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Understanding Your Business Model and Developing Your Strategy


“Maka apabila telah ditunaikan shalat, maka bertebaranlah di muka bumi dan carilah karunia Allah. Dan ingatlah Allah sebanyak-banyaknya supaya kalian beruntung.” (AlJumuah: 10)

 

“Sebaik-baik harta adalah yang ada di tangan orang shalih..(”HR. Bukhari Muslim)

The Business Model

Consist of two components :

  1. Revenue Model; Breaks down all the sources of revenue that your business will generate (to achieve the highest possible outcomes)
  2. Cost Model; Identifies how you are spending your resources to make money (include COGS and operating expenses)

By understanding the business model entrepreneurs are  able to :

Make decisions that lead to greater revenue

for lower cost.

The First-Mover Myth

nBeware entrepreneurs who claim they have a “first-mover advantage”.This claim is part and parcel of the “we don’t have any competition.”Most entrepreneurs who make this claims don’t truly understand the nature of their business and what a first-mover advantage really is.

nGaining a first mover’s advantage is not impossible, but it is very difficult and expensive.

nA first-mover’s advantage is expensive because firms have to quickly capture a large part of the available market. (for instance Amazon and eBay both raised over $60 milion to execute their first-mover strategies. That money was used to build organizational infrastructure and reach new customers)

nThe stage of the marketplace also contributes to the high costs of a first-mover’s advantage.

qrather than investing markeing dollars to educate customers on why their product is better, in a new market companies find themselves educating customers on why they need the product in the first place.

qThis can take a lot of time and money

qIt is an unique challenge of emerging markets

nConsidering the high costs, it is nearly impossible to achieve a first-mover advantage without significant outside financing, most often venture capital financing.

nThis example ilustrates several aspects about capturing a first-mover’s advantage

  • oYou have to be first (or very early) into the market
  • oYou need to capture a large percentage of the market quickly (which means fast growth)
  • oYou need to create switching cost so the customer will stick with you (even in today’s Internet world where searching for competing brands is easy and low cost).

Formulating a Winning Strategy

including some combination of the following attributes : better, cheaper, and faster.

  1. The People Are What Matters
  2. Entry Strategy
  3. Growth Strategy

Formulating strategy :
The People Are What Matters

  • §The most difficult aspects of a firm’s strategy to imitate are the people and the execution of the strategy.
  • §From the very beginning of your company’s life, you need to create a culture that is conducive to fostering the human elements of your business.
  • §Probably the most important thing founders do is to create the organization’s culture.

Values

Values are beliefs shared by all members

Selection

It is important to hire the right person at the right time

Structure

The structure of a new venture changes as it matures.Now, we need to create a flexible organizational structure.

Formulating Strategy : Entry strategy :

1. Benchmarking

Benchmark competitors and learn “best       practices” from firms that operate inside and outside your industry of interest. Identifies area : strategy, core customer, competitive advantage, revenue model, cost model, etc.

2. Initial Market Test

You can devise your initial market test once you have a strong understanding of the competition. By developing market test schedule, you understand when, how, and how much it will cost to achieve the next milestone.

The costs include : the possibility of having to distribute replacements for defective units, the opprtunity costs of disgruntled customers who choose not to buy from you again, and the broader costs of damage to your reputation in the market as customers spread the word that your product is inferior.

3. Creating a Platform

Opening the first restaurant is a platform, whereas opening successive restaurants is a growth strategy. Opening that first restaurant or selling your first product is your entry into the market place.

The key for your entry strategy is to find a pathway into the industry and a way of surviving the first two or three years when most business are operating with a negative cash flow. Starting in year three, you need to envision how you will not only grow your firm, but how you will thrive.

Formulating Strategy :

  • Growth Strategy
  • Franchising
  • Expanding Your Product Mix
  • Geographic Expansion
  • International Growth

Formulating Strategy : Entry strategy:
Franchising is a strong growth strategy if you have a replicable business model. It is used with retail concept such as Mc Donald’s. The keys to success with franchising as follows:

  1. Replicability
  2. Control

Expanding Your Product Mix. Building your product mix should increase your revenue at a rate greater than the associated costs. In other words, you should be able to spread your existing costs across a larger product base.

Increase your power  to secure beter terms when negotiating (by using the same vendor to provide materials or to produce your products and or by selling more products through existing distribution channels)

Adding Product is a means to grow, but it is not risk-free. The risk is that the company will incur development expenses, the market may not accept the new product, and the unsuccessful product line could reflect unfavorably on the reputation of the existing products.

Geographic Expansion. This natural growth is based on the underlying assumption that customers should like your product or service elsewhere if they like it in the location where you founded the company. We could plan geographic expansion systematically or it could happen haphazardly. When planning geographic expansion, you’ll want to weigh a number of factors :

  • Customers
  • Vendors
  • Distribution

Balancing your saturation point (the point when new expansion within the region cannibalizes existing operations-against its opportunities to expand to new regions). Today with the internet,it is easier than ever to expand across many regions simultanously.

Formulating Strategy : Entry strategy:
International Growth

Advances in logistics, technology, and manufacturing have allowed smaller and younger firms to compete globally. Firms that look globally from the outset often have tightly managed organizations, innovative products, and strong networks for marketing. They also have more aggressive growth strategies, use more distribution channels, and have more experienced management teams.

International Growth

Pat Dickson notes that there are three types of global entrepreneurial firms.

  1. Gradual global; enter international markets in stages in order to reduce their risk.
  2. Born global; plan to enter the international markets right from their outset.
  3. Born-Again global; have been operating only domestically, but some even triggers them to move rapidly into new international markets, such as unsolicited order from abroad.

Conclusion

After that, it is time to think about how you will enter the marketplace and grow your firm. During entry, you are proving that your business model is visible and profitable.  As you learn more about your customer and business, you’ll modify your original vision. Entry to the marketplace provides a platform to identify new opportunities and to reshape your business so that it is best positioned to grow and thrive.

Reference

Bygrave, Wiliam and Andrew Zacharakis.2008.Entrepreneurship.NJ: Wiley

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