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Business Plan vs. Business Model

July 10, 2018

Start Something, Columbia welcomed Tom Ledbetter, Associate Vice President, Center for Entrepreneurial Success and Community Engagement at Midlands Technical College into the studio on July 10, 2018. Here are the show notes:

 

Start Something, Columbia is brought to you by the Women's Business Center of South Carolina headquartered at Columbia College and the McNair Institute for Free Enterprise and Entrepreneurship at the University of South Carolina. 

 

Introductions: 

Larry Jennings, Capsure Studios 

Tom Ledbetter, Associate Vice President, Center for Entrepreneurial Success and Community Engagement at Midlands Technical College 

 

Theme for the day: 

The Business Model 

 

Agenda review: 

We're going to give you a quick preview of 1 Million Cups 

We're going to get to know Tom Ledbetter, our guest host 

We're going to talk about the Business Model and why it matters for a start-up organization. 

 

Where to get replays of this show: 

Larry’s website; the podcast is launching this weekend! Go to Facebook.com/StartSomethingColumbia and like the page, you'll get the alert when the podcast is live. You can get all the back episodes there. 
 

Segment 1: 

This week at 1 MC -- Our 1MC community welcomes the young women from Columbia College's Summer Leadership Institute on Wednesday, July 11th. The visitors will present four possible business ideas and get feedback from the 1MC community. It's a big brainstorm session that should be really creative and a lot of fun for everyone involved. 

The primary question the ladies were prepped with was, "What Problem Are You Solving?" So their business ideas will each be addressing a specific problem. Should be interesting. 

Ya'll can talk here about the value of 1MC and the format of the sessions, what it's done for FastTrac grads, etc. 

 

Tom Ledbetter – who you are, what you do, what the purpose of the Center for Entrepreneurial Success and Community Engagement at Midlands Technical College. 

What is the vision of the MTC leadership around entrepreneurship in the Midlands? 

How does the Center contribute to the entrepreneurial ecosystem in the Midlands? 

What's coming up for the Center? FastTrac? Etc.? 

 

Segment 2: The Business Model 

What is a Business Model and Why Is It Important? 

There are several definitions that have arisen over time -  

Michael Lewis refers to the phrase business model as “a term of art” and “an explanation of how you planned to make money.”  

 

Peter Drucker defined the term — “assumptions about what a company gets paid for” and is more interested in assumptions than money because he wanted to emphasize why smart companies fail to keep up with changing market conditions because they fail to make those assumptions explicit. 

Joan Magretta says says that business models are “at heart, stories — stories that explain how enterprises work.  

  • A good business model answers Peter Drucker’s age-old questions:  

  • ‘Who is the customer? And what does the customer value?’  

  • It also answers the fundamental questions every manager must ask:  

  • How do we make money in this business? What is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost?” 

She continues by explaining the business model in two parts  

  1. “Part one includes all the activities associated with making something: designing it, purchasing raw materials, manufacturing, and so on.  

  1. Part two includes all the activities associated with selling something: finding and reaching customers, transacting a sale, distributing the product, or delivering the service.  

A new business model may turn on designing a new product for an unmet need or on a process innovation. That is it may be new in either end.” 

There are other definitions in the article, but obviously the business model and asking questions are critical to a successful company. 
 

With the several definitions of a business model, there are several different ways to establish a business model. Just one example is a list of analogies by Mark Johnson, who went on in his book Seizing the White Space to fill in the details of the idea presented in “Reinventing Your Business Model.” 

 

Why Are Hypotheses important in business?  

  • They lead you to making better decisions and achieving your business goals more effectively and efficiently.   

  • They help you focus and define your research so you don’t waste time and resources.   

  • The MOST important hypothesis in business is the cost of gaining a customer.  It is important to hypothesize to help your business adopt the best strategies as soon as possible. 
     

How to write a good business model hypothesis: It is very important to write down your hypothesis and formulate it well to facilitate useful, valuable research that addresses your problems. Here is an example of how to formulate a good hypothesis: 

  • I believe [target market] will [do this action / use this solution] for [this reason].  

 

What is the best way to test your hypothesis?  

How do you know if you are doing it right?  Take a lesson from statistics - refute the null! Entrepreneurs struggle with this because they only want to pay attention to information that reaffirms their own desires to start their business, their own thoughts about business success, etc.   

 

Take a lesson from entrepreneurship professor, Jeff Cornwall:  

“One of the most important things I try to teach my students is to internalize the perspective of working from the null hypothesis. When they come up with their next "great idea," I want them to immediately take the null hypothesis that it cannot work, and start trying to disprove or nullify it. If the idea survives, then it is time to further develop the business model and possibly move toward launching the venture.”   

 
This approach helps you to uncover the weaknesses in your model and if the null is not disproven, you have saved yourself time, money, and energy. 

 

Segment 3: The Plan vs. The Model 

This month's book, The Start-Up Owner's Manual provides these key insights: 

  1. A startup is not a small version of a big company. (both of you have experience in big companies, you can riff on this as far as how a startup is different and why) 

  1. The vision for the company and the founder's passion sometimes lay the foundation for the business plan. What's wrong with that? You need a product or service concept, features and benefits, determine how to build the product, determine if further research is needed.  

Quick ways to design a business plan: The Lean Canvas. It's a series of questions you can use to determine what direction you'll take your business in.  

  1. What problem are you solving? 

  2. What is your solution? 

  3. What is your value proposition (i.e. why should customers buy from you?) 

  4. What are the key metrics you'll use to gauge business success? 

  5. What unfair advantage do you have in your business? (I.e. access to product, expertise, etc.) 

  6. What customer segments exist in the market you're entering? 

  7. What will your cost structure be? 

  8. What will your revenue streams be? 

 

Other places to get a business plan? The SBDC. The first thing Earl Gregorich or Cheryl Salley or Nancy Williamson (in Newberry) will ask is,  "Do you have a business plan?" 

 

"Business plan" has been seen as a static, forward-looking document, one that rarely gets dusted off or updated. The Business Model is a dynamic strategy for making money, it's the way your business responds to customer demand and market opportunity. The Business Model changes, warps, morphs, adjusts to accommodate changes in the space you occupy. 

 

Segment 4: Events and Next Week Preview 

1 Million Cups tomorrow, 9 a.m. Richland Library on Assembly Street will feature young entrepreneurs from the Columbia College Summer Leadership Institute. 

 

Blythewood: Basic Cyber Security for Small Business 

Presented by SBDC and Blythewood Chamber of Commerce 

July 11 | 11:30am - 1:00pm ET 
 

Lexington: Business Lexpo 

Presented by Lexington Chamber of Commerce 

July 11 | 11:00am ET 
 

Cayce W. Columbia: Digital Commerce - What you need to know   

July 12 | 8:30am - 10:00am ET 
 

Next Week's Show: 

Greg Hilton of SOCO will join Larry in the studio to talk about the Pivot. How does a company change direction in the face of adversity or opportunity. 

 

Final Sign Offs: Thank you to Tom Ledbetter of Midlands Technical College for providing your input and expertise to this episode. We'll have to have you back for another episode soon. 

 
 

 

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