Chapter 7 – Developing the Business Model (Comprehensive Notes)

Values, Beliefs, Mission and Vision

Founders inevitably project their personal value-systems onto the ventures they start. Values are described as “core, enduring, non-negotiable beliefs” that determine how the firm treats every stakeholder, shapes its internal culture and underpins both strategy and brand identity. Schein’s work on culture (1990) is cited: culture grows from these underlying values whether or not they are made explicit. Making them explicit avoids misinterpretation, builds authenticity (“walk-the-talk”) and cements trust—reciprocity between firm and stakeholder (Dubini & Aldrich 1991; Larson 1992).

Mission is the concise statement of purpose. It normally specifies product/service scope, customer segments, the value proposition, intended competitive advantage, plus reference to vision and values. Wickham (2001) offers a generic template:
(\text{The company}) \; \text{aims to use its} \; (\text{competitive advantage}) \; \text{to achieve/maintain} \; (\text{aspirations}) \; \text{in providing} \; (\text{product/business scope}) \; \text{which offers} \; (\text{value proposition}) \; \text{to satisfy the} \; (\text{needs}) \; \text{of} \; (\text{customer segments}).
Values can be embedded at the end of that sentence.

Vision is a shared mental image of the desired future. It is motivational, right-brain, aspirational yet credible—“stretching but achievable.” Read et al. (2011) note that early-stage entrepreneurs often lack an articulated vision, but as the firm grows the leader must create one. Kotter (1996) lists seven communication principles: (1) keep it simple; (2) use metaphors/analogies; (3) use many forums; (4) repeat; (5) lead by example; (6) fix small inconsistencies with high symbolic value; (7) listen actively.

Strategic intent (Hamel & Prahalad 1994) reconciles the gap between scarce resources and ambitious goals: cultivate a common future vision, align behaviour, decentralise decisions, set staged milestones, imagine new industries and “rewrite the rules.”

Burns positions the hierarchy as:
Values → Mission → Vision → Goals → Strategy → Tactics (Figure 7.1). Values, mission and vision are long-term anchors; strategies and tactics change quickly as situations evolve.

Entrepreneurs and Planning: Effectuation

Traditional corporate executives set clear goals, research, then plan. Sarasvathy’s (2001) study of 27 US entrepreneurs with \ge 15 years’ experience identified a contrasting logic—“effectuation.” Five key findings:

  1. Start with given means (personal strengths, resources) and let goals evolve opportunistically.

  2. Evaluate opportunities by “affordable loss” rather than predicted upside; launch quickly/cheaply.

  3. Reject extensive formal research because the future is unknowable; rely on ability to shape outcomes.

  4. Proactively partner with customers, suppliers and advisors to co-create the venture.

  5. Worry less about competitors—often operate on the fringe or create entirely new markets.

As ventures grow, founders add more causal (analytical) thinking, moving from emergent to deliberate strategy (McCarthy & Leavy 2000). Ohmae’s concept of kosoryoku combines vision, concept and pragmatic imagination—seeing what is invisible and shaping it.

Generic Business Models

Porter’s generic strategies and Treacy & Wiersema’s “value disciplines” converge on three archetypes:

• Low-price / low-cost (operational excellence). Success depends on economies of scale and efficiency; products become commoditised. New entrants face peril unless they bolt on ancillary revenue streams.

• High differentiation (product leadership). Customers pay a premium for unique, innovative or high-quality benefits. Works best when focused on a defined segment.

• High customer focus / intimacy. Deep knowledge of narrow segments enables tailored offerings and high loyalty; small firms excel here.

Figure 7.2 plots Differentiation (vertical) against Customer Focus (horizontal). Upper-right quadrant—high on both axes—is the Niche Model; lower-left is the Commodity Model. Price generally rises with movement toward the niche corner.

Critical business imperatives (Table 7.1):
• Differentiation requires continuous innovation, brand building, entry barriers.
• Customer focus demands close relationships, needs monitoring, scope economies via add-on sales.
• Low-cost demands constant cost reduction, high volume, standardisation.

Research (Grant 2012; Rassmussen 2011) shows differentiation, especially when rooted in unique, hard-to-replicate competencies, statistically out-performs low-price approaches for start-ups.

The Niche Business Model

Defined as: highly differentiated offering, sold at relatively high price to a narrowly defined homogeneous segment. Advantages for start-ups: limited resource requirement, fewer direct competitors, easier to achieve dominance, global scalability via internet, and ability to adjust features or price in iterative fashion. Trade-offs: small segment could be too small; success attracts imitators; maintaining intimacy becomes harder if volume rises.

Case highlights:
• Morgan Motor Company: \approx 850 handcrafted cars/year; waiting list >6 months; unique wood chassis; heritage differentiation—illustrates premium margins within a micro-segment.
• Tyrrells Crisps & Chase Vodka: turned a commodity (potatoes) into upscale products through thicker-cut, hand-fried “posh crisps” and 70\;\text{ft} vodka rectification column; underscored the power of story, quality cues and brand.

Internet Business Models and Monetisation Tactics

Digital ventures can mix and match revenue logics. Well-established examples:

a) Commerce‐centric
• Direct sales (Amazon).
• Bricks-and-clicks hybrids (John Lewis).
• Subscription (The Financial Times) – often paired with free trials.
• Affiliate/commission (Amazon Marketplace).
• Pay-as-you-go usage (mobile data top-ups).

b) Engagement-centric
• Freemium (Spotify) – free base + paid premium.
• Auction (eBay).
• Flash-sales (Groupon).
• Bait-and-hook high switching costs (printer ink, smartphone ecosystems).

c) Advertising / data-centric
• Display advertising (YouTube).
• Pay-per-click (Google AdWords).
• Multi-sided platforms with cross-subsidy (many tech “giants”).

Ownership of customer data is itself a strategic asset. 99\% of US and 89\% of UK growth in digital ad spend (2016) flowed to Google + Facebook. Mobile now supplies \approx 90\% of Facebook’s revenue.

App case studies:
• Strava: free GPS fitness tracking app with optional paid “packs,” brand-sponsored challenges and white-label social clubs; raised \$42\,\text{million} yet to turn profit—illustrates patience for network-effects.
• Pinterest: >175\,\text{million} monthly users; surfacing “inspiration” images; monetises via visually integrated “Promoted Pins.” Venture valuation \$12.3\,\text{billion} despite minimal early revenue.
• Deliveroo vs. Just Eat Takeaway.com: same consumer benefit, different cost structures—asset-heavy courier network versus asset-light marketplace; pandemic shock highlighted resilience of low-fixed-cost, profit-making model; yet investors still pour capital into loss-making scale bids due to potential monopoly rents.

Securing Sustainable Competitive Advantage

Sustainability depends on uniqueness that is hard to mimic plus speed in exploiting it. Three reinforcing levers:

  1. Speed-to-market – exploit “window of opportunity.”

  2. Rapid dominance of a niche – larger share → higher returns. Empirical correlation links share to ROI.

  3. Brand strength – embeds emotional loyalty; raises entry barriers.

First-mover, network effects, and data accumulation can enable monopoly-like positions but also risk antitrust action (e.g., EU’s €2.4\text{ billion} fine on Google Shopping in 2017).

Execution quality matters. Nohria & Joyce (2003) tracked 160 firms over 10 years and concluded that technique selection is less critical than flawless implementation.

Fifteen Characteristics of an Attractive Business Model

Burns extends the list introduced in Chapter 6. High scores on these dimensions predict commercial viability:

  1. Clear market need/gap.

  2. Few competitors.

  3. New or growing market.

  4. Low early funding requirement.

  5. Identified customers & coherent model.

  6. Sustainability/longevity.

  7. High gross margins.

  8. Effective communication strategy.

  9. Hard to copy (IP, brand, speed).

  10. Identifiable, monitorable, mitigable risks.

  11. Low fixed costs.

  12. Controllability (strong ops & cash controls).

  13. Leveragable management skills.

  14. Scalability options.

  15. Financeable (appeals to funders).

Students are encouraged to score ideas 1-5 on each item (max 75) to compare options.

Ethical, Philosophical & Practical Implications

• Values authenticity: pretending is unsustainable—stakeholders “find you out.”
• Ethical codes (Bannatyne quote) guide employee behaviour and build brand trust.
• Profit from ethics/social purpose is acceptable when authentic; social enterprises share same mission/vision structure but emphasise social goals.
• Data monetisation sparks debates on privacy, consent and “surveillance capitalism.”
• Market domination can yield consumer benefits (network effects, lower prices) yet risks abuse of power—regulatory fines, antitrust.

Numerical & Statistical References (in LaTeX)

• 157 learning outcomes page number (start of chapter).
• 25\% of fabric wasted in garment production; that equals 400{,}000 tons in Bangladesh yearly.
• Nin Castle’s Reverse Resources early funding: €20{,}000 + €150{,}000 + €300{,}000.
• Morgan Motor turnover £34\,\text{m}, profit £3.2\,\text{m}, workforce 246, output \approx 850 cars.
• Tyrrells turnover £14\,\text{m} by 2008; crisp margin 35\%. Vodka retail ≈£35/bottle; rectification column 70\text{ ft}.
• Strava uploads 15\,\text{m} activities & 4\,\text{m} photos weekly; funding \$42\,\text{m}.
• Spotify valuation \$24.2\,\text{billion}; losses forecast \$320\,\text{m} (2019); paying subscribers 100\,\text{m}.
• Pinterest users >175\,\text{m}; valuation \$12.3\,\text{billion}.
• Digital ad growth: 99\% (USA) & 89\% (UK) captured by Google/Facebook (2016).
• Facebook mobile ad share 90\% of revenue.
• Deliveroo UK share 26\%; Uber Eats 13\%; Just Eat >60\%.
• Just Eat + GrubHub proposed merger \$7.3\,\text{billion}; combined orders ≈600\,\text{m}/yr. Uber acquisition of Postmates \$2.65\,\text{billion}.

Connections to Earlier & Later Chapters

• Chapter 1 motivation diversity; Chapter 3 entrepreneurial mindset; Chapter 4 market need; Chapter 5 industry/competition; Chapter 6 lean start-up & business-model frameworks; Chapter 8 segmentation & target marketing; Chapter 9 pricing; Chapter 10 communications; Chapter 11 IP; Chapter 12 operations; Chapter 15 financials; Chapter 17 formal plan; Chapter 19 finance.

Study & Activity Pointers

Group discussions probe ethics of profit, data use, planning preferences, niche viability, competitive behaviour. Student/Start-up activities ask learners to list personal values, craft mission/vision (using Wickham’s format), choose a generic model, self-score their idea on the 15 criteria, and explore local niche SMEs.

Take-away Summary (concise)

Values anchor culture; clear mission/vision steer strategy. Entrepreneurs favour effectual, adaptive planning. Generic models—low-cost, differentiation, focus—combine into the niche model, statistically the best bet for resource-limited start-ups. Digital ventures exploit myriad monetisation models; data has become a critical asset. Sustainable advantage relies on uniqueness, speed, dominance and brand, plus flawless execution. Evaluate ideas against 15 attractiveness criteria to prioritise and refine.