Entrepreneurship Development

UNIT 5

Steps Involved in new venture start up

An enterprise also means an undertaking, a business firm or venture. Here is a step-by-step

approach for starting a new venture. These can be divided into three stages:

1.Pre-launch Stage

2.Launch Stage

3.Post launch Stage

1. Pre launch Stage

The following steps are involved in a Pre-launch stage in starting of a new venture.

1. Identify, Analyze and Decide on the business idea.

2. Analysis of strengths, weaknesses, opportunities and threats.

3. Analyze competition and select the positioning strategy.

4. Estimate and forecast the market size, growth and marketing feasibility which involves
measurement of demand — supply gap.

5. Whether to be an ancillary unit.

6. Understand the technology, process and selection of the idea.

7. Decide on the size of the enterprise in terms of production capacity, employees.

8. Decide on the location of the venture.

9. Identify the incentives given by the Government to promote the small and medium
industries.

10. Understand the relevant laws which are applicable for the business.

11. Analyse the business idea as opportunity in terms of Profit, costs, expenditure, income,
sales, market share.

12. Estimation of manpower requirements.

Pre-Launch Stage of a new venture involves collection of information through primary and
secondary sources of data. It is a critical stage. The skills that are required are entrepreneurial
skills of business opportunity identification and analytical skills.

The functional areas of marketing and finance dominate this stage. Forecasting skills are also
required in this stage.

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2. Launch Stage

1. Selection of the Name of the enterprise.

2. Hiring or construction of building

3. Deciding on the ownership pattern — sole proprietor, partnership, private or public limited
company and limited liability partnership.

4. Registration of the firm. If it is a partnership firm, then agreements has to be signed. The
registration processes of SMEs have been streamlined. Now provisional registration
certificate can be obtained online with District Industries Centre.

5. Preparation of business plan and project report.

6. Deciding on the product mix and markets to serve.

7. Application for loan to banks. If private or public, issue of shares.

8. Raising of finance.

9. Ordering and installation of machinery.

10. Recruitment of people.

11. Deciding on the channel of distribution.

12. Sources of raw materials to be finalized and purchases made.

13. Production started.

14. Products to be made available in the market.

In Launch stage of a new venture, operational actions and decisions are taken. It requires
managerial skills of coordination with the various agencies. Project management skills are
required.

There is lead time from planning to implementation stage. Close monitoring has to be made
to see that the launch is as per the plan. Delay will increase the cost and have impact on the
finances of the firm.

3. Post Launch

1. Teething problems to be solved.

2. Systems to be developed in all the areas of management

3. Feedback on the product

4. Changes if needed to be introduced.

5. Expansion decisions.

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After launch of the business, the gestation period varies from one to three years. The
provisional certificate is valid for a year. After commencement of business, permanent
certificate is to be obtained from District Industries Centre.

An entrepreneur has to plan and prepare for this critical period. The profits will start flowing
once the business settles down. All the businesses may not succeed, so mental preparation for
failure and exit route should also be a part of the business plan.

Entrepreneurial Development Cycle

The entrepreneurial development cycle is the combination of all support activities and

assistance that are conducted and provided continuously for the development
of entrepreneurship. It generates entrepreneurial awareness in the community through
well-planned publicity. It is a process of evolving one’s skills in a systematic manner.
Therefore, the same goes for the process of entrepreneurship development. There are
basically three types of assistance for the entrepreneurs:

1. Stimulating assistance – To rouse to action or increased activity; excite a policy that

stimulated people to protest; incentives to stimulate consumer spending.
2. Supportive assistance – To be supportive is to give help or assistance, or to hold
something or someone up.
3. Sustaining assistance – Practices that enable or aid self-sustainability include
autonomous building, sustainable agriculture, and renewable energy.

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Finally, we can say that entrepreneurship development cycle is the combination of overall
assistance that is provided for the development of entrepreneurship. It starts with
an entrepreneur who perceives an opportunity, creates an organization to practice it,
assembles the required resources, implements a practical plan, assumes the risks and the
rewards, all in a timely manner for all involved.

What Is Business Planning?

Business planning takes place when the key stakeholders in a business sit down and flesh out
all the goals, strategies, and actions that they envision taking to ensure the business’s
survival, prosperity, and growth.

Here are some strategies for business planning and the ways it can benefit your business.

Business planning can play out in many different ways. Anytime upper management comes
together to plan for the success of a business, it is a form of business planning. Business
planning commonly involves collecting ideas in a formal business plan that outlines a
summary of the business's current state, as well as the state of the broader market, along with
detailed steps the business will take to improve performance in the coming period.

Business plans aren't just about money. The business plan outlines the general planning
needed to start and run a successful business, and that includes profits, but it also goes
beyond that. A plan should account for everything from scoping out the competition and
figuring out how your new business will fit into the industry to assessing employee morale
and planning for how to retain talent.

How Does Business Planning Work?

Every new business needs a business plan—a blueprint of how you will develop your new
business, backed by research, that demonstrates how the business idea is viable. If your new
business idea requires investment capital, you will have a better chance of obtaining debt or
equity financing from financial institutions, angel investors, or venture capitalists if you have
a solid business plan to back up your ideas.

Businesses should prepare a business plan, even if they don't need to attract investors or
secure loans.

Post-Startup Business Planning

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The business plan isn’t a set-it-and-forget-it planning exercise. It should be a living document
that is updated throughout the life cycle of your business.

Once the business has officially started, business planning will shift to setting and meeting
goals and targets. Business planning is most effective when it’s done on a consistent schedule
that revisits existing goals and projects throughout the year, perhaps even monthly. In
addition to reviewing short-term goals throughout the year, it's also important to establish a
clear vision and lay the path for your long-term success.

Daily business planning is an incredibly effective way for individuals to focus on achieving
both their own goals and the goals of the organization.

Sales Forecasting

The sales forecast is a key section of the business plan that needs to be constantly tracked and
updated. The sales forecast is an estimate of the sales of goods and services your business is
likely to achieve over the forecasted period, along with the estimated profit from those sales.
The forecast should take into account trends in your industry, the general economy, and the
projected needs of your primary customers.

Cash Flow Analysis

Another crucial component of business planning is cash flow analysis. Avoiding extended
cash flow shortages is vital for businesses, and many business failures can be blamed on cash
flow problems.

Your business may have a large, lucrative order on the books, but if it can't be invoiced until
the job is completed, then you may run into cash flow problems. That scenario can get even
worse if you have to hire staff, purchase inventory, and make other expenditures in the
meantime to complete the project.

Performing regular cash flow projections is an important part of business planning. If

managed properly, cash flow shortages can be covered by additional financing or equity
investment.

Business Contingency Planning

In addition to business planning for profit and growth, your business should have a
contingency plan. Contingency business planning (also known as business continuity
planning or disaster planning) is the type of business planning that deals with crises and
worst-case scenarios. A business contingency plan helps businesses deal with sudden
emergencies, unexpected events, and new information that could disrupt your business.

The goals of a contingency plan are to:

Provide for the safety and security of yourself, your employees, and your customers in the
event of a fire, flood, robbery, data breach, illness, or some other disaster

Ensure that your business can resume operations after an emergency as quickly as possible

Business Succession Planning

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If your business is a family enterprise or you have specific plans for who you want to take
over in the event of your retirement or illness, then you should have a plan in place to hand
over control of the business. The issues of management, ownership, and taxes can cause a
great deal of discord within families unless a succession plan is in place that clearly outlines
the process.

The business planning process is designed to answer two questions:

Where are we now?

Where do we want to go?

The result of this process is a business plan that serves as a guide for management to run the
company. Describing the most critical tasks that must be completed and the time frame for
completion, a business plan allows companies to allocate resources to accomplish goals.

Elements of Business Plan

“Business planning helps entrepreneurs work smarter, stay alert for roadblocks, test new
ideas, stay motivated, help align expectations with stakeholders and investors, and even
reduce stress,” wrote Robert Price, executive director of the Global Entrepreneurship
Institute, in an article on the organization’s website.

“Writing a business plan forces you into disciplined thinking if you do an intellectually

honest job,” he says. “An idea may sound great in your mind, but when you put down the
details and numbers, it may fall apart.”

A further advantage of your roadmap is that, ideally, it changes with your business. It’s
considered a living document, but despite its adaptability, there are basic elements the Small
Business Administration says any plan should contain. They include:

1. Executive Summary:

A snapshot of your plan. This will be the last thing you write, but possibly the most
important, since many readers will stop here if they’re unimpressed. If your company is a
startup, focus on your background and experience as well as that of any partners to show the
underpinnings of the company, the agency says. If you’re better established, make sure to
include details such as when the business was started, the names of the founders and their
roles, how many employees you have, and where your operations are situated.

2. Company Description:

Explain what your company does and how it stands out from competitors. List major
customers as well as markets you plan to target in the future. You’ll want to include
competitive advantages, such as expert personnel like the whiz-kid coder you just hired, or
location: Perhaps your floral shop is next door to an all-night wedding chapel.

3. Market Analysis:

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It’s crucial to understand the market you plan to enter. Find out who your competitors are,
analyze their cash flow and profit margins, and research technological developments in the
industry that might be game-changers. Part of describing your customers is a general
awareness of how much they spend and when. For instance, Black Friday got its name
because it kicks off the lucrative Christmas shopping season that moves many retailers into
full-year profitability. If your business is grappling with a similar challenge, you’ll want to be
sure you have the resources and cash flow to withstand operating at a loss for 11 months out
of the year.

4. Organization and Management:

Spell out the details of ownership, including investors and show your organizational chart.
Specify whether your business is a sole proprietorship, partnership or corporation, and if it’s
the latter, what type.

5. Service or Product Line:

What do you sell, how will it help your customers, and how often will they need to replace it?
The answers to those questions can be crucial factors in business sustainability. Include any
patents or copyrights you own.

6. Marketing and Sales:

The best idea in the world won’t take off if you don’t let your potential customers know what
you have. Are you going to rely on word of mouth, promotional discounts or advertising?
Remember, your method will have to be tailored to your market. New York businesses are
famous for paying people to stand on the sidewalk promoting everything from discounted
pizza slices to bargain jewelry prices, but that doesn’t work nearly as well in cities without a
high volume of foot traffic.

7. Funding Request:

You’ll want to include how much you need right now as well as how much more you might
need over the next five years. A critical point is how you plan to repay borrowed money to
creditors (if you opt for debt financing) or, alternatively, generate returns for investors. Both
will want to know how you’re spending their money and when they’ll see a payoff.

8. Financial Projections:

If you need funding, provide realistic forecasts that show how you plan to generate future
cash flow. Unless you’re borrowing from your parents, your funding sources will want to
know. It’s easier if you can show recent financial statements and base your projections on
those, since that will give lenders an idea of how realistic your numbers are.

What is Industry Analysis?

Industry analysis is a market assessment tool used by businesses and analysts to understand
the competitive dynamics of an industry. It helps them get a sense of what is happening in an
industry, e.g., demand-supply statistics, degree of competition within the industry, state of
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competition of the industry with other emerging industries, future prospects of the industry
taking into account technological changes, credit system within the industry, and the
influence of external factors on the industry.

Industry analysis, for an entrepreneur or a company, is a method that helps to understand a

company’s position relative to other participants in the industry. It helps them to identify both
the opportunities and threats coming their way and gives them a strong idea of the present
and future scenario of the industry. The key to surviving in this ever-changing business
environment is to understand the differences between yourself and your competitors in the
industry and use it to your full advantage.

Types of industry analysis

There are three commonly used and important methods of performing industry analysis. The
three methods are:

1.Competitive Forces Model (Porter’s 5 Forces)

2.Broad Factors Analysis (PEST Analysis)

3.SWOT Analysis

#1 Competitive Forces Model (Porter’s 5 Forces)

One of the most famous models ever developed for industry analysis, famously known as
Porter’s 5 Forces, was introduced by Michael Porter in his 1980 book “Competitive Strategy:
Techniques for Analyzing Industries and Competitors.”

According to Porter, analysis of the five forces gives an accurate impression of the industry
and makes analysis easier. In our Corporate & Business Strategy course, we cover these five
forces and an additional force — power of complementary good/service providers.

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1. Intensity of industry rivalry

The number of participants in the industry and their respective market shares are a direct
representation of the competitiveness of the industry. These are directly affected by all the
factors mentioned above. Lack of differentiation in products tends to add to the intensity of
competition. High exit costs such as high fixed assets, government restrictions, labor unions,
etc. also make the competitors fight the battle a little harder.

2. Threat of potential entrants

This indicates the ease with which new firms can enter the market of a particular industry. If
it is easy to enter an industry, companies face the constant risk of new competitors. If the
entry is difficult, whichever company enjoys little competitive advantage reaps the benefits
for a longer period. Also, under difficult entry circumstances, companies face a constant set
of competitors.

3. Bargaining power of suppliers

This refers to the bargaining power of suppliers. If the industry relies on a small number of
suppliers, they enjoy a considerable amount of bargaining power. This can particularly affect
small businesses because it directly influences the quality and the price of the final product.

4. Bargaining power of buyers

The complete opposite happens when the bargaining power lies with the customers. If
consumers/buyers enjoy market power, they are in a position to negotiate lower prices, better
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quality, or additional services and discounts. This is the case in an industry with more
competitors but with a single buyer constituting a large share of the industry’s sales.

5. Threat of substitute goods/services

The industry is always competing with another industry producing a similar substitute
product. Hence, all firms in an industry have potential competitors from other industries. This
takes a toll on their profitability because they are unable to charge exorbitant prices.
Substitutes can take two forms – products with the same function/quality but lesser price, or
products of the same price but of better quality or providing more utility.

#2 Broad Factors Analysis (PEST Analysis)

Broad Factors Analysis, also commonly called the PEST Analysis stands for Political,
Economic, Social and Technological. PEST analysis is a useful framework for analyzing
the external environment.

Broad Factors Analysis

To use PEST as a form of industry analysis, an analyst will analyze each of the 4 components
of the model. These components include:

1. Political

Political factors that impact an industry include specific policies and regulations related to
things like taxes, environmental regulation, tariffs, trade policies, labor laws, ease of doing
business, and overall political stability.

2. Economic

The economic forces that have an impact include inflation, exchange rates (FX), interest
rates, GDP growth rates, conditions in the capital markets (ability to access capital), etc.

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3. Social

The social impact on an industry refers to trends among people and includes things such as
population growth, demographics (age, gender, etc.), and trends in behavior such as health,
fashion, and social movements.

4. Technological

The technological aspect of PEST analysis incorporates factors such as advancements and
developments that change the way a business operates and the ways in which people live
their lives (e.g., the advent of the internet).

#3 SWOT Analysis

SWOT Analysis stands for Strengths, Weaknesses, Opportunities, and Threats. It can
be a great way of summarizing various industry forces and determining their
implications for the business in question.

SWOT Analysis Matrix

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1. Internal

Internal factors that already exist and have contributed to the current position and may
continue to exist.

2. External

External factors are usually contingent events. Assess their importance based on the
likelihood of them happening and their potential impact on the company. Also, consider
whether management has the intention and ability to take advantage of the opportunity/avoid
the threat.

Importance of Industry Analysis

Industry analysis, as a form of market assessment, is crucial because it helps a business

understand market conditions. It helps them forecast demand and supply and, consequently,
financial returns from the business. It indicates the competitiveness of the industry and costs
associated with entering and exiting the industry. It is very important when planning a small
business. Analysis helps to identify which stage an industry is currently in; whether it is still
growing and there is scope to reap benefits, or has it reached its saturation point.

With a very detailed study of the industry, entrepreneurs can get a stronghold on the
operations of the industry and may discover untapped opportunities. It is also important to
understand that industry analysis is somewhat subjective and does not always guarantee
success. It may happen that incorrect interpretation of data leads entrepreneurs to a wrong
path or into making wrong decisions. Hence, it becomes important to collect data carefully.

Embryonic: an industry just beginning to develop, characterized by slow growth, high

prices, low volumes, a substantial need for investment, and high risk of failure.

Characteristics of the Embryonic Stage of Business

Every small business develops through four stages -- starting point, development phase,
nurturing phase and finally letting the business take off on its own. The starting point is also
referred to as the embryonic stage. Similar to a baby being born, a new small business must
start from a beginning point of development. The embryonic stage can be characterized by
the idea, feasibility, verification, demonstration and commercialization.

1.Idea

The first characteristic of the embryonic stage in a small business is achieving the idea. This
is the most difficult stage because it is when the concept for the business is developed. To
come up with ideas, individuals brainstorm business ideas with other individuals in their

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field. Sometimes ideas come from reading an article or watching something on television.
Ideas can also come from working on another project and needing to develop a solution.

2.Feasibility

A second characteristic is determining the feasibility of the idea or product. Once a business
idea is developed, the small business then must determine whether the product or service will
actually work for customers. This can be accomplished by setting up a test scenario. For a
product, the small business can see how much a prototype would cost to develop and whether
it would work for one customer. For a service, the small business can actually demonstrate
the service for one customer to determine whether the service works and is needed.

3.Verification

Verification of the idea becoming an actual product or service is another characteristic. Once
feasibility is determined, the small business then develops many prototypes and works with
customers to see if the product works well and whether individuals will want to invest in
buying it. This is the period when the product can be modified by comments from customers.
The small business will want to fine-tune the product before it is mass-marketed to the public
to make the best product possible.

4.Demonstration

A fourth characteristic of the embryonic stage is demonstrating that the product or service
works for a multitude of customers. Once the product is modified based on the verification
stage, the small business then works to ensure that the product can be manufactured
efficiently and at a low cost. The small business also works on developing selling approaches
that can be used in regional markets to sell the product in masses. This can be done efficiently
with television, radio or print advertisements.

5.Commercialization

Once all of the above is achieved, the final characteristic of the embryonic stage is obtaining
the financial funding to market the product or services on a full-scale national campaign at
the lowest cost possible. Investment money is needed for purchasing manufacturing
equipment, creating mass amounts of the product, marketing and paying employees. This can
be a considerable amount of money that can be obtained through small business loans and
venture capitalist investments.

What Is a Spinoff?

When a company creates a new independent company by selling or distributing new shares of
its existing business, this is called a spinoff. A spinoff is a type of divestiture. A company
creates a spinoff expecting that it will be worth more as an independent entity. A spinoff is
also known as a spin out or starbust.

A spinoff is the creation of an independent company through the sale or distribution of new
shares of an existing business or division of a parent company.

The spun-off companies are expected to be worth more as independent entities than as parts
of a larger business.

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When a corporation spins off a business unit that has its own management structure, it sets it
up as an independent company under a renamed business entity.

A parent company will spin off part of its business if it expects that it will be lucrative to do
so. The spin off will have a separate management structure and a new name, but it will retain
the same assets, intellectual property, and human resources. The parent company will
continue to provide financial and technological support in most cases.

A spinoff may occur for various reasons. A company may conduct a spinoff so it can focus its
resources and better manage the division that has more long-term potential. Businesses
wishing to streamline their operations often sell less productive or unrelated subsidiary
businesses as spinoffs. For example, a company might spin off one of its mature business
units that are experiencing little or no growth so it can focus on a product or service with
higher growth prospects.

Alternatively, if a portion of the business is headed in a different direction and has different
strategic priorities from the parent company, it may be spun off so it can unlock value as an
independent operation.

Why Would a Company Initiate a Spinoff?

The main reason for a spinoff is that the parent company expects that it will be lucrative to do
so. Spinoffs tend to increase returns for shareholders because the newly independent
companies can better focus on their specific products or services. A company may conduct a
spinoff to focus its resources and better manage the division that has more long-term
potential, or if a portion of the business is headed in a different direction and has different
strategic priorities from the parent company, or if it has been looking for a buyer to acquire
that segment of its business but failed to find one. 
How Is a Spinoff Done?
A corporation creates a spinoff by distributing 100% of its ownership interest in that business
unit as a stock dividend to existing shareholders. It can also offer its existing shareholders a
discount to exchange their shares in the parent company for shares of the spinoff. For
example, an investor could exchange $100 of the parent’s stock for $110 of the spinoff’s
stock. The spin off will have a separate management structure and a new name, but it will
retain the same assets, intellectual property, and human resources. The parent company will
continue to provide financial and technological support in most cases.
What Are the Disadvantages of a Spinoff?
The downside of a spinoff is that its share price can be more volatile and can tend to
underperform in weak markets and outperform in strong markets. Spinoffs can also
experience high selling activity; shareholders of the parent may not want the shares of the
spinoff they received because it may not fit their investment criteria. The share price may dip
in the short term because of this selling activity, even if the spinoff’s long-term prospects are
positive.
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Industry analysis—also known as Porter’s Five Forces Analysis—is a very useful tool for
business strategists. It is based on the observation that profit margins vary between industries,
which can be explained by the structure of an industry.

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The Five Forces primary purpose is to determine the attractiveness of an industry. However,
the analysis also provides a starting point for formulating strategy and understanding the
competitive landscape in which a company operates.

Porter’s Five Forces Analysis

The framework for the Five Forces Analysis consists of these competitive forces:

● Industry rivalry (degree of competition among existing firms)—intense competition

leads to reduced profit potential for companies in the same industry
● Threat of substitutes (products or services)—availability of substitute products will
limit your ability to raise prices
● Bargaining power of buyers—powerful buyers have a significant impact on prices
● Bargaining power of suppliers—powerful suppliers can demand premium prices and
limit your profit
● Barriers to entry (threat of new entrants)—act as a deterrent against new competitors

Industry analysis and competition

Competition within an industry is grounded in its underlying economic structure. It goes

beyond the behaviour of current competitors.

The state of competition in an industry depends upon five basic competitive forces. The
collective strength of these forces determines profit potential in the industry. Profit potential
is measured

in terms of long-term return on invested capital. Different industries have different profit
potential—just as the collective strength of the five forces differs between industries.

Industry analysis as a tool to develop a competitive strategy

Industry analysis enables a company to develop a competitive strategy that best defends
against the competitive forces or influences them in its favour. The key to developing a
competitive strategy is to understand the sources of the competitive forces. By developing an
understanding of these competitive forces, the company can:

● Highlight the company’s critical strengths and weaknesses (SWOT analysis)

● Animate its position in the industry
● Clarify areas where strategic changes will result in the greatest payoffs
● Emphasize areas where industry trends indicate the greatest significance as either
opportunities or threats

Industry analysis and structure

The five competitive forces reveal that competition extends beyond current competitors.
Customers, suppliers, substitutes and potential entrants—collectively referred to as an
extended rivalry—are competitors to companies within an industry.

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The five competitive forces jointly determine the strength of industry competition and
profitability. The strongest force (or forces) rules and should be the focal point of any
industry analysis and resulting competitive strategy.

Short-term factors that affect competition and profitability should be distinguished from the
competitive forces that form the underlying structure of an industry. Although these
short-term factors may have some tactical significance, analysis should focus on the
industry’s underlying characteristics.

What is a business model?

A business model is defined as:

● »A plan for the successful operation of a business, identifying sources of revenue, the
target customer base, products, and details of financing.

Essentially it tells us how the key drivers of a business fit together.

The Business Model Canvas (BMC) is a strategic management tool to quickly and easily
define and communicate a business idea or concept.It is a one page document which works
through the fundamental elements of a business or product, structuring an idea in a coherent
way.
The business model canvas is a strategic management tool that lets you visualize and assess
your business idea or concept. It’s a one-page document containing nine boxes that represent
different fundamental elements of a business.

The business model canvas beats the traditional business plan that spans across several pages,
by offering a much easier way to understand the different core elements of a business.

The right side of the canvas focuses on the customer or the market (external factors that are
not under your control) while the left side of the canvas focuses on the business (internal
factors that are mostly under your control). In the middle, you get the value propositions that
represent the exchange of value between your business and your customers.

The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur
and introduced in their book ‘Business Model Generation’ as a visual framework for
planning, developing and testing the business model(s) of an organization.

Why You Need a Business Model Canvas 

● The BMC provides a quick overview of the business model and is devoid of the
unnecessary details compared to the traditional business plan. 

● The visual nature of the business model canvas makes it easier to refer to and
understand by anyone.

● It’s easier to edit and it can be easily shared with employees and stakeholders. 

● The business model canvas can be used by large corporations as well as startups with
just a few employees.

● It clarifies how different aspects of the business are related to each other. 

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● You can use a BMC template to guide a brainstorming session on defining your
business model effectively.

Advantages of the Business Model Canvas

The reason why you might want to create a Business Model Canvas is that they have
the following advantages:

»Easy to understand: Because the canvas on just a single page and is very visual it’s
very easy to understand.

»Focussed: It removes any fluff that might have been present in a traditional business
model. It’s all killer no filler.

»Flexible: It’s quick and easy to make changes to your model and sketch out different
ideas.

»Customer Focused: the canvas forces you to think about the value you’re providing
to your customers, and only then what it takes to deliver that value.

»Shows Connections: The single page graphical nature of the canvas shows how the
different parts of the model interrelate to each other. This can be really difficult to
ascertain from a traditional business plan.

»Easy to Communicate: Because the canvas is so easy to understand you’ll be able to

share and explain it easily with your team, making it easier to get them on board with
your vision.

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Broadly speaking we can say that those elements on the left hand side of the canvas represent
costs to the business, whereas elements on the right hand side generate revenue for the
business.

We’ll look at each building block of the canvas in more detail shortly, but briefly, each
segment tries to answer the following questions:

1. Customer Segments: Who are your customers?

2. Value Proposition: Why do customers buy from you? What is the gain you provide
or the need you satisfy?
3. Channels: How are your products and services delivered to the market?
4. Customer Relationships: How do you get, keep, and grow your customers?
5. Revenue Streams: How does your business earn money?
6. Key Resources: What unique strategic resources does your business have or need?
7. Key Activities: What unique strategic activities does your business perform to deliver
your value proposition?
8. Key Partnerships: What non-key activities can you outsource to enable you to focus
more on your key activities.
9. Cost Structures: What are the major costs incurred by your business?

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1. Customer Segments
In this building block, you enter the different customer segments or that you will serve. If you
can, create one or more persona for each segment you serve. A persona is simply a relatable
description of each customer type you serve. They try to highlight your customers’
motivations, their problems and capture the “essence” of who they are.
One really important point to get across here is that customers don’t exist for you, but rather
you exist to serve your customers.
Many businesses will serve just one customer segment, but not all. For example, Google
serves two customer segments, people performing searches as well as advertisers.
If you think about breaking down the advertiser customer segment into personas, then there
are many different types of advertisers you might identify. For example, Fortune 500
companies such as Nike with massive advertising budgets might be one persona, whereas
small one-man businesses might form another.

2. Value Proposition
The value proposition describes the value that you deliver to each customer segment. What
problems do you solve for each customer segment? What needs do you satisfy? The Value
Proposition answers the question, “why will customers buy from us?”.
Some of the most common value propositions are:
»Newness.
»High performance.
»Ability to customize.
»Design.
»Brand/Status.
»Price.
»Cost reduction.
»Risk reduction.
»Convenience.
3. Channels
Channels refer to how your products or services are sold to customers. To complete this
section ask yourself how do your customers want to be reached? How are you reaching them
now?
Broadly speaking you can either have your own channels or partner with someone else.
Your own channels might include any combination of stores you own, a sales force you
employ, or your website.

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Partner channels could include a multitude of options, from using a wholesaler to working
with affiliates to sell your products or even using Google Adsense.

4. Customer Relationships
The Customer Relationships building block answers the question of how you get, keep, and
grow customers.
»Get: How do customers find out about you and make their initial purchase? For example,
this could be through advertising on Google.
»Keep: How do you keep customers? For example, excellent customer service might help
keep customers.
»Grow: How do you get our customers to spend more? For example, you could send out a
monthly newsletter to keep them informed about your latest products.
The easiest way to define all of this is to walk through the entire customer journey in detail.
That is how do customers find out about you, investigate whether to buy your product,
purchase it and how are they managed after purchase.

5. Revenue Streams
Where does the money come from? In this building block, you state where your revenue is
generated.

This might sound super simple but it isn’t. You’re actually trying to figure out what strategy
you’ll use to capture the most value from your customers? Will customers simply pay a
one-time fee? Will you have a monthly subscription fee? Perhaps you give away your product
for free like Skype and hope that some portion of customers upgrade to the paid premium
product?
Consider Google. Advertisers pay Google to place their ads in front of users with buying
intent. For example, if you search for “Nike trainers” you will see ads. If you search for
something without purchasing intent, such as “picture of flowers” you probably won’t see
any ads.
In fact, you could say that Google operates searches without purchase intent as a loss leader
to keep people using the Google system.
Taking a Step Back [BLUE BOX]
Taking a Step Back
If you look at what we have done so far we’ve filled in our Value Proposition and the
building blocks to the right of it.
In a nutshell, we’ve developed our understanding of everything that relates to our customers.

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Now we need to work on the area to the left of the value proposition. We need to build our
infrastructure to be able to best provide the value proposition.
So with that let’s move on to the first infrastructure building block, Key Resources.

6. Key Resources
This building block describes your most important strategic assets that are required to make
your business model work.
Broadly speaking resources can fall into one of four categories:
»Physical: such as buildings, vehicles, machines, and distribution networks.
»Intellectual: such as brands, specialist knowledge, patents and copyrights, partnerships, and
customer databases.
»Human: sometimes your people will be your most key resource, this is particularly true in
creative and knowledge-intensive industries.
»Financial: such as lines of credit, cash balances etc.

7. Key Activities
The Key Activities are the most important strategic things you must do to make the business
model work. Key Activities should be directly relatable to your value proposition.

If your Key Activities are not relatable to your Value Proposition then something is wrong,
because the activities you view as most important aren’t delivering any value to customers.
Key Activities can typically be broken down into three broad categories:
»Production: refers to delivering your product. You will typically do this to either a high
quality or a high quantity.
»Problem Solving: Consultancies and other service organizations often have to come up with
new solutions to individual customer problems.
»Platform/Network: Networks, software platforms can function as a platform. For example, a
key activity for Facebook is updating the platform.
When completing this section, it is a mistake to list all the activities of your business, instead
only include activities which are absolutely core to delivering your value proposition.

8. Key Partners
In this building block, you list the tasks and activities that are important but which you will
not do yourself. Instead, you will use suppliers and partners to make the business model
work.

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Let’s look at Spotify. Spotify’s key activity is updating its platform. However, as it doesn’t
produce its own music one of the key partnerships of Spotify will be the deals it strikes with
record labels and publishing houses, without which it would have no music!
There are usually three reasons for creating a partnership:

● »Economies of scale.

● »Reduction of risk and uncertainty.

● »Acquisition of resources or activities (e.g. music for Spotify).

9. Cost Structure

In the Cost Structure building block, we want to map key activities to costs. We also want to
ensure that costs are aligned with our Value Proposition.

It should be straightforward to determine your most important costs and your most expensive
after you’ve defined your Key Resources, Key Activities, and Key Partnerships.

Definition of Mullin’s Seven Domains Model

The Seven Domains Model was developed by professor and entrepreneur John Mullins and
outlined in his book The New Business Road Test. It was created for entrepreneurs interested
in starting their own business as well as being a helpful guide for companies working to
decide whether to pursue new products.

Description of Mullin’s Seven Domains Model

Mullin’s Seven Domains Model divides the proposed new product or venture into seven
“domains”, four that look at the small (micro) and large (macro) aspects of the market and
industry, as well as three that focus on internal issues within a company. As one begins to
analyze each of the domains and ask key questions, a clearer picture will emerge as to the
viability of the business or product being considered. During this process, potential
challenges will be uncovered which can be addressed while writing the business plan. The

seven domains are described in detail below:

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1. Market Domain/Macro Level: Market Attractiveness: This first domain analyzes the
market attractiveness from a macro level. It looks at the size in terms of the number of
customers, the sales value and the quantity of units sold. It also looks at recent growth
and whether previous growth is likely to continue. Basically, this analysis looks at
whether the market is healthy enough to welcome new products or if it is declining in
growth.
2. Market Domain/Micro Level: Sector Market Benefits and Attractiveness: This
domain looks at the market segment on a micro level and asks questions such as
which segment is most likely to benefit from the new product, how is the product
being considered different and better than the ones currently being offered, and is this
segment currently growing? It is important to get different types of data when
answering these questions, such as specific sales data and prospective customer
insights.
3. Industry Domain/Macro Level: Industry Attractiveness: This domain looks at the
attractiveness of entering the industry on a macro level. Questions to ask revolve
around how difficult is it to enter the industry and how inundated it is with
competition. Also, look at how fierce the competition is currently and whether there is
theft of ideas and strategies among the participants. Lastly, investigate the power of

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 buyers and suppliers within the industry and their ability to set their own terms, and
how this might affect the new product or service being considered.
4. Industry Domain/Micro Level: Sustainable Advantage: The last industry domain to
consider on a micro level regards Sustainable Advantage. Asking how easily the
competition will be able to duplicate the product or service you are considering and
how you can minimize this possibility are important questions. Look at possible
advantages on either side, such as patents, technological processes, and financial
backing.
5. Team Domain: Mission, Aspirations, Propensity for Risk: At this point in the process
the analysis turns inward, toward the team in place to start the venture. It is important
to look at the level of commitment that both leadership and individuals have to the
idea being considered. Whether the team is willing to work hard in order to see the
idea succeed and is willing to live with the level of risk involved are also factors that
need to be considered.
6. Team Domain: Ability to Execute on Critical Success Factors: This domain considers
the Critical Success Factors for the new product or service, and whether the internal
team in place is able to deliver on them. The questions to ask about the internal team
at this point center around which decisions can be made that have the potential to
significantly harm or help the business succeed, and who is responsible for making
these decisions. If there are gaps in talent or decision-making ability, think about what
positions can be filled to minimize those gaps.
7. Team Domain: Connectedness Up, Down, Across Value Chain: This last domain
looks at relationships up and down the Value Chain, including suppliers, investors,
customers, distributors, and the competition. Analyzing these connections and how
they can potentially help or hurt the business being considered will help to head-off or
prepare for potential conflicts in the future.

As the Seven Domains Model is conducted for a potential business opportunity, a theory will
emerge on whether the it is a good idea or not to pursue it. It may be that there are factors that
seem like large obstacles but can be managed in advance because they have been detected. If
the consensus is that the new product or venture is a good idea, the next step will be to
develop a comprehensive business plan for leadership and potential investors to analyze.

Bottom of the pyramid (BOP), also called base of the pyramid, term in economics that
refers to the poorest two-thirds of the economic human pyramid, a group of more than four
billion people living in abject poverty. More broadly, BOP refers to a market-based model of

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economic development that promises to simultaneously alleviate widespread poverty while
providing growth and profits for multinational corporations (MNCs).

This concept has been increasingly adopted by firms in different industries (e.g., household
goods, energy). Alleviating global poverty was identified as a top priority in the United
Nations Millennium Development Goals. Unlike traditional aid-based models of economic
development, BOP approaches recast poverty as an economic opportunity for MNCs. The
basic argument has three premises:

(1) the world’s poor constitute massive growth opportunities and profit potential for MNCs,

(2) MNCs should play a leading role in unlocking the economic potential of such
difficult-to-access markets, and

(3) bringing the poor into the global economy will simultaneously generate fortunes for
MNCs while solving the problem of global poverty.

BOP approaches contend that MNCs in particular have the incentive (growth opportunities),
the financial resources, and the capabilities (low-cost mass production, marketing expertise,
international experience) to produce and distribute appropriate affordable products at high
volumes and razor-thin profit margins.

Critics of BOP approaches note two crucial challenges, governance and sustainability; neither
challenge is currently well addressed. Effective governance mechanisms and bodies are
needed to regulate, monitor, and oversee the development of markets and effective
competition (as well as police corruption), and like MNCs, they
must transcend national sovereignties. Raising the consumption levels of the world’s poor
dramatically requires radically new business models and technologies to avoid disastrous
impacts on Earth’s ecosystems; governance mechanisms are needed to enforce the adoption
of radical resource efficiency measures and clean technologies across a multinational playing
field. Some researchers have suggested, however, that the effects of pollution and other
environmental problems worldwide could be lessened by using such underdeveloped
countries as inexpensive testing arenas for environmentally sustainable technologies.

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 What is the Meaning of Franchising?

Franchising is basically a right which manufacturers or businesses give to others. This right

allows the beneficiaries to sell the products or services of these manufacturers or
parent businesses. These rights could even be in terms of access to intellectual property
rights.

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The individual or business that grants the right to the franchise is called the franchisor, while
the beneficiary of the right is called the franchise. Franchising is a business marketing
strategy to cover maximum market share.

Franchising is a business relationship between two entities wherein one party allows another
to sell its products and intellectual property. For example, several fast food chains like
Dominos and McDonalds operate in India through franchising.

Examples of Franchising in India

● McDonald’s

● Dominos

● KFC

● Pizza Hut

● Subway

● Dunkin’ Donuts

● Taco Bell

● Baskin Robbins

● Burger King

Functioning of Franchising

Under a franchise, the two parties generally enter into a Franchise Agreement. This
agreement allows the franchise to use the franchisor’s brand name and sell its products or
services. In return, the franchisee pays a fee to the franchisor.

The franchisee may sell these products and services by operating as a branch of the parent
company. It may even use franchising rights by selling these products under its own business
venture.

The franchisor may grant franchising rights to one or several individuals or firms.
Consequently, if just one person gets these rights, he becomes the exclusive seller of the
franchisor’s products in a specific market or geographical limit.

In return, the franchisor supplies its products, services, technological know-how, brand name
and trade secrets to the franchise. It even provides training and assistance in some cases.

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Features of Franchising

Firstly, under a franchising agreement, the franchisor grants permission to the franchise to use
its intellectual properties like patents and trademarks.

Secondly, the franchise in return pays a fee (i.e. royalty) to the franchisor and may even have
to share a part of his profits. On the contrary, the franchisor provides its goods, services, and
assistance to the franchise.

Finally, both parties in a franchise sign a franchising agreement. This agreement is basically a
contract that states terms and conditions applicable with respect to the franchise.

Advantages and Disadvantages of Franchising

Advantages to Franchisors

● Firstly, franchising is a great way to expand a business without incurring additional

costs on expansion. This is because all expenses of selling are borne by the franchise.

● This further also helps in building a brand name, increasing goodwill and reaching
more customers.

Advantages to Franchisees

● A franchise can use franchising to start a business on a pre-established brand name of

the franchisor. As a result, the franchise can predict his success and reduce risks of
failure.

● Furthermore, the franchise also does not need to spend money on training and
assistance because the franchisor provides this.

● Another advantage is that sometimes a franchisee may get exclusive rights to sell the
franchisor’s products within an area.

● Franchisees will get to know business techniques and trade secrets of brands.

Disadvantages for Franchisors

● The most basic disadvantage is that the franchise does not possess direct control over
the sale of its products. As a result, its own goodwill can suffer if the franchisor does
not maintain quality standards.

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 ● Furthermore, the franchisee may even leak the franchisor’s secrets to rivals.
Franchising also involves ongoing costs of providing maintenance, assistance, and
training on the franchisor.

Disadvantages for Franchisees

● First of all, no franchise has complete control over his business. He always has to
adhere to policies and conditions of the franchisor.

● Another disadvantage is that he always has to pay some royalty to the franchisor on a

routine basis. In some cases, he may even have to share his profits with the franchisor.

Solved Examples for You

Fill in the following blanks

1. The contract between franchisors and franchisees is called __________.

2. Franchisees have to pay a fee termed as __________ to the franchisor.

3. Franchisors have to routinely provide __________ to the franchisees.

Answers:

1. Franchise agreement

2. Royalty

3. Assistance

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