Business Model Design

A business model creates, delivers, monetizes, and sustains customer value. The more efficient and sustainable the business model, the lower is the uncertainty of the cash flow and the greater is the venture valuation. The greater the customer, supplier, and strategic partner lock-in, the more sustainable is the business model design. In this chapter, a framework is provided to configure the value chain and supply chain configuration to meet the customer demand efficiently and effectively. Activity-based costing may be employed to analyze and estimate the cost structure and identify the cost drivers. The five-force analysis can be used to identify the critical success factors that a startup may consider when configuring the value chain. The more indirect and sustained the attack on the competitors, the more effective is the startup’s go-to-market strategy. Several revenue models and their implementation challenges are examined. In a sustained business model, the gross margin on a product must exceed twice the ratio of the customer acquisition cost to the customer lifetime value. A business model design with a high gross margin and high operating leverage is more investable. The customer share measure can assess the effectiveness of the customer engagement strategy.