NBC1 2008, (c) 2008 Jay A. Smith 1 Class 10 Business Models & Strategy.

NBC1 2008, (c) 2008 Jay A. Smith

1

Class 10

Business Models

& Strategy


2

Class Schedule

　　　 Office Hour: Ｔｕｅｓ： 13:30-15:00 VBL 2F 電話 285-

3630

4/15(火 )16:10-17:40 Intro to Venture Business & Industry Analysis①4/22(火 )16:10-17:40 Intel Case Study②5/13(火 )16:10-17:40 ③ Sales & Marketing5/27(火 )16:10-17:40 Sales & Marketing Case Study④6/3 (火 )16:10-17:40 Marketing Project Presentations⑤6/10(火 )16:10-17:40 Ideas and Innovation⑥6/17(火 )16:10-19:20 Product & Service Presentations / Finance & Accounting ⑦⑧6/24(火 )16:10-17:40 Finance & Accounting (continued)⑨

7/1 (火 )16:10-17:40 Business Models & Plans⑩7/8 (火 )16:10-19:20 Elevator Pitches / Investment & Valuation ⑪⑫7/15(火 )16:10-17:40 Presentation Workshop ⑬ & Review7/22(火 )16:10-19:20 Presentations 2 Classes⑭⑮

Final Report: Team Business Plan Paper By July 29 (火）　

[email protected]


3

Model Driven Pro-Forma P&L

Month

Assumptions for Model ISP 1 2 3 4 5 6 7 8 9 10 11 12 Year 1

Past Members 0 333 650 951 1,403 1,833 2,241 2,796 3,323 3,823 4,299 4,751

3,000 acquisition cost New Members 333 333 333 500 500 500 667 667 667 667 667 667

5% attrition per month Lost Members 0 (17) (33) (48) (70) (92) (112) (140) (166) (191) (215) (238)

Total Members 333 650 951 1,403 1,833 2,241 2,796 3,323 3,823 4,299 4,751 5,180 5,180

Fee/Member 2,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000

Member Revenue 666,667 1,950,000 2,852,500 4,209,875 5,499,381 6,724,412 8,388,192 9,968,782 11,470,343 12,896,826 14,251,984 15,539,385 94,418,347

1,000,000 each 1,000 members Ad Revenue 0 0 0 0 1,000,000 1,000,000 2,000,000 2,000,000 3,000,000 3,000,000 4,000,000 4,000,000 20,000,000

Total Revenue 666,667 1,950,000 2,852,500 4,209,875 6,499,381 7,724,412 10,388,192 11,968,782 14,470,343 15,896,826 18,251,984 19,539,385 114,418,347

Support

1 per 100 members # of Staff 3.33 6.50 9.51 14.03 18.33 22.41 27.96 33.23 38.23 42.99 47.51 51.80 51.80

200,000 per staff Cost/Support 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000

Staff Salary 666,667 1,300,000 1,901,667 2,806,583 3,666,254 4,482,941 5,592,128 6,645,855 7,646,895 8,597,884 9,501,323 10,359,590 63,167,787

budget Marketing 1,000,000 1,000,000 1,000,000 1,500,000 1,500,000 1,500,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 19,500,000

budget R&D 800,000 800,000 800,000 800,000 800,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 12,400,000

budget SG&A 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 12,000,000

Operating Exp. 3,466,667 4,100,000 4,701,667 6,106,583 6,966,254 8,182,941 9,792,128 10,845,855 11,846,895 12,797,884 13,701,323 14,559,590 107,067,787

Operating Profit (2,800,000) (2,150,000) (1,849,167) (1,896,708) (466,873) (458,529) 596,064 1,122,927 2,623,448 3,098,942 4,550,661 4,979,795 7,350,560

Strategy Implication: Get More Members Sooner


4

Key Expenses

Cost drivers (what factors affect costs) People: Staff Salaries (full-time, part-time), contractors… Things: Supplies, parts, equipment, facilities… Activities: Manufacturing, Selling, Marketing/Advertising, R&D…

Relative size? Importance? How predictable? How will they change over time? How flexible, adaptable? Types:

Variable (changes directly to volume) Semi-variable (increases in step-wise fashion) Fixed (do not change with volume of sales) Non-recurring (unusual or infrequent expenses)


5

Sample Pro-Forma Cash Flow Forecast

1月 2月 3月 4月 5月 6月 7月 8月 9月 10月 11月 12月 1年 2年 3年10%

Units Sold 10% 0 100 150 200 300 400 440 484 532 586 644 709 4,545 9,000 15,000Avg. Unit Price 10 10 10 10 10 12 12 12 12 12 12 12 11.7 12 12

Sales 0 1000 1500 2000 3000 4800 5280 5808 6389 7028 7730 8503 53,038 108,000 180,000Cost of Sales 60% 0 600 900 1200 1800 2880 3168 3485 3833 4217 4638 5102 31,823 64,800 108,000Gross Profit 0 400 600 800 1200 1920 2112 2323 2556 2811 3092 3401 21,215 43,200 72,000

SG&A 200 200 200 200 200 300 300 300 300 300 300 300 3,100 6,000 11,800R&D 500 600 400 400 300 300 300 300 300 300 300 400 4,400 8,300 16,000Marketing 10 50 50 600 600 600 800 800 600 600 400 400 5,510 11,010 21,970Depreciation 10 50 100 100 100 100 120 120 120 140 140 140 1,240 2,470 4,890Operating Profit (720) (500) (150) (500) 0 620 592 803 1236 1471 1952 2161 6,965 14,651 29,801

NonOper. Inc. 100 70 50 30 20 10 (20) 20 (50) 20 20 30 300 500 930Pretax Profit (620) (430) (100) (470) 20 630 572 823 1186 1491 1972 2191 7,265 15,151 30,731Taxes (lets assume no taxes) 0 0 0Net Income (620) (430) (100) (470) 20 630 572 823 1186 1491 1972 2191 7,265 15,151 30,731

Depreciation + 10 50 100 100 100 100 120 120 120 140 140 140 1,240 2,470 4,890Capital Expenditures ー 1000 1000 50 0 0 500 0 0 500 0 0 0 3,050 5,100 9,200

Cash Flow (1,610) (1,380) (50) (370) 120 230 692 943 806 1,631 2,112 2,331 5,455 12,521 26,421

Cumulative Cash (1,610) (2,990) (3,040) (3,410) (3,290) (3,060) (2,368) (1,425) (619) 1,012 3,124 5,455 5,455 17,976 44,398

total finance needed

• Depreciation: accounting method to expense cost of an asset. “Non-cash” expense• Run-rate: Annualized business size at any given time. 11 月 run-rate= 644 x 12 = 7,728

From 6 月


6

Breakeven

Time

PotentialProfitReward

Money

Losses &Investments

Time

PotentialProfitReward

Money

Losses &Investments

Breakeven

How much does company need to sell to cover its costs

Revenue = Costs Profit/loss = 0


7

Using Breakeven

Sense of risk How many customers do I need?

Compare to market size (what %)Compare to market share (what %)

Is my pricing right? Are my costs too high?


8

Variable & Fixed Costs

Variable Costs: Increases directly with each product sold (unit volume) Materials, parts, (assembly), commission, shipping

Fixed Costs Does not change with volume (# of units) produced Management salaries, rent, R&D, buildings, equipment,

marketing Breakeven

# units sold x contribution per unit = fixed costs After breakeven, contribution becomes profit


9

Contribution = Revenue – Variable Costs

Cost

Price to Channel

Price to customer

Variable Cost


10

Breakeven ExamplesSoftware Software Computer Computer

Unit Price $400 $200 $400 $500

Cost of SalesMaterials $1 $1 $200 $200Manufacturing $10 $10 $100 $100Packaging $20 $20 $20 $20Commissions $20 $20 $10 $10Shipping $10 $10 $30 $30Total Cost of Sales $61 15% $61 31% $360 90% $360 72%

Contribution $339 85% $139 70% $40 10% $140 28%

Fixed CostsSalaries $1,000,000 $1,000,000 $1,000,000 $1,000,000R&D $500,000 $500,000 $100,000 $100,000Rents $100,000 $100,000 $100,000 $100,000Marketing $300,000 $300,000 $300,000 $300,000Other $100,000 $100,000 $100,000 $100,000Total Fixed Costs $2,000,000 $2,000,000 $1,600,000 $1,600,000

Total Fixed Costs $2,000,000 $2,000,000 $1,600,000 $1,600,000Contribution $339 $139 $40 $140Breakeven Units 5,900 14,388 40,000 11,429


11

Business Model

How do we make our profit?We sell _____ to ______

How do we provide/add value?How do we help customers?Our _____ does ______ for customers?

COMPANY Customers

Product/Service

Money

inputs


12

What value do we provide to customers? Toyota

Quality car, reliable, stylish, good mileage, easy finance

Total Cost of Ownership (TCO)TCO of:

- Copy Machine:- Computer: - Ink-Jet Printer:


13

Coca-Cola: Company Actions Purchases Ingredients (caramel, sugar…) Mixes them up in secret way Adds water Puts in cans and bottles – with distinctive marks Ships them around the country/world Puts them were they are purchasable/needed Keeps them cold (or hot)

Inbound Logistics > Operations > Outbound Logistics > Marketing/Sales > Service

Value Chain


14

Coca-Cola: Customer Viewpoint

Drink in container Variety of drinks Convenience Refreshment Anything else?


15

Park 24Business Model Adds Value in 2 Ways


16

Dual Opportunity – Value 2 Ways

Model: Rent land + charge for convenient parking Primary Opportunity – Parking Demand

Convenient parking 74 million vehicles in Japan 11 million rental spaces needed Only 5 million rental spaces available 6 million space gap

Secondary Opportunity – Space Supply End of real estate bubble More properties reasonably available

Strategy- Grow fast and preempt valuable spaces Times only has 76,000 spaces so far

As of 2006


17

3rd Party Business Model

COMPANY Customers

Product/Service

Money

COMPANY User

Product/Service

Money

Sponsor

OtherService


18

Value Chain Expertise

Uniqlo AmazonToyota McDonalds Amex

Inbound Logistics > Operations > Outbound Logistics > Marketing/Sales > Service

What are we really good at?


19

Finding a good business model

Unfair advantage (Dentsu, Microsoft) Sustainability (hard to copy, preempt) Market failures

poor information (Yahoo Auction)old methods (Skype) incomplete/hard to use products (hybrid cars)

Think about what could/should be changed


20

Great Business Model Characteristics

Proprietary product (Microsoft Windows) Branded/brand building (Google, Coca-Cola, Gucci) Repurchase/“Razorblades” (Bic, HP Printers) Habit forming (Philip Morris) Scale-reinforcing (Yahoo Auction/eBay) Pre-emptive (Yahoo Auction/eBay) Unfair Advantage (Microsoft DOS, IE, Media Player) High Switching Costs (MSWindows, Office, email) Leverage Outsiders (Microsoft SEs, Publishers)

Goal: Sustainable Competitive Advantage


21

Business Model CharacteristicsANA Coca-Cola Microsoft Google Nintendo

Proprietary O O O O

Branded O O O O O

Repurchase/

Consumable/

Razorblades

O

Service

O

Consumable

O

Upgrades

O

Reuse

O

“Razorblade”

game sales

Habit Forming ANA Club Caffeine ? O Switch Cost O O

Scale

Re-enforcing

Route

NetworkO O O O

Preemptive Sometimes O O O

Leverage Outsiders

O O O O

Uses Unfair Advantage

O O O


22

Prior Homework

Start thinking about a business idea to develop during the rest of the course

Visit the websites of 2 companies that interest you and/or related to a business idea you are thinking about. Look at their company information sections. What are their revenue sources?


23

Business Models of Selected Companies

How does company make money?

What is key way(s) company adds value?


24

Revised Class Schedule

　　　 Office Hour: Ｔｕｅｓ： 13:30-15:00 VBL 2F 電話 285-

3630

4/15(火 )16:10-17:40 Intro to Venture Business & Industry Analysis①4/22(火 )16:10-17:40 Intel Case Study②5/13(火 )16:10-17:40 ③ Sales & Marketing5/27(火 )16:10-17:40 Sales & Marketing Case Study④6/3 (火 )16:10-17:40 Marketing Project Presentations⑤6/10(火 )16:10-17:40 Ideas and Innovation⑥6/17(火 )16:10-19:20 Product & Service Presentations / Finance & Accounting ⑦⑧6/24(火 )16:10-17:40 Finance & Accounting (continued)⑨7/1 (火 )16:10-17:40 Business Models & Plans⑩

7/8 (火 )16:10-19:20 Elevator Pitches / Investment & Valuation ⑪⑫7/15(火 )16:10-17:40 Presentation Workshop ⑬ & Review7/22(火 )16:10-19:20 Presentations 2 Classes⑭⑮

Final Report: Team Business Plan Paper By July 29 (火）　

[email protected]


25

Homework for Classes 11 & 12

Investors & Valuation

Elevator Pitch


26

Elevator Pitch Think of an idea to fix a problem in the world or expand a new

opportunity Energy, water, air, heat, pollution, forests, oceans, acid rain, noise Humans, animals, plants, rocks Housing, transportation, communication, information, knowledge Government, corporations, communities, schools, associations, family Entertainment, information, education, religion, arts, sports, beauty War/weapons, hunger, homelessness, shelter, healthcare Love, fear, vanity, lust, jealousy, hate, curiosity, Whatever bothers you Whatever you are really interested in Money, jobs Space, time Life, wisdom, fun, happiness, joy

Make it your business


27

Today’s Global Challenges Pollution Hunger Oil Shortage Population Growth Military Spending Population Aging Religious Fundamentalism China Rising (supplier, consumer, politics,military) Other __________


28

Japan Issues Economic Recession Government Bureaucracy Small land area/population Oil Shortage Population Aging China Rising (supplier, consumer, politics, military) Broadband Wireless Humidity Other __________


29

Finding an opportunity

Replace old way with new technology (Skype)

Incomplete/hard to use products (hybrid cars)

Think about what could/should be changed Look at early adopters/adapters of products

Find a customer with a problem to be solved Market failures/poor info (Yahoo Auction)


30

Landmine Detecting Plant

Aresa BioDetection Denmark www.aresa.dk

Genetically-modified plant (thale) turns brown in Autumn if there is a landmine( 地雷 ) or other explosive underground (NO2)

100 million unexploded landmines around the world (BBC)


31

Individual Elevator Pitch 7/8 (火 )30-45 second “pitch” (every person) Pitch Content (ENGLISH):

Opportunity/problem being solved Target market/customer Product/service to be created

Value being created Why it is better than competition

Business model (how firm will make money) Anything else unique that will capture attention/interest

Pitch Goal: Get enough interest for a meeting Choose the most interesting parts Business idea to use for rest of the class


32

Start Pitching

30 sec (soft stop) 45 sec (hard stop) 1 summary sentence – “hook”

Who / produces What / for WhomCompany/ Product / Customer Market

No PC or powerpoint 2 questions from class/instructor


33

1 Sentence “Hook” - Catch Phrase

Most interesting part Captures listeners attention, interest Has some value/connection for listener (investor)

Examples: We combine LCDs & Solar panels to provide light f

or millions of people in the dark We make cars for blind people. We use nanotechnology to double fuel efficiency We work on the other big “silicon” application


34

A Generic Pitch

[company name] provides [product/solution] to [target customer segment] enabling them to [key benefits].

Our product has the key advantage of [advantage]

The business is led by [key people] who have [these appropriate backgrounds].

We start(ed) business [when] and plan to deliver our first products [month/year].

Our revenue is based on [revenue streams]

We expect to become profitable in [year].

We have raised over [amount] from [key investors, types]


35

A Sample Generic Pitch

1) [WonderCar] provides [automobiles] to [blind car owners] enabling them to [more comfortably and safely enjoy their driving experience].

2) Our product has the key advantage of [being custom tailored to blind car owners]

3) The business is led by [Steve and Dave Wonder] who have [backgrounds in business development, industrial design and human factors for the visually impared].

4) We start(ed) business [this past January] and plan to deliver our first products [in the fall of next year].

5) Our revenue is based on [sales to automakers, customizing houses and end users]

6) We expect to become profitable in [2007]. 7) We have raised over [$2.4 million] from [friends, family, Walden Ventur

es, the Ray Charles Foundation, and the U.S. Department of Transportation.]


36

Example Landmine Plant Pitch

Aresa Biotech will provide genetic botanic solutions to governments and non-profit agencies enabling them to more effectively and safely deal with the problem of old weapons.

Our product has the key advantages of safety, cost, ease of use and speed.

The business is led by a team who have backgrounds in genetic engineering, government contracting, and U.S. Army.

We started business in 2004 and plan to deliver our first products after tests are completed this year.

Our revenue is based on government and NPO contractsWe expect to become profitable in 2006. We have raised over $250,000 from NPO foundations and government

organizations


37

Suggested Readings Books

チップに組み込め !― マイクロエレクトロニクス革命をもたらした男たち byT.R. リードザ・ゴール ― 企業の究極の目的とは何か by エリヤフゴールドラット「ネットワーク経済」の法則―アトム型産業からビット型産業へ…変革期を生き抜く 72

の指針 by カールシャピロ & ハル・ R. ヴァリアン知識創造企業 by 野中郁次郎 ( 著 ), 竹内弘高民芸　柳祖悦　Ｓｏｅｔｓｕ Yanagi 対訳ブレイク詩集―イギリス詩人選〈 4 〉岩波文庫ウィリアムブレイク Axis Magazine

WWW www.dreamgate.gr.jp www.ideo.com 日経デザイン http://nd.nikkeibp.co.jp/nd/index.shtml www.Axis.co.jp www.digital-dime.com economist.com http://japan.cnet.com www.wirelesswatch.jp www.bfi.org

NBC1 2008, (c) 2008 Jay A. Smith 1 Class 10 Business Models & Strategy.

Documents

profit slide

customer variable cost

costs revenue

business models strategy

costs people

costs profitloss

marketing breakeven

variable changes