Dayananda Sagar Academy of Technology & Management

Department of Management Studies

MBA- FIRST SEMESTER ( Batch of 2021-2023)

Course Code: 22MBA12

Course Title: Developing Business Model

Faculty Instructor: Rachana. D

Email ID: [email protected]

1
 Meaning of Business Model

• A business model is framework for finding a systematic way to unlock long-term

value for an organization while delivering value to customers and capturing value
through monetization strategies.

• A business model is simply a plan describing how a business intends to make money.
It explains who your customer base is and how to deliver value to them and the
related details of financing.

• A business model describes how an organization creates, delivers, and captures

value, in economic, social, cultural or other contexts.

• A plan for the successful operation of a business, identifying sources of revenue, the
intended customer base, products and details of financing.
 Importance of Business Model

• Nowadays, the business models used to depend on the technology levels in the organization. Top
level managers have created entirely new models that depend fully on existing or emergent
technology.

• Using technology, businesses can reach a large number of customers with minimal costs. Such is its
importance in today's world that, a properly framed business model provides clarity to any business.

• To identify and create value from an innovation, a start-up needs a well structured business model.

• Business models transform latest technology into outputs at economic level.

• For emerging firms in industry, established business models cannot the be followed, therefore there is
a need to frame a new business model.

• Not only is the business model important, in some situations, innovation lies not in the product or
service offered but in the business model itself.
 Components of an Effective Business Model

1. Value Proposition:
Value proposition is a clear description of the root cause for customer need, the product that will satisfy the need
and the delivered value of the product from customer's view.
Is a promise of value to be delivered, communicated and acknowledged. It is also a belief from the customer about
how value will be delivered, experienced and acquired. It is a prospectus of a company that gives the customer the
reason to choose their product or service.

2. Market Segment
• Market segment is the type of customers to target, recognizing the fact that different market segments have
different needs.

• Sometimes the capacity of an innovation is revealed only when a different market segment is targeted. In short,
the segmentation, targeting and positioning of value' (STP).

3. Value Chain Structure

Describes the full range of activities that firms and workers do to bring a product from its conception to its end use
and beyond. This includes activities such as design, production, marketing, distribution and support to the final
consumer.
Value chain structure is the point in the value chain where the firm is and how it shall capture that part of value.
4. Revenue Generation And Margins
Revenue generation and margins define how the firm generates revenue in sales,
leasing, subscription, support, etc. the pricing, and projected profit margins.

5. Position in Value Network

Position in value network refers to locating the firm's competitors and complementors,
and any networking that can be done to deliver more value to the customer.

6. Competitive strategy
Competitive strategy refers to what strategy the company will implement, pricing,
differentiation or niche strategy, to gain competitive edge in the market.
 SMALL SCALE INDUSTRY
 Referred to as those industries in which the process of manufacturing, production and servicing are done on a
small scale.

 The manufacturing of goods and rendering of services are done with the help of smaller machines and very
limited manpower.

 SSI are known as the lifeline of an economy, which is very important for a country like India.

 Being a labour intensive industry, it is very helpful in creating employment opportunities for the population of the
country.

 SSI help in stabilising the per capita income of the country.

Small Scale Industries (SSI) are those industries in which the manufacturing, production and rendering of services
are done on a small or micro scale. These industries make a one-time investment in machinery, plant, and
equipment, but it does not exceed Rs.10 crore and annual turnover does not exceed Rs.50 crore.

Simple technology in machinery & equipment used for production.

Small Scale Business provides more independence than the large scale business and through this type of business
one can fulfill their dream to become an entrepreneur. It eliminates much of the overhead expense and extensive
planning required in larger business ventures.
One can set up small-scale industries by following the simple procedures, which are as follows:

Decision Making: First of all, the entrepreneur needs to prepare the description for the small scale
industry you want to set up. It is necessary to decide whether he wish to set up a corporation,
proprietorship or partnership. The potential entrepreneur has to analyze his strength, weakness while
deciding for entrepreneur career. This analysis helps in knowing what type and size of business would
be the most suitable.

Scanning Of Business Environment: Before setting up industry, it is always essential to study and
understand the prevailing business environment in which they operate. Particularly the industrial
policy, economic policy, licensing policy, legal environment, and technological environment. The
environment impacts a lot in setting up a proper industry.

Product Selection: The entrepreneur needs to decide the product you wish to manufacture or the
service you wish to offer. While choosing the product or service he wants to offer, he must conduct a
good market research and learn about the prevailing competition in the market.
Location: The entrepreneur needs to choose a location to set up small scale industry. While choosing the
location such factors such as nearness to market, sources of material availability of raw materials,
labor, transportation services, modern infrastructural facilities and other things are considered.
Location determines the success or failure of the enterprise.

Technology: To manufacture any item, technology is used. The entrepreneur should collect information
on all available technologies, and the most suitable one should be identified. This will also be useful to
determine the type of machinery and equipment to be installed.

Project: Project appraisal means the assessment of a project. It is a technique for ex-ante analysis of a
scheme or project while preparing to set up an enterprise; the entrepreneur has to appraise the
project carefully from the standpoint of economic, financial technical, market. social and managerial
aspects to arrive at the most socially-feasible enterprise.
Finance: Finance is the lifeblood of the enterprise. So, the next big step is to arrange for finance. No
business can be created, with zero capital. If he doesn't have enough finance and then the best way is
to borrow or take a loan.

Provisional Registration: It is always worthwhile to get the unit registered with the government. The
entrepreneur has to obtain the prescribed application from DIC or Directorate of Industries. After
having duly filled in the application form, he has to submit the application with all relevant documents
in the local DIC or Directorate of Industries.

Production Management: Production management is the next step, once you can start your small scale
industry. This includes allocating space for different operations and choosing production methods. He
is required to purchase machinery and hire employees and workers for different departments.

Power and Water Connection: The sites where the enterprise will be located should either have
adequate power connections, or it should be arranged. The entrepreneur can calculate the total power
requirement and determine the nearest pole from which power will be given to the enterprise, as it
can materially affect the installation cost.
Installation of Machinery: Once the above formalities have been completed; the next step is to procure
machinery and begin its installation as per the plant layout.

Insurance: It is necessary to have adequate insurance for fixed assets at this stage and later on for the
current assets as well.

Recruitment of Manpower. Once machines are installed, the need for manpower arises to run them. So,
the quantum and type of manpower are to be decided. The sources of getting desired labor are also
important. This follows the recruitment, training, and placement.

Production: The unit established should have an organizational set-up. To operate optimally, the
organization should employ its manpower, machinery and methods effectively. There should not be
any wastage of manpower, machinery, and materials. If items are exported, then the product and its
packaging must be attractive.

Marketing: Marketing is the most important activity as far as the entrepreneurial development is
concerned. Marketing and business advertising form the next big step of setting up a small scale
industry. Online business directories and various traditional forms of advertising can gain exposure for
your business. Prices for the products or services are decided to keep in mind the profit margin.
Quality Assurance: Before marketing, the product quality certification from BIS (Bureau of Indian
Standard)/ AGMARK/HALLMARK, etc., should be obtained depending upon the product. If there are no
quality standards specified for the products, the entrepreneur should evolve his quality control
parameters.

Permanent Registration: After the small scale unit goes into production and marketing, it becomes
eligible to get permanent registration based on its provisional registration from the DIC or Directorate
of Industries.

Market Research: Once the product or service is introduced in the market, there is strong need for
continuous market research to assess needs and areas for modification, up gradation and growth.

Monitoring: Periodical monitoring and evaluation of markets, production, quality, and profitability helps
in knowing where the firm stands in comparison to performance envisaged in the business plan. It also
identifies the direction of future growth. Therefore, planning is a useful aspect of setting up a small
scale. According to business, at every stage, entrepreneur is required to improve his plan.
 Osterwalder Business Model Canvas
The Business Model Canvas is a joint project launched by Alexander Osterwalder and Yves Pigneur, which is intended to present the
business model of a company in a comprehensive manner.

The Canvas distinguishes between two perspectives:

The left side of the canvas like the left side of the human brain is responsible for creating logical and efficient connections within
the internal processes.

The right side of the canvas as well as the right side of the brain is responsible for creativity. In terms of the model, this means that
the added value of the company's range of products and services is taken into account in order to create added value for the
customer.
1. Customer Segments: Group of people/ companies that you are trying to target and
sell your product or service to. Segmenting customers based on geographical area,
gender, age, behaviours, interests etc. this gives opportunity to better serve their
needs, specifically by customizing the solution you are providing them.
Different customer segments business model can target are:
Mass market, niche market, Segmented, Diversified and Multi-sided markets.

2. Customer Relationships: Need to establish the type of relationship you will have
with each of your customer segments and the interaction with them. Types of
customer relationships are Personal Assistance, Dedicated personal assistance, Self-
Service, Automated Services, Communities and Co-creation.

3. Channels: How your company will communicate with and reach out to your
customers. Channels play a role in raising awareness of your products and delivering
value propositions to them. There are two types: Owned Channels- Company website,
social media, in-house sales. Partner Channels- Partner owned websites, wholesale
distribution, retail.
4. Revenue Streams: Sources for generating money by selling product/services. Description of earning revenue
from your value propositions. Ways to generate revenue - Asset sales ; usage fee; Subscription fee; Leasing,
Licensing, Brokerage fees; Advertising.

5. Key Activities: key activities you need to do to make your business model work. Should focus on fulfilling its value
proposition, reaching customer segments & maintaining customer relationships & generating revenue. 3
categories of key activities are: -Production; - Problem Solving; - Platform/ network.

6. Key Resources: the main inputs you need to carry out your key activities in order to create your value proposition.
Several types of key resources are: - Human; - Financial; Intellectual (brand, patents, IP, copyright); - Physical
(Equipment Inventory building).

7. Key Partners: are external companies / Suppliers that will help you carry out your key activities. Types of
partnerships are:
-Strategic alliance: partnership b/w non-competitors.
- Co-operation: Strategic partnership between partners.
-Joint ventures: partners developing a new business.
- Buyer-supplier relationships: ensure reliable supplies.
8. Cost structure: identification of all cost associated with operating your business
model. Focus must be on evaluating the cost of creating & delivering your value
propositions, creating revenue streams & maintaining customer relationships.
Business can either be cost-driven and /or value driven.

9. Value Propositions: It is building block that is at the heart of the business model
canvas. It represents your unique solution (product/service) for a problem faced by a
customer segment, or that creates value for the customer segment. Innovation
product offering. it can either be quantitative (price & speed of Service) or qualitative
(customer experience or design).
 BUSINESS PLAN

Business Plan is a written document prepared by the entrepreneur that describes all the relevant
external and internal elements involved in starting a new venture.

A business plan is the blue print of the step-by-step procedure that would be followed to convert a
business idea into a successful business venture.

A business plan first of all identifies an innovative idea, researches the external environment to list the
opportunities and threats, and identifies internal strengths and weakness, assesses the feasibility of
the idea and then allocates resources (production/operation, finance, human resources) in the best
possible manner to make the plan successful.
 ADVANTAGES OF BUSINESS PLAN
• It is a road map to reach the destination determined by the entrepreneur.

• It is valuable to entrepreneur to engage in rigorous, thoughtful and painful process that is essential before he/she starts a viable
venture.

• This is used as a tool for obtaining finance.

• Increased clarity.

• It acts as a reference guide.

• Creation & Marketing Roadmap.

• It help us set targets and measure success.

• Support for funding.

• Helps to secure talent.

• Provides Structure.
 PREPARING A BUSINESS PLAN:

A successful Entrepreneur lays down a step-by-step plan that he/she follows in starting a new business.

This business plan acts as guiding tool to the Entrepreneur and is dynamic in nature-it needs continuous
review and updating so that the plan remains viable even in changing business situations.

The various steps involved in business planning process are:

1. Preliminary Investigation
2. Idea Generation
3. Environmental Scanning
4. Feasibility Analysis
5. Project Report Preparation
6. Evaluation, Control and Review.
1. PRELIMINARY INVESTIGATION: Before preparing the plan Entrepreneur should:

• Review available business plans (if any)

• Draw key business assumptions on which the plans will be based (e.g. inflation, exchange rates, market growth, competitive
pressures etc...)
• Scan the external environment and internal environment to assess the strengths, weakness, opportunities and threats.
• Seek professional advice from a friend/relative or a person who is already into similar business (if any)

2) IDEA GENERATION:
• Entrepreneurship is not just limited to innovation (generation of an entirely new concept, product or service, but it also
encompasses an incremental value addition to the concept/product/services offered to the consumer, shareholder and
employee).
• Hence value addition is the key work that an Entrepreneur needs to keep in mind while generating new ideas even at the
inspection stage.
• Idea Generation is the first stage of business planning process. This step differentiates between an Entrepreneur and a
businessman.

The various sources of new ideas are:

• Consumers/Customers
• Existing Companies
• Research and Development
• Employees
• Dealers, Retailers
3) ENVIRONMENTAL SCANNING:

• Once a promising idea emerges through, idea generation phase the next step is environmental scanning, which is carried out to
analyze the prospecting strengths, weakness, opportunities and threats of the business enterprise

• Hence before getting into the finer details of setting up business it is advisable to scan the environment-both external and
internal and collect the information about the possible opportunities, threats from the external environment and strength and
weaknesses from the internal environment.

External Environment:
a. Socio-cultural Appraisal:
• It assesses the social and cultural norms of a society in a given period of time. The variables that are appraised are values,
beliefs, norms, fashions and fads of a particular society. It can help understanding rigidity/flexibility of a given society.
• Americans are experimenting and adventurous whereas Arabs consecrating. If an Entrepreneur wishes to introduce an
innovating product like bungee jumping, its acceptability would be more in America than in the UAE.

b. Technological Appraisal:
• It assesses various technological knowhow available to convert the idea into product. It can also be done to assess the various
modern technologies expected in the near future and their receptiveness by the industry.

c. Economic Appraisal:
• It assesses the status of economy in a given society in terms of inflation, per capita income and consumption pattern, balance of
payments, consumer price index etc.
•
A healthy economy offers greater opportunities for growth and development of the industry and therefore provides greater
confidence to the Entrepreneur about the success of his business venture.
d. Demographic Appraisal:

• It assesses the overall population pattern of a given geographical region. It includes variables like age profile,
distribution, sex, education profile, income distribution etc. The demographic appraisal can help in identifying the
size of target customers.

e. Government Appraisal:

• It assesses the various legislations, policies, incentives, subsidies, grants, procedures etc. formulated by
government for a particular industry.
• The softer the government norms for the industry, the easier it is for the Entrepreneur to establish and run the
business.

Internal Environment:

a. Raw Material:
• It assesses the availability of raw material now and in the near future.
• If the availability of raw material is less now or would be less in future then the Entrepreneur should give a
serious thought to establishing a venture as the entire system can come to a standstill due to shortage of raw
material.

b. Production/Operation:
• It assesses the availability of various machineries, equipment's, tools and techniques that would be required for
production/operation.
c. Finance:

• It assesses the total requirements of finance in terms of start-up expenses, fixed

expenses and running expenses.
• It also indicates the sources of finance that can be approached for funding.

d. Market:

• It assesses the present, potential and latent demands of the market.

e. Human Resource:

• It assesses the kind of human resources required and its demand and supply in the
market.
• This further helps in estimating the cost and level of competition in hiring and
retaining the human resources.
4) FEASIBILITY ANALYSIS:

• Feasibility study is done to find whether the proposed project (considering the above environmental appraisal) would be
feasible or not.
• It is important to (demarcate) environmental appraisal and feasibility study at this point.
• Environmental appraisal is carried out to assess the external and internal environment of the geographical area/area where,
entrepreneur intends to set up his business enterprise, whereas feasibility study is carried out to assess the feasibility of the
project itself in a particular environment in greater detail.

The various variables/dimensions are:

a) Market Analysis:

Market analysis is conducted for the following reasons:

• To estimate the demand of the proposed product/service in future.
• To estimate the market share of the proposed product/service in future.

b) Technical/Operational Analysis:
Technical/Operational Analysis is done to assess the operational ability of the proposed business enterprise. The cost and
availability of technology may be of critical importance to the feasibility of a project or it may not be an issue at all.

Key questions to be answered are:

a. What are the technological needs of the proposed business?
b. What other equipment does the proposed business need?
c. From where will this technology and equipment be obtained?
d. From where can the raw material be obtained?
e. What would be the equipment and technology?
c) Financial Feasibility:
Once the analysis of marketing and operations has been done successfully, a final financial feasibility is done to
assess financial issues of the proposed
business venture. Following cost estimates have to be carried out.

a. Cost of Land and Building: Depending on the requirement and the availability of funds, the land and building
can be hired, can be taken on lease or purchased.
b. Cost of Plant and Machinery: It includes estimates of cost of plant and machineries, their running and
maintenance cost.
c. Preliminary cost estimation is made to assess how much cost would be required in conditioning market survey,
preparing feasibility report, expenses in registering and incorporating machine, establishment expenses, expenses
in raising capital from public and other miscellaneous expenses.
d. Provision for contingencies needs to be made to convert certain unexpected expenses which can emerge due to
change in external
environment, like increase in price of raw material, or transport costs going up if the petrol prices are revised.
e. Working capital estimates for running the business are also made.
f Cost of production, which would include raw material cost, labor cost, overhead expenses, utilities like power,
water, fuel etc.
g. Sales and Production Estimates: Based on the plant capacity the production and sales estimates are made, which
help in estimating profitability.
h. Profitability projections are made on the following parameters:
• Cost of production
• Sales expenses
• Administrative expenses
• Expected sales
5) PROJECT REPORT PREPARATION:
• After environmental scanning and feasibility analysis, a project report is prepared:

• It is written document that describes step-by-step, the strategies involved in starting and running a business.

6) EVALUATION, CONTROL AND REVIEW:

• It is crucial to continuously review and evaluate the business constantly.
• This is because the competition in today’s globalizing world is intense and technological changes are taking place
at much faster rates, in this dynamic and changing market.
 Model Project Report for Starting a New Venture

Format of Project Report:

a. Cover Sheet: Name of company, address, promoters.

b. Table of Contents
c. Executive Summary (2-3 pages)
d. The Business
• Objectives for setting up business
• Brief history of past performance (if any)
• Form of ownership
• Name, qualification of the owners
• Proposed/ actual headquarters
• Proposed/ actual capital structure

e. The Funding Requirements

• Debt
• Equity

F. The Product/ Service

• Description of the product/ Service
• Comparative analysis with similar products/ substitute products
• Patents, trademarks, copyrights, franchises and licensing agreements.
g. The Plan:

1. Marketing Plan
• Market demography, like profiles of customers and end-users; preferences and needs.
• Strengths and weaknesses of competitors.
• SWOT analysis of the market.
• Marketing Mix Strategy

2. Operational Plan
• Plant Location
• Plant Labor
• Material Requirement
• Inventory Management
• Quality control

3. Organizational Plan
• Organizational chart
• Details about Board of Directors
• Manpower Planning
• Legal aspects of Labor
4. Financial Plan for 2 to 5 years
• For existing companies, a summary of previous financial data
• Projected Sales
• Projected income and expenditure statement
• Projected Breakeven point
• Projected profit loss statement
• Projected balance sheet
• Projected cash flows
• Projected Funds flow
• Projected Ratios

5. Critical Risks

6. Exit Strategy

7. Appendix
• Curriculum vitae of the owners