1 - Business Models

Purpose of business

To create and keep a customer

Retail business

Buys goods from wholesalers or manufacturers and sells small quantities directly to end customers; focus on assortment, location, pricing, customer experience and inventory turnover

Retail - who, what, where

Who they sell to = revenue; what they sell = inventory (plus markup = revenue); where they sell it = property

Manufacturing business

Transforms raw materials and components into finished goods through production processes; focus on procurement, production planning, quality control, capital investment and distribution

Manufacturing - who, what, where

What materials = inventory (raw materials, WIP, finished goods); what equipment = machinery and equipment; where they make and sell = land and buildings

WIP

Work in progress - partly finished goods still in production

Manufacturing key performance drivers

Capacity utilisation, cost of goods sold, inventory management and supply-chain efficiency

Service business

Sells intangible outputs (labour, expertise, time, access) rather than physical goods; revenue is often contract-based and recognised over time as services are delivered

Service business - what they sell

Revenue only - they sell time, not something physical (e.g. Accenture)

Goodwill

Intangible asset representing brand reputation, customer loyalty and employee talent; only recognised if acquired (Accenture has US$22.54B)

Peer-to-peer (P2P) platform

Multi-sided digital intermediary connecting providers of goods or services with consumers; does not own the underlying inventory; earns commission, subscription or a mix (e.g. Airbnb)

P2P - what they sell and do

Sell nothing (they earn commission); they connect people with people and experiences

Unearned revenue

Money received in advance for goods or services not yet delivered (e.g. Airbnb booking paid but stay not yet used); a liability

Wholesaler

Buys large quantities from manufacturers and resells in bulk to retailers, foodservice providers or other businesses; value lies in purchasing scale, warehousing, logistics and credit provision (e.g. Metcash)

Right-of-use asset

Capitalised leased asset (e.g. Metcash leased buildings)

Why lease instead of buy

Protects cash flow (cheaper upfront) and keeps operational flexibility to match volumes needed

Business structures

How business models operate - sole trader, partnership or company

Sole trader

One individual controls and manages the business; not a separate legal entity; fully liable for debts

Partnership

Two or more individuals who control and manage a business; not a separate legal entity; fully liable for debts; profits shared per agreement

Company

A separate legal entity - either proprietary (private, limited by shares) or public

Types of public company

Limited by shares, limited by guarantee, no-liability company, unlimited company

Business Model Canvas

Framework with key partners, key activities, key resources, value propositions, customer relationships, channels, customer segments, cost structure and revenue streams