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Executive Expertise: Business Models
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From the course by University of Illinois at Urbana-Champaign
Business Strategy
421 ratings
University of Illinois at Urbana-Champaign
421 ratings
Course 5 of 7 in the Specialization Strategic Leadership and Management
From the lesson
Module 1: Leading Strategically
The Leading Strategically module will lay the foundation of business strategy course. You will learn about mission, vision and values and their role in overall strategy landscape. You will learn about the VARS framework for analyzing business models and SWOT framework for understanding the fit and coherence of business strategy.
Meet the Instructors
Deepak SomayaProfessor of Business Administration
University of Illinois, Urbana-Champaign College of Business Department of Business Administration
Things just move a little bit quicker today, because of technology and
the lower cost to start companies and the lower cost to evolve products.
Just the nature fundamentally of technologies that we no longer need to
build data centers, we don't need to invest in hardware,.
We go to Amazon and
we take our tech stack from open source technology we don't go to Oracle.
So it's just much easier to evolve and
the barriers to entry into pretty much any startup have decreased dramatically.
And so I think things move faster.
But the idea that you have to have a business model, to me, is not new.
>> I think about the industry that I'm in right now and
it's got plenty of innovation, plenty of a disruption, but
we have a business model of the typical CAPTA financial representative or
agent who's delivering financial security, so property, casualty,
life, wealth management to a community as a par channel.
And so a lot of people- >> To a set of dedicated agents.
>> Dedicated.
So 2000 of them.
2000 of them, in 19 different states.
In the industry people would think, okay that model is at risk right.
Because we've got plenty of competition from Geico, Progressive,
online aggregators, you know, who can give a price to anybody for anything.
But, I do believe, number one,
so the business model is what delivers value to the customer.
>> If you look at the industrial age and
the default business model, people think of as you construct something,
you have some cost associated with constructing it, and you charge something
a little bit more than what your cost is and that's your margin.
That's kind of the standard business model.
When you look at businesses that are being created today,
the ones that have exploded, they've dramatically moved away from that model.
If you look at Google, which a lot of people didn't even understand how they
were making their money when they first came out, and it boggled a lot of people's
minds on how they could deliver such a valuable service and not charge for it.
And it was only after they went public that people realized that the Google
business model was, essentially, we're going to deliver this service,
we're going to create value, and then we're going to take this value that we
created while delivering value, and we're going to resell that to someone else.
So that was, I would say, a serious significant innovation
in business models that a lot of people are following the path of today.
You look at the new things are available today, there's going to be all new very
different types of business models that continue to get innovated on.
And so I do believe that has a big
fundamental structural difference to how you set up your business.
>> As I've gotten a little bit older and
with more experience, I have a much healthier appreciation for timing.
There are certain businesses that work well at a certain point in time
that you just couldn't start at a different point in time.
Avant is an interesting example of one, where we started three years ago and
that timing actually happened to be really great in retrospect because
there was investor interest.
And with a company that needs a tremendous amount of capital to start,
investor interest is critical.
There was consumer interest because consumers understand online.
They've gotten fond of using services like Uber and
Lyft, Instacart, Amazon for all their various transactional needs.
But in banking it has an app.
The financial services didn't happen so you have consumers really shift their
behavior and now you have the ability to build these businesses.
And my prior business, which was a real estate company, I think was the same way.
The fact that there was financial distress created an opening for us to start our
business because it's really hard to enter as a start up but once you're in,
then I think you could evolve and really build on top of that base.
>> You go out of business because of your business model and
that generally is the one that will kill you.
Most of the time we're pretty good with our income statement and balance sheet.
But it's the business model that kills you.
And you can take a look around at Blockbuster.
And there are plenty of great examples
of bad business models that litter the landscape.
For us, though, we know that for
a customer to get value in our model it's gotta deliver advice.
So it's gotta be value added and deliver advice,
which is what we really position ourselves to do.
So I hardly recommend studying your business model because disruptors
are going to come with new business models that will make yours irrelevant.
So you either have to secure it, and we do it in a number of ways,
you also have to understand what value people are getting out of the other ones.
I think it's absolutely vital to understand your business model.
What it does and what it doesn't do.
And recognize that a disruption will make it irrelevant if you don't tend to it or
if you don't change it.
So.
And so I'll jump right in to our business model is a customer driven business model.
We'll do whatever the customer wants us to do.
They want to talk to us in many different forms,
communicate with us in many different ways.
If they want to do business, any way they want to do it,
we'll do it with the goal of delivering financial security.
>> What is a business model?
What would your definition be?
What is your explanation of what is a business model?
>> That's a great question, that's a great question.
At least the way I was thinking about it as I talked about it,
it was very much, how does a company make revenues?
And, so how does a company make revenue?
I mean, fundamentally, it's first and foremost a business model talks about how
a company makes money and how the expenses relate to that process of making money.
So, if you're making money and you're spending all of your money making
that money, that's like the traditional Industrial Revolution approach or
manufacturing approach.
But Google totally changed that up.
A lot of other people are totally changing that up so
the ways in which people make money are very unobvious now to an outsider.
A lot of people just don't understand how companies make money anymore.
>> For me a business model is really pretty straightforward.
It's what your value proposition is for your consumers.
And Avant's value proposition is very simple.
We want to be the best provider of credit product and alternatives for
middle class consumers around the world.
And we have a definition for what middle class means.
In the US we would define this basically everyone under $100,000 of income
which happens to be 50 plus percent of the US population.
And everything we try to do is provide them better product alternatives across
all of their credit verticals.
So today we have an unsecured personal loan product.
We're launching an auto finance product.
So if they want to go and buy a car or
refinance their car loan, Avant could provide that for them.
And we're launching a credit card product.
So if they want to transact at the point of sale.
And the idea is to provide all of those products to that same customer.
So that when they think about borrowing money in some form,
they actually just think about Avant.
And we do that in real time.
We use the most advanced technology analytics.
And we structure our products to be clean and transparent.
And I think that's really our value proposition.
And so today, you have an environment where, in order to borrow money from
a bond, you apply online via our mobile app or a mobile phone.
It takes you three to five minutes.
And in real time, you can get an answer that you're approved.
And if you go to bank, that same experience involves you going into
the physical branch, filling out all the information, going home and
getting more information that's required, and then waiting 30 days to get an answer.
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