.

Part 2:
oevelopment of the Business Plan via a Business Model
•••• • • • • • • ••••••••••
CHAPTER 3
The Business Model

Understand the Industry

Before the entrepreneur details his or her business model, there must be a thorough
understanding of the industry he/she wants to enter in two levels-first, is an understanding
of how the industry works, then second, an understanding of the forces that make the
industry attractive or unattractive, and the potential strategic move/s that can make the
entrepreneur's company thrive. As an example, let's look at the franchising industry.

Industry Framework: The Franchising Model

In 2013, Josiah Go was privileged to present the Mansmith Franchising Model

on how franchising works in the annual conference of the Philippine Franchising
Association (PFA), the Philippines' pioneer and largest franchise association. The
model, shown in exhibit 3-1, allows both franchisors and franchisees to understand
how the franchising system actually works.

Exhibit 3-1: Mansmith Franchising Model on How Franchising Works

Quality of Quality of
Local Effort Company

Quantity of Quality of
Prospects Product Value

Quality of Quality of
Leadership ROI

65
 ~ '
Ille Business Model

.. s t~o sides, one for the franchisor (

The Mansmith Franchising F~amework ha f Imagine each side with a tri on !he
right) and another for their franchisees (on the ~eht). ch side having three indispang1e P~t
. d odel wit ea ens
together to form a diamond-shape m t are quality of product value able
elements. For the franchisors, the th ree elemetn (sROI) For the franchisee on th, quali~
.
of company and quality of return
. .
°
n investmen · · e 0th
·t f prospects quality of local effo t '1er
t re quant1 y o ' r sa
hand, the three distinct elemen s a . t be both effective and efficient . nd
. h rt'Ies commit o in th .
quality of leadership.' Bot pa without the fullfillment of the other will not w e,r
operations - the fulf 1llment of one party or~.
. . ·ncludes the product and its packaging, the bra I
For quality of ~rodu~t value, .1~ I s search risk for a winning concept. nd
and its pricing. Drnng this well mitigate
. . . I des having systems and manuals, regular trainin
For quality of company, it inc u ication Doing this well mitigates organizar Q, I
franchise support and prompt commun · I0n 1
silo risk with customers as the center 0 f a firm's strategy.

. f ROI 1 ·t •ncludes fees and royalty, stocks availability, terms and

For quality o , 1 • · II · ·
..
cond1t1ons as well as having
• the right location. Doing
. this we . m1t1gates business
. of how a company sources its revenue
model nsk . in a sustainable manner. All the
above when done well can make a good franchisor.

The indispensable half of the Mansmith Franchi~e. Diamond includ~s three other
parts from the franchisees. For quantity of prospects'. 1t includes foot t~aff 1c and ~apture
rate. Doing this well mitigates scale risk, as a franchisee ~eeds to gain and maintain a
profitable critical mass of customers buying from them. It 1s notewor_t~Y to me~tion tha!
doing business with a reputable franchisor that has been able to m1t1gate their search
risk (with a winning concept), organization risk (wi.th orderly execution) and business
model risk (with deliberate strategy), will actually lead to franchisees mitigating their
scale risk by way of their screening method of both the qualification of the franchisor
as we// as the viability of his or her proposed location.

For quality of local efforts, it includes local promotions and local area supervision.
Doing this we// mitigates planning risk instead of running a company based on guessing
games.

For quality of leadership, it includes the background of the franchisee as well as

his/her KASH (meaning his Knowledge, Attitude, Skills and Habits). Doing this well
mitigates execution risk as a franchisee with business training and exposure, combined
with good attitude and habits, has the head start advantage versus another who has
never been involved in an organization in the past.

For the franchisor, franchising is one way to grow without using one's own money,
or while waiting for bank loan or to go public via initial public offering (IPO) which both

66
 eau1·re at least three years'
. profitability trac k rec The Business Model
r del has a much higher success rat· Ord. For the fr .
10
mo 1 arnong anch,see h
·ng both a good, known brand and start,ups W'th S, t efranchising
hav C . k a Proven I the sue
hising will not wor . But franchising . sustainable cessful chain
/ran .. is not de · systern W"th
• high creat1v1ty, are experimental or P f signed for asp· . · 1 out Which
have · re er fre d 1nng fran h'
·ng one's own non-franchise business f e orn of execut· c sees Who
hav1 . , ranchis ion beca 1
del of the franchisor. ees cannot cha ' use, Unlike
rno • nge anything in the
dustry Analysis: The Water Refill Stat·
In •on Case
Water refill stations are being franchised e
. . verywhere Th
low-cost alternative to expensive bottled Wat . · ese water stations .
ahifted their behavior . from boiling. . their drinkinger 1n the su Perrnarkets. FilipinoProvide h
s . .
these water refill stations, many of them Provd· Water at . horn e o s1rnp1y buying f ave
t . s
I
(loyal customer) ne1g · hborhood customer orders ing delivery• serv,ce. even if a "suki" ram
the standard used 1n • these stations. But how doeson 1Y one k f1ve . -gall on bottle, which is
station is attractive· or not.? The industry
. analysis one
f now 1f franch·
. ·
1s1ng a water refill
Professor Michael
. porter can give. an indicator by analrarnework
. introduced
. bY Harvard
..
__ rivalry of compet1t1on, threat of new entrants' threatyz,ng
of b the.f1ve forces ·n an ·industry
1
of suppliers and bargaining . . power of customers ' as shown su .st,tutes
h'b: bargaining power
three forces are about compet1t1on, • . both direct and' indirect.in ex I it 3-2. Note the first

The five forces enable _firms to identify cornpetitive pressures (those with high
threat) as well as op~ortu~1t1es 1n the marketplace. The force that has the rnost irnpact
in the industry (rated high ) of the firm should be watched closely, with one's corporate
and marketing strategy formulated to counter the pressure accordingly. The frarnework
is unique because profit is affected not just by cornpetitive activities but also by the
extent of bargaining power of suppliers a~d customers.

In the analysis of exhibit 3-2, other than having a lot of resources to give credit
terms or provide free use of hot/cold dispensers, being a monopoly or being an early
entrant in a geogrs3-phical area, the five forces of industry are pointing to an industry
generally unattractive to franchisees. It is therefore important to carefully choose an
industry that is attractive to invest in to get better return on investment.

67
The Business Model

Exhibit 3-2: 5 Forces of Water Refill Station Fra~ Ising

High = Unattr
Forces What is it? Low - Att active
5 - racr '
Rivalry of The extent to which firms within HIGH:
Proliferation of w t
Competition an industry put pressure ~n on~ t r . a er
another and limit each others prof it s a ions with declinin ~efillin
promo war. g Prices 0~
potential.
Threat Threat new competitors pose to HIGH: . .
of New existing competitors in an industry. Water ref1ll1ng stations
to put up without many ~e ~asy
Entrants Franchises are also arners.
cheaper to acquire. Qetting

Threat of
Substitutes
The availability of a product or
service that the consumer can
HIGH:
Bottled water/ boiled water/ ------
--
purchase instead of the industry's home water purifier on install own
product. plans are readily available. ment

Bargaining The pressure suppliers can exert HIGH:

Power of on businesses by raising prices, Franchisor has parts and provid
.
service, franc h'1see can not bues
lowering quality or reducing

-
Suppliers
availability of their products. from other suppliers. Y
Bargaining The pressure customers can exert HIGH:
Power of on businesses to get them to provide Customers have many water refill
Customers higher quality products, better stations to choose from, most
customer service, and lower prices. products are not differentiated.
-
It is important for aspiring entrepreneurs to choose an industry with friendlier
economics. For instance, the pharmaceutical industry has a much higher return and
demand versus investing in cable TV that is already affected with strong substitutes like
Netflix. However, care should be exercised when using the industry analysis model. It
is possible that an industry may not be as good upon initial evaluation but a firm can
introduce innovation and create better profitability for themselves. Some water refill
stations sell a twin package with a laundry franchise since the water from water refill
stations using reverse osmosis system throw out most of the water with the wastage
going to the laundry franchise.

The famous Bounty Fresh chicken case in the Philippine where a dressed chicken
manufacturer decided to expand their business model to include thousands of Chooks-
to-Go kiosks should be a reminder that there is no bad or unattractive industry, and
entrepreneurs who see opportunities in crisis have the edge, as competitors typically
do not invest in an unattractive industry.

To read more about the franchising , visit www.josiahgo.com and search

"franchising ".

68 ~p
l \H/ ·,
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __!!Th~e~B~us~in~e!:ss~M~o~d!!el

What is a Business Model?

soonest the entrepreneur decides there is opp t . .
. d stry he/she wants to enter, designing the bus· or unity for ~im or her to thrive in the
in u iness model is the next step.
A business model is a description of the means d
enerate sales revenue, profit, and cash flow wh·I an ~e~hods a firm employs
' 1e providing
to giness to scale up. It has 10 building blocks subdivided. t a template fo r th e
S
bU del and the operat·1ng mo de1, with
• °
the definition of te in ftwo parts. - .the offering
rno. . rms o each building block in
exhibit 3-3.

The offering model is composed of what people in the k t·

. · mar e Ing and sales
departments typically handle - target market, value proposition, channel, customer
bonding strategy and revenue model.

The operating model, on the other hand, is what people in the operations department
like supply chain and customer fulfillment, oversee _ value chain, resources and
processes, complementors, configuration and cost.

Compared to the concept of business model by other authors, the Mansmith

Business Model Map, introduced by Mansmith and Fielders Inc. in June 2010, added
two more important components:

• Value chain, which can either be expanded or collapsed as part of the innovation
effort, after auditing the current strengths and weaknesses of each member of
the value chain.

• Configuration (or reconfiguration), to attain differentiation at lower cost. This is

especially critical as resources of entrepreneurs are typically not a lot, hence,
frugality must be practiced in order not to spend for costs that do not create
value for the firm.

This will be explained in the latter part of this chapter.

Lastly, instead of doing a business plan immediately, it is recommended to have

clarity of the business by identifying the 10 building blocks of a business via a 1-page
business model first. This method would be more practical and less threatening for
aspiring entrepreneurs designing a business model by first using bullet points than
writing the entire business plan immediately. After the business model is defined,
fleshing out the business model via a business plan can be done with emphasis on
th e addition of quantifiable goals, key metrics as well as financials and control.

69
The Business Model

Exhibit 3-3: 2 Parts of a Business Model

ansmith and Fielders, Inc.)
(Source: M
Ottering Model
Operating Model

ya1ue ~etwotk Jarget Market

The strategic The intended

linkage of recipients of a
extended supply firm's products or
chain for the services
Channei--
CQmplemeators firm to provide
specific products The distribution
People or groups
or services to the system where
who will help,
customers products or
both directly
and indirectly, to Resources and Yalue services will be
enhance the value erocesses PropositiQn made available to
proposition the customers
Resources - the The relevant and
hard and soft unique benefit
assets deployed that the consumer
Configuration by the firm to gets from buying CustQmer
carry out its value or owning the 8Qnding
Rearrangement proposition for the firm's product or Strategy
of resources, customers services
processes, The relationship
activities and Processes - the as well as the
offerings that can critical repetitive solution that will
help enhance the activities that be established
profit goal of the are routinized by with buyers and
company the company to end users
deliver the value to
the customers and
to the company in
a sustainable way
Cm Revenue MQdel
The monetary The compensation
consequences a firm will get
of the means to for providing its
carry out the value value proposition
proposition to support its
intended profit

70
fff
~ - - - - - - - - - - - - - - - - -_ _!!Th~e~B~us~ln~e~ss~M~o~del

case examples of offering and operating

sorn e models are:
offering Model
• Target Market
0 SM Supermarket targets mall shoppers f SM .
0
those outside of SM malls. while Save More targets

Value Proposition
• 0 Boysen's KnoxOut is the first air cleaning .t .
• · h .
CnstalAct1v p oto catalytic technology wh·ich pain . inh the world with
. . ' 1
uses 1g t energy to break
down noxious air pollutants (NOx) and converts th .
substances H20 and Co2. em into harmless

• Channel
0 Famous _Belgian Waffles started in 2012 and has some 500 stores in
its first six years. The quick expansion was done via franchising aft r
the owner Euclid Cezar saw it could be profitable for the franchise:s
as well.

• customer Bonding Strategy

o H&M flagship store in Times Square, New York places the cashier
inside or near the dressing room section, their "try and buy" system
provides utmost convenience to consumers who need not fall in a slow
line. It also removes changing of mind by consumers, by capturing their
purchase right after they fit the items. They also offer free Wi-Fi, and a
social media lounge to their predominantly young customers.

• Revenue Model
o Lifelifters Transport provides transport services for wheelchair
bound individuals via a van that can easily load the wheelchair and
its occupant without need for the occupant to leave the wheelchair.
They initially earned from van rental but subsequently changed their
main revenue model from installing mechanical lifters in private vans
of well-to-do families, which has a member classified as a person with
disability (PWD).

Operating Model

• Value Network
o For a restaurant to promptly turn out delicious food, they need ~he
services of employees (waiter to get order, chef to cook and provide
the menu, purchaser to buy ingred1ents, bus boy to clean the table, HR

71
The Business Model & .L
.
. liers (to provide ingredients), lessor (to r .
to hire staff), supp. 'd the concept). P ov1de th
location), and creat1ves (to prov1 e e

Resources and Processes 1 700

• o Nespresso's coffee machines have over , patents. Patents are
considered as hard assets. . . .
, ·t· I process for their photocopier business in I
0 Canon s en 1ca .. . c Udes
. monitoring prompt b1ll1ng, and service response t·
machine usage · 1rne.

, Complementors . . .
o Go Hotels outsource their restaurants while t~e onllne booking system
enables them to predict occupancy rate, which allows ~hem to assign
just the right number of manpower, mostly from accredited third Party
agencies.

• Configuration .
0
Banks have installed ATM machines as a way to reconfigure their
operations to accommodate more customers withdrawing money at
a lower cost for the bank. Online banking does the same, enabling
a bank customer to transfer money to another or to pay bills without
human intervention.

• Cost
0 Solar Philippines' cost to operate includes cost of solar panel set,
installation, monitoring and maintenance, manpower, IT, selling and
administration.
Note that to improve a firm's profit, the entrepreneur looks at maximizing his
revenue in the offering model while minimizing cost in the operating model, hence,
entrepreneurs can look into pivoting the offering model to raise revenues and/or the
reconfiguration in the operating model to reduce cost.

• Honest Henry x Anthill is an open kiosk launched in October 2016 located right
across the reception inside The Henry Hotel in Cebu, an artsy boutique hotel
in Banilad area. Since a boutique hotel has much less number of guests, it was
not compelling for Anthill to assign a full-time salaried staff to man the clothes
and accessories store, hence, the owners of Henry Hotel and Anthill jointly
decided to put a box where buyers will insert the payment in an envelope and
drop the envelope in the box, hence, the name Honest Henry x Anthill. The idea
was adopted from the Honest Cafe in Batanes and proposed by the owner of
Henry Hotel to his counterpart in Anthill, who agreed as part of an ongoing
relationship with the hotel since Anthill supplies the bed runners of the hotel.
After losing one ring discovered in their bi-monthly inventory, they decided to

72
 . The Business M
remove small items but continued t ~-_odel
°
awareness for Anthill at a very 10 operate since the set
consumers of Th e Henry Hotel Wh w cost Wh'II e creating c-up helps. generate
o appreciate this inn _onven1ence for the
Application of Business Model Map ovation.

Exhibit 3-4 shows an application of the b .

iness of the Dr. Carl Balita Review Cent usi(ness model map for th f ..
bUS .
ter (CBRC) was established in 1993 and h er CBRC) Th
· e Dr. Carl rt e ranch1s1ng
.
cen . . Ab . as some 100 b 8a i a Review
d abroad, 1nclud1ng u Dhabi Dubai Jak t ranches in the Ph·i· .
an . ' , ar a and Ho K 1IppInes
tor nurses started 1n 2007 after Carl's 200 4 book "Ult' ng ong. The review cent
Review" became a bestseller. imate Learning Guide to Nursine~

There were two factors that made the cente

· · . r expand to othe
center for teachers, cnm1nolog1sts, midwives civil . r areas as a review
. , service and
1) review centers for nursing were having a price war ti htin inte t'
rna I0nal English-
2) demand for nurses was expected to be on the de • 9 9 for market shares, and
Instead of focusing where the market is, CBRC looked c1ine. due
t h to previous oversupply.
°
in the future and made ·its strategic move to be profitabl in Thw ere the market. w·111 be
. took this
since Dr. Carl Ballta . d1rect1on
. . 2013 after sufferinge. ered was .•
no turning back
. earlier,
nursing . unable to pay for the salaries
. of his people for aec t· Ining enrollment for
1

Ime.
To enable CBRC to expand to other review areas, the owner, Carl Balita, a media
personality with over 300,000 social media followers, decided to pursue various educational
degrees, including two doctoral degrees - one in humanities and another in education.
Carl Balita is a registered nurse; registered midwife, and a registered professional teacher,
rare credentials as part of his personal branding, in order to gain credibility for CBRC.

While franchisees invest at least a million pesos, which can be recovered in at least
9-12 months based on historical average, CBRC has one strict rule - franchisees and
branches have one year to be the biggest in the territory or they have to close. The survival
and dominance of CBRC is premised on the top performance of their reviewers. In 2016,
CBRC has 35 board topnotchers, including the 1st to 10th place, while in 2017, CBRC
improved further to 42 board topnotchers. These board topnotchers served as attraction
and buzz, giving credibility to CBRC. Hence, the franchisees and branch heads they look
for must be driven to support this ambitious drive for dominance. The number 0:~opnotchers
further support their premium pricing, reinforcing their superior value proposition.
C . to supp ort their franchisees
BRC launched unique marketing strategies d d Aand
b
branches as well. They produced a movie entitled "Maestra", which wa~ graThe _Y
th · . v la Film Festival. e movie
e Cinema Evaluation Board and won awards in th e enezue . h f t re Ten years
Was meant to motivate the younger generation to be teachers in t e uabo.ut nurses
. at the height of nursing career, CBRC produce d "NARS"' a movie
earlier, ·

73
 The Business Model

CBRC's process is centralized. They supply the reviewers (Pea

. f ·t . . Pie) t
franchisees and branches or a uni orm review experience. Even the a tne
campaign is centralized and just executed
. locally. Instead of spending for rnrnarketing
arker1
they offer seminars and conferences which are even revenue generating. ng,

Exhibit 3-4: Franchising Business Model of the Dr. Carl Balita Review Center

Yalue Network Target Market

Complementors
Course Designers
Test Materials -+
Reviewers-+
- Franchisees
adequately funded,
educated and
Channel
-

Marketing-+ willing to make theirSome 100

Reviewers, which franchise the no. 1 branches in all
Branches-+
are supplied major cities in the
in their territory in 1
Franchisees -+
from CBRC year Philippines, plus
central system for Reviewees
international sites
consistent review Besources and Value Proposition via franchising.
experience erocesses Proven holistic Alternative access
Hard Assets - teaching and via online review.
Personal branding coaching
of founder, track methodologies,
record of board including
topnotchers, spirituality. customer
Configuration branch network. Bonding Strateg~
Track record of
Movie "Maestra" Soft Assets - producing board Leverage in social
and ''NARS"to Centralized supply topnotchers media the personal
motivate younger of reviewers , consistently. branding of
generation to be Teaching media personality
Scholarships to and educator
teachers and methodologies, honor students.
nurses. Referrals from Dr. Carl Balita
relationship with Franchise for awareness
Convert marketing board passers Excellence awardee creation.
efforts (seminars,
of DTI and PFA.
etc.) into revenue Offer books,
generating rather Revenue Model seminars and
than expense. conferences as
• Rent • Premium price part of trial and
• Marketing • Facilitation fee ongoing education.
(materials &
• Events
support) about
• Payroll
• Commissions 15% of gross
• Printing revenue
• Special projects • Franchise fee

I
• Online • Royalty from
investment franchisees
• Seminar fee
• Conference fee
I • Book sales

74 ~fr
___ l PIL
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __!T~he:_!B~u~sl~ne~ss~M~o~d~el

In 2017, CBRC won the Franchise Excellence Award fr .. . .

. fI n (PFA) and the Department of T d om th e Philippine Franchise
,Associa ~ f h' ra e and Industry (DTI), a testament to the
support given to ranc 1sees.

Wa_ters Philippines is .the

.
exclusive distributor of the Wat . M' .
ers 810 Ineral Pot a 3-in-1
alkaline, mineral and ~unf1ed ~ome water system. Waters Bio Mineral Pot has ~old over
1million units worldw1~e and is ~arket leader in the premium segment of the home
water purifier industry In the Ph1hpp1nes.

Shown in th~ _w~ters'. busi~ess ~odel map in exhibit 3-5 are two target markets
since Waters Ph1hpp1nes 1s selhng-dnven and treats their independent sales force as
part of their target market. :herefore, they offer two different value propositions: 1)
to end-users and 2) to the independent sellers, whom they describe as struggling
Filipino breadwinners. Note also the way they identified .their channel by subdividing
pre-sale, sale and_ post-sale _a~ the~ do prospecti_ng by joining exhibits, do product
demonstration during home vIs1ts, with a separate field after sales home visit assigned
to help their distributors handle service issues, in order for their distributors to focus
more on revenue generating activities for customer acquisition.

There are times when two business model maps for the same company would be
better for clarity, this unbundling concept is important if it entails totally different value
propositions and operations within a company.

• Banks have high wealth individuals who are provided investment advice and
are relationship-driven, while the average depositors have self-service ATMs to
deposit or withdraw their money.

75
The Business Model

Exhibit 3-5: The Business Model Map of Waters Ph~ pp·ines ·

Value Network Target Market

Importer-+ Buyers: Middle

Distributor -+ class water ref ill
Complementors Independent station customers, Channet
sales force -+ typically spending Pre-sale: Exhibits
Convert interested min. P600 monthly & public service
Independent
users into
servicing as base
distributors Distributors:
distributors -+
Struggling Filipino Transaction: Direct
Independent End users-+
Regional 3rd breadwinners selling
Collectors
party collection
Post-sale: '
agencies Field service
Resources and Value representatives
Processes Proposition Customer Bonding
Buyers - peace of Strate9¥
Exclusivity,
Relationship with mind without the For Buyers: Service
Configuration sales leaders, lifetime expense, Maintenance
Training (class & pay on installment Agreements
Independent pay field buddy), rather than cash
system Credit scoring, for comparable For Distributors:
Collection tracking, affordability • Training, events
lncentivize cash Recognition & functions
sales to reduce Distributors - Yearly - travel
money cost
management People's franchise •
plan
(save & earn
money by being a •
5-year - Car
plan
distributor)
• Long-term-
Revenue Model housing plan
Sale of units • System -
Product cost, inheritable rank
Variable selling Interest income & privileges
costs, (for installment
Administrative sales)
costs, Parts, filters &
Marketing cost home service

Remember in chapter 1 where asking questions is a way to improve creativity?

Exhibit 3-6 guides the readers on key questions to ask in order to answer each of the
10 building block_s of the Mansmith Business Model Map. It is important to reflect on
these questions.
• Consider the case of the photo souvenir market for wedding parties. The
novelty of the market introduced by Fotoloco in 2006 disappeared and became
a red ocean quickly, with vendors attracted to the huge profit of the originator
(original price P16,000 for 3 hours). Soon competition dropped prices to less

76
 The Bu·
s1ness MOd
ird of the introduction price. For the et
n a th revenue
th 8 0
have licensed the technology and rnodel for insta
fotolOt~ng everything, with a high-end and lo controlled the Pricen?e, should
era I w-end 0 ff . instead
oP nts, given there was practically no barr' enng to differe t of
segrne ier to entry? n rnarket
'bit 3-6: Key Questions to Ask About Vi
fxh' our Business M

-
Value Network
Linkage
~- Odel

Market Space _

k-in _What
structure - How
are activities
linked &
Who is the target
market that has
t----....__

-
~oc . the greatest Go-to-market _
.11 rr,ake 11 sequenced? ~otential for the
wi ealing to Where do we
firm? make our products
aPP and stay as
start 1ernentors or Resources and Value_ conveniently
corriP ? Processes Proposition available
partners. consistent with the
Capabilities Novelty - What target market's
- What assets are the biggest buying pattern?
. should we unmet needs we Customer
leverage & what should satisfy in a BQnding_
Efficiency - H?w activities should novel way?
do we reorganize Strategy
we perform well to
to provide value unlock value? Organization -
without over- or How do we have a
under-spen d'ing ?. Cost Revenue Model customer-centric
Infrastructure Price-What organization that
- What is the will be the most can engage,
infrastructure cost attractive pricing deliver solutions
that will carry scheme that & build positive
out the value can leapfrog relationships with
proposition? demand and meet customers better
our objectives than competition?
(revenue, profit or
socfal cause)?

Where to Start in Formulating the Business Model Map

Offering model is the starting point of a business model. Within the offering model,
it is in value creation that is the starting point. Value creation is composed of target
market and value proposition. Value proposition can only be identified after a carefully
chosen target market. Once the target market is identified, personalization can even
be done to the value proposition with the advent of artificial intelligence and big data.
Personal'1 ·
. zat1on advances customer relationship.
The diStribution channel is the third variable of the offering model, which can
only be d · t best bring the
ecided after value creation. Choosing a channel tha can

77
 The Business Model . ,.~
value proposition to the target market can be seen in exhibit 3_ ~
companies look at distribution channel as a default system by 1.ust
· Unfortunate!
usin Y, ll1
"1'
channel . g their ex.iSting
~l'\y

Exhibit 3-7: Starting Point of Assembling the Business Model

:o Tacget Macket
Market Space - Who
is the target market 3) Channel
that has the greatest Place - Where do
potential for the firm? we make ourselves
conveniently available
2) Value PtQl)QSitiQn consistent with the
Novelty - What are the target market's buying
biggest unmet needs pattern?
we should satisfy in a
novel way?

• Instead of direct selling, many insurance products are now being sold using
bancassurance method, where insurance is sold inside the bank premises to
bank clients. To the insurance companies, banks represent a new channel
opportunity to reach new customers. To the bank, it is a cross-selling strategy.
Both parties benefit with higher revenues and higher closing ratio.

• Belrewmond Trading was distributing watches to watch stores; eventually the

owners decided to launch Time Depot retail chain as part of their distribution
network, numbering nearly 60 outlets as of early 2018.

• Bizu is a successful upscale restaurant. They have added Bizu Catering whose
revenues are no longer dependent on physical stores as they can cater to
5,000 people at a time, such as during the Ernst and Young anniversary.

• Mother Teresa Crematory and Columbarium (MTCC) is located inside La

Loma Cemetery in Kalookan City. Instead of recruiting sales agents, they use
funeral homes to book cremation services in exchange for commissions with
the commitment that MTCC shall not act as a funeral home that would service
wakes.

Exhibit 3-8 shows the steps to convert the value proposition into revenues by way
of formulating a customer bonding strategy - how to make your target market kn_ow
y~ur Prod uct or service (awareness), how to make them try your product or service
(tnal) and how to make them keep returning (repeat purchase).

78 ~I l~
,/

~Odel
~hibit 3-8.. converting Value Proposition Into Revenue
f .
ue proposition
Z}..YalL _What are the

----
Novelty nmet needs
• gest u .f
b1Q hould sat1s y
we s ?
.In a novel way .
Organization - How do
5)_8evenue Model we have a customer-
Price - What will be centric organization
the most attractive that can engage,
deliver solutions & build
pricing scheme that
positive relationships
can leapfrog demand
with customers better
and meet our objectives
than competition?
(revenue, profit or social
cause)?

ining distribution channel and communication channel • th

corn b . . in e customer
. g strategy creates omni-channel marketing which aims to st •
bondIn . . . '. ream 11ne all
customers' interact1~n~ 1n an integrated manner creating an end-to-end personalized
experience different1at10~ for a brand or a company. As internet and smartphones
created e-commerce which ga~e consumers more choices, consumers now expect a
seamless and consistent expenen.ce. Brands need to ensure cohesive and connected
marketing across channels, devices and platforms as consumers now expect the
company's or brand's omnipresence in their path to purchase.

• Disney is a good example of omni-channel marketing. As guests get initial

information from the website or app to research the parks, Disney starts to
collate the preferences of the guests - from buying tickets online or picking up
in the store, to reservations for restaurants and payment, itinerary and wish list
to prepare for their Disney adventure, to allowing the whole family to plan via
their My Disney Experience. Upon arrival, the Disney magic wristband serves
as a ticket and fast pass. The app also serves as information on waiting time
and photo upload to remind guests of their experience.

• Amazon is an example of omni-channel retailing. They have the biggeSt ~nline

book5tore and started building brick-and-mortar stores for th e convenienc_e
of th8 consumers. The physical stores have a semblance of what you will
encounter when you shop online, giving familiarity to the shoppers.

-~.. 79
_ _ -r.:s
!!Th~e!B~us~ln~es~s~M~od~e:!..
I_______________ SLJII
1ormulat
After the ottering model is framed, the operating model can now be
ensure delivery of the value that has .been planned
. for the
d target
I . edthto
market. Chang1ng
offering model may entail a change 1n the operating mo e . e
• Value chain identifies the role each member plays in the flow _of materials
information and relationships. A brick-and-mortar. store
f (carrying
I' inventories .·II')
physical locations) will have a different value chain ram an on 1ne company lik '
Amazon (to include website and delivery courier without necessarily carryin:

inventory except routing information).

o Cargill Joy Poultry Meats Production Inc. (C-Joy) was established jointly
between Cargill and Jollibee Foods Corporation in Batangas City. The
facility will provide Jollibee with dressed and marinated chicken to
augment their chicken supply requirements at lower cost. Inaugurated
in December 2017, the move threatened the future of Jollibee's existing
chicken suppliers with either a supply stoppage or tower prices, as
Jollibee is now capable of supplying 45 million chickens to themselves

yearly.
• In the operating model, resources and processes are treated together since
these are expected to repeatedly deliver value creation and value capture
(profit) key processes, such as service speed; and relying on key resources,
such as information technology. Processes support the value chain for better
efficiency and effectiveness. Redesigning the value chain means redesigning
the process. ·
o Ikea customers typically pick up and assemble items themselves
hence, • no need for software routing, customer delivery sched ue,
•
I'
,nsta at,on ~nd post-delivery satisfaction survey. If most customers will
11
demand delivery, the whole process will now change.

• Complementors are people or groups, who directly and indirectly help enh
the value proposition. ' ance

o Gawad . Kalinga (GK) has an army Of companies . and individuals

do_natrng properties, materials as well as services to keep the cost of
bu1ld1ng houses for the poor low.

• provide
Configuration
product has three
. .pos sr'b'll . 11. the business strategy is to
, , ,es depending
mayentailafirmtosupenof~1ty, customer intimacy or low price. Product superiority
intimacy propositiorecon igure and custom·128 pro duct specifications, a customer
flexible or beyo d n may entail reconfiguration of working time making it more
n regular office ho urs, an d a low price proposition maY entai·1

80 r«~
( -------- .
reducing the labor component 1n a transaction.
The Business Model

High wealth individuals do not fall in line in banks; they have access to a
0
lounge area where a staff of th e bank handles the deposit for them while
they sip ~offee and re_ad magazines and newspapers. Banks separate
their business model into at least two target markets, the "high wealth
high touch" segment and the "mass market, low touch" segment. '

• cost may be affected if the value proposition is not clear.

A two-star hotel may attract people because of lower price. Hiring more
0
people to offer superior service in a two-star hotel will entail higher
costs, a bad combination considering lower price and higher costs.

It is important to pivot in case something is not working in the business model,

. d of scrapping the business model altogether. Most successful businesses
1nstea .
. e their business model by as much as four times before they get it right
revIs ·
• The Primer Group brought Fitflop, a popular UK footwear brand, into the
Philippines. Primer discovered that their original target market - the youth, was
the wrong target market, and instead of pulling out of the distribution contract,
they focused on a more mature segment (36-50 years old) with a higher income
level that were willing to pay a higher price point for comfort more than style.
Today, Fitflop is the most successful footwear brand of the Primer Group.

• lmarflex Turbo Broiler was originally sold in the appliance stores, and then
a direct selling business was created to promote the "UFO-looking" kitchen
gadget. When the product was known, it went back to appliance stores.

4 Tests to Spot a Weak Concept

Years ago, the franchise manager of a company was trying to convince us to
invest in a barbershop franchise. We figured that a barbershop has a high repeat visit
frequency so we were interested to know more.

When we asked what was unique about the barbershop, we were told that it would
be thematic, with the barbers dressed like construction workers (with helmets and
overalls). We weren't so sure what pain points they were trying to satisfy with thi~ idea
so we asked for more information. The franchise manager added that the prices were
low, and with good service to boot. Pressed further, he was almost proud to say th at
th e price will be 5% cheaper than the average barber shops, and that they would
Provide a free orange drink in tetra pack to all customers. As business consultants and
not necessarily prophets of doom we predicted that the concept would not succeed
and true enough, the barbershop' has been closed for a while now. We have seen

\ 81
 The Business Model

many businesses trying to offer too much, thinking that this is the way to ditt
and competing
. at too low. prices, believing that this is what would attract ci'"ntiai,,,
starn
e amer for the franchise manager was our attitude, as we did not believe i er~.
Th b
concept. n hi,

Allow us to share four simple tests to spot a losing concept. A single yes to an
of these questions puts in doubt the concept and/or the innovation being introduc,:
since it is more likely supply-side company, thinking than r~al demand-side, customer.
centric thinking.
Here are the four tests to spot losing concepts:

1) Are you unique without being relevant?

2) Are you investing in cost that does not add value?
3) Are you guilty of having a lower price - higher cost business model?
4) Will consumers prefer the status quo than change their preference in you,

favor?
On test number one, staying relevant is by knowing and acting on the consumen
and/or customers' BIDA, an acronym used in Mansmith and Fielders, Inc., to refe
to Barriers, Irritants, Disappointments and Annoyances. Barriers can be abO\
access, money, time, skill and even attitude. Perhaps one irritant in a barbershop i
time predictability since many people seem to be in a rush. How can a barbersh~
successfully manage waiting time? QB barbershop in Japan has a "traffic light" syster
outside their shops to inform people of waiting time even before they go inside tt,
shop. Instead of shampoo and blow dry, they use a "vacuum" -like apparatus to remov,
cut hair faster- all addressing the need for some customers for a quick haircut.

On test number two, investment should focus on key drivers to generate revenue.
QB barbershop, for example, also uses and gives away a new but inexpensive comb
for those turned off with unhygienic practices of barbers using their comb from one
customer to another. Free orange juice may be nice but is not an important satisfaction
attribute that will make customers come back - it is clearly an additional cost that will

not bring in revenues.

On test number three, there is a need to ensure not just a good value creation
concept but also an equally good value capture idea. If the most ideal of higher price
- lower cost business model cannot be attained, at least earn the right for lower price
by having a lower cost.
On test number four, consumer trial leading to adoption is the ultimate goal of a
launch. If the attribute design cannot even lead to trial, or having a high trial but a/ow
repeat buy, then the product or service concept is doomed from the beginning.

82
1 .,.----
The Business Model

11 is best that product or service concepts be based on insights on consumer needs

met needs, and not Just formulated 1n ivory towers or laboratories. Marketers need
or un able .to develop skills in observation, or ask critical questions that will lead to
to be
dee Per insights.

e on the building blocks of the business model will be discussed in the

Mor . h 7
ding chapters. Chapters 4 to 6 will focus on the offering model, c apter on
succeet·ion while chapter 8 will discuss the operating model.
innova

83
 ~ - - - - - - - - - - - - - - - - - -_ _!!Th~e~B~us~ln~e~ss~M~o~del

with solar Phlllpplnes President Lean L

a&A siness Model Innovation eviSte
0
,, su
Leviste is the President and CEO Of S
an dro olar
le 1 ·nes a company he founded in 2013 and ,·st0 d
·upP ' . ay's
Ph' est solar company ,n Southeast Asia's. He shares the
1arQ_ model and strategy of Solar Philippines
bus1nes 5
01:on Target Matr~e,t - What tmade you choose the
comm ercial/indus ria segmen over the resident·1a1
segment first?
ommercial projects have economies of scale wh· h h
A: C . I· ' ,c elp lower costs f
·dential prQJects. lnsta ling solar on mall rooftops also r . or
res1 a,ses consumer awarenes
as there are only a few large rooftops, there's more urgen t . s,
an d 'd b 1. . . cy o move early into
rnercial. That sa, , we e ,eve 1n the importance of participat,·n . d'
co rn . . . g 1n ,verse market
rnents because res1dent1al will surpass commercial in scale • th .
se g ' . . 1n e coming years
and meanwhile, operations in each segment help scale and complement each other.,

02 : on Value Proposition - You offer no upfront investment and guaranteed

cost savings vs. Meralco. What competitive differentiation or one-word would
you want to own before more competition comes in?

A: A Meralco executive once told me, "Only three things matter in our selecting power
suppliers: Price, price, and price." While other factors are also important, electricity is
ultimately a commodity that consumers want at the lowest cost. By vertically integrating
manufacturing, construction, development, and operations, we generate solar cheaper
than any other power source in the Philippines, lowering the cost of electricity and
contributing to economic development.

That said, we believe solar's strongest value proposition is in provinces that suffer daily
brownouts or lack electricity, and instead of merely savings, we offer a whole new experience:
the benefits of electricity itself. By bringing reliable 24/7 power to certain provinces for the
first time in history, we address a great need and enter markets where there is less or no
competition, as the private sector traditionally neglects provinces in favor of metropolitan areas.

a3: On Chann~I - There are a lot of inefficiencies in marketing solar services.

Potential customers don't get a proposal overnight because of the need to cllmb
and measure rooftops. There is also a lot of time and effort wasted on proposals
th8t are not turned into contracts. How are you addressing this in th e pre-sale
Portion of your distribution?

~: Henr~ Ford said, "Any customer can have a car painted any color th at he ~ants, so
ng as '1is black." Standardizing products and simplifying sales processes is key to

89
The Business Model
I bl
. solar to every rooftop. Software a so ena es our engineers and
seaI1ng
· -q•·
salesp
to serve more customers. eop1e
Yet less than 1% of Filipino rooftops have solar aos of today, and even in thew0
vanced solar markets, no more than 20 Yo of households have sw· rld's
most ad . d. . itched
n if all would benefit from doing so. Selling an installing rooftop to
soIar, eve . solar h
inherent challenges to scale, and ne~ds ~or~ r~volut1onary steps forward to rea~s
% of households. These may cons1~t of Bu1ld1ng lnt~grate~ Phot~voltaics" (BIPVh
100
like Tesla's newly introduced solar roof tiles, and solar m1cro-gnds which would enat,i;
entire communities to go solar together.
: on Revenue Model - You intend to generate a lock-in ~evenue m?del baseu
04
on the bank financing your equipments. But banks require a certain asset t
liabllity ratio. Given your expansion plan, why do you think banks, which usuau:
offer higher rates, would be the best way to go?
A: Consumers are accustomed to paying for electricity over time, instead of buying
their next 25 years worth of electricity all at once, which is what paying for solar panels
effectively is. Enabling consumers to avail of solar at zero upfront cost is thus essential
for mainstream adoption, especially now that a consumer saves more from a solar
system than its monthly amortization, meaning solar makes sense and is accessible
to every Filipino.
We are currently financing our projects in partnership with local banks, and interest
expense is now an even larger component of a project's cost than the solar panels
themselves. But as banks gain more familiarity with the asset class, financing solar
projects in the Philippines should become simpler and more cost-effective, as has
been the case in developed markets.
05: On Customer Bonding - How are you taking care of existing customers?

A: We rece~tl~ launched a dealership and referral program, and many of the participants
are our ex1st1ng customers. Referrals are the most effective sales channel, and it's
paramount that our customers be satisfied, because the positive experience of earl
customers is key for solar to become mainstream. Y

06: On Value Network-Are you focusing on supplying solar during peak hours?
~ow long does it take Meralco to install a net metering scheme after a customer
sign up for your services?
A: Solar's peak supply coincides with hours of overall peak demand as businesses
operate. during
. the day· Resid ent·1aI consumption
• however drops during' these hours,
necessitating Net Metering to export excess energy to the grid. Net Metering has two

90
I
1'

. The Business Model

s· it has typically taken months to pr
oble rn · . ocess an .
pr . d at the generation rate equal to ·arou d application and e
d1te n 40o/c f ' xports are I
ere . only a fraction of Filipino households w·th O O the full electricity t on Y
of thl~n·g and the economics already favor sto1 . solar have bothered to raa e:I In light
-Aeten '
1 • nng exce va, of Net
1v xporting fully to the gnd. ss energy in batte .
than e nes rather
. on Resources - Installation is one of the t
O~~r equipment. Margins go up and down depe:~~hest areas In the business Of
50
are you compared to the standard time In .1 t in~ on installation experience
t-foW ns alhngas 1 •
. o ar panel worldwid ?
hieving the lowest costs of installation remains h e·
A: Ac . . ac allenge bee .
. ortant when 1nstalhng systems backed by Ion t ' ause quality is doubly
,rnP . • g- erm warranties d
tation. Certain installers can offer lower cost b . an a company's
repu s Y cutting corn .
rranties but most consumers recognize the value . . ers and forgoing
wa ' . in going with com ·
t nd by their warranties, especially for a big ticket purch panies that can
sa ase of a 25-year product.
Qs· on Processes-Old roofs can leak and interfere with
· . • your customer's operation
atter you install your equipment. How do you mitigate this potential risk?
A Solar roof mounting structures are designed to prevent leak d
· s, an our rooftop
installations have thus far ~ot c~used any leaks. The problem is when installing solar
on roofs that already leak, 1n which case we advise not proceeding with the installation
at that time. This limits the size of the immediately addressable market, at least until the
roof is replaced or if installing solar roof material is made the project in itself.

Q9: On Complementors - In other countries, there are many government rebates

and incentives to switch. How is the Philippines doing in this area?

A: The Renewable Energy Law gave us Net Metering, but utilities have interpreted
the rules to credit only the generation charge, equal to only around 40% of the full
electricity rate (unlike in other countries). This inadvertently incentivizes consumers to
install batteries to store the energy instead of export to the grid, encouraging Filipinos
to become independent from electric utilities.

This highlights the broader point, that because of the high cost of electricity in the
Philippines, solar and battery economics already works even without governm~nt
incentives, and that solar will find its way to reach every Filipino notwithstand ing
whatever policies may be.

010: On Vision - How do you see Solar Philippines transforming in the next 5
Years?

A s
: olar is now the world's cheapest form of energy, an
d with storage can already
t • l'ke the
supply the majority of the world's demand. This makes it possible for coun nes I

91
T_h_e_B_u_si_ne_s_s_
Mod_e_l_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ '!_]
Philippines to lower electricity rates, make reliable power universally accessible, anc,1
accelerate their economic development. That said, the industry hasn't grown nearly
as fast as the potential suggests, because of a lack of scale, efficiency, and long-terrn
commitment.

We are committed to realizing solar's potential in the Philippines, supplying the grid with
the· lowest cost energy, and helping consumers access solar rooftops and ~ommunity
micro-grids. We are particularly passionate about bringing solar to. provinces With
poor electric service, which the private sector traditionally ignores, to unlock the
potential of the Philippine countryside, and serve as jump-off point for Filipino products
to help power rural areas worldwide.

92
rtr