MGT3960 Entrepreneurship Management Fall 2015

There are many ways to describe business models. One of my favorite from the book is that “A business model is a description of how your company intends to create value in the marketplace. It includes that unique combination of products, services, image, and distribution that your company carries forward. It also includes the underlying organization of people, and the operational infrastructure that they use to accomplish their work.” This description is in plain and easy to understand language yet very thorough and insightful. It carries out the full concept of business model.

The five component model and the business model canvas are both very useful tools for entrepreneurs to think about their business models. They both help start-ups to get a cleaner picture of all the components and touch down on very important points such as market segment, customers, value and strategy.

Five component model is highly condensed and each of component consists lot of questions to ask and to make clear. In the other hand, the business model canvas already help us to accelerate the process by asking questions and all we need to do is to answer those questions.

Greif Packaging changes their business focus from a commodity supplier of metal drums to a value-added service provider of “trip leasing” company. They listen carefully to their customers and provide full-service that other companies didn’t realized and capture the extra value. The extra value comes from helping their key customers to solve their problems. They take over the problems that their customers don’ t want to deal with at all and gain a big competitive advantage on this.

There differences between Franchising and Licensing,

1. Franchising – Franchiser will help to support and train Franchisee and its employees / Licensing – Licenser will not provide that
2. F – It is governed by securities law / L – It is governed by contract law
3. F – Franchiser have control over Franchisee / L – Licenser have no control of Licensee

Three similarities between Franchising and Licensing,

1. both grant receivers certain rights
2. both require royalty payments
3. both are exclusive intellectual property

1. WHAT DEFINITION OF BUSINESS MODEL DO YOU FIND MOST USEFUL AND WHY?

I actually find both versions of the business model very useful. The first model gives you the steps needed to make sure your product/ service will survive in the market. It allows you to identify the competition so you can create a business strategy that will hopefully give you a competitive edge. The second model is just as useful in a sense that it’s asking questions that make you think deeply about what your business will be about before it even starts. Making sure you have a good sense of what your targets and goals are before you jump right into it.

2. WHAT ARE THE SIMILARITIES AND DIFFERENCES BETWEEN THE TWO TOOLS FOR DESIGNING BUSINESS MODELS?

Some similarities are that they both require the owner to really think about what their goals are for the business. They ask you questions regarding the competition making sure you come in to the fight with a plan.

The differences I noticed were that the first model was more broad whereas the second model asked very personal and in depth questions. Business model 2 really wanted you to know your business and what it’s going to be about, meaning it wanted you to know your goals and what’s special to your business.

3. WHY WAS GREIF PACKAGING, DESCRIBED IN CHAPTER 2, ABLE TO CAPTURE MORE OF THE VALUE IN THE SUPPLY CHAIN? WHERE DID THE EXRA VALUE COME FROM, AND WERE THERE OTHERS WHO LOST THE VALUE THEY WERE SELLING?

They were able to capture more of the supply chain and bring in extra value because they adhered to their customers points of pain. The customers didn’t want to go through the struggle of buying the drums and then having to dispose of the chemicals themselves, Grief Packaging recognized this problem and came up with a solution to fix it, giving them a competitive edge over the competition.

6. NAME THREE SIMILARITIES AND THREE DIFFERENCES BETWEEN A FRANCHISE AND A LICENSE.

Similarities: (a) Both are required to be very specific (b) The licensors and franchisor receive an income generated from the franchisee/licensee (c) Both can issue intellectual property right

Differences: (a) The licensee has more freedom when compared to the franchisee, they have less limitation placed on them (b) A licensee costs much less than a franchisee start up (c) A franchisee must continue to pay royalties to the franchisor as long as that business is running.

A business model is most essential to entrepreneurs. My favorite description of a business model is that it provides framework, where entrepreneurs can analyze their business plans and look for other ways for their companies to function and grow profitably while building barriers to ward off competitors. Although this is a long a boring definition, I think this is most useful is because there are several parts.

1. Analyzing your business plans and look for ways to be more efficient, and other opportunities that can make your business even more profitable.
2. While analyzing the business plans, you can see if there are competitors that are a threat to your company and see how you can build barriers to prevent them from overpowering you.

I wanted to speak about the two tools that are used for designing business models, which are called “The Five Component Model” and “The Business Model Canvas”.  To me I believe these two are very similar. The Five Component Model, is mainly made up of five parts as the title of the tool suggests, which are product/service, audience, company structure, finances, and strategy.  Whereas the business model canvas is made of nine parts. I believe that the business model canvas goes more in depth about the audience in which your product or service is useful to.  They specify in who the customer is, and how does our product/service contribute to them, how the company as a whole relates to these customers.  The similarities between these two models is that they both include who the audiences are, how the company will be structured and also how the finances will be managed.  One difference that the business model canvas has is the complex supply chain. This part specifies who our key partners would be if the company started. This is very important because knowing the competition is one thing, but knowing your business partners, supplier, and other affiliates is most important as you will have to deal or answer to them often.

Greif packaging had was a very smart company. They reanalyzed their company and the industry they were in. They pretty much saw that they were putting more risk into the company then getting revenue out of it. So the smart thing they did was reanalyze their company and listened to their customer needs.  With the information they had collected, they were able to create a new company, that solved the problems and generate more revenue. Greif converted their business model into a trip leasing company.  Now, it solves all the problems their customers were having(supply, transportation, cleaning).

1.A business model is the framework of a business. It is the way a business is built and how the creators or innovators feel like it will add value to the lives of people that will use it. The main purpose of a business model is to be able to capture the idea of what the business is suppose to provide and build how they are going to get there.

2.There are two tools for designing business models the first is the “5 component model” and “The second the business model canvas.” They are both similar in the way that they both help define the framework of a business. They define roles and build a plan to be followed and help the business grow and generate revenue.

While both have the same end goal they differ in the method of getting there. In the 5 components model users would start off by evaluating the value created to the customer continues by how you will market your product to generate revenue. The second the business model canvas takes a different first step. They believe that identifying who you will be working with is the most important, who will be getting and giving your goods/services to in the supply chain. It is then followed by the innovator or owner figuring out what to make unique about what they are offering and not thinking about what the customer wants.

I believe that the over all difference of these two methods are the step and ideas in which you would need to get to the same end result. The result of making sure that a company is making money and is profitable.

3. Grief Packaging was a smart man because he resolved an issue that would add value to the experience of his customers. He was able to provide a better experience for his customers which none of his competitors were willing to do. This is how he was able to capture the market and steal it from his competition. People will pay to have a better experience than pay less and have a bad one.

6. 3 similarities between Franchising and Licensing

1. People are paying to use something that you have not built
2. Businesses profit from selling the rights to parts of their companies
3. There are terms and agreements to what the person buying can do with the license or franchise

3 differences between Franchising and Licensing

1. In franchising you use everything a company has already built  framework and operate under the same name but independently, while in licensing you take a component of the product or service and you can use it in your own business.
2. When Franchising you are unable to do whatever you please with what you have purchased. There are guidelines that need to obey by. In licensing, once you have paid or the right to use the licensee in any way you please.
3. In franchising there is some kind of territory that you have and it is a way of making sure that no one that also buys the franchise can steal potential revenue

• What definition of business model do you find most useful and why?
  • Both definitions of a business model include increasing value to your company, which in my opinion is one of the most fundamental points in a business in order for it to be successful. The first definition, “A business model is a description of how your company intends to create value in the marketplace. It includes that unique combination of products, services, image, and distribution that your company carries forward. It also includes the underlying organization of people, and the operational infrastructure that they use to accomplish their work.” is much more specific and includes all the major parts of a business that have a big impact on the customer. I agree that a business’ “unique combination” makes the difference, there has to be a reason customers choose to use your business and those reasons can create loyal customers. This definition also takes into account the way they accomplish their work because customers are interested in the marketing, selling and delivery of a product or service.
• What are the similarities and differences between the two tools for designing business models?
  • Similarities: Both models require the identification of their value of the business. What makes them valuable to customers? Both models ask the business to identify the relationship between the customers and suppliers and their business.
  • Differences: Model 1 asks to formulate the competitive strategy, where as Model 2 asks how to get new customers. Model 1 asks to identify the cost structure and profit potential, where Model 2 asks where are the major costs for resources and activities. In my opinion Model 2 is more personal and therefore better if a company wants to add value.
• Why was Greif Packaging able to capture more of the value in the supply chain? Where did the extra value come from, and were there others who lost the value they were selling?
  • Greif Packaging is a supplier of metal drums who was able to increase their profits by supplying more than just a product. They saw their customers did not want to go through the hassle of getting the permits, cleaning & refurbishing the drums, and finding who they can hire to dispose of the metal drums which contain toxic waste, amongst other things. Therefore, Greif Packaging turned their business by eliminating the customers’ points of pain and taking care of the whole process of disposing toxic chemicals which makes things a lot easier for their customers. The customers recognize the value and dedication this company has to its clients compared to the competition and therefore become long-lasting clients of Greif Packaging.
• Name three similarities and three differences between a franchise and a license.
  • Similarities: (1) Both licensors and franchisors create revenue in the forms of fees for using their products. (2) Both license and franchise agreements have to be as specific as possible to avoid legal disputes. (3) Not all licensing agreements are beneficially equal in all parts of the world, the licensee and franchisee needs to intensively review the marketing presence in that location.
  • Differences: (1) A license is used for intellectual property and a franchise agreement is used for trademarks, service marks, trade names, or advertising symbols.  (2) The franchisor has strict requirements in the presentation of the business because most aspects have to be uniformed throughout that franchise. Therefore is not much room for improvements. On the other hand,  licensees may or may not have much freedom but there can be room for improvements, which the licensor may have right to. (3) Since many people try to open a franchise without the proper legal advise, all franchisors are required to disclose a document which includes sales information called the UFOC.

QUESTION 1: WHAT DEFINITION OF BUSINESS MODEL DO YOU FIND MOST  USEFUL AND WHY?

First, to me, both definitions are pretty much the same; however, I find the first one to be most useful because  it clearly states that a company must create value through not just the combination of products, or services image but also  “the underlying organization of people, and the operational infrastructure that they use to accomplish their work.” A lot of companies focus too much on the service or product they offer, but what about the other essential aspects of a business plan, such as the organization of the people that make up the company and the tools used to provide the service or products to customers. The second definition is too broad; therefore, to me, the first one can be most useful since it specifies in more detail the aspects that are essential and must be considered when companies examine business plans.

QUESTION 2: WHAT ARE THE SIMILARITIES AND DIFFERENCES BETWEEN THE TWO TOOLS FOR DESIGNING  BUSINESS MODELS?

Some similarities I was able to find between these two models is that  both emphasize the importance of identifying the company’s  customers  or “market segment” as well as “key partners,” also the importance of creating and contributing to the “value proposition.” I also find   that in Model 1’s component # 3 and Model 2’s topic # 4 are very similar, both ask to identify the key resources or assets that are needed  for the firm to perform its activities and function  in the business environment.

A difference  between these two models, is that Model #2 is more creative  and innovative and  I believe can generate more ideas than Model #1, the reason is that it is composed specifically of questions made to each participant and is recommended to be used in team-sessions, and the more brains  working together, the better results.  Another difference is the vocabulary used to refer to customers. Model 1 mentions “market segment” and “users” (in component #2), where as Model 2 refers as “customers” in most of all its key topics.

QUESTION 3: WHY WAS GREIF PACKAGING, DESCRIBED IN CHAPTER 2, ABLE TO CAPTURE  MORE OF THE VALUE  IN THE SUPPLY CHAIN? WHERE DID THE EXRA VALUE COME FROM, AND WERE THERE OTHERS WHO LOST THE VALUE THEY WERE SELLING?

Grief Packaging was able to capture more of the value in the supply chain because the company focused on identifying customers’ needs. It realized what customers really wanted which was the efficient and safe transportation of the toxic chemicals. The extra value came from being able to identify the unmet needs and develop new solutions; Grief created a way to solve the trip problems for customers. It took care of the details that customers did not want to deal with which were “finding a licensed trucker; filling in the government forms; and washing, cleaning, and refurbishing the drums.” I think that the drum suppliers  are some who lost the value they were selling because now Grief was the one capturing more of the value in the supply chain by dominating and taking care of customer’s  needs and wants.

QUESTION 6: NAME THREE SIMILARITIES AND THREE DIFFERENCES BETWEEN A FRANCHISE AND A LICENSE.

Three similarities between a franchise and a license are: 1)Both require a type of agreement or contract between an issuing party and a receiving party, 2) both  require  that the contract clearly defines and identifies each  party based on the reasons for entering into the agreement, and 3) both can provide intellectual property which has to be precisely defined. Both agreements may give patent numbers, trademarks, or list of secrets.

Three differences between a franchise and a license are: 1) in  a franchise agreement the limitations of the franchisee’s business are clearly defined, whereas,  in a license one, the licensee  could have more freedom if  these limitations are not indicated in the agreement, 2) in contrast to a franchise agreement, a license agreement clearly defines the territory where a licensee would be doing business, and 3)a franchisor is required by law to provide the franchisee with the Uniform Franchise Offering Circular document, so that  the purchase is aware of the risks and dangers of the franchise agreement; this is not necessarily required in a license agreement.

From the two business models, “The Five Component Model” and “The Business Model Canvas”, I personally prefer the last of those two. You may ask why? Well, to me the canvas model seems more thorough. The model is based on research, and it is suggested that the model is made in teams. I see myself as a team player, and I like the idea that several people collaborate on designing a business model. The questions are fairly straightforward, yet very in-depth questions. They touch all segments of your business, creating a more thorough business model.

The two models are two completely different models. Here are two main differences:

• The five-component model doesn’t include a representation of the main business goals, e.g. strategic business objectives, critical success factors and key performance indicators, which a holistic business model approach should include. The canvas model offer insight in many areas of business, including: customers, financing, infrastructure, and value-propositions (for example, overall customer experience and outcome)
• The five-component model doesn’t have a clear cause and effect linkages between the competencies, desired outcomes and measurements. Thereby the business model can’t help with possible strategic decisions. The business model canvas is a better fit due to its in-depth questions, making it easier to strategize the decisions of the business.

To add to these differences, I’m a bit surprised that neither of the two business models includes corporate structure & responsibility, which, in my opinion, a business model should include.

A perfect example of listening to customers, and steer your business in a direction that serves what the customers want, is the Greif Packaging case. An internal entrepreneur decided to listen carefully to its customers. He saw there were unmet need and new sources of value to be accessed. Greif converted its business model into a “trip-leasing” company for special chemicals. Their customers didn’t want all the hassle of buying and owning steel drums; they just wanted to move toxic chemicals from A to B efficiently.

Speaking of changing a business model, it is also worth mentioning that businesses have the opportunity grow and expand their business through either franchising or licensing. The primary difference between a franchisee and a licensee is that franchisees can expect to have a much closer relationship with their parent company than their licensee counterparts. Franchisees typically retain rights to the parent company’s trademark and logo. This is important because it is a visible representation of the connection between franchisor and franchisee.

In many ways, franchisees are the public face of the company and so their relationship with the franchisor will be close. For that reason, franchisors usually provide a certain level of training and support to franchisees and their employees. Franchisees can also expect a certain amount of territorial exclusivity as well as controls over the products and services they offer.

The relationship between licensees and the licensing company is looser than the relationship between franchisors and franchisees. In most cases, the licensee does not retain rights to use the company’s trademark. Instead, the licensee is expected to establish its own identity in the marketplace.

Similarly, licensees usually don’t receive exclusive territorial rights. This means that the licensing company is free to sell similar licenses and products to other people in the same geographic area. Licensees also don’t receive much in the way of training or ongoing support from the licensing company.

On the upside, license opportunities are often less expensive than franchises in both the upfront investment and ongoing fees. Once the licensee launches the operation, the relationship with the licensing company is frequently limited to purchasing products whereas franchisees can expect to pay royalties on a go-forward basis.