How Business Models Emerge

How Business Models Emerge
                    The value chain is a model developed by an academic researcher6 that many businesspeople as well as entrepreneurs use to identify opportunities to enhance their competitive strategies. The value chain also explains how business models emerge and develop. The value chain is the string of activities that moves a product from the raw material stage, through manufacturing and distribution, and ultimately to the end user. Shown in Figure 6.2, the value chain consists of primary activities and support activities. The primary activities have to do with the physical creation, sale, and service of a product or a service, while the support activities provide reinforcement for the primary activities. Individual parts of the chain either add or do not add value as a product moves through the different stages of the value chain. The final product or service is an aggregate of the individual contributions of value made at the different stages of the chain.
                    Entrepreneurs look at the value chain of a product or a service to pinpoint where the value chain can be made more effective or to spot where additional “value” can be added in some meaningful way. This type of analysis may focus on (1) a single primary activity of the value chain (such as marketing and sales), (2) the interface between one stage of the value chain and another (such as the interface between marketing and sales and service), or (3) one of

the support activities (such as human resource management). If a product’s value chain can be strengthened in any one of these areas, it may represent an opportunity for the formation of a new firm to perform that activity. For example InstyMeds, the focus of the “You Be the VC 3.1 feature, recognized a limitation in the marketing and sales component of the value chain for prescription medicine in rural areas. There are many rural areas without 24-hour pharmacies. This makes it difficult for people who visit an emergency room or an urgent care center late at night to quickly fill their prescriptions. To address the problem, InstyMeds has developed a vending machine for prescription drugs to be located in hospitals and urgent care centers in

rural areas. This gives people access to the most commonly prescribed medications, like antibiotics, instantly rather than having to wait until the next morning. InstyMeds’ solution improves the value chain for prescription medications.

                    Table 6.2 provides examples of entrepreneurial firms that have enhanced the value chain of existing products or services by focusing on one of the three previously mentioned areas. Some of the firms shown in Table 6.2 are older now, but had entrepreneurial beginnings and were launched to address a flaw or a limitation in the value chain of the respective industry in which each firm now competes.