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  • Running Your Business

    In this section we deal with all aspects of running a business.

    In this section
    Business Models
    Your Solution

    Business Strategy
    The Five Generic Competitive Strategies
    Competition
    Target Market


    Business Management
    Budget & Sales Goals
    Financials: Budgeting & Forecasting
    Operations & Management

  • Business Models

    A business model is simply how you plan to make money. It is the basis for the plan you choose for your company to make it successful. The business model describes how the company is positioned within its industry's value chain, and how it organises its relations with its suppliers, clients, and partners in order to generate profits. 

    Quote

    If the business plan is a road map that describes how much profit the business intends to make in a given period of time, the business model is the skeleton that explains how that money will be made. 

     

    How this section fits into your business plan:

    Your Solution
    A description of your products/services.

    How do you solve your customer’s problem? What products and services are you offering? Describe your product or service and why it’s better than the alternatives.

    Tip
    Have a look at your businesses value chain, this will give you an idea of the various business models available and how you can improve upon it.

  • C2C (Consumer-to-Consumer)

    C2C or consumer-to-consumer, customer-to-customer or citizen-to-citizen is the business model that facilitates commerce between private individuals. Whether it's for goods or services, this category of e-commerce connects people to do business with one another.
    This is often the model used when individuals sell their possessions on classified sites such as Gumtree. It is also a common model used by side businesses. 
    • By Ken
    • 8 views

    B2M (Business-to-Many)

    B2M or business-to-many is a business model of a business that sells their goods or services to other businesses as well as to consumers. Unlike B2B companies that only engage themselves with other businesses or retail companies (B2C) that only sell to consumers or end users, B2M companies do both.

    It is important to understand that just because an organization sells to both other businesses and consumers this does not mean that they target their products and services to everyone. B2M companies, like any other type of company, have a more specific target audience.
    • By Ken
    • 10 views

    B2G (Business-to-Government)

    B2G or business-to-government is a business model that refers to businesses selling products, services or information to governments or government agencies.
    Procurement divisions provide a way for businesses to bid on government projects or products that governments might purchase or need for their departments.  
    • By Ken
    • 7 views

    B2C (Business-to-Consumer)

    B2C (business-to-consumer), is a business model based on transactions between a company, that sells products or services, and individual customers who are the end-users of these products.
    In B2C businesses sell products or services directly to consumers and happens at the end of the supply chain, on contrast to B2B (business-to-business) where companies trade with each other which happens further up the supply chain.
     
    • By Ken
    • 11 views

    B2B (Business-to-Business)

    B2B (Business-to-Business) is a type of business model (sometimes called a sales model) where exchange of goods and services take place between two or more businesses such as one involving a manufacturer and wholesaler, or a wholesaler and a retailer. The consumer, usually isn't involved in these types of models and come into play only at a later stage (usually when they buy from the retailer).
    Business-to-business refers to business that is conducted between companies, rather than between a company and individual consumer (B2C). 
     
    • By Ken
    • 12 views
  • Business Strategy

    About business strategy. More...

    How this section fits into your business plan:

    Competition
    Who else in the market is doing similar things and why your products are better?

    What products and services do your customers choose today instead of yours? How are you different? What makes your business and products better than the alternatives that are out there?

    Target Market
    Who buys your products (or will buy your products)?

    Who is your ideal customer? Describe your ideal customer. Who are they?
    How do you market your products and services to your customers?

    Tip
    Your business strategy (including competition and target market) will have a bearing on your Sales Channels and Advertising, Sales & Marketing.

    Remember, different target markets might need different types of marketing activities to get your product in front of them.

  • Focussed Differentiation

    A focused strategy keyed to differentiation aims at securing a competitive advantage with a product offering carefully designed to appeal to the unique preferences and needs of a narrow, well-defined group of buyers (as opposed to a broad differentiation strategy aimed at many buyer groups and market segments). Successful use of a focused differentiation strategy depends on the existence of a buyer segment that is looking for special product attributes or seller capabilities and on a firm's ability to stand apart from rivals competing in the same target market niche.
    • By Ken
    • 4 views

    Focussed Low-cost Provider

    A focussed strategy based on low cost aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and lower price than rival competitors. This strategy has considerable attraction when a firm can lower costs significantly by limiting its customer base to a well-defined buyer segment. The avenues to achieving a cost advantage over rivals also serving the target market niche are the same as for low-cost leadership - outmanage rivals in keeping the costs of value chain activities contained to a bare minimum and search for innovative ways to reconfigure the firm's value chain and bypass or reduce certain value chain activities. The only real difference between a low-cost provider strategy and a focused low-cost strategy is the size of the buyer group that a company is trying to appeal to - the former involves a product offering that appeals broadly to most all buyer groups and market segments whereas the latter at just meeting the needs of buyers in a narrow market segment.
    Focused low-cost strategies are fairly common. Producers of private-label goods are able to achieve low costs in product development, marketing, distribution, and advertising by concentrating on making generic items imitative of name-brand merchandise and selling directly to retail chains wanting a basic house brand to sell to price-sensitive shoppers.
    • By Ken
    • 6 views

    Best-cost Provider

    Best-cost provider strategies aim at giving customers more value for the money.
    The objective is to deliver superior value to buyers by satisfying their expectations
    on key quality/features/performance/service attributes and beating
    their expectations on price (given what rivals are charging for much the same
    attributes). A company achieves best-cost status from an ability to incorporate
    attractive or upscale attributes at a lower cost than rivals. The attractive
    attributes can take the form of appealing features, good-to-excellent product
    performance or quality, or attractive customer service. When a company has
    the resource strengths and competitive capabilities to incorporate these upscale
    attributes into its product offering at a lower cost than rivals, it enjoys
    best-cost status-it is the low-cost provider of an upscale product.
    Being a best-cost provider is different from being a low-cost provider because the
    additional upscale features entail additional costs (that a low-cost provider can avoid
    by offering buyers a basic product with few frills). Best-cost
    provider strategies stake out a middle ground between pursuing a low-cost advantage
    and a differentiation advantage and between appealing to the broad market as a whole
    and a narrow market niche. From a competitive positioning standpoint, best-cost strategies are thus a hybrid, balancing a strategic emphasis on low cost against a strategic emphasis on differentiation (upscale features delivered at a price that constitutes superior value).
    • By Ken
    • 2 views

    Broad Differentiation

    Differentiation strategies are attractive whenever buyers' needs and preferences
    are too diverse to be fully satisfied by a standardized product or by
    sellers with identical capabilities. A company attempting to succeed through
    differentiation must study buyers' needs and behavior carefully to learn what
    buyers consider important, what they think has value, and what they are willing
    to pay for. Then the company has to incorporate buyer-desired attributes
    into its product or service offering that will clearly set it apart from rivals.
    Competitive advantage results once a sufficient number of buyers become strongly
    attached to the differentiated attributes.
    Successful differentiation allows a firm to:
    Command a premium price for its product, and/or Increase unit sales (because additional buyers are won over by the differentiating features), and / or Gain buyer loyalty to its brand (because some buyers are strongly attracted to the differentiating features and bond with the company and its products).
    • By Ken
    • 6 views

    Low-cost Provider

    Striving to be the industry's overall low-cost provider is a powerful competitive approach
    in markets with many price-sensitive buyers. A company achieves low-cost leadership
    when it becomes the industry's lowest-cost provider rather than just being
    one of perhaps several competitors with comparatively low costs. A low-cost
    provider's strategic target is meaningfully lower costs than rivals-but not
    necessarily the absolutely lowest possible cost. In striving for a cost advantage
    over rivals, managers must take care to include features and services that
    buyers consider essential - a product offering that is too frills-free sabotages
    the attractiveness of the company s product and can turn buyers off even if it
    is priced lower than competing products.
     
    • By Ken
    • 4 views

    Porter's Generic Strategies

    Porter's generic strategies describe how a company pursues competitive advantage across its chosen market scope. We cover five generic strategies, either low cost, differentiated, low-cost focus,  differentiated focus or best-cost. 
     
    The Five Generic Competitive Strategies
     
    • By Ken
    • 5 views

    Competitive rivalry

    For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Having an understanding of industry rivals is vital to successfully marketing a product. Positioning pertains to how the public perceives a product and distinguishes it from competitors‘. An organization must be aware of its competitors' marketing strategies and pricing and also be reactive to any changes made. Rivalry among competitors tends to be cutthroat and industry profitability low while having the potential factors below:
    Potential factors:
    Sustainable competitive advantage through innovation Competition between online and offline organizations Level of advertising expense Powerful competitive strategy which could potentially be realized by adhering to Porter‘s work on low cost versus differentiation. Firm concentration ratio
    • By Ken
    • 5 views

    Bargaining power of suppliers

    The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes. If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from them. Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.
    Potential factors are:
    Supplier switching costs relative to firm switching costs Degree of differentiation of inputs Impact of inputs on cost and differentiation Presence of substitute inputs Strength of distribution channel Supplier concentration to firm concentration ratio Employee solidarity (e.g. labor unions) Supplier competition: the ability to forward vertically integrate and cut out the buyer.
    • By Ken
    • 4 views

    Bargaining power of customers

    The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program. Buyers' power is high if buyers have many alternatives. It is low if they have few choices.
    Potential factors:
    Buyer concentration to firm concentration ratio Degree of dependency upon existing channels of distribution Bargaining leverage, particularly in industries with high fixed costs Buyer switching costs Buyer information availability Availability of existing substitute products Buyer price sensitivity Differential advantage (uniqueness) of industry products RFM (customer value) Analysis
    • By Ken
    • 5 views

    Threat of substitutes

    A substitute product uses a different technology to try to solve the same economic need. Examples of substitutes are meat, poultry, and fish; landlines and cellular telephones; airlines, automobiles, trains, and ships; beer and wine; and so on. For example, tap water is a substitute for Coke, but Pepsi is a product that uses the same technology (albeit different ingredients) to compete head-to-head with Coke, so it is not a substitute. Increased marketing for drinking tap water might "shrink the pie" for both Coke and Pepsi, whereas increased Pepsi advertising would likely "grow the pie" (increase consumption of all soft drinks), while giving Pepsi a larger market share at Coke's expense.
    Potential factors:
    Buyer propensity to substitute. This aspect incorporated both tangible and intangible factors. Brand loyalty can be very important as in the Coke and Pepsi example above; however contractual and legal barriers are also effective. Relative price performance of substitute Buyer's switching costs. This factor is well illustrated by the mobility industry. Uber and its many competitors took advantage of the incumbent taxi industry's dependence on legal barriers to entry and when those fell away, it was trivial for customers to switch. There were no costs as every transaction was atomic, with no incentive for customers not to try another product. Perceived level of product differentiation which is classic Michael Porter in the sense that there are only two basic mechanisms for competition - lowest price or differentiation. Developing multiple products for niche markets is one way to mitigate this factor. Number of substitute products available in the market Ease of substitution Availability of close substitute
    • By Ken
    • 3 views

    Threat of new entrants

    Profitable industries that yield high returns will attract new entities. New entrants eventually will decrease profitability for other firms in the industry. Unless the entry of new firms can be made more difficult by incumbents, abnormal profitability will fall towards zero (perfect competition), which is the minimum level of profitability required to keep an industry in business.
    The following factors can have an effect on how much of a threat new entrants may pose:
    The existence of barriers to entry (patents, rights, etc.). The most attractive segment is one in which entry barriers are high and exit barriers are low. It's worth noting, however, that high barriers to entry almost always make exit more difficult. Government policy such as sanctioned monopolies, legal franchise requirements, or regulatory requirements. Capital requirements - clearly the Internet has influenced this factor dramatically. Web sites and apps can be launched cheaply and easily as opposed to the brick and mortar industries of the past. Absolute cost Cost advantage independent of size Economies of scale Product differentiation Brand equity Switching costs are well illustrated by structural market characteristics such as supply chain integration but also can be created by firms. Airline frequent flyer programs are an example. Expected retaliation - For example, a specific characteristics of oligopoly markets is that prices generally settle at an equilibrium because any price rises or cuts are easily matched by the competition. Access to distribution channels Customer loyalty to established brands. This can be accompanied by large brand advertising expenditures or similar mechanisms of maintained brand equity. Industry profitability (the more profitable the industry, the more attractive it will be to new competitors)
    • By Ken
    • 3 views

    Porter's Five Forces

    Porter's Five Forces is a method for analysing competition of a business. It derives five forces that determine the competitive intensity and, therefore, the attractiveness (or lack of it) of an industry in terms of its profitability.
    Porter's Five Forces is a model that identifies and analyzes five competitive forces that shape every industry and helps determine an industry's weaknesses and strengths. Five Forces analysis is frequently used to identify an industry's structure to determine corporate strategy. 
    You can use these to guide your business strategy both for a new business entering an industry or to grow an existing business.

    An "unattractive" industry is one in which the effect of these five forces reduces overall profitability. The most unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven to normal profit levels.

    Five Forces
    1. Threat of new entrants
    Profitable industries that yield high returns will attract new entities. New entrants eventually will decrease profitability for other firms in the industry. Unless the entry of new firms can be made more difficult by incumbents, abnormal profitability will fall towards zero (perfect competition), which is the minimum level of profitability required to keep an industry in business.
    2. Threat of substitutes
    A substitute product uses a different technology to try to solve the same economic need. Examples of substitutes are meat, poultry, and fish; landlines and cellular telephones; airlines, automobiles, trains, and ships; beer and wine; and so on. For example, tap water is a substitute for Coke, but Pepsi is a product that uses the same technology (albeit different ingredients) to compete head-to-head with Coke, so it is not a substitute. Increased marketing for drinking tap water might "shrink the pie" for both Coke and Pepsi, whereas increased Pepsi advertising would likely "grow the pie" (increase consumption of all soft drinks), while giving Pepsi a larger market share at Coke's expense.

    3. Bargaining power of customers
    The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program. Buyers' power is high if buyers have many alternatives. It is low if they have few choices.
    4. Bargaining power of suppliers
    The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes. If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from them. Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.
    5. Competitive rivalry
    For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Having an understanding of industry rivals is vital to successfully marketing a product. Positioning pertains to how the public perceives a product and distinguishes it from competitors‘. An organization must be aware of its competitors' marketing strategies and pricing and also be reactive to any changes made. Rivalry among competitors tends to be cutthroat and industry profitability low.
    You can read more an in-depth analysis on the Wikipedia page.
    Short video
    Longer video
    Porter's Five Forces Analysis & Strategy
      
    • By Ken
    • 10 views
  • Business Management

    Budget and sales goals

    Budgeting

    Forecasting
     

    How this section fits into your business plan:

    Financials: Budgeting & Forecasting
    How much does it cost you to produce one of your products? How much do your products cost, how many of them will you sell this year, and how will you make a profit?

    Tip
    Your budgeting, forecasting, resources and people will partly determine your funding needs. Make sure you know the difference between a need and a want.


    Operations: Resources & People

    Resources
    The resources you need to start run and grow your business (Equipment & Materials).

    People
    The People you need to start, run and grow your business (Leader/Team/Partners).

    How this fits into your business plan:

    Operations & Management
    The resources and people you have, need and want to start and run your business.

    Operations
    Key Resources
    Key Activities
    Running costs
    Collaborators

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