue, production cost, depreciation, administrative expenses, interest,

maintenance, sales and advertisement, profit, annual income before tax, taxes, net profit.

V. Annexure:

Promoter's bio data, organizational chart, details of group units if any, statutory sanctions/approvals,
project feasibility study report, project schedule, arrangement of land and building, statement of cost of
plant, machinery and other equipment, details of orders and enquiries, process chart, financials for project
and its analysis, financials of the company and its analysts, manpower planning, and financial statements.

Why some Business Plan fails

Like any other project, writing a business plan needs care full planning and systematic execution .Some
business plan fails because of the following reasons

1) Failure to address the customer's problems and needs:

The business plan should address the customer's problems/needs/wants. It should clearly state
how big the business opportunity is. The entrepreneur should document customer pain point

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Technological Innovation Management & Entrepreneurship Module 5c

before preparing the plan. Customer needs can be identified from direct experience, letters from
customers, or from market research.

2) Unrealistic goals set by the promoters:

Setting goals requires the entrepreneur to be well informed about the type of business and the
business environment. The goals set by the entrepreneur are based on data and the business plan is
no good if it does not include a lot of data. The goals set by the entrepreneur should be Specific,
Measurable, Achievable, Realistic, and Time-bound (SMART), the financial and market
projections should be realistic, logical, and reasonable.

3) Lack of commitment to the business by the promoters:

The promoters must make a total commitment to the business in order to be able to meet the
demands of new venture. Investors will not be interested in a venture that does not have committed
promoters. Investors also expect the promoter to make a significant commitment to the business.
It is also required to have complete focus on the business especially if it is a new venture and
promoters should not be over enthusiastic in trying to do all things at once.

4) Lack of experience of the promoters:

A lack of experience will result in failure unless the entrepreneur can either attain the necessary
knowledge or team up with others who already have experience in this area.

5) Lack of professionalism:

The business plan should be brief, clear, and nicely organized. It should highlight those points that
can attract investors. The assumptions made in preparing the business plan should be realistic.
……………………………………………