[SOUND] Hello again, learner. In the last lesson of this third course in our specialization how to build a business, we learned the good news that business success through business model innovation is well within your wheel house. This is because this is innovation that most of us are more than capable of. In this lesson, we will try to motivate you to spend the time and effort to master the business model concept. Specifically, in this lesson, we will identify a business model and its characteristics. In essence so that you could pick it out of the proverbial lineup of business terms that we have bandied about throughout this course. At the end of this specific lesson, you will know what the business model concept is and why it's so important for you to master it. The business model concept is actually what changes your great idea into a great business that generates dollars. Steve Blank, in most of the literature, defines a business model as a description of how a company will take action to create, deliver, capture value in order to make a profit. Explaining how, though, and why execution. This is more in line with what a business plan is. What is really missed is that a business of model describes or illustrates the resources and actions of associating with a business. And how they fit together in order to put it into a position to make a profit. Here is a model of a cylinder associated with a combustion engine. Like a business model it identifies the parts of a cylinder and how they fit together. It doesn't necessarily give you a detailed explanation of how it works, nor can you actually build one simply from this diagram. But it does identify the parts, and how they fit together, again, to put this cylinder in the position to operate within a combustion engine. Again, a business model is a statement, or sometimes a diagram, describing the narrative, number and infrastructure of an organization. It specifically identifies how that organization creates value both physically and psychologically. How it delivers and communicates that value. And then, how it captures that value through generating revenue producing relationships. It defines the underlying logic of the company's operation such that the pulse to actually produce the targeted value, and the cost to acquire customers and form relationships is less than what customers are willing to pay for that value such that profits will generate. There are three reasons why it's so important that you master the concepts of a business model. The first reason is that the business model, as we have said, is where the innovation gold is. A Boston consulting group study done in 2009 showed that about 6% of the most innovative companies at that time were business model innovators. And that really hasn't changed in the seven years since that study was done. Identifying the business model is the key to sustain success in both cases. But entrepreneurs must have the ability to construct and assess a business model. Be able to initially design one or, as a company move on, be able to redesign. The second reason, that is also important for you to master this business model concept is be called that's where the money is, it's where [INAUDIBLE] are hid. That same study, conducted by the Dolphin Consulting Group, along with the Sloan Business Group, at the Massachusetts Institute of Technology, done in 2013, found that more than 60% of companies still, that had implemented business model innovation, reported increases in profit. Those profits typically averaged 6% or greater than companies that had failed to innovate the business model. Again, profits don't just happen. Their engineer was having a deep understanding of the inner relationships between all aspects of the business model. Resources can be eliminated or leveraged or shifted in ways that the product can produce the same or greater values with less resources, or more efficient use of resources. An example is the way Uber shifted the cost and resources of vehicles to the driver and away from the company. The third and final reason, and it's so important an aspect of business model concept, is because that is where the fight is. The individual market battles that take place every day between competitors for every customer are won and lost, to a large extent, based on the competitive advantages, or lack thereof, inherent in their business model. Entrepreneurs must be able to assess industries business models the way a sports team scouts another team in order to find strengths and weaknesses, upon which to establish some competitive advantage and formulate some competitive strategy. You, as the entrepreneur, must be able to look beyond a specific product or service a competitor might be providing, and look underneath the hood at the business model. Be able to identify ways in which you can create some advantages over that particular competitor. So in summary, you must develop a functional capability to recognize and build business models. This understanding is critical to tap into the greatest source of business innovation. To be able to build the operational effectiveness and efficiency that's going to allow your company to generate profits. And finally, to asses the market intelligence that's available to build the competitive advantages into your operations to continually win, so day-to-day customers buy customer market. [SOUND]
