MBA 6298
Advanced Business Models for Entrepreneurs and Intrapreneurs
Startup DNA: Unraveling the Genetic Code of the Successful New Enterprise through Advanced Business Models

Professor Bruce M. Firestone, B. Eng. (Civil), M. Eng-Sci., PhD.
Entrepreneur-in-Residence, entrpreneur-en-résidence, Telfer School of Management, University of Ottawa
Founder, Ottawa Senators; Executive Director, Exploriem.org
Real Estate and Mortgage Broker, Century 21 Explorer Realty Inc.
Columnist, Ottawa Business Journal and EQ Journal
Prof Bruce on Twitter CV

Short Course Description:

MBA 6298A Advanced Business Models for Entrepreneurs and Intrapreneurs [Startup DNA: Unraveling the Genetic Code of the Successful New Enterprise through Business Models] (1.5 cr.)

In this course, we will examine case studies of successful enterprises to understand the DNA, the essence, of these organizations and we will incorporate these elements into student entrepreneur business models prepared by teams of students. This course will be of interest not only to students who want to be entrepreneurs but also to those who will be intrapreneurs: people who have the skill set of the entrepreneur but who work within established, often large-scale, enterprises. Product Managers and intrapreneurs who know how to deploy the entrepreneurs' skill set are more likely to have their projects and products green lighted and more likely to be promoted.

The course code is: MBA 6298A, Seminar in Management.

Room: DMS4140
Tuesdays 1 to 4 pm
Block 4 (From February 22 to March 29, 2011)
Assignments: A. Build a Business Model in teams of 2. (50%) B. Produce and record your 2-Minute Elevator Pitch on YouTube (public or private). (20%) C. Present your Business Model. (30%)

Outputs

Your Complete Business Model should include:

1. A one page Business Model Flow Chart. Start by using our online Business Model Generator, BMG (http://www.dramatispersonae.org/bmg/) to get a sense of what your final model might look like. Then improve it and let it evolve to describe using a pictogram the entire ecosystem that your new enterprise will live within. Your Business Model will show your ECQ Test Score, your 'Pixie Dust', source of Bootstrap Capital and Guerrilla Marketing/Social Marketing ideas, your Guerrilla Marketing Test Score and your Business Model Test Score. The BMG will lead you through this process. Try to select the right idea for your next startup (read Ten Things Startups Forget to Do: http://www.eqjournal.org/?p=335). Create a business model for the 21st Century that will produce great results so that the harder you work, the more money you make and so you can compete effectively with hard charging entrepreneurs from China, India and other Tigers by having a business model that can not be easily duplicated or dislodged and gives you a lasting, sustainable competitive advantage and concession or franchise. Understand not only your clients and suppliers but the whole network or ecosystem: clients of your clients and suppliers to your suppliers. Becoming part of your business ecosystem is one of the keys to longterm sustainability for your enterprise. Add some differentiated value, innovation and 'pixie dust' to your business model. Self-capitalize (bootstrap) your new enterprise so that you end up owning it and not a VC firm or other investors or partners (please see Bootstrap Capital, the Last Word: http://www.eqjournal.org/?p=1162). And use some smart marketing (guerrilla marketing and social marketing) so you can acquire customers and clients cost effectively (please read Guerrilla Marketing Basics: http://www.eqjournal.org/?p=643).

2. You will also need to develop a one page spreadsheet showing how value is created for one individual client or customer. Here are some examples of how to demonstrate your Value Proposition: Value Proposition of a Residential Realtor, the spreadsheet, Value Proposition for a HR Professional, the spreadsheet. You are demonstrating in a clear and concise way how your new enterprise/product/service/division creates either lower costs or higher revenues (or hopefully some combination of both) for one customer.

3. A second spreadsheet is required that provides you with a Financial Model of your enterprise. Having done quite a bit of work in the field of urban economics, it has always amazed me that most cities, for example, don't have a financial model that can tell them what the fiscal implications are of one more resident or, for that matter, one more firm locating in their town. Most cities have budget processes that are a mess. I produced a financial model for a backorder domain name service that you can use online: http://public.sheet.zoho.com/public/profbruce/backorderdomaincorpfinancialmodel. From this model, the firm can see what impact each additional client has on the top line of the firm. The firm is also able to test the sensitivity of its top line to changes in the success rate of backorder capture, changes in its COGS (Cost of Goods Sold) and other variables.

Your value proposition for your clients and their impact on your business (which is measured in your financial model) are mirror images of each other. We complete the business ecosystem when your suppliers provide you with their value proposition and you also insist that they have a financial model of how your business impacts them. Why should you care if your supplier's have a workable financial model? Well, the long term viability of your firm depends in part of a stable supply chain and it won't be stable if your suppliers are failing on a frequent basis.

4. Make sure you also understand what a Cash Conversion Cycle is and how to calculate it for your enterprise. Please read Cash Conversion Cycle, CCC: How the CCC Affects Your Internal Rate of Return, The Power of Leverage to Work for You and Against You, and Effectively Manage your Enterprise by Measuring your Cash Position. Here is a spreadsheet example for calculating the CCC: http://www.dramatispersonae.org/BusinessModels/CashConversionCycleMeasurement.xls.

5. You will produce and record a 2-munite video of your Elevator Pitch and load it to YouTube ( public or private) for viewing in class. See: http://dramatispersonae.org/HowToMakeAGreatElevatorPitch.doc and http://dramatispersonae.org/ElevatorPitchWorkshop.doc. Here is a sample elevator pitch given by student entrepreneur, Daniel Beachamp: http://blog.avitu.com/2010/07/30/elevator-pitch-time/. Sean Wise has a humorous but useful take on what makes a good elevator pitch: http://www.youtube.com/watch?v=Tq0tan49rmc&feature=related.

6. If you can build leverage into your business model, a means to multiply the force exerted by your own efforts, time and brains, you will have a greater opportunity to succeed. Leverage in your business model comes primarily from eight principal sources:

i. great HR,
ii. using OPM,
iii. forced savings,
iv. innovation,
v. capital equipment,
vi. location,
vii. branding &
viii. inflation.

Test your biz model: ask yourself do you have great HR, are you using OPM, benefiting from forced savings, innovating, do you have a great location or brand, is your capital equipment top notch/best-of-breed & do you benefit from inflation? If so, you are probably maximizing your leverage.

Leverage using OPM is increased when the project's or business' rate of return is higher than money you borrowed. Or when you use bootstrap capital, say, trade credit, where a supplier gives you credit at low interest or no interest to buy from them or a customer gives you a deposit on an order on which you pay no interest, you are then leveraging your own efforts and capital with theirs.

You also get leverage when other people are paying off your debts. This happens when, for example, you own rental property. Every time a tenant pays their monthly rent and you pay off some of the principal using their rent, you experience a form of forced savings and a wealth effect.

I have spoken to the need to have some type of innovation in your business model; as we saw above, Steve Jobs proved that you can think your way to wealth a lot faster than you can work your way there. That's big-time leverage…from ideas.

It would also appear self-evident that having top notch capital equipment provides greater leverage for your employees and means higher productivity.
You also get leverage from your location and your brand. In real estate terms, if you occupy a particular location, it obviously means that no one else can, so make it a good one.

Some people think that having a great brand is nice, actually it's essential. A strong brand creates trust and trust creates the opportunity to sell. Think about it? Ever bought anything from someone you didn't like and didn't trust? If you did, it was only once.

But a brand does other things for you. For example, Apple's incredible brand, its reputation for building insanely great products, allowed Steve Jobs to cajole out of AT&T a share of their monthly subscriber revenues for the launch of the iPhone, something that no other telecom had ever granted to a cell phone manufacturer before.

Cell phone manufacturers went from selling a 'shrink wrapped' gadget for a one-time payment in a brutally competitive market that was racing to the bottom to an industry with multiple sources of revenues, some of which are recurring: the holy grail of techdom.

Imagine how much harder Steve Jobs and Apple would have to work and how much lower their productivity as measured in revenue per employee would be without recurring revenues from iPhone app sales and revenues, advertising revenues on their mobile platform, downloads of paid content from iTunes and a share of their carriers' subscriber fees.

From a simple question, asked by Steve Jobs, and a tweaking of his business model flowed great benefits. The harder they work, the more money they make and, in Apple's case, this relationship has become geometric.

(Jobs has created radical change in industry after industry: personal computing (the Mac), animation (Pixar), music (iPod), cell phones (iPhone) and now book/newspaper/magazine publishing (iPad) plus perhaps television and film (Apple TV). It is truly a remarkable record of achievement.)

Lastly, if you are in an industry that is experiencing price inflation, you are benefiting from asset value increases without putting in any effort of your own, i.e., more 'free' positive leverage for you. That is why it is almost always better to enter into buoyant sectors where 'all boats are rising'.

7. Lastly, you will need to write a Summary of your Business Model that is 2-pages or less that summarizes:

a. Your value proposition including its 'pixie dust' (http://www.eqjournalblog.com/?p=9) or differentiated value and how you can create a sustainable competitive advantage. Make sure that you are abundantly clear about the costs and benefits that you are creating for each customer.
b. How you can acquire customers and clients, including pre-launch clients, in a cost effective manner through guerrilla marketing, social marketing or direct marketing. Explain how you might use negative cost selling to achieve this: http://www.eqjournalblog.com/?p=425.
c. How you integrated the Internet into your business model. (See: http://www.eqjournalblog.com/?p=1609).
d. How you can bootstrap your business and self-capitalize it (http://www.eqjournalblog.com/?p=1162).
e. How you will build cashflow and create a cash conversion cycle that is workable (http://www.eqjournal.org/?p=2257).
f. Why you and your team are the right people to execute this model.

Prof Bruce

Postscript: Here is a hand drawn biz model redesign we did for Amy Yee's EventBots.com.

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