NEW VENTURE CREATION A framework for entrepreneurial start-ups PAUL BURNSz Contents Sacra Ceuta) Ce Aku eet) ee ue growth Deuter Cree Seu RUA ate Beas Canvas Rory sca) ST Learning outcomes Academic insights + Gazelles and economic + Myths about catrepreucurs + The Business Model Case insights A * Kiran Mazumdar-Shaw and Biocon + Julie Spurgeon and Material Pleasures ‘+ John Bird and The Big Issue + Tony Fernandes and AicAsia (1) Mare Demarquette * eBay When you have read this chapter you will understand and be able to explain: = What a business model is * How it relates to a business plan * How this book will help you develop your business model and draw up a business plan The attraction of entrepreneurship ‘The twenty-first century has so far been characterized by turbulent change and disruption. ‘The rise of terrorisun fed to wars in Afghanistan and Trag, The banking crisis of 2008 phinged the Western world into recession. The so-called Arab spring of 2011 led on to disruption in mauay ccouatries La the Middle Bast, We have seen corporate scandals such as Enron in the USA, Parmalat in Ttaly und Olympus in Japan that lead 1s to question corporate ethics, We have seen spectacular corporate failures such as Lebman Brothers in the USA and Royal Bank of Seotlane (RBS) in the UK. Alongside this, we have seen unprecedented volatility in just ahont every maxket from commodities to exchange rates, from stock markets to bond markets. ‘Uaderpinming this volatility is the development of global connectivity ~ an increasingly complex world full of intorcounections formed by x truly global market place linked by new technologies that allow instant communication with almest anywhere, Small changes tend to be amplified in highly connected systems, Actions in one part of a market ean have unexpected and rapid consequences in auother part of it. And nobody, not even sovereign states, seern able to contral this. And the pace of change has accelerated. Change itself has changed to became a continuous process of olten- discontinuous steps - abrupt and sll-pervasive Whilst large firms hove increasingly found difficulty in dealing with this new order, start-ups and smaller ventures seen to find opportunities in the changes that these larger, more established firms find threatcaing, Even in this age of austerity they thrive, despite facing increasingly Serce competition. Never has it been easier to create a new venture. And never have the chances of sucenss ‘ona global basis been higher. ‘And as we look around for role models, we realize that so many of our most suecessful corporations have been fonnded since the 1970s, Bill Catesstarted Microsoft in 1975, the late Steve Jobs started Apple in 1978, Michael Dell set up Dell in 1984, Pierre Omsidyas launched eBay in 1995 and Larry Page and Sergey Brin launched Google in 1996, And this was not just happening in the USA. In the UK Alan Sugar launched Amstiud in 1968, Richard Branson started his Vingin enapire in 1973, James Dyson started selling hfs Dyson vacuum ‘cleaners in 1976, the late Anita Roddick opened the first Body Shop in.1976 and fulisn Metcalfe and Sinclair Beechasn opened their fist Pret A Mauger in 1996. In India Sunil Mittal started the business ‘that was to become Bhati Enterprises in 1976 and Kiran Mazundar-Shavv started Biocon tu. 1978, “These are now gigantic corporations that lave made theie founders into milliouaires. Over the last thirty years or so entreprenewss establishing new ventures have done more to create ‘wealth than firms at any tine before thera ~ ever! Ninety-five per cent of the wealth of the USA has been ereated sinee 1980, And small, growing firms create jabs from which the rest of society benefits. They have outstripped large firms in terms of jab generation, year on year. At times when larger firms have retzeuched, smaller firms continue to offer job opportunities. 1t has been estimated that in the USA stuall firms now generate half of GDP and over half of exports now come from firms employing fewer thin 20 people, No wondler our governinents and media ate so fascinated by them, Btrepreneuts have Sinally been recognized as a vital part of economic wealth generation, They have become the heroes of the business workd embodying ephemeral qualities that many people emy- freedom of sini, ereativity They have the courage, selt-belief to turn dreams into reulities. They are the catalysts for economic, and sometimes soctal, change. They see an opportunity, commercialize it, and in doing so become millionaires themselves, Creation Framework “The New Venture 3Kivan Mazumdar—Shaw and Biocon Millionaire entrepreneurs Born in {953 in Bangelore, india, Kiran Mazumdar Shaw Js one of the richest womenin ingis, She is the founder ‘of Blocon,a biotech company and india’ largest pproducerof insulin, With dearee: ‘went on to take a postgraduate course and trained as a brewer in Australi, ahead of retuming to India with the hope of following in her father's footsteps a5 a brewemaster, Despite working in the brewing industry ihn Indla fora couse of years, she never achieved her ambition, finding her career blocked by sexism. instead, Jn 1978, she was persuaded to set up a joint venture making enzymesin India, zoology, she Kiran Mazumder-Shaw started Biocon India with Irishman Les Auchincloss in 1878 in the garage of her rented house in Bangalore with seed capital of ‘only Rs 10,000. It was a joint venture with Biocon Biochemicals reland, Eventually she found a banker prepared to loan the company $45,000 and, fram a facillty In Bangalore making enzymes for the brewing Industry, started to diversity. Bacon India became the first indian company to manufacture and export ‘efzymes to the USA and Europe, This gave Kiran a flow of cash that she used to fund research and to start producing pharmaceutical drugs. The early years were herd. In 1989, Kiren met the chairman of ICICI Bank, which fad just launched s venture fund. The fund took a 2086 stake in the company and helped finance its move into biopharmaceuticals. Shortly after this Unilever took over Biocon Blochemicals, and bought CIC's stake in Biocon india, atthe e same time increasing itto ‘5036. In 1996itentered the > bio-pharmaceuticals and i statins markets,then one " yeer later Unilever sold its share in Biocon Biochemicals. MazumdarShaw bought out - and then I had because Twas young, Twas twenty five years old... banks wer nervous about lending to young entrepreneurs because they felt we didn’t have the busin . this stran called biotechnology wh understood ... Banks were very fearful of lending to awoman was considered @ Case insight Unilever and was able to start preparing Biocon india tofloat on thestock market, which it digin 2004 with amarketvalue of S.1bn. tn 2003 Biocon india became: the frst company todevelop hyman insulin on a Pichia expression system. Since then it has obtained a fisting on the stock exchange and entered into thousands of RED licensing agreements with other pharmaceutical companies arcund the world, Todey Biocon has 2 sarin pa S oe ae uy” {urmover in excess of 8s 24,000 milion. {thas Asia's largest insulin and statin production facilities and its largest perfusion-based antibody aroduction facility t produces drugs for cancer, diabetes and auto-immune diseases, and is developing the world's first oral insulin, which underwent Phase clinical triaisin 2073 Kiran Mazumdar-Shaw hes enjoyed many awards and honours. In 2010 TIME magazine included her In their 100 most powerful people in the world ané the Financial Times had her in thelr list ofthe top $0 women in business, while in 2009 Forbes included het in their list of he 100 most powerful women, Passionate about providing affordable health care in india, she has funded the 1400-bed Mazurndar- Shaw Cancer Centre, a free cancer hospital in Bangalore, Every year, she donates $2 million to support heath insurance coverage for some 100,000 indian villagers. 2 very experience .. business ch no one high risk.Entrepreneurs are creating all sorts of new ventures, not just their own commercial businesses. They are creating new ventures for established, larger firms whilst remaining in salaried employment, content for the profits (and risks) of their work to go to their employers. We call thom futrapreneurs, They are also creating new ventures for a range of motivations, Some have social or eivie objectives and are willing to invest their own time and risk their own capital for little or no financial return, with profits being ploughed back to meet these objectives. We call them social or civie en these entrepreneurial projects do not even result in the establishment of a new venture but are, ‘epreneurs, Sometimes subsumed within an existing arganization, to change it subtly overtime, So, iPentreprenenrship fs not just abot becoming self-employed, what is an entreprenenr? The notion of entrepreneur has been crafted over ‘many centuries, starting with the Inish-French economist Cantillon (1755), different emnphases, In essence, entrepreneurs are best defined by their actions. They create ancVor exploit change for profit, even if they do not take it themselves. In doing so, they innovate and accept risk to move resources into areas where they earn a higher cor «has seen many plercial or social return. But profit is uot akways the prime motivation for creating « new venture, For many’ people itis simply a badge of success and the attraction of belng an entveprenoue lies in being their own boss, doing ‘what they want to do rather than what they are told to do. Some people spot a business opportunity ~a product or a service that they do not see offered iu the market or away of doing soniething better or choaper. Some people might be frustrated by characteristics of current produots or by services being offered that do not meet their needs. Some sureka’ moment people, just a few, have a gemine ‘when they come up with a new invention or have an idea that can revolutionize an industey Whatever the source of their business icea, they feel motivated to do something about it ~ perhaps ‘wanting to make a lot af money on the way. What defines the entrepreneur is their willingness to act upon the idea. In dact most new ventures do not grow to become industry titans, More than 95% of small firms in Europe employ fewer than 10 people, Two-thirds employ only one other person. Many people choose 1 firms ~ones that simply generate an income comparable to what they might earn as an employee (e.g. plumbers, store owners atc). Others start up lifestyle firms Cones thut allow them to pursue a particular lifestyle whilst enabling thesn to earn an aceeptable living (eg, sports instructors, artists etc.) Ia many cases self-employment is the conventional and to start up salary-substit accepted way of pursuing these fife options. You might argue that the people starting these sorts of Iusinesses are not ‘true’ entreprenentrs, and truly entrepreneurial firms are the anes that bring Innovative ideas and ways of doing things to the market. They are set up to grow fiom the start, But both lifestyle and salary-substitute firmns are the haclkhone of societies, And the risks associated aay new venture are high. One-third of businesses cease trading in their first year, although ceasing to trade does not akways signify failure or the loss cof money: And many of the challenges they face are similar, What is more, the business skills you need to survive can be applied to growth, so these distinetions are not absolute. Lifestyle and salary- substitute firms can become more entrepreneurial =wwith the right management and leadership, 5 | The New Venture Creation FrameworkPG en sede Young, high-gr era ee eer Coinage eset ean Renae eaee ea ecg aU nos nets ein eee ia een ies une See ee Peers ees nee ee ee 1% Toa aoe eee ror oni Il Firms generate about 40% of all new jabs (Strangler, 2010). In re ea en eee anne Te nye ssneo) Ree tore enc Mie edu esti Pier een? i esent just 1% of firms, they generate 30% oF GDP and empley more than one-third of the Pcnel pital, 2612), And Europe lags behind the USA, where Coe ee Meee ee eer ete Bee era eaten caer Mee trey Ree ener eer atc san Reece ace, ‘i Case insight ait 2a 2g, In het mic-forties, Julie . ondon’s Central Sine 0 2 In the future I'd like to continne creating Specialist tableware, as well as handmade pieces. Material Pleasures stands for individual design, not natch production fitstin ceramic desi “Martin's College of Art and Design in the summer of 2008. As part of her fi of tablewar costs herself, The moulds cost o-design a rang cal appraisal from ss andl industry experts, One of the firms £5001 fed wos up-market retal Fortnum&Mason, __ factoryin Stoke: uificiently impressed tocommission _on-Trene required ‘of bone chins tableware, called Material aminimum order of that was launched in August 2003, The trade mark Material Pleasures, the reverse of each piece, is registered (c and Julie joined Anti Copying in Design (ACID), which allowed her to lag her desiga trail as proof against 250 pieces. The contract with Fortaum’s involve ‘exclusivity for six months. Allshis was funded with a £5000 loan from the Creative Seed Fund and a part. time job.vA aud She Big John Soclal enterprise start-up ‘The Big issue's probably the most prominent example ‘of social entrepreneurship in the UK. Initially started p.as a non-profit organization by John Bird in 1981, ‘and then backed by Gordon and Anita Roddick (of ‘The Body Shop fame) itis nowra limited compeny that donates its profits to the Big issue Foundation, a charity that addresses the problems of the nomeless. The scheme started in London, based on a similar dea in New York ‘The Big Issue produices a magazine of the same ame ‘which Is sold by homeless people on the streets ‘of many UK towns anc cites. ts aims are to allow homeless people to work to earnaliving ~ enabling ‘them to address their personal gaverty and retake “ conttol oftheir lives ~ and to-campaign on social Tony, Fernandes and AivAcsia (4) Entrepreneurial start-up Case insight exclusion esues The magazine is sald to-consumers on its quality rather than as a means of secuting Charitable donation, However, the fact that tis old by the homeless, exclusively on the streets, rather than in magazine stores or by volunteers, makes the nature of the transaction nat altogether straightforward, When they are asked ro buy, consumers come face-to-face with beneficiaries and can see that they ate tying to help themselves out of ther situation Sellers are frst given a small number of magazines and thereafter have to buy copies to sell on, One key aspect of the transaction is that the consumer is asked for 3 limited and relasively smell fnancil contribution tthe cover price was £2.50 in 2013) This legitinizes small donations. inthis way giving small amounts toa ‘morally justified and legitimate cause is made easy. Case insight Former Time Warner executive Tony Fernandes set up Asia's rst Jow-cost airline, AirAsia, in 2001, buying the heavily indebted state-owned company from the Melaysian government for anly 25p. He set about remodelling it as a short- haul, low-cost operator flying around Asie. Being firstin the Asian market with an idea copied from companies in the West, such as easyJet, the company expanded rapidly from a feet of only-two platies in 2002 to 86 planes flying 30 million people around the world by 2010, itereated a new Asian market in low-cost air travel, By 2007, UBS research showed itto be the lowest cost alrine in the world. Now with hubs it Kuala Lumpur and Singapore, ithas vion the Skytrax World's best low-cost eirline award in 2007, 2009, 2010. and 2071. it has also established associate airlines in Thallend and indonesia, : jens 4:Barriers and triggers to entrepreneurship ‘Creating @ new venture is not easy: And running it ‘ean be even harder: Its an all-consuming, 24-hour, seven-day-naweek activity — at oi Kenyan jay, 4, g least until you have a ‘management tearn y,_ you ean rely on, You 4 eed commitment and dedication, ‘You need staupina ~ “90% perspiration, 10% inspiration’. Ttcan break up relationships sind split families. tis risky, without guaranteed zesults, So, yon naeed to be able to bounce back from set-backs, because there will he many. You nocd determination and persistence. You need to be ‘emotionally self-sufficient —it ean be lonely. You need to be task-orientated ~ motivated to defiver +the best product or service to your customers, You need to be attuned to the opportunities generated by these customers and the market you operate in, Most ofall you need to be uble to live with a degree of risk and uncertainty. I'you crave certainty, routines and regular pay, entrepreneurship is not we hae Worssesaps0™ far you For most people there are blocks or barriers that prevent them from creating a new venture, even ifthey have a good idea, These can come from situational factors. Your personal background and your commitment to others might orente barriers ~ things like the need for a regular income to support a faunlly or the lack of start-up capital ‘These barriers ean also be psychological - lack of seltbelief, Ie takes a degree of courage to risk the capital your family might rely on in an uncertain business veuture, Fear of the unknown isa strong de-motivator, but increasingly paid employment is not seen as a guarantee of regular income. As met founde, «ok hy, penton et ae eta na Pen econ nna erace didn’t just happen. As a youn; SERGI. i high energy larger firms delayer, restructure and even just close, eanployees are increasingly realizing that there fs no such thing as a ‘job for lif’. At least with self employment you control some elements of your destiny. Despite the harriers to creating a new venture, millions of people around the world do so every: year. What is oftea necded isa ‘trigger’. Some people are ‘pushed’ into sctting up their own, business because they are made redundant, they {ind they just do not ft iuto the company they ‘work for or, simply, that they have no alternative, for example becanse they are immigrants to a new country. Typlealy these are situational factors that push you towards selfermploymont. Inmigeants are often ‘pushed into being highly entrepreneurial, Thoy have few alternatives. ‘The USA, famed for itsentroprencurial 438 culture, was built oa F by imunigsants and many rillionaire yusiness 26 eel May. ere cen Cee fret yest ene entrepreneurs are first- or second generation immigrants. Sergey Brin, epcaiTneen vane! feser nce} i ies & q eee | Pa iat co-founder of Google, imunigrated to the USA with his family from the Soviet Union at the age of sis.In the UK, sis of the most successful wholesale medicine and drug supply companies were founded by Keayan Asians who came to Britain in the 1960/70s as forced immigrants and are now millionaires (Navin Engineer, Bharat Shah, Bharat and Ketan Mehta, Vijay and Bikhu Patel, Ravi Kari sand Naresh Shah Many people, how ‘up a business for more positive reasons. They yourn for independence and recognition of their achievements. This gives them drive and determination. They look for personal development And the prospect of becoming rich might be er, ace ‘pulled’ tno starting attractive, Push factors are typically psyehological demarquette —they derive from people's character traits and the influences on them. When ‘push’ and ‘pull’ factors combine itis Tite woudler that the resule {sa powerful trigger to potential entrepreneurs to create a new venture ~ as Tong as they have that all-important business iden, The combination af ‘these triggers ~ the push and pull factors — and the barriers they face in setting up thelr own business are shown in Figure 1.1. Itis no ooincidence that the peak ages of entrepreneurs creating new ventures —in thelr earty 20s or early 40s — match periods when barriers might be low because they have least to lose or have reducing family son Framework commitineuts as children Jeave home, “The New vornivec: You need to have nerves of steel but it has been a dantastjc experience. I'm loving it 1 just wish [had a couple of extra hours in the day to enjoy my own life.oL ~ BARRIERS TO START-UP (SITUATIONAL AND PSYCHOLOGICAL) + Need for regular income + Fear of loss of eapitad + Nocaptal © Risk aversion * Doubts about ability TRIGGERS PUSHFACTORS PULL FACTORS (SITUATIONAL): (PSYCHOLOGICAL): + Unemployment + Independence © Disagreements + Recognition Might? + Personel development + Nooiheroption * Wealth Vi Barriers and triggers to entrepreneurship | New venture creation Unless you are pushed, getting over the barriers fo entrepreneurship may not he exsy. ‘The most fundamental fear of al is that of fatlure, So how might you improve the chances of success? Figure 1.2 summarizes the things you need, which this book will help you to develop. PL2 New venture creation 1e you p — Not everybody ts ‘well-suited to self-omploynent. Some people get pushed into itreluctantly. But to make a success of it you need to be able to live with the stresses, te produces and enjoy the challenges it presents. Even if'you are pushed rather Han pulled into starting anew venture, ft isa lot easier f you have a positive psychological attitude towards i. We shall look at this in the next chapter. * A good business idea ~ Finding good business ideas is not as diffu as many people think Chapter 3 cutlines a systematic process fox finding them, rather than just relying won the happenstance ef having that ‘eureka moment’ + The oceasar'y skills to delive product/ service idea ~ There is no point in starting out asa plumber without the uecessory skills Esperience of an industry or sector can also be very valuable. I ean provide knowledge of how the sector warks and a network of contacts who could become customers or suppliers. It also Iielps to Tearn these things andmake mistakes day Times, at somebody S 20), else’s expense. So you do aeed to Peron Ihave some Crain specific grasp of what he or she i skills and nt tae Knowledge about the business Pera bolts goos a long reducing the risk you want to set up. This tera book will give you a . set of general business id management tools that will help you launch and gow your new venture based upon your specific skills. It will show you how to develop a business model that I imprave your chances of siwcress.* Aplanto launch and grow your busine This book will help you plan the launch of your groneth, Whilst uttopronourship is an uncertain activity, the new venture an of planning helps you prepare for the: uncertainties. Itallows you to ask the ‘what if" questions and just reacting to situations as they arise. It also gives you the frameworks that make you better able to react to these mmexpected threats ancl spportamities, Having a plan improves your chances of success, Se eu Ren unger eee ares ee ees a geo esa re ee el Perea ee tae eto ok Rete ee ae) Pee gee ee ie ie) me eta Rete aS opportunities emerge. You define your awr Reine te eat ee rear Sa a cela ene eats PRE eee Une racecar aed ten) eens Pee on ke esate eur willbe, and thet includes y successful ener ae cio ae Gea ne er ae) ar yu ce? + The resources you need to launch and grow your business ~ Whilst this book will nat provide you with the financial capital, it will show you how to minimize the resources you need assess howy mich and what sort of finance to look for. The business plan you produce will help attract that finance “This book will help you create your now venture ~ ‘whether it is a comexcial or sucial entorprise — and risks of fathure, Kewl help you nssess whether you have an entreprenential charaeter, find business idea and develop a business model that will elivered to the marke ) Academic in reap Just not fan ye eee cere anny ence ee aaa act ee ae seo rea sa eee Eee aE eee ireneans eo eet ners eae et fetan cee Bon et eee neta Rea eee ete ee Ree aeons Ma us Beers eek na Business planning ‘The principles of planning are straightforward and translate directly into what you need to do to create anew yontuse: * Know where you are ~ Understand your strengths and weaknesses, the skills you bring to the business, the resources you are able to mobilize, indeed whether you have what it takes to be an entrepreneur, + Know where you want to go ~Have a clear ‘idea of the business opportunity and, more important, what yon want your business to decome in the future, Plan how to get there ~ Plan howto make this happen, how to get customers, combat ‘competition and lead staff, “The business planning process is just lke planning 4 route from A to B: you decide on where you axe and where you want to go, and then you ean start to plan your route. If you cannot decide where you are ‘or where you want to go, you will never be able to finda route. Hyou know where you are and where {you want to go, a good route increases the chance of ‘getting theze, But starting 1 new venture is an uncestain exereise So, you might devide not to yo in a straight line because there are longer but faster routes; you might be forced to take diversions because unexpected am road works upset yourplans; you might not get to your s destination as quickly as 4] y Anal niet ‘you espect because the car Dreaks down or you have an accident. Whilst nothing is 2 certain, plins ean be changed i and planning should provide “4 Pray yourwith options about the best roules, Planning therefore needs to be ‘a continuous process. Ifthe unexpected happens you then have those options available. Planning the oute will lso help you estimate the petrol you veil need and the money you will need to buy it ~ the cae Gat susiness 7) Terenas array airplane on the resources required. The business planning process is simple but systematie — just like planning a route from Ato B. The New Venture Creation Framework ‘The New Venture Creation Framework in Figure 1.3 provides a comprehensive framework to help you find, develop and refine a business idea, It takes you through the whole planning process for n new venture in a way that gives yon the best chanoe of success. This book explains each stage in the process, and exercises at the end of each. chapter help you to assemble and evaluate the information you need, These exercises build into a comprehensive business plan that ean then be used to obtain finance, ‘This Framework has seven components. Each is covered by diffewent parts of the book ‘You and your business idea (Part 1) - You 2,, al your personal charac are 2, erica to the suocess of a new venture, Are you really an entreprenew? ‘This section invites you to explore ‘your personal aspirations and characteristics and the social, human. and financial capital you bring to the new venture, If you need it, this section also helps you find a business idea that sutts your aspirations. Cental to the New Venture Creation Framework is the development of a good business model. Indeed, ‘an innovative business model can form the core of your business idea. The business model describes how you will go about delivering your business idestocustomers so as to achieve your business purpose and make a profit, Even if your core business idea has mer, unless you ind and persnade customers to buy it and can then deliver it to thorn, you do not have a viable business, Even then, you have to ppersade them that your productiserviee is so good that they want to buy it again and again, To da this youneed marketing, operations and financial plans Ypased on the resources you need and have access 40, You also need to identify andl minimize the risks you face. Market segments and the value proposition (Part 2) At the core ofa business model isthe Identification of different groupings of customers with similar charseleristios - called market ents — and the motivations each segment has for buying your proxluet or service ~called the benefits they are seeking, Pulling these benefits together for each segment is called your value proposition, Before you develop thls you need to understand the structure of the market and ‘ndustzy you are entering and the value propositions they are currently offesing customers. Marketing strategy (Part 3) - Your marketing strategy deseaibes how you will deliver your value proposition to each of the customer segments you have ideatified, The tool for dobivering this is called the marketing mix price, promotion! communication, service, distribution channels, branding ete, A good marketing strategy helps you develop competitive advantage against other ‘companies ia your market, This section noeds to FL ‘The New Venture Creation Framework ui cover your core strategy as well as your strategy Jor the launch and te subsequent growth of the Ddusiness. Operations plan (Part 4) ~ The operations plan highlights the practical things you need to do to lanneh a new vontinte. These range from Jogal to operating issues, including partnership opportunities. It should identify those key activities you need to undertake to ensure success. Risk and strategic options (Part 5) — Launching anew venture involves taking risks, and the business model should tease out the major risks you face and how they might be mitigated or avoided entiely. It shoulel identify the eritieal success factors that underpin the operations of the business and recognize different ways of doing things should circumstances change or differ from those anticipated - called strategie options. These aro valuable because circumstances can, and do, change. 13 | ‘TheNlewVor creation Framework Resources available and needed (Part 6) ~ This defines the resources you bring to the business human, social, intellectual and finaneial — and the resourees you need. A major component of this is your ability to pull together and Tead a management team. Financial plan (Part 7)—This shows the profit the business should generate and how it will be used. Ie shows the cash flow of the business aud the extemal Anance that will be required. Its a set of financial forecasts ~ revenues, related costs and sesulting financial structures of the business.vL Osterwalder and Pigneur {2010} have developed what they call a Business Madel Canvas’ ar generic bus eee een eae eects Sree ees Degree ets (eters a tee at aCe a oy Generation: A Handbook for Visionaries, Game Chai god Challengers which, the authors claim, strives Get oon eects ee ee ee Crean aa Rue cna into game-changing business models that challenge eee pee ees ed POM arora ecu ee ecu Becerra ir nner Deer were he eee ees Cremer meester ee es tees ee ere cee rience nie) aerate neces) Greene a beneatesonencreietenettae) Seep ea ei ee eer ec eee Cy efficiency and the right side by value to customers Giese te eee ts (inerally) and develog your business model Thenework of suppliers and partners that make the business model ‘work work important things you need todo to make the business mode! ‘The most important assets required to make the business model work All the costs th business model 1u will Incur to operate your eee erences Using real business examples, the book shows how Eine sone eer eaten noo Cena cae Seen ny tease ieee eer product innovation, customer reletionshipsand ca aang esha) Ge eee ety mec ea Tears teed re Tere eee ee eae ea Sen een presence of the other called the network effe See ne eee il erreurs deieg eat business model or other customer segments, eres ee ea NCL aaa) et oe Pete teu tues ee eee eue terete ie placed on their website [e.g YouTube), fe + Pay-per click model - where they are o2id for dicks ‘onto an advertiser's link {e.9, Google). «Subscription model - where customers subscribe for the online product or service (e.g. The Times newspaper. Che unny ait ane nema cines but theres a charge for extras or premium services (eg, SurveyMonkey), _ + Afilate model - where the website hosting ads “Is paid commission on sales by online retailers.ov_ other peopte trying to sel things (eg. ebay) Arguably the mos suecessulIntemer business -one ral t0 the New Venture Creation Framework: claiming hundreds of millions of tegistered users, over more than an intermediary -fully automated software _ eBay is simply the tracing oletforin. it holds no stocks plan itself Tudeed, because earn arate circumstances feo change, most enn ; business plans oo havea shelf life of less than Tea i me niiae cone year. Even a good business plan needs to be continuously updated to reflect the learning that takes place during the entrepreneurial process. And rather than rewriting the formal business plan all the time you oan use the New Venture Creation Framework as an infirmal eanvas onto which to plot the changes, think through the consequences and assess the strategie options you face as you gens le Case insight thatuses the affiliate modal —is the online auctioneer, eBay, eBay wos founded by Pierre M, Omidyer'in 1995, The cornpany has since expanded worldwide, 15,000 employees and revenues of some $8 billion. Bay's high gross merain comes from being nothing funning on a web server, This keeps costs and risks. low Customers, both buyers and sellers, do all the ‘work, Sellers pay to set up their own auction. Buyers “use eBay's software to place their bids. Shipping and ‘payment are arranged between the seller and buyer. and its involvement in the trade is minimal. However, ‘ittakes between 7 and 18% of the selling price as commission for letting sellers use its software. After 2 each transaction the buyer and seller rate each other. Nextts ceeh user alaeptineain ea heein brackets "recording the number of positive comments ~ thus. encouraging honesty and trust itis. truly virtual ‘business which also sells advertising space,ip ae ST ae ae eBay developed a ‘virtuous circle’ in which more _ buyers attracted more sellers, which attracted yet more buyers and sellers - called ‘network effects, To achieve this, eBay needs to dominate its market, At the core of eBay's business is software rather than ‘people. The company has bought softwere companies: ‘to gain exclusive use of thelr technologies and to make the auction process more efficient. It therefore faces enormous economies of scale in attracting as many auction transactions as possible and, with that in mind, has moved into new areas such as used cars. and hosting storefronts for small merchants where ‘buy-ienow’ goods are offered. thas also started 10 supply private-label veisions ofits service to companies, for a fee. 2002 eBay purchased PayPal, the dominant provider of internet payments in the USA, The two companies are complementary but depend on each ther, Indeed, auctions account for almost wo-thieds of PayPal’s business, PayPal allows customers to register details of their crecit card or bank account so ‘that when they buy something an the internet they. fe ee ee ares Summary + Entrepreneurs are defined by thetr actions. They ercate and/or exploit change for profit by innovating, accepting risk and moving resources to areas of higher return, « Starting your own business is hard work and many people face barriers that dissuade them from it~ such as the need for a regular income or lack of capital. As well as the ‘pull’ of the attractions of seli-employment they may also need a ‘push’ such as being made redundant. © To successfully launch a business you need. to have an entrepreneurial character, a good business idea, the necessary skills and knowledge. a plan and sulficient resources. This book will help you develop these things. * The New Venture Creation Framework outlined in Figure 1.3 provides a compechensive framework to help you find, explore, develop and refine a business idea. It takes you throngh itis fully automated, relying on software rather than people, Like eBay, It also relies on ‘networkeffects: The company’s business strategy involves achieving market dominance worldwide, often by acquiring competitors. thas alreacty expanded into dozens of countries including China and Indio. The only countries where expansion falled were Taiwan and Japan, where Yahoo! had ahead start, and New’ Zealand, where TradeMeisstill the dominant online auction site Another element of ts strategy isto leverage she reletionship between it and PayPal Bay's basic business model generates revenues from seliers, Driving buyers and sellers to use PayPal means eBay also turns buyers into clients. For each new PayPal registration it achieves via the eBay site It eaths offsite reventies when the new PayPel account is used innon-eBay transactions. Questions: |. Why is efficiency important to eBay? 2, Why is market dominance important? +4, Why is it necessary to.aequire other companies? 7) “The New ermine Creation Framework the whole planning process for a new venture in a way that gives you the best chance of success Tk translates into a formal business plan ~a vwrltten document that can be used for internal a well as external purposes, for exunple tor finance, At the core of the Framework is a holistic business model, ‘The more innovative your Iusiness model, the more successful you are kely to be, The Framework exercises at the end of each chapter help vou explore and develop this model ‘The process of planning is probably more important than the written business plan that results, It prepares you for the unexpected by getting you to think through the opportuniti and risks that might present themselves ancl ‘helping you to develop options. It also helps you develop the skills and frameworks that enable you to cope with those totully unexpected events that you did uot think about, when they happen.YOU AND YOUR BUSINESS ool O Uno aL Centre ere) me Menace TheiNNew Venture Creation Framework