BUSINESS PROPOSALS AND
BUSINESS MODELS
Session Objectives
At the end of this session you should be able to know:

How to write a business proposal for a new business
 What Business models are, there functions and importance for
both new and established businesses
 How Business Models are prepared and presented using the
Business Model Canvas model
 The different types and approaches to Business Models
Writing a Proposal
for
a new business idea
What is a business proposal

A winning a business proposal depends on what you know about the
customer, opportunity, and competitive environment just as much (if
not more than) as how you write, format, and present your proposal.

Difference with business plan: - A Business Plan is a document
that describes in detail how your business is set up. Business plans
cover your business structure, your products and services, your
market research and marketing strategy, and your complete budget
and financial projections for up to five years. A proposal on the other
hand is a document that invites other parties to do business with you
(investors, partners, customers, suppliers).
Characteristics of business proposal


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May be unsolicited – to potential customers, partners, etc.
Solicited – following a request from potential partners or customers
It is aimed at specific project or business opportunity
Format may be prescribed or flexible depending on whether it is solicited or
unsolicited
It should be seen as a marketing or sales document intended on convincing
the target audience to do business.
Primary aim is to solicit for support
Structuring the business proposal
Structure of your proposal
•
Introduction
•
Summary
•
Details of market analysis
•
How much start-up capital will be required with brief failure
•
Your solution to their problem
•
Timelines for making profit
•
The business model
•
Conclusion
 Introduction –States the aims and objectives of the proposal (Why are you doing
it? Who is it for? What do you want to achieve)?
 Summary - is the section of your proposal in which you make your case for a new
business. This is where you explain how or where you got the idea from. It should be
factual, free of jargon and to the point. It should also set the vision, mission, objectives
and rationale for your proposed business and must therefore well-written in a
persuasive manner.
Structuring the business proposal



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Business model – This should show how you aim to generate income and
profit, what value to look to deliver, your differentiation strategy and how to hope to
reach out to potential customers.
Details of market analysis – The aim is to prove that there is a demand for
the product or service you intent to provide and also information about sources of
supplies and level of competition
How much start-up capital – This shows how much money you intend to
raise and a brief breakdown of how the money will be used.
Timelines for making profit – Investors will need an indication of when they
expect some return on their investment so you need to provide some reasonable
timelines of when that will be
Conclusion – why you think this is a worthwhile proposition with an offer to
submit a more detailed business plan once investors express interest in the
proposed venture.
BUSINESS MODELS
What is a business model?

BM is the narrative that seeks to answer the following questions:

Who is the customer?

What does the customer value?

How do we make money from this business?

Who are our partners in the value creation process?

At what cost do we deliver the value?
According to Zotts and Amit (2007), a BM explains how a business is linked with its external
stakeholders (principally customers and suppliers) and how it engages in economic exchange
with them to create value for all the exchange partners.
BMs are usually associate with entrepreneurial activity and for a new business venture, the
designing of a BM is an important part of the business planning process and is therefore
associated with choices such as product/ market mix and segmentation and organisational
design.
What is a business model?
Every business has a business model, whether they articulate it or not. The BM
performs two basic functions i.e.. how value is created and how it is captured.

Value creation: defines a series of activities, from acquisition of raw materials to
satisfying the final consumer by providing a new service or product in a way that
creates net value for the consumer.

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The value is created through various activities that involve other businesses (partners}
and if no net value is created, the other businesses/partners involved in the set of
activities will not participate.
Value capture: defines how value is captured from a portion of those activities for
the business developing and operating the BM.

If the business cannot earn sufficient profit from some portion of its activities in the value
creation it is bound to fail or be reluctant to participate in those activities over time.
What is a Business Model
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According to Lindgarrdt, etl (2009), a BM consists of 2 essential elements i.e. the value
proposition and the operating model.
The value proposition answers the following questions: What are we offering and to Whom?
i.e.

Target segments: which customers do we serve and which of their needs do we seek to
address?

Product or service offering: What are we offering the customers to satisfy their needs?

Revenue model: How are we compensated (rewarded) for our offering?
The operating models addresses the question: How do we profitably deliver the offering and
addresses the following critical areas i.e.

Value chain: How do we deliver or meet the demand? Do we outsource or do it in-house?

Cost Model: How do we configure our assets and costs to deliver our value proposition
profitably?

Organisation: How do we deploy and develop our people to sustain and enhance our
competitive advantage?
The Elements of a BM
There is three
elements to the
BM
Amit and Zott (2012)
Functions of Business Model
1. Articulates the value proposition, i.e. the value created for users by the offering
2. Identifies a market segment, i.e. the users to whom the offering is useful and for what
purpose
3. Defines the structure of the value chain required by the business to create and
distribute the offering, and determine the complementary assets needed to support the
business’s position in this chain. This includes the business’s suppliers and customers,
and should extend from raw materials to the final customer
4. Specifies the revenue generation mechanism(s) for the business, and estimate the
cost structure and profit potential of producing the offering, given the value proposition and
value chain structure chosen
5. Describes the position of the business within the value network (also referred to as an
ecosystem) linking suppliers and customers, including identification of potential
complementors and competitors
6. Formulates the competitive strategy by which the innovating business will gain and
hold advantage over rivals
Chesbrough, (2007
Importance of Business Models
Having a clearly articulated business model is important because it
does the following:

Serves as an ongoing extension of feasibility analysis;
 Focuses attention on how all the elements of a business fit together
and constitute a working whole;
 Describes why the network of participants needed to make a
business idea viable would be willing to work together;
 Articulates a business’s core logic to all stakeholders, including the
business’s employees.
Importance of Business Models
Once a Business Model is clearly determined, the entrepreneur should put it on paper,
examine it, and ask the following questions:
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

Does my Business Model make sense?
Will the businesses I need as partners participate?
If I get partners to participate, how motivated will they be? Am I asking them to work
for or against their self‐interest?
 How about my customers? Will it be worth their time to do business with me? and
how motivated will they be to switch to my products/services?
 Can I motivate my partners and customers at a sufficient scale to cover the
overheads of my business and make a profit?
 How distinct will my business be? If I’m successful, will it be easy for a larger
competitor to step in and steal my idea?
The Importance of a Business Model
 If
the answer to each of the above questions is not
satisfactory, then the business model should be revised or
abandoned.

Ultimately, a business model is viable, only insofar as the
buyer, the seller, and the partners involved see it as an
appropriate method of selling a product or service.
How Business Models Emerge
Business Models emerge as a result of or in response to analysis and
understanding Value Chains.
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The value chain is the string of activities that moves a product from the raw
material stage, through manufacturing and distribution, and ultimately to the
end user.
By analysing their value chain and those of their competitors, entrepreneurs
are able to identify opportunities to enhance their competitive strategies.
By studying product’s or service’s value chain, an entrepreneur can identify
ways to create additional value in order to enhance their competitive
advantage and also serves as a means to assess whether the entrepreneur
has the means to do so.
A business can be formed to strengthen the value chain for a product or
service, however, only if a viable business model can be created to support it.
How Business Models emerge
Entrepreneurs look at the value chain of product or service to
identify gaps and weaknesses and spot opportunities where
additional value can be added. This type of analysis may focus
on:
 (1) a single primary activity of the value chain (such as
marketing and sales),
 (2) the interface between one stage of the value chain and
another (such as the interface between operations and
outgoing logistics), or
 (3) one of the support activities (such as human resource
management).
Business Model CANVAS
The BM Canvas
The BM Canvas consists of nine components that makes the complete BM :
 Value Proposition: What unique value does a business’s product or service create
for customers.
 Customer Segments: What group(s) of customers is a business targeting with its
product or service
 Customer Relationships: How does a business plan to build relationships with the
customers it is serving
 Customer Channels: What channels does a business use to acquire, retain and
continuously develop its customers
 Revenue Streams: How is a business pulling all of the above elements together to
create multiple revenue streams and generate continuous cash flow
These components describes the revenue generating mechanisms of the business.
The BM Canvas
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Key Partnerships: What strategic and cooperative partnerships does a business
form to increase the scalability and efficiency of the business
 Key Resources: What assets and knowledge does a business possess that allow it
to deliver its value to customers in ways that other companies can’t
 Key Activities: What activities does a business engage in that allow it to execute its
strategy and establish a presence in the market
 Cost Structure: What are the costs associated with each of the above elements
and which components can be leveraged to reduce costs.
These are the components that form the cost structure of the business.
All the nine components are integrated and represents the building blocks in the
construction of a complete Business Model
Amit and Zott (2012)
Potential fatal flaws of BMs
Two fatal flaws can render a business model untenable
from the beginning:
 a. A complete
 b.
misread of customers.
Utterly unsound economics.
Business Model Innovation
 BM
Innovation is essential in times of instability as it
provides a business with an opportunity to break out of
intense competition. This is particularly important in an
environment where products, services and processes are
easily imitated and competitor strategies are increasingly
converging.
 Many businesses pursue BMI as a defensive move to
protect there core business when it is under threat from
competitors or where the core businesses is in decline or
becoming irrelevant.
Business Model Innovation
 According
to Lindgarrdt, etl (2009), BMI is different from a
product, service or technological innovation which are
single function strategies.
 Innovation becomes BMI when two or more elements of
the BM are reinvented to deliver value in a new way. It is
multi-dimensional.
Approaches to BM Innovation
Impetus: Is the business
defending against an
external threat, such as
commoditization, new
regulation, or an economic
downturn—or is it proactively
disrupting the status quo?
Focus: What is the most
attractive area of
opportunity—does it reside
in the core business or in
adjacent businesses or
markets?
Approaches to BMI
There are four approaches to BMI which depend on the business’s impetus and
focus.
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The re-inventor approach: as a result of fundamental industry challenge or
changes such as commoditization or new regulation, in which a business model is
slowly deteriorating and growth prospects are uncertain, the re-inventor approach is
taken. In this approach, the business must reinvent its customer-value proposition
and realign its operations to profitably deliver on the new superior offering.
The adapter approach : if the re-inventor approach fails to combat fundamental
disruptions in the core business, then the adapter approach may be used.
Adapters explore adjacent businesses or markets, in some cases exiting their core
business entirely. Adapters must build an innovation engine to persistently drive
experimentation to find a successful “new core” space with the right business
model.
Approaches to BM

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The maverick approach deploys business model innovation to scale up a
potentially more successful core business. Mavericks—which can be either
start-ups or insurgent established companies—employ their core advantage
to revolutionize their industry and set new standards. This requires an ability
to continually evolve the competitive edge or advantage of the business to
drive growth.
The adventurer approach aggressively expands the footprint of a business
by exploring or venturing into new or adjacent territories. This approach
requires an understanding of the business’s competitive advantage and
placing careful bets on novel applications of that advantage in order to
succeed in new markets.
Source: Lindgarrdt, etl (2009)
Types of BM Innovation

Type 1 business: Many businesses selling products or services that are classified
as commodities use an undifferentiated BM. As a result they compete in price and
availability. A typical example of such businesses are takeaways/restaurants and
hair salons.
 Type 2 business: There is then those businesses with some form of differentiation
in there products and services by for example introducing some form of
performance related quality so as to target a slightly different (uncongested) market.
Lack of resources may limit such businesses in terms of how far they can go and
sustainability of the BM.
 Type 3 business: There are those businesses that develop a segmented BM. This
is where the business create different BMs aimed at different market segments e.g.
a BM for customers who are concerned about price and availability and another BM
for those customers more concerned about quality and performance.
[Chesbrough, (2007)
Types of BM Innovation

Type 4 businesses: These are businesses that begin to open up to external
ideas and technologies in the development of there BM. They start to develop
relationships and partnerships with suppliers and customers which helps to share
some information (e.g. real-time information), resources , activities and
associated risks.
 Type 5 businesses: These are businesses that integrate innovation into there
BM. There is a reciprocal and formalised relationship with suppliers and
customers including access to innovation processes. Such businesses become
part of a formal supply chain. This requires an investment in resources for R&D
that is shared with the partners in the supply chain and make use of external
technologies in there BM.
 Type 6 businesses: These are businesses whose BMs are far more adaptive
and integrate the BMs of key partners with the development of a more technical
relationship and shared business risks. At this stage, there is greater
interdependencies in BM with key partners.
[Henry Chesbrough, (2007)
Key questions to consider in BM Innovation
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What perceived needs can be satisfied through the new model design?
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What novel activities are needed to satisfy these perceived needs? (business
model content innovation)
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How could the required activities be linked to each other in novel ways? (business
model structure innovation)

Who should perform each of the activities that are part of the business model? Should it
be the business? A partner? The customer? What novel governance arrangements could
enable this structure? (business model governance innovation)

How is value created through the novel business model for each of the participants?

What revenue model fits with the business’s business model to appropriate part of the total
value it helps create?
Source: Amit and Zolt (2012) Creating Value Through Business Model Innovation
Reflections
 Have
you considered the Business Model for your new
business? Is there anything unique is the BM?
 Are you able to critically analyse and understand the
business model of an existing business or competitor?
What weaknesses or gaps can you identify? Can you spot
opportunities that could be exploited?
References
Amit and Zott (2012) Creating Value Through Business Model Innovation Magazine: Spring 2012Research Feature
March 20, 2012
Lindgarrdt, Z., Reeves, M., Stalk, G. and Deimler, M.S. (2009) Business Model Innovation: When the Game Gets
Tough, Change the Game, Boston Consulting Group
Chesbrough, H.(2007),"Business model innovation: it's not just about technology anymore", Strategy & Leadership, Vol.
35 Iss 6 pp.12 - 17