BUSINESS MODELS

                   There is no standard business model, no hard-and-fast rules that dictate how a firm in a particular industry should compete. In fact, it’s dangerous for the entrepreneur launching a new venture to assume that the venture can be successful by simply copying the business model of another firm—even if that other firm is the industry leader. This is true for two reasons. First, it is difficult to precisely understand all of the components of another firm’s business model. Second, a firm’s business model is inherently dependent on the collection of resources it controls and the capabilities it possesses. For example, if UPS employs the best group of supply chain managers in the country and has established long-term trusting relationships with key suppliers, it may be the only company in the world that can effectively implement its business model. No other firm would have this unique set of capabilities, at least initially.
                    To achieve long-term success though, all business models need to be modified across time. The reason for this is that competitors can eventually learn how to duplicate the benefits a particular firm is able to create through its business model. In the late 2000s, for example, financial returns suggested that competitors such as Hewlett-Packard had learned how to successfully duplicate the benefits of Dell Inc.’s “build-to order” (BTO) business model. When Dell’s BTO business model was first introduced, it was a business model innovation, which refers to a business model that revolutionizes how a product is produced, sold, or supported after the sale.3 Figure 6.1 depicts Dell’s initial approach to

selling computers versus traditional manufacturers. As we’ve noted, Dell’s competitors (e.g., Hewlett Packard, Lenovo, Sony, Toshiba, and others) have been able to duplicate the benefits of Dell’s business model. Nonetheless, at the time of its introduction, Dell’s business model was very innovative.
                    Firms are continually introducing business model innovations to find ways to add value in unique ways and revolutionize how products and services are sold in their industries. The “Savvy Entrepreneurial Firm” feature for this chapter provides examples of business model innovations in eyewear, retail shopping, and solar power.
                    A firm’s business model is developed after the feasibility analysis stage of launching a new venture. If a firm has conducted a successful feasibility analysis and knows that it has a product or service with potential, the business model stage addresses how to surround it with a core strategy, a partnership model, a customer interface, distinctive resources, and an approach to creating value that represents a viable business.