Chapter Two

Creation of New Ventures

THE BUSINESS MODEL
Business model describes how an organization creates, delivers
and captures values in economic, social, cultural or other
contexts.
This topic will take you through the process of describing, assessing
and improving your potential business model.
As an entrepreneur, you can use the process of developing a business
model to better understand the customer and what the customers wants,
needs and is willing to pay for.
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A Building Blocks of Business Model
• Business models will vary based on the type of products and services
you provide and the type of industry/sector you are servicing.
• Now that being said all business models have some common elements.

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 1. The value proposition of what is offered
to the market.
• A customer value proposition is a business or marketing statement that
describes why a customer should buy a product or use a service.
• It is a set of products and/or services that provide value for the
customer.
• Your business can have more than one value proposition, each catering
to different segments of your customers.

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Cont…
Questions that you will need to ask to identify the value proposition
for each customer segment:
• What do you offer to the market?
• What specific products/services do you offer each customer segment?
• What customer needs does the value proposition cover?
• Are our service levels different for different customers?

Sintayehu S. 5
 2. The segment(s) of clients that are
addressed by the value proposition.
• Always remember when growing a business: NO CUSTOMERS, NO
BUSINESS.
• Customer segmentation is the process of organizing customers into
specific groups based on shared characteristics, behaviors, or
preferences, with the aim of delivering more relevant experiences.
• An explicit understanding of the potential customers for your business
is a fundamental ingredient for this building block of a business model.
• The customer segment and the value proposition are the heart and soul
of any business model.
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Cont…
• Some basic questions you need to ask that when identifying who your
customers or potential customers are:
 Who do we create value for?
 Can we group them according to
oWhat you offer?
oThe channels you communicate and distribute your offer?
oBy the relationships you keep with them?
oBy the profitability of each segment?
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3. The communication and distribution channels to
reach clients and offer them the value proposition.
• Various communication and distribution channels are available to
reach your customer, but choosing the right fit is critical for you to
have and maintain competitive advantage.
• This is all part of your marketing effort and plan.
• You must also take understanding of the cost of distribution as that
will affect the bottom‐line (profit and profitability).

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Cont…
Key Questions:
• What is the specific bundle of products and services you offer each of
our customer segments?
• Which customer needs does each value proposition cover?
• Do we offer different service levels to different customer segments?
• What is the best way to distribute our products and services?
• How should we communicate and engage our potential customers?

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4. The relationships established with clients.
• Good relationships with your clients is vital in meeting their
expectations and ensuring they are return customers.
• Customers who pay premium prices will expect quality customer
service and support.
• You can easily see these at play in the airline industry between first
class air passengers and economy class passengers.

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Cont…
Key Questions:
• How do we develop and maintain different types of client relationships
in our business model (e.g. more or less intense, more or less personal)?
• How resource intensive is each of these client relationship in terms of
time consumption and other costs?
• For each client segment, which client relationship types and
mechanisms do we develop and maintain?
• What type of customer service and support must I establish?

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 5. The key resources needed to make the
business model possible.
• Every business requires physical and human resources to accomplish
its value proposition.
• Some of these resources include employees, contractors, suppliers,
office space, infrastructure and other tangible assets.
• For the business model to work successfully, these key resources must
be deployed efficiently and effectively to support your value
proposition and your customer segment.

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Cont…
Key Questions:
• What are the key resources we rely on to run our business model?
• How do these resources relate to our value propositions and their
corresponding customer segments, channels and relationships?
• What resources do not add value to the company?

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6. The key activities necessary to implement
the business model.
• Your business must perform certain key activities in order to implement your
business model and service your customers.
• The processes and activities will change based on the type of products or services
you provide, the industry or sector you are serving and the type of business
scenarios you are trying to work in.
Key Questions:
• What are the main activities we operate to run our business model?
• On which key resources do they rely?
• To which value propositions, channels or relationships do they contribute?
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 7. The key partners and their motivations
to participate in the business model.
• In some business ventures there may be a need for individual or corporate partners to
perform different tasks.
• Some key activities may call for specialist knowledge or equipment and these can be
provided through outsourcing.
Key Questions:
• Which partners and suppliers do we work with?
• Which key resources do they relate to?
• What is the cost/impact of partnering?
• To which value propositions, channels or relationships do they contribute?

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8. The revenue streams generated by the business
model (constituting the revenue model).
• Revenue from customers provides the backbone for any business.
• This is generated as result of value created for the customer through
our value proposition.
• Revenues can come in various forms: selling, lending, commissions,
licensing etc. from one or more of the customer segments.

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Cont…
Key Questions:
• What are our revenue streams?
• What are the revenue streams from each customer segment and value
proposition?
• How much is each revenue stream’s contribution to overall revenues
in terms of percentages?

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 9. The cost structure resulting from the
business model.
• The business model incurs costs that can easily be traced back directly
or indirectly to each component within each of the nine business
building blocks.
• By simply listing the most important costs incurred, you will be able
to easily link them to a building block.

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Cont…
Key Questions:
• What are the most important costs in our business model?
• Can the cost requirements be easily connected to a business model
building block?
• Can costs be calculated for each customer segment?

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 What is the Business Plan?
• A business plan is a written document prepared by the entrepreneur that
describes all the relevant internal and external elements and strategies for
starting a new venture.
• It is a integration of functional plans such as marketing, finance,
manufacturing, sales and human resources.
• A Business Plan helps you evaluate the feasibility of a new business idea
in an objective, critical, and unemotional way.
• The business plan should be prepared by the entrepreneur.
• The entrepreneur may consult with many other sources in its preparation,
such as lawyers, accountants, marketing consultants, and engineers.
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Cont…
It provides an operating plan to assist you in running the business and improves your
probability of success.
• Identify opportunities and avoid mistakes
• Develop production, administrative, and marketing plans
• Create budgets and projections to show financial outcomes
It communicates your idea to others, serves as a “selling tool,” and provides the basis
for your financing proposal.
• Determine the amount and type of financing needed
• Forecast profitability and investor return on investment
• Forecast cash flow, show liquidity and ability to repay debt

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Cont…
• Business plans vary in style and content based on the type of business
you plan to start.
But most business plans include the following:
• Business structure and describes of products and services,
• Market research and marketing strategies,
• resource requirements and start‐up and operating budgets and financial
projections for the first three to five years of operation.

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Who Reads The Plans?

• The business plan may be read by employees, investors, bankers,

venture capitalists, suppliers, customers, advisors, and consultants.
• There are three perspectives should be considered in preparing the
plan :
• Perspective of the entrepreneur
• Marketing perspective
• Investor’s perspective

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 Presenting the plan
It is often necessary for an entrepreneur to orally present the business
plan to investors.
Typically the Entrepreneur provides a short (20-30 minutes)
presentation of the business plan.
The entrepreneur must sell their business concept in a short time
period.
A venture capitalist or angel group may also ask the entrepreneur to
present the plan to their partners before making a final decision.

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 Sources of Business Ideas
Consumers
Existing companies
Distribution channels
Government and
Research and Development.

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 Sources of Business Ideas
1. Consumers: the potential consumer should be the final focal point
of ideas for the entrepreneurs. The attention to inputs from potential
consumers can take the form of informally monitoring potential
ideas or needs or formally arranging for consumers to have an
opportunity to express their concerns
2. Existing Companies: with the help of an established formal
methods potential entrepreneurs can evaluate competitive products
& services on the market which may result in new and more market
appealing products and services.
3. Distribution channels: members of the distribution channels are
familiar with the needs of the market and hence can prove to be
excellent sources of new ideas.

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Cont.…
4. Government : it can be a source of new product ideas. The patent
office files contain numerous product possibilities that can assist
entrepreneurs in obtaining specific product information.
5. Research & development : Entrepreneur’s own R&D is the largest
source of new idea. A formal and well-equipped research and
development department enables the entrepreneur to conceive and
develop successful new product ideas.

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Guidelines for Selecting a Business Idea
• List your interests and abilities.
• List the types of businesses that match your interests and abilities.
• Identify future needs for products that no one yet offers.
• Evaluate existing goods and services and ways you can improve them.
• Choose a business that offers profit potential.
• Conduct marketing research to determine potential profitability.
• Learn as much as you can about the appropriate industry.

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 Business Plan Outline
Title Page/cover sheet
Executive Summary
Table of Contents
Mission Statement
 Business/Industry Description
 Product or Service Description
Organizational Data
 Marketing Strategy
 Competitive Analysis
 Operations Plan
 Financial Information
Business Plan Outline
Cover Sheet:
• Business Name,
• Address,
• Phone Number,
• Principals
Executive Summary : Three to four pages summarizing the complete
business plan
• What is the business concept or model?
• How is this business concept or model unique?
• Who are the individuals starting this business?
• How will they make money and how much?
Table of content 30
Mission statement
• A Mission statement declares an organization’s purpose, assignment,
and the job it is setting out to do.
• Usually a single sentence or a very short paragraph
• Focuses on the present
• Clarifies what the day-to-day business of the organization’s.
Most of the mission statement answer three questions:
Why
Who
How
Melese G. 31
Cont…
• Why
The intended benefits or contribution the organization makes
The problem the organization aims to solve
The motivation that drives the enterprise
The purpose or reason the organization exists
Who
The clients, customers or community the organization is trying to help
The target audience or market the organization wants to reach.

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Cont…
How
It describes the method or strategy of the organization use to do
business
The way the organization accomplish its work.
The distinctive approach that makes the organization different.
Samara University is dedicated in conducting and releasing problem
solving research outputs, and providing need based community
services and transferring technologies to foster the development
aspiration of the nation.

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Vision
• a vision statement is a concise statement that explains what the
organization wants the future to look like.
• Samara university vision
To be one of the top ten leading Universities in pastoral and Agro-
pastoral community development in East Africa by 2035. 

Melese G. 34
Goals
• Goals are the more specific aims that organizations pursue to reach
their visions and missions.
• The best goals are SMART: Specific, Measurable, Achievable,
Realistic, and Time-bound.

Melese G. 35
 Mission statements of national cement industry
Mission
To produce & distribute cement products that exceedingly
meet customer requirements by adopting modern technology,
qualified manpower, eco-friendly and socially accountable
operation and thereby create sustainable value for our
stakeholders.
Vision
Become a world class cement manufacturing company by 2025
Goals
To produce 2500 tons per day
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 Product or Service Description
 Explain what your business sells or proposes to sell, describing your
products or services in detail: their features, quality and performance
levels, functions, and so on.
 Here it’s important to point out what separates them from competitors’
product offerings and what benefits customers will derive from them.
 In other words, what makes your products or services unique or gives them
the edge? If you are using a trade secret (such as a recipe or formula) or
have (or expect to receive) patent protection, state that, too.
 Organizational Data
 In this section, outline the duties and responsibilities of the people involved
in your business.
 Make it clear who does what (in production, sales, accounting, and so on)
and who reports to whom.
 If you’re currently an organization of one, describe the tasks you will be
carrying out, and estimate your future personnel needs.
 If you have any advisors or outsourced workers helping you, indicate that, as
well.
 To further illustrate how your business is set up, include an organization
chart in this section, along with résumés showing each person’s
qualifications.
 Marketing Strategy
 The main reason for starting a business is to sell something. That’s where
marketing strategy comes in. The primary objectives in this section of your
business plan are to:
1. Define your target market, describing your potential customers and
why they buy.
2. Estimate the total market size and determine what share of it you can
realistically hope to obtain.
3. Develop a pricing structure that will ensure you maximum profitability.
4. Determine what combination of advertising and publicity to use to
promote the business.
5. Outline a distribution strategy that will enable you to reach customers in
the most efficient way possible.
 Competitive Analysis
 Your competitive analysis should identify the key players in your industry
and explain how your business can compete with them.
 Focusing on your strengths and advantages (as noted in your product or
service description),
 Show how you can capitalize on them to gain your desired market share.
 Your purpose isn’t to belittle the competition. Rather, it’s to point out
1) the customers whose needs they are failing to serve properly, if at all;
and
2) the limitations (such as being too large or having dated technology) that
keep them from doing what you can do
 Operations Plan

 This is the nuts-and-bolts section of your business plan the place to describe
how your product or service will actually be produced or delivered to the
customer.
 All information about facilities, equipment, and supplies goes here.
 You should also explain what technologies, skills, and processes are
required to do the job.
 Financial Information
 Last is the section that lenders and investors often consider to be the
“heart” of the business plan.
 This describes the financial data relevant to your business venture,
including your current financial statements (if the business is already
established), as well as a projected:
 Income statement
 Balance sheet
 Cash-flow statement
 These projections, covering a period of one to three years, are meant
to provide a financial picture of your business, showing its expected
revenues, expenses, assets, and liabilities.
 Planning Resources
There are numerous resources you can draw on for help in researching,
writing, and formatting your business plan:
People. In addition to any partners, investors, or employees you may want
to include in the planning process, the following people can help, too:
bankers, attorneys, management consultants, college business professors,
suppliers, and distributors.
Places. Some of the places you can go for information on business
planning include: the Small Business Administration, Small Business
Development Centers, community colleges, chambers of commerce, trade
associations, professional organizations, and business networking groups.
THANK YOU!!!

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