On Profit Models…

Ziya G. Boyacigiller

This presentation was created and given by Ziya Boyacigiller who was leading Angel Investor and a loved mentor to many young entrepreneurs in Turkey. We have shared it on the web for everyone’s benefit. It is free to use but please cite Ziya Boyacigiller as the source when you use any part of this presentation. For more about Ziya Boyacigiller’s contributions to the start-up Ecosystem of Turkey, please go to www.ziyaboyacigiller.com

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The Profit ZoneHow strategic business design will lead

you to tomorrow’s profitsAdrian J. Slywotzky, David J. Morrison

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Market Share Triumphs (!)

• Intel had a high share of memory chips.

• WordPerfect had a high share of word processor software.

• DEC had a high share of minicomputers

• Kmart had a high share of urban discount merchandising

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Am I targeting for Unit Volume Growth?

Conventional Thinking:

1. Gain market share.

2. Profitability will follow.

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Think:

Am I targeting for Profit Growth?

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Re-Inventor’s Thinking:

A. How can we add value to the customer’s products / services / business practices?

B. Will the customer allow us to keep some of that value as profits?

C. Where is the profit zone today? Where will it be tomorrow?

D. How can we gain market share in that space?

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Shift Focus to Identify Bigger/More Value

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Value Shift:Why Good Companies

“Lose It”

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Dimensions of Business Model Design

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Value Chain

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Strategic

Control Point Index

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Strategy:

Knowing What to Do, and What Not to Do

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What is the

value of my

business?

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The 22 Profit Models

Or, 22 ways to make money…

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Profit Models & Examples

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1. Customer Solutions Profit

Invest to know the customer, develop a solution, develop the relationship (EDS, Broadcom)

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2. Product Pyramid Profit

Base is low-price high-volume, top is high-price low-volume. (swatch, mattel)

firewall

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3. Multicomponent Profit

Segmentation dependent profitability (hotels, beverages).

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4. Switchboard Profit

For high cost buyer seller markets, reduce costs for everyone (schwab, expedia.com, hotels.com)

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5. Time Profit

First mover advantage (Time To Market) (intel, sony)

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6. Blockbuster Profit

Small portion of successful products pays for all costs (VC, films, music, pharmaceuticals)

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7. Profit-Multiplier Profit

Generate additional revenue from same product (disney, honda)

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8. Entrepreneurial Profit

Overcome size related problems by focusing organization into smaller units (ABB, Microsoft)

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9. Specialization Profit

Focus strategy (Home Depot, Bebek Bademezmesi)

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10. Installed Base Profit

Razor blade model (copiers, printers, elevators, landscaping)

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11. De Facto Standard Profit

Network effect model (Intel, Microsoft, Oracle)

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12. Brand Profit

Brand means reduced risk, trust, image you like, etc. (HP, BMW, Sony…)

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13. Specialty Product Profit

New product model (pharmaceuticals, intel, …)

S= specialty

C=commodity

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14. Local Leadership Profit

When physical proximity to customers or suppliers is important (Starbucks, grocery stores, building materials,…

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15. Transaction Scale Profit

When business is transaction based and costs go down in tandem with size of transactions (travel, real estate, UPS)

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16. Value Chain Position Profit

All links of the value chain are not equally profitable. Best links enable the value chain to exist, are well protected from competition, and focus on core competancy/capacity value. (intel/microsoft, read/write heads, Dolby)

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17. Cycle Profit

When business is designed to function through industry cycles – keep/raise price when cycle is up (memory chips, chemicals)

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18. After Sale Profit

Where profit in service and support is higher than in the product (GE, cell phones)

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19. New Product Profit

When industry is driven by constant change resulting in new products (PCs, cars, cell phones)

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20. Relative Market Share Profit

When cost advantage results from high volume purchases, and experience curve (P&G, amazon.com, wall-mart)

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21. Experience Curve Profit

When experience enables low cost position (emerson electric, micron)

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22. Low Cost Business Profit

When business focus is on costs and expenses (Tandy, South West Airlines, Wall-Mart)