E101 - Thinking and Acting like an Entrepreneur 3

1. Market development (<1 year)
2. Growth (1-3 years)
3. Maturity (3-5 years)
4. Decline (>5 years)

1. Problem-solution fit
2. Product-market fit

In learning phase (problem-solution fit) uncertainty is high, in scaling phase (product-market-fit) it decreases.

• Do the customers have the problem the founders suspect them to have?

• Would the customers accept the founder's solution (or even better: prefer)?

• The customer problem is sufficiently widespread
• The founders are capable of developing the solution

• Value features: Make the product attractive, e.g. follow function in social networks

• Hygiene features: Need to in place to reduce customer hesitance to buy product, e.g. guarantees

• Potential hints: Positive customer statements,

e. g. Net Promoter Score

• Engagement, i.e. intensity of usage by customers

• Retention, i.e. re-purchases of the product

• The customer problem is sufficiently widespread

• The founders are capable of developing the solution

From an academic point of view the growth phase requires switching from effectuation to causation.

• Propose and create value to the customer
• Hire the right talents
• Implement structures and processes

1. Understand the problem
2. Develop the solution.

• Can be done via research

• Tools include market research & customer interviews

• Listening is key: do not start working on a solution until you really understood the problem

• Cannot be done via research

• Solution is not derived from market needs but from start-up up itself

• Solution is created by experimenting with the problem

A Business Model is the design of the value creation, delivery and capture mechanisms of a firm.

1. Value proposition
2. Value creation
3. Value capture

Value proposition contains a portfolio of solutions for customers, and how and to whom they are offered

Value creation depicts firm's value chain using the resources and capabilities of intra-and inter-organizational processes

Value capture defines how value propositions are converted into revenues that cover cost and achieve profits to ensure sustainability

• Offerings

• Customer segments and markets

• Channels

• Customer relationships

• Capabilities

• Technologies and equipment

• Processes and structures

• Partnerships

• Revenue models

• Cost structures

• Lock-in
• Sponsor-based
• Complementarities
• Lifestyle value provider
• Efficiency
• Digitization
• Openness & Flexibility

• Firms try to earn profits directly from its primary customers

• Focus on a firm’s power to keep third parties attracted as business model participants

• Manifest as switching cost or network externalities derived from business model setup

Examples: Gillette, Nespresso

• Business model aims at attracting and bringing together a big group of people to connect and exchange

goods/information

• Value capture works through offering third parties access to this platform for their purposes

Examples: Twitter, Facebook

• Business model design driven by bundling activities that provide more value than running activities separately

Examples: IKEA, Shell, Tchibo

• Offers an irrational/ lifestyle value to customers that – rationally – the customer would not be paying for

• Can go as far as reserve-herd effect (choosing to be different to be seen as different - even if the customers prefers what others are doing).

Examples: Swatch, Vertu, Bugatti

• Entire business model design aims at achieving greater efficiency through reducing (transaction) costs

Examples: ALDI, McFIT

• Business model design is centered around the benefits of digital technologies (online and/or mobile)

• Digital technology and its benefits are key value drivers, and not just an extension of a pre-existing BM design

Examples: Amazon, Spiegel Online

• Business model design aimed at constantly striving for novelty – by developing new patterns or pattern configurations

• Designed openly (‘open business model’ with inside-out and outside-in mechanisms) and flexibly

Examples: IBM, Zara, SpreadShirt

Adapting a business model in a novel and nontrivial way is considered a business model innovation.

• Change in Value Creation
• Change in Value Proposition
• Change in Value Capture

• New Capabilities
• New Technology and Equipment
• New Processes and Structures
• New Partnerships

• New Offerings
• New Customer Segments and Markets
• New Channels
• (New) Customer Relationships

• New Revenues Models
• New Prices and Cost Structures

• BM firm-innovation
• BM industry-innovation
• BM market-innovation

Significant change (defined as the introduction of a new BM theme) in the firm’s existing BM, based on existing patterns, i.e. nothing totally new, only re-configuration of existing patterns (90% of BMI cases)

Development of a completely new business model design that is new to the firm’s specific industry sector, i.e. no competitor has a similar business model

Significant change to existing business models that is new from a customer perspective, i.e. (entirely) new customer offering