Now that you understand the basics of business model, in this video, we will talk about business model
innovation.
And in this video, I'm going to give you a couple of frameworks that you can use if you wanted to build
your own business model, but take these business model framework as a pinch of salt because you can
always start.
Building your business model from a blank canvas.
So let's start with the first framework that I got after reading multiple frameworks that were available
on the Internet.
Now, business model is all about solving a problem.
And when you solve a problem, you always solve for a smaller segment.
So if you're building a business model, you first have to pick your segment.
And in this framework, I'm going to use our example of one of the company that we chose in the last
video.
So let's take Amazon as an example.
So when Amazon started their e Commerce store, they chose a segment of age 25 years to 40 years who
are interested in buying books online.
That was their customer segment.
Once you have a customer segment, then you have to find a value proposition.
And the value proposition of Amazon back then was you don't really have to go to an offline bookstore
to purchase a book.
You can find all these different variety of books online.
That was their value proposition.
The third one is the process.
How can you build a process around this specific business so that you can make it profitable?
Well, your value proposition will generate revenue for your brand because you're allowing people to
buy books online.
It will generate revenue for your business, but your processes will help you understand the cost structure,
things like how will you ship the product and how much will it cost for you to ship the product.
And if you take this revenue model and the cost structure, you will have your profit model.
Now, if you look at all these things in case of Amazon, things like revenue model, cost structure
and your profit model, you will see that Amazon will provide you a wide variety of product at the most
affordable price.
And they will also make sure that they are delivering this product at your doorstep in the shortest
amount of time.
So providing variety is the value proposition, making it more affordable and faster delivery is the
process.
Now, this business model framework reminds me of something that was said by Garrett and now Garrett
and currently runs Y Combinator.
And he said that all winning products make it faster, cheaper and better.
And we'll expand on this in the coming videos.
But basically a successful product or a successful business makes the process faster, better and cheaper.
Now this can be five x faster, three x cheaper, or maybe two x better.
Apart from this, I also have one more business model innovation framework.
I call this as a business model.
Triangle and this triangle have three vertex.
At the top you have your customer.
Then you have your distribution channel and then you have your profit formula.
And if you want to solve a problem for your customer, you have to find different distribution channel
so that you can reach out to a different customer.
In today's world, you have so many people who are connected to Internet, but you also have some people
who are not connected to Internet, But you have to reach out to all the customer who are facing the
problem.
So.
You have to find these different channels by which you can reach out to the end consumer.
Maybe some online channel is there for all the people who are tech savvy.
And let's say you also invest in offline channel for all the people who are not connected to Internet.
So distribution channel will help your brand to connect with all these different types of customer.
Then you have your profit formula.
That means what is the piece of technology that you will be using to serve all these customers at scale?
And in the end, you have to invest a lot more amount of capital in these different assets so that you
can make this overall business model work.
In case of offline store, you need to invest heavily on all these different asset.
Because you are buying a piece of land and then you're opening our retail store in case of a e commerce
app.
You are investing in the technology of building that app.
Now, just like this, we can have multiple different types of business model innovation framework that
you can find on Internet.
But I think these two are enough for you to understand how exactly you can think about building a business
model and how you can think about all these different Lego blocks that you can use and connect in different
ways.
Let's talk about a few ingredients of a good business model.
The first one is pricing.
Now, if you are selling a product to all these different people, you have to find a sweet spot where
you can maximize your revenue by adjusting price and then you can sell it to more number of people.
Now, as you all know, revenue is equal to price and number of customer.
Now, if you are selling your product at a higher price, you will have less number of customer on the
opposite side.
If you are selling your product at a cheaper price, you will have more number of customer.
That means if you wanted to maximize your revenue, you have to sell your product at such a price so
that you can have maximum number of customer.
So your overall revenue will depend on price multiplied by the number of customers you can get.
So pricing is one of the factor that you need to.
Think about when you're building a good business model.
Now, there are multiple pricing strategies that you can use, and we will talk about these different
types of strategy in the coming videos.
The second ingredient that you need to understand and a good business model is the frequency.
You have to ask how frequently these customers are buying your product.
And to understand that, let's take two different product.
Let's take e commerce as a product, and let's take software as a product.
If you look at e commerce as a product, people purchase multiple product in a month.
So your frequency will be higher in case of e commerce.
In case of software, people just purchase once in a month or maybe, let's say once in a year.
So the frequency for purchasing a software is less.
So you have to find a frequency of your product, how frequently people are purchasing that specific
product.
The third thing is average revenue per user, also known as ARPU.
So average revenue per user means what is the average ticket size of your product.
And if you understand the average revenue per user, you will have a lot more opportunity of upselling
and cross selling your product.
And then you can use these multiple techniques like product bundling, selling add ons and plug ins.
And we will also talk about all these things in the coming videos.
But these are the few ingredients that you need to know in a good business model.
And just to let you know, in the coming videos, we will also talk about these 31 different types of
business model, like subscription business model, freemium, business model on demand, business model,
peer to peer ecosystem, and many more business model.
So if you wanted to skip these few videos, you can always do that.
Just go to the second section and you can watch all these different types of business model.
But I personally recommend you to watch all these videos in a proper sequence so that you can build
a very strong foundation and you can think about building your own business model.