Business models and value creation

Same bread, different fate

• Two bakeries on one street sell almost the same bread. One makes a healthy profit; the other closes within two years.
• The difference is rarely the bread. It is how each one creates value for customers and turns that value into money. That plan is its business model.

Create, deliver, capture

• A business model 商业模式 answers three questions. How does the firm create value (whose life does it improve)? How does it deliver it (activities and channels)? How does it capture value (how does money come back)?
• Nimbus creates value with bread baked fresh every morning, delivers it through two shops and a pre-order pickup, and captures it with premium prices.

The value chain

• The value chain 价值链 lists the activities that add value, in order: bringing in supplies, making the product, getting it to customers, marketing and selling, and service afterwards.
• Looking at each link shows where the firm adds value and where costs build up.

A model is a fit, not a list

• The links must support each other. Pre-order only pays because the morning bake can make the extra loaves cheaply in the same batch.
• Premium prices only hold because the bread really is fresher than the supermarket's. Change one link and check what it does to the others.

Test the model with arithmetic

• A model works only if the numbers do: sales × price, minus the costs that rise with each sale (variable costs), minus the costs that stay the same (fixed costs), must leave enough profit.
• Each loaf sold adds its contribution: price minus variable cost. Fixed costs are paid from the total contribution.

Small changes, big effects

• Profit is the small gap between two big numbers, so a small change in costs can move it a lot.
• If ingredients rise by 10%, from £1.60 to £1.76, contribution falls to £2.44. Profit becomes 420 × £2.44 − £860 = £164.80, a fall of about 29% from one 10% rise. No adjective in a plan tells you that; the arithmetic does.

Revenue, profit and cash are different

• Revenue 收入 is the value of sales made. Profit 利润 is revenue minus the costs of making those sales. Cash 现金 is money actually in the bank.
• A firm can be profitable and still run out of cash: customers may pay late while wages and suppliers must be paid now. Growth uses cash before it brings any in.

Check the key assumption

• Every model rests on a few assumptions. For pre-order, the key one is that the orders are extra sales, not customers who would have bought in the shop anyway.
• 60 pre-orders a day at £6 contribution each look like £360 a day. If 40 of those customers would have bought in the shop anyway, only 20 are new, and the real gain is £120 a day.

Marks that slip away

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