Notes on Building Business Models: What Is a Business Model?

Learning Objective 6.1: Define the business model

  • In Chapter 1, entrepreneurship is defined as a way of thinking, acting, and being that combines the ability to find or create new opportunities with the courage to act on them.

  • The current focus is on plausibility: not just finding/creating opportunities, but assessing what it takes to make them feasible and viable.

  • Feasibility answers the question: “Can you do it?”

  • Viability answers the question: “Can you make money doing it?”

  • To begin answering these questions, we must explore possible business models.

  • In reality, you don’t have a viable business until you have a sustainable business model.

  • A business model describes the rationale of how a new venture creates, delivers, and captures value.

  • It includes a network of activities and resources that interact to deliver value to customers.

  • Working through the components of a business model helps entrepreneurs better understand what they are doing, how they are doing it, for whom, and why.

  • Value is understood and generated in several ways:

    • by fulfilling unmet needs in an existing market,

    • by delivering existing products and services to existing customers but with unique differentiation, or

    • by serving customers in new markets.

What is a Business Model?

  • A business model describes the rationale of how a new venture creates, delivers, and captures value.

  • It includes a network of activities and resources that interact to deliver value to customers.

  • The business model concept helps answer: what are we doing, how are we doing it, for whom, and why?

Key Concepts: Differentiation, Innovation, Disruption

  • Strong business models support differentiation, innovation, or disruption.

  • Differentiation is about meeting a unique need, incorporating new features not currently in similar products or services, and providing unmatched customer service.

  • Example: Storage Scholars is highlighted in Entrepreneurship in Action as a business that differentiated itself by finding an underserved target market and providing a much-needed solution to storing belongings.

  • Recall from Chapter 4: innovation is about introducing new products, services, or processes that present something new, novel, and useful, but innovations don’t have to be breakthroughs; they may enhance existing products and services by adding new features or functions.

  • Business model innovation is essential for staying ahead of the curve, growing the business, and differentiating the company from the competition.

Innovative Business Models and Examples

  • The use of the internet to attract, aggregate, and manage ostensibly inexpensive or even free labor from enthusiastic customers and like-minded people is one example of an innovative business model.

  • 99Designs (Australia-based) connects companies to freelance graphic designers.

  • Fiverr links businesses with freelancers to support them with one-off niche tasks—such as proofreading or software testing.

  • Crowdsourcing has various definitions, but with respect to business models, it’s really about smaller companies that enter a market and outcompete the larger players that are currently there.

  • Crowdsourcing is also a form of bootstrapping and a valuable resource for talent and labor (See Chapter 12).

  • The sharing economy concept enables people to rent or borrow goods and services from private individuals, typically through the internet, and has given rise to disruptive models such as Uber, eBay, and Airbnb.

  • Swimply (Los Angeles-based) allows homeowners to rent out their swimming pools for a fee through its pool-sharing app, representing a practical example of the sharing economy.

  • Swimply is often described as the “Airbnb of swimming pools”; its business model is based on the private rental of personal property to others through a third party.

  • Swimply is planning to launch another sharing initiative called a Differentiation Crowdsourcing disruption sharing economy (illustrating how multiple strategic angles come together in a single platform).

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  • READ MORE NEXT SECTION “Joyspace,” which will offer homeowners the chance to rent out basketball courts, tennis courts, private gyms, and indoor theaters.

  • These examples show that sharing resources can help entrepreneurs build a successful business model when all participants are actively engaging, committing, and collaborating in the platform.

Entrepreneurship in Action: Storage Scholars, Sam Chason

  • Storage Scholars is presented as a real-world example of applying a differentiated, platform-based approach to solve a specific need.

  • Sam Chason is highlighted as a cofounder/CEO in the context of this case study.

Connections to Other Concepts

  • Value creation pathways connect to Chapter 5 (Using Design Thinking) via meeting customer needs.

  • Crowdsourcing and platform labor connect to Chapter 12 (Bootstrapping and resource creation through external talent).

  • Innovation and value delivery intersect with feasibility/viability assessments for new ventures.

Practical Implications of Business Models

  • A viable business model relies on sustainable value creation, delivery, and capture mechanisms.

  • Differentiation, innovation, and disruption each represent ways to achieve competitive advantage within a market.

  • Sharing economy and crowdsourcing models introduce new governance, trust, and risk considerations (quality control, liability, regulation, safety, and privacy).

  • Platform-based models require active participation and coordination among users to achieve network effects and value creation.

Ethical and Societal Considerations

  • Labor implications of crowdsourcing (fair compensation, work conditions, and opportunity access).

  • Privacy and safety in sharing platforms (user data, property safety, insurance, and liability).

  • Regulatory challenges for new sharing and platform-enabled businesses (compliance with local laws, safety standards, and consumer protections).

Quick Reference: Key Terms

  • Business model

  • Feasibility

  • Viability

  • Value proposition / value delivery

  • Differentiation

  • Innovation

  • Disruption

  • Crowdsourcing

  • Sharing economy

  • Platform-based business model

  • Bootstrapping

  • Joyspace (upcoming case study)

  • Entrepreneurship in Action: Storage Scholars

Defining the Business Model (Learning Objective 6.1)

  • Entrepreneurship: The ability to uncover or forge opportunities and act decisively.

  • Business Model: A blueprint detailing how a new venture creates, delivers, and captures value. It outlines what is done, how, for whom, and why.

    • Feasibility: Can you build it? (Capability focus)

    • Viability: Can you profit from it? (Sustainability focus)

    • A venture isn't viable without a sustainable business model.

  • Value Generation: Ventures generate value by:

    • Meeting unmet needs in existing markets.

    • Delivering existing products/services with unique differentiation.

    • Serving new customer markets.

Key Strategies: Differentiate, Innovate, Disrupt

  • Strong business models implement Differentiation, Innovation, or Disruption.

  • Differentiation: Addresses unique needs, integrates novel features, or delivers unmatched customer service.

    • Example: Storage Scholars identified an underserved market for student storage and provided a unique, platform-based solution.

  • Innovation: Introduces new, novel, and useful products, services, or processes. It can enhance existing offerings with new features.

    • Business model innovation is crucial to outperform competitors and drive growth.

Innovative and Disruptive Business Models

  • Internet-Driven Models: Leverage online platforms to mobilize diverse resources.

    • Crowdsourcing: Engages a large, distributed group (the "crowd") to complete tasks, often for smaller companies outcompeting larger players.

      • Examples:

        • 99Designs: Connects companies with freelance graphic designers.

        • Fiverr: Links businesses with freelancers for specific, niche tasks (e.g., proofreading).

      • Note: Crowdsourcing also serves as a bootstrapping method (Chapter 12).

    • Sharing Economy: Enables individuals to rent or borrow goods/services directly from each other, typically via online platforms. These often lead to disruptive models.

      • Disruption: Transforms existing markets or creates entirely new ones, often by challenging traditional business practices.

      • Examples:

        • Uber/Airbnb: Pioneered peer-to-peer sharing in transportation and accommodation.

        • Swimply: The "Airbnb of swimming pools," allows homeowners to rent pools via an app, demonstrating private property rental through a third-party platform.

          • Future initiative: "Joyspace" aims to extend this model to various private recreational facilities.

Case Study: Storage Scholars (Sam Chason)

  • Storage Scholars: Applies a differentiated, platform-based approach to resolve student storage needs, showcasing entrepreneurship in action.

    • Sam Chason: Cofounder/CEO.

Interconnected Concepts

  • Value Creation: Links to Chapter 5 (Design Thinking) by focusing on customer needs.

  • Crowdsourcing/Platform Labor: Relates to Chapter 12 (Bootstrapping and external talent).

  • Innovation/Value Delivery: Informs feasibility and viability assessments for new ventures.

Practical Business Model Insights

  • Viable models: Depend on sustainable value creation, delivery, and capture.

  • Competitive Advantage: Differentiation, innovation, and disruption provide pathways to market advantage.

  • New Business Models (Sharing, Crowdsourcing): Introduce complexities in governance, trust, and risk (e.g., quality, liability, privacy).

  • Platform Models: Mandate active user participation and coordination to build network effects and value.

Ethical and Societal Watchpoints

  • Crowdsourcing Labor: Addresses fair compensation, work conditions, and access.

  • Sharing Platforms: Ensures user privacy, property safety, insurance, and liability.

  • Regulatory Compliance: Navigates local laws, safety standards, and consumer protection for new models.

Quick Reference: Key Terms

  • Business model

  • Feasibility

  • Viability

  • Value proposition / value delivery

  • Differentiation

  • Innovation

  • Disruption

  • Crowdsourcing

  • Sharing economy

  • Platform-based business model

  • Bootstrapping

  • Joyspace

  • Entrepreneurship in Action: Storage Scholars

Defining the Business Model (Learning Objective 6.1)

  • Entrepreneurship: The ability to uncover or forge opportunities and act decisively.

  • Business Model: A blueprint detailing how a new venture creates, delivers, and captures value. It outlines what is done, how, for whom, and why.

    • Feasibility: Can you build it? (Capability focus)

    • Viability: Can you profit from it? (Sustainability focus)

    • A venture isn't viable without a sustainable business model.

  • Value Generation: Ventures generate value by:

    • Meeting unmet needs in existing markets.

    • Delivering existing products/services with unique differentiation.

    • Serving new customer markets.

Key Strategies: Differentiate, Innovate, Disrupt

  • Strong business models implement Differentiation, Innovation, or Disruption.

  • Differentiation: Addresses unique needs, integrates novel features, or delivers unmatched customer service.

    • Example: Storage Scholars identified an underserved market for student storage (context) and provided a unique, platform-based solution (action), delivering a much-needed service and achieving market differentiation (outcome).

  • Innovation: Introduces new, novel, and useful products, services, or processes. It can enhance existing offerings with new features.

    • Business model innovation is crucial to outperform competitors and drive growth.

Innovative and Disruptive Business Models

  • Internet-Driven Models: Leverage online platforms to mobilize diverse resources.

    • Crowdsourcing: Engages a large, distributed group (the "crowd") to complete tasks, often for smaller companies, thereby outcompeting larger players (goal).

      • Example: 99Designs connects companies (seeking design) with freelance graphic designers (context), mobilizing crowd talent (action) to deliver diverse design solutions efficiently (outcome).

      • Example: Fiverr links businesses with freelancers for specific, niche tasks (e.g., proofreading) (context), enabling quick access to specialized skills (action) through crowdsourcing for efficient task completion (outcome).

      • Note: Crowdsourcing also serves as a bootstrapping method (Chapter 12).

    • Sharing Economy: Enables individuals to rent or borrow goods/services directly from each other, typically via online platforms. These often lead to disruptive models.

      • Disruption: Transforms existing markets or creates entirely new ones, often by challenging traditional business practices.

      • Example: Uber/Airbnb pioneered peer-to-peer sharing in transportation and accommodation (context), disrupting traditional industries (action) by connecting individuals directly to create new market access and utilization (outcome).

      • Example: Swimply monetizes underutilized private swimming pools by allowing homeowners to rent them via an app (context/action), embodying the sharing economy by creating a new recreational access point and generating income (outcome). Its future "Joyspace" expands this model to other private facilities (e.g., courts, gyms) (goal).

Case Study: Storage Scholars (Sam Chason)

  • Storage Scholars: Applies a differentiated, platform-based approach to resolve student storage needs, showcasing entrepreneurship in action.

    • Sam Chason: Cofounder/CEO.

Interconnected Concepts

  • Value Creation: Links to Chapter 5 (Design Thinking) by focusing on customer needs.

  • Crowdsourcing/Platform Labor: Relates to Chapter 12 (Bootstrapping and external talent).

  • Innovation/Value Delivery: Informs feasibility and viability assessments for new ventures.

Practical Business Model Insights

  • Viable models: Depend on sustainable value creation, delivery, and capture.

  • Competitive Advantage: Differentiation, innovation, and disruption provide pathways to market advantage.

  • New Business Models (Sharing, Crowdsourcing): Introduce complexities in governance, trust, and risk (e.g., quality, liability, privacy).

  • Platform Models: Mandate active user participation and coordination to build network effects and value.

Ethical and Societal Watchpoints

  • Crowdsourcing Labor: Addresses fair compensation, work conditions, and access.

  • Sharing Platforms: Ensures user privacy, property safety, insurance, and liability.

  • Regulatory Compliance: Navigates local laws, safety standards, and consumer protection for new models.

Quick Reference: Key Terms

  • Business model

  • Feasibility

  • Viability

  • Value proposition / value delivery

  • Differentiation

  • Innovation

  • Disruption

  • Crowdsourcing

  • Sharing economy

  • Platform-based business model

  • Boot