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Business Model Evaluation
Imagine you are a venture capital investor who considers investing into a start up.
In terms of due diligence there is not much to analyse except a team and an idea expressed in a business plan.
What method would you use to evaluate the business model if you don't want to rely on your gut feeling alone?
Here's what I've found so far:
1) Business Model Generation (2010):
Two-fold evaluation: SWOT for Canvas as big picture and SWOT for each single component.
2) Morris, Schindehutte, Richardson, Allen (2006):
7 performance indicators: uniqueness, profit potential, internal consistency, imitability, robustness, adaptability, sustainability.
That's great so far, however unclear how to operationalise this. There seems to be no method how to actually measure this.
3) Amit, Zott (2001):
4 performance indicators in their NICE-framework: novelty, lock-in, complementarity, efficiency.
4) Hamel (2000):
4 performance indicators: efficiency, uniqueness, fit, profit boosters.
Which ones do you find useful and have you come across other approaches that can be operationalised and are therefore useful for practitioners?
Regards,
david
Tags: VC, assessment, capital, due, evaluation, indicators, investment, investors, performance, venture
Replies to This Discussion
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Permalink Reply by Georg E. A. Stampfl on -
A priori evaluation of BMs is truly a very interesting topic!
One measure I consider really important is scalability (load scalability, geographic scalability, functional scalability etc.). As in most cases testing a new BM on the market ASAP and scaling it up quickly after it has been successfully validated that it works is a promising strategy.
Looking forward to other comments!
Best,
Georg
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Permalink Reply by David M. Weiss on -
I agree, scalability is an important factor - especially to VC investors.
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Permalink Reply by David M. Weiss on
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Evaluation Tool
Attached is an attempt to operationalize the approach of Amit and Zott.
If you want to try it out, simply click on plus to open details and enter values in green, blue and red fields.
I must add that I am only interested in evaluation the business model itself. Its execution and its environment are two important issues contributing to the success of the venture that I deliberately exclude to keep it fokussed for now. - Attachments:
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Permalink Reply by Erwin Fielt on -
A quick and dirt list I pencilled down a while ago for start-up business models: consistency (and synergy), scalability, flexibility, innovativity, complexity and repeatability (see also http://fieltnotes.blogspot.com/2010/09/business-model-shift-or-drif...).
In addtion, the criteria will probably change during the life-cycle of the venture/business model. Moreover, one should also take into account the venture/business model portfolio level.
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Permalink Reply by David M. Weiss on
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Thanks, Erwin! That is a good set of criteria. How would you measure them? E.g. innovativity - when is a business model innovative or innovative enough?
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Permalink Reply by Douglas Wiley on -
I would take the following into account:
1. How easy is it to legally protect yourself from someone copying your business? Is it based around something you can patent?
2. Number one is a subset of this, but consider other barriers of entry as well (sometimes called a "moat")... required capital, infrastructure, etc...
3. A few other classics factor into this as well when considering potential value: ROI (are you making something or providing something with an extraordinarily low cost but extraordinarily high benefit), potential market, projected market penetration, etc...
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Permalink Reply by David M. Weiss on
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Douglas, what do you think of this?: http://www.businessmodelhub.com/forum/topics/business-model-evaluat...
Regards, David
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Permalink Reply by David M. Weiss on
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Douglas, the Business Model Evaluation Tool (Excel) is ready and uploaded on
http://www.businessmodelhub.com/forum/topics/business-model-evaluat...
Regards, David
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Permalink Reply by David M. Weiss on
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Erwin, my results are out: http://www.businessmodelhub.com/forum/topics/business-model-evaluat...
It it of use to you? David
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Permalink Reply by David M. Weiss on
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Erwin, the Business Model Evaluation Tool (Excel) is ready and uploaded on
http://www.businessmodelhub.com/forum/topics/business-model-evaluat...
Regards, David
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Permalink Reply by Alex Osterwalder on -
I believe the only real evaluation of a business model comes from testing it with the customers - it's the ultimate judge. The best method to do that is the Customer Development approach by Silicon Valley Überguru Steve Blank.
The Four Steps to the Epiphany (2006) Steve Blank
In fact, the last few days Steve, Alan Smith (#bmgen designer), Bob Dorf (Steve's new co-author) and I have been working in SanFran on blending our respective methods.
His Customer Development method works extremely well in conjunction with the Business Model Canvas to help companies reduce their risk of implementing new business models. His 4-step method shows how to systematically test and validate business models 'by getting out of the building and talking to customers' before moving on to launching and scaling.
It's so much more powerful than any 'paper exercise'. An eye opener...
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Permalink Reply by Erwin Fielt on
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Looks interesting and this is definitely a trigger for me to get more familiar with this. Here are some initial thoughts on this from my side: http://fieltnotes.blogspot.com/2010/10/testing-business-model-hypot...
However, no matter what methods we use to evaluate business models (the how), there is also the need to have a shared understanding about what criteria we want to use. While some criteria may be new, customer-driven and contextual, others will be generic and proven, like profitability and scalability. Also these are not always tested by looking at the customer perspective only.
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