The Business Model
How is your firm competing in the market place?
Business Model—its plan or diagram for how it competes, uses it resources, structures its relationships, interfaces customers, and creates value to sustain itself on the basis of the profits it generates
A business model goes beyond your own wall. It is not just within your company. In Dell’s case, it needs the cooperation of its suppliers, customers, and many others to make its business model possible.
Dell’s Approach to Selling Personal Computers:
How many computers do we need? What timing? What about the holidays?
Zip Car—how about more like a car sharing service? You can rent it by the hour. We park it around different places. This is a business model innovation.
Starbucks—coffee chains out there are franchise. They started saying they wanted to control the quality. That is how they changed the coffee. They had a different customer experience. They wanted to control it from the bean all the way up to the cup.
Netflix—DVDs are small, we can put them into a small sleeve and mail those through the mail and it will be so much cheaper. They could have their own customers holding their inventory as long as you were holding three at a time.
Blockbuster—to have all the retail stores everywhere and actual physical DVDs; huge cost involved in real estate, labor, inventory, etc.
The Value Chain—string of activities that moves a product from the raw material stage, through manufacturing and distribution, and ultimately to the end user
Where am I going to create the value? Starbucks actually manufactures their coffee. Southwest says they buy their plans, and then their employees work for them. You have to decide what part of the value chain are you going to do. Where in the value chain am I going to create value?
A typical start-up is not going to have their own lawyer. Most use legal services, and accounting services, etc. that they outsource.