This Web page aims to present the GRP model created by Professeur Thierry Verstraete and Estèle Jouison. It consists of two stages.
First, it explains the nature of the Business Model (what is it?)
Secondly, it lists the components of a Business Model (what is in it?). It picks up the content of the GRP Storyteller assistant with some initial, broad reminders of the content of the G, then the R, then the P.
Later, this page will be completed by some remarks presenting possible uses of the GRP model (designing a BM, redesigning a BM, creativity and the BM, diagnosis and the BM, benchmarking and the BM, etc.) The reader can also follow the GRP blog, which concludes these various reminders (see for example the article called « Common sense in the business model »)
1/ The nature of the Business Model: a shared representation by a body of partners (and, going further, a convention between stakeholders).
To be an entrepreneur, the business creator needs all kinds of resources (eg. skills, raw materials or goods, a site, machinery, financial resources that will help bring in other kinds of resources, etc.) These resources are valuable for the project. They must be obtained.
At the beginning of his adventure, the business creator does not own all the resources he will surely need for his project. He will need to approach the people who do have them (a potential employee to persuade him to work for him, a supplier to deliver him the goods, the banker to lend him money, etc.). This list of resources is never fixed in stone, it adapts with new encounters and as the project matures, and also with regard to the project’s ambition and its evolution.
One must appreciate that one never succeeds alone in business but always thanks to a network of partners who contribute the resources needed for the project to launch and then to last. These partners are known as stakeholders, so known because they each hold a stake in a business through a relationship of exchange. Stakeholders might be individual people or structures (a business, a public administration or an individual representing one of these). They might be clients, employees, financers, suppliers, etc.
Any project is in a relationship of interdependence with these stakeholders because partners must be “paid” for providing their resources. From a business perspective, a salary pays for the work of an employee, a monthly repayment with added interest pays for the loan agreed by the banker, the delivery of a product pays a client, etc. It consists of an exchange. The partner owns a resource that has value for the project: one must, in return, provide him with a resource that has value for him. The relationship consists of a value exchange and it is only sustainable if each partner is satisfied and remains so; otherwise, the project will lose him. Seen like this, entrepreneurship is a fundamentally partner-based activity because the partners must be satisfied with the values exchanged.
The owners of resources must be convinced by all the exchanges anticipated by the imagined system (even if they do not need to know all the details). One must know how to tell them the story of this adventure that is being written as it goes along, and integrate win-win relationships with partners into it. This means that the business creator must take into account, in their conception of the business, the expectations of potential stakeholders, who at the beginning are no more than the owners of resources that are yet to be committed to the business, and make them actors in the project, so they will crystallize themselves within it. Should this not happen, the stakeholders will not find their place nor will they join the deal.
And so the business creator leads a project that must be shared by resource-owners who participate, through their demands and the maintenance of relationships with them, in a representation of what the business must be. The “meaning” only emerges because the Business Model is a shared representation of the business, that is to say there is agreement on the way in which it is envisaged. We think that it consists of a convention involving a body of people assembled around the entrepreneurial project, for which the entrepreneur has both responsibility and the most complete picture.
We will now see what this representation must contain in order to make it convincing. The first person to convince is the entrepreneur who, guided by the GRP model, provides the content expected by partners who are examining the project, either generally or via the relationship of exchange proposed to them, before committing to it.
2/ The components of the Business Model: Generating Value, Remunerating Value, Value Partnerships.
The previous section explains that with each partner, a relationship of value exchange is put in place. The concept of value is central in the definition of a Business Model. Here, value is clearly partner-based. Value is seen in the context of the partner whose relationship is being studied. The value brought to a client is not the same as the value brought to a supplier, which is different from the value brought to a shareholder, etc. On the other hand, the value drawn from a client in an exchange relationship is not the same as the value drawn from a supplier, etc. If dealing with a client, the value corresponds, for example, to the satisfaction he draws from the product or service offered him. The value drawn from him is primarily Turnover. If dealing with an employee, the value for him will be his salary, his work conditions, etc. (in return for his energy, his time working, his skills and knowledge, …).
The entrepreneur himself draws value from the project in terms of status, assets, etc.
The GRP Lab home page presents our definition: the Business Model is a shared representation for Generation of value, the Remuneration of value and the Value Partnership (according to the conception proposed by Verstraete and Jouison-Laffitte, for example in their 2009 book).
One speaks therefore of the GRP model: G for Generation, R for Remuneration, P for Partnership.
Each of the following sections will provide you with some explanations followed by a list of questions. The list is clearly not comprehensive and it is not necessary to answer all the questions. In reality, some questions may be less relevant for you, and others more specifically tuned to get you thinking so that you can answer your partners with conviction.
This is really about helping those of you with “writer’s block” to tell your business story – the answers you give to the questions below will help you do that.
Your advisor will help you highlight the questions that are relevant to your business. S/he will complete the list of questions with you as you go along.
2.1. Generating value
It is difficult to interest a partner if they cannot perceive any value in the deal on the table. For, who would want part of something that was not worth anything? In other words, the thing proposed must release value, notably for the market to which a promise has been formulated. One talks of a value proposition (ref. 2.1.2), which consists of detailing the business idea and then transforming it into an offer to reveal the business opportunity that has been spotted and/or constructed. One must also know how to manufacture this promised value, and the presentation of the manufacturing process (capturing resources, organizing them, delivering the value) will help people understand the business (2.1.3). But, above all, it is useful to present the legitimacy of the business creator (or of the entrepreneurial team) as project leader (ref. 2.1.1). This is unanimously recognized as the foundation without which any commitment is unthinkable (except to a proposal to change the team…).
A business partner wants to know with whom he is dealing; he wants to know who is telling the story. An entrepreneur must know how to present themselves (or their team if the project is lead by more than one person). The following sections will give you the guidance you need. You will embark on a process of introspection that prepares you for negotiations with your business partners, for these people will not commit if they do not believe in you. One “sells oneself better” when one knows oneself well. Sincerity and clarity are the key words here, and if you find a few weaknesses, it’s only human … nobody is perfect.
It is worth noting that depending on the entrepreneur, he may be advised to present this information during an oral presentation, rather than when calling for stakeholders, for the very first partner of a project is the person who leads it.
Experience and previous career
Tell your interlocutor a short version of who you are, the route you have chosen (personal, academic and professional) and what it has to do with the project you are leading. Explain how and why this route is helping you develop your project.
Your Curriculum Vitae (CV) will help you, as will your professional or personal details on the social networks (eg. Viadeo); you can also draw up a summary of your skills, etc. If it seems useful, you can insert your full CV into one of the two pages and use the other page to comment on it, particularly by giving details of elements that are likely to interest your business partners.
▪ Personal details of the project leader(s)
It is important that you tell your interlocutors about your family situation, your employment situation and also your leisure activities. To summarize, anything that describes and shows who you are.
▪ Schooling/university record
Based on your CV, you can highlight which stages of your schooling/university education strengthen your project.
▪ Professional experience
Point out the links between your professional experience and the project you are leading.
▪ Personal details
Where are you from? How old are you? Your family situation? What is your personal journey? What are your leisure activities? Your values? Are you employed, a job-seeker, student, etc.?
▪ Schooling/university record
What is your school or university record? Are your qualifications related to your project?
▪ Professional experience
What were the broad lines of your professional career? Which experiences were the most meaningful for your project?
Your profile does not just consist of behavioral traits or psychological characteristics. A potential business partner is more interested in your entrepreneurial ability and your skills in the domains you are entering (or the skills you will acquire). Talk about them.
▪ Entrepreneurial abilities
If you think you have what it takes to be an entrepreneur (eg. leadership, vision, creativity, tenacity, open-mindedness, conviction, resistance to stress, tolerance of risks and ambiguity, strong work ethic, self-confidence, integrity, sense of initiative, curiosity, sense of responsibility, commitment, …) then tell them. There is no typical entrepreneurial profile, but certain characteristics can point out your ability to start a business, and to run it (because starting a business is one thing, managing it is another …).
Present the skills you have acquired on your different paths (personal, academic and professional) that are likely to help the project.
▪ Entrepreneurial abilities
Why might someone say that you are creative? .. that you have charisma? .. that you are a leader (what projects have you realized in the past)? Are you tenacious? Are you somebody who commits totally to things? Do you take the initiative and accept responsibilities? Are you self-confident? Can you justify your sense of integrity? Do you think you will be able to handle the ambiguity and novelty awaiting you? Do you make decisions quickly or do you need a lot of time? What is your attitude towards risk? Do you have a strong work ethic? What is your resistance to stress? Do people say you are convincing? Are you open-minded?
Faced with all these questions, can you give some concrete and well-reasoned examples of situations in which you have provably shown these abilities?
What qualities and defects characterize you?
Which of your skills are useful for your project?
What is your professional reputation?
Which skills are you missing that might stop you from succeeding in your project? What could you do to make up for this gap (training, recruitment, business partner, experience, etc.)?
Still with the idea of knowing with whom he will be dealing, your interlocutor wants to understand your motivations. This will help you too to think deeply about your desire to create a business. It is just as useful to ask yourself which factors might eventually discourage you, not that you need necessarily discuss these with your potential partners. After all, the story of your Business is primarily the one that you tell yourself, because this is what will help you identify important elements that are otherwise often forgotten (especially if your narrative is not written down).
▪ Factors that improve motivation
Without necessarily trusting to one single motivation, the entrepreneur is more usually carried by a group of motivations. A passion for the sector, profit, the desire for independence, the search for a different lifestyle, a hunt for recognition, etc. are among the motivations frequently cited.
▪ Factors that reduce motivation
Without necessarily revealing everything, for these factors can be very personal, take the time to become aware of your demotivating factors, so as to prepare your reactions if ever they become apparent.
Why do you wish to create this business? What event(s) triggered this desire?
What are your objectives? Concretely, what will you gain from succeeding in this project?
Are you ready to be an entrepreneur? Do you have enough time to make this project a success? What are your actual limits (professional, personal, financial, etc.)? What risks are you taking by starting your own firm (professional, personal, financial, etc.)?
Entourage of family and friends
If you have the support of some of your family and/or friends, you should mention it right away, even though the details will be covered in another section (the stakeholders section). Their support may be tangible and/or intangible. If you have any entrepreneurs in your personal circle (spouse, parents, friends), it can sometimes be useful to let your business partner know.
▪ Family circle
Mention the support of the people closest to you (parents, spouse, children)
▪ Circle of friends
Do likewise with regard to your personal contacts, be they people you know through sport, music, clubs, etc., or friendships you have built with professionals – following an internship or a prior work experience, and who are likely to support your project.
▪ Family circle
Does your family circle support you in your undertaking? What could your family contribute to your project?
Can you lead the project on your own? What would the risk be if the people close to you did not support you?
▪ Circle of friends
You have a private life (leisure, clubs, children at school, doctor, neighbors, etc.) that puts you in contact with different people. Which of them can help you, and how? Of all the people in the professional environment in which you are evolving, who could help you out (your actual or previous employer, colleagues, suppliers, clients, peers, classmates, teachers, etc.) – and how?
The entrepreneurial team
In cases where a project is led by a team, it is useful to describe how you first met and show the complementarity of the individuals and their various skills. It would also, for example, be appropriate to ensure that the motivations of the different team members are compatible. This is a matter of showing that the collaborative aspect can benefit the project; and of showing how this collaborative aspect is truly enriching for the future business activity – and that the combination of motivations and skills of each of the team members will bring additional value to the project.
▪ Team history
You can describe how the team members met and what made them want to work on this project together.
▪ Team objectives
It is important to fix one or more common objectives so that the team can work in a coherent way. This does not prevent each member from defining and pursuing objectives of their own, provided that they do not put the collaboration at risk.
▪ Skills and roles within the team
Each team member’s contribution to the projects different, depending on their skill-sets and the role they play. These contributions should ideally be defined as clearly as possible for each person.
▪ Team history
How did the project’s team members first meet?
Why did you decide to lead the project together?
▪ Team objectives
Does everybody understand and agree with the targets you are aiming for? Are any areas in which your various motivations are incompatible?
Have the risks of divergence been taken into account?
▪ Skills and roles within the team
Are the key skills needed for success held within the team?
Is there complementarity between team members? Can each team member’s experience be put to use?
What is the added value contributed by each member of the project team?
What does working as a group add to the project?
Is there a leader who is distinct from the team?
Has the division of shares been determined (what is the share and contribution of each person)?
Who had the business idea and does it belong to a member of the team?
2.1.2 Value proposition
Who would want something that was not worth having? It is worth pointing out that the product or service you are offering is actually worth something, thinking primarily from the viewpoint of a client or user. One must carefully target whom the offer is aimed at, amidst all potential buyers or users. We will see later how the value generated can benefit all stakeholders (ref. the “Partnership” component of the GRP model) This section considers essentially the value offered to those directly targeted (eg. a client, a subscriber, a user). The value proposition is a promise made to the market: to provide the market with something that will have value for it.
Once you have figured out how to present your idea extremely clearly in one or two phrases (the reader must immediately understand if it refers to a service or a product or both, and grasp its intended market), your work on the business idea and its presentation consists of at least four stages.
▪ Source and nature of the idea
Describe how you had the idea and why. Tell us if the idea comes from your professional experience and whether it was your contact with clients, suppliers – even competitors – that inspired you. Or, in keeping with your motivations, perhaps it was passion that led you to offer the product or service. Or perhaps it was a trip abroad, the visit to a professional salon, a creativity workshop, etc. If the idea is innovative, explain its novelty.
▪ Development of the idea
The raw idea will require further development and various methods can be used to clarify it, criticise it, seek judgement or analysis of it. In the case of a technical project, describe – for example – the testing process you envisage and the fine tuning of the prototype. Say if you have followed any creativity methods. Flag up likewise who you have discussed it with, for even though a creator is often afraid to talk about his idea for fear that it will be “stolen”, the first way to develop it is nevertheless by collecting feedback. Bear in mind that one is never the only person in the world to have a particular idea, no matter how original it might seem …
▪ Protection of the idea
Protecting an idea in itself if not possible, but you will need to present the results of your analysis of precedents (is protection already in place?) regarding the process, the brand or the model. Next, if possible, say if you have gone ahead and registered a “Soleau” envelope, or a patent. Web domain names must also be registered rapidly. Depending on the nature of the project, the entrepreneur will also explain which organisations he is working with in this regard: there are institutes for protecting industrial property, computer programs, literary works, etc. In France, these are the INPI (Institut National de la Propriété Industrielle), the APP (Agence de Protection des Programmes) and the SGDL (Société Des Gens de Lettres). Name any institution that is accompanying you on this point (solliciter, technology transfer unit or science and technology park,..).
▪ Transformation of the idea into an offer
Once a business idea has been developed and its protection anticipated, it must be transformed into an offer before it can be proposed to the market. This consists of defining its characteristics, its price, eventually the range, etc.
Une fois l’idée d’affaires mise au point et sa protection envisagée, sa transformation en offre est nécessaire avant de pouvoir la proposer au marché. Il s’agit de définir ses caractéristiques, son prix, éventuellement la gamme, etc.
▪ Source and nature of the idea
How did you have this idea? Who was involved in your having the idea? (potential clients, suppliers at your previous employment, “competitors”, etc?) What makes it a “business” idea? Is the idea innovative? How is it innovative?
▪ Development of the idea
How have you worked on this idea? Has the idea evolved? Who have you spoken to about it? (potential stake-holders, experts …) How did they react? (level of understanding, comments, etc.)
Have you studied other business ideas that a re identical or close to your own, and what have you learnt from them? Are you able to present your idea on written supports (diagram, prototype, written document, etc.)? Which professionals have worked on the tests (a laboratory, a firm, …)? Who has worked on the prototype (technical, design, etc.)? What lessons were learned from the tests and from developing the prototype? What remains to be done on this point?
▪ Protection of the idea
Can the idea – or rather the process, the model or the brand, etc. associated with it – be protected? Are they free of copyright? Has a Web domain name been registered?
Is intellectual protection a possibility (“Soleau” envelope, patent, licence, trademark, etc.)?
If none of these types of protection are possible, then do you know how to protect your market (customer loyalty programs, exclusive contracts with a supplier or distributor, etc.)?
Is there any risk of seeing new products or services arrive on the market? Could these products and services replace existing ones? If so then how long would it take? How would you react?
▪ Transformation of the idea into an offer
With your idea as a starting point, have you more precisely defined the offer that you intend to propose?
What are the characteristics of your product or your service?
Have you thought about a range?
Should your range consist of a selection of complementary products, or should you offer services that support your products?
Do distribution channels play an essential role in the definition of your offer?
Having an idea that you believe will make you some deals is not enough; it must constitute a real business opportunity. Estimating opportunity is a make or break point in the entrepreneurial process: it links potential customers to a definition of the value that will satisfy them. There are four points to bear in mind when considering your business opportunity:
▪ Attractiveness of the market
The aim of this stage is to ensure that the idea is sown in a promising environment. Whilst it is possible to make deals in a declining market, your partners will naturally be more inclined to back you if the market is in positive growth. What is required here is a combination of qualitative and quantitative information that has already been analysed and represented by others (consultants, a trade union, public research institutions: in France, the national institute for statistics and economic studies is Insee, l’Institut national de la statistique et des études économiques, …) and which can provide an overall viewpoint of the market. References to the information sources you consulted in your assessment of the market must be valid and cited. The reader is interested in, among other things, the size of the market (the number of sales and their value), its structure (the categories of products or services that constitute it) and its evolution (emerging, growing, mature or in decline, …).
At the core of the general market environment just described, which consists no doubt of various kinds of firms, you will need to provide a precise answer to the following question: Why will my project interest enough consumers or users? Bear in mind that the project responds, or will respond, to the needs of its future consumers. One must, as far as possible, estimate the size of the target market and your potential revenue (over several years). If the attractiveness of the market is only apparent through secondary data (ie. information collated by others), then the target should be precisely detailed in market research that you personally should conduct (or out-source) with your consumers or user groups.
It is unusual to be alone in a market. In the first place, mentioning the competition shows the reader that there really is a market, especially if these competitors are profitable. An initial analysis of the competition should be done with this in mind. Next, explain how you are positioning your offer with regard to your competitors (is it the same thing or different?). Justify your reasoning that there is space for you (perhaps because you are cheaper whilst offering the same quality, or because you are focussed on a particular target, or because the geographic territory is not yet covered, etc.)
Taking as an example a sandwich bar, wanting to “earn one’s crust” by opening a point of sale or wanting to take on the leaders in the sector by setting up franchises around the world does not point to the same ambition, neither to the same project, even though the basic idea looks identical. Your partner deserves to be informed about your ambition for the project and about the development strategy that you envisage.
▪ Attractiveness of the market
What is the volume of sales in the market in number (number of units sold) and in value (in financial terms)? What are the different categories of products or services proposed in this market? At what stage of evolution is the market (emerging, growing, mature, in decline)? What are the buying and consumption habits in this market? What general trends have you noticed which positively or negatively influence sales in this market? Is this market ready for your business idea? Is this the right moment?
Are there different client segments in this market? On the basis of which criteria can one determine these segments? Which ones will you target and why? What do your potential clients need? What are the habits of your potential clients? How will your offer respond to their needs and consumption habits? Why will consumers or users consider that your offer has value for them? What market study did you personally undertake to answer the previous questions and how did you conduct your research? What conclusions do you draw from it? Did you do the research yourself or did you out-source it (in which case, to whom)? In the second case (outsourced research), how do you interpret the results and the analysis that you were provided with?
How did you fix your prices?
Can you say in one phrase who is your client? Who else might be interested?
Which competitors are proposing an offer very similar to yours? Are they successful (for example in technical terms, in commercial terms, profit and loss, or in terms of their image, their following, …)? Is there a less direct competition? What is it proposing and is it successful? Is there a strong rivalry between competitors?
Have you explained in what way the existence of competitors confirms the attractiveness of the market?
Are there a lot of them? What are their distinct and their common elements?
Have you drawn up a table that compares your offer to that of your competitors (price, ease of use, technical, quality, range, quality of finish, etc.)?
Is there a threat of new actors coming onto the scene?
How do you position yourself with regard to the competition? Is your ambition local, national, international? Where do you see yourself (you and your project) in 3 or 5 years (and even in 10 or 15 years) and what are the different stages you have identified to reach that point?
2.1.3 Value manufacture
You make a promise in the “value proposition” section: to bring something to the market that will have value. Here, in the “value manufacture” section, you show that you will be able to keep this promise. In other words, it is time to unveil in real terms how you will manufacture the proposed value.
There are at least two ways of considering the cycle in question.
The first refers to the cycle “purchase, manufacture, sales”. If you opt for this way of explaining value manufacture then do show your capacity to buy what you need; show how to put in place a process for manufacturing the product or the service, and, finally, show how you will go about distributing your offer and communicating on it.
But we advise you to opt for the second way of approaching this section. It may be a little harder to grasp at first, but it will help a great deal in the development of your project – because this is a tricky thing to get right. This second way relies, like the other one, on a three-stage process but the stages are conceptually broader: identify and capture the resources your project needs, use these resources, deliver the value. This is the process that we will expand on here.
Identify the resources.
Tell us which resources you need for your project (make a list) and how you will go about obtaining them.
▪ Types of resources
Resources can be placed in two categories. The first consists of “tangible” resources (eg. a store-front, stock, raw materials, equipment, and money because this is a unit of exchange that opens up access to other resources, etc.). The second category consists of intangible resources (eg. a certain know-how, a brand, notoriety, etc.) Explain, for the main resources, why you need these particular ones and not others. In other words, show that they are important because they have a role to play in the creation of value.
▪ Origins of the resources
It is also important to identify who owns the resources because it is very likely that you will not own everything you need to make your project a success.
▪ Types de resources
Which tangible resources (store-front, machines, money, manpower, …) do you need to build your value proposition?
Which intangible resources (skills, notoriety, brand, …) do you need to build your value proposition?
Amidst all these resources, which are the most important? Which will help with your positioning? Which resources are specific to the project’s launch and which will be used for running the organisation?
▪ Origins of the resources
How will you find these resources? What kind of people will you seek out (You can present the actors in more detail in the “Stakeholders” section of “Partnership”)? Are these resources easy or difficult to obtain?
Use the resources.
In this section, explain how you will use all the resources you manage to obtain. Your interlocutor should get the impression that everything the firm will need doing has been anticipated, even though he knows that only the launch itself will reveal what remains to be done in terms of organizing resources.
▪ The process of manufacturing the offer
It is essential to present the manufacturing process of the product or service by showing what you will do yourself and what you will out-source.
▪ Management system
You can give a broad view by mentioning the management system (management team, accounts -notably analytics for calculating cost prices, your choice of legal structure if decided, a flowchart outlining how tasks will be delegated, etc.).
▪ The process of manufacturing the offer
What stages are needed to manufacture the offer? How do the different tasks and activities combine? What organisational structure will you put in place (activities, functions, departments, etc.)? Who are the players? What are their roles? What is your supply chain? What legal structure have you chosen?
▪ Management system
How will you ensure that your organization runs smoothly (quality control, management supervision, checking purchase prices and overseeing quotes, cost calculations, etc.)?
This is a matter of describing how the consumer will be informed that your offer is available, how he can get hold of it, and how you will manage to deliver the offer he was promised.
▪ Logistics and distribution
It is important to explain how the offer will be made available for clients, by what logistical means it will be delivered and through which distribution channels it will be sold.
At launch as much as later on during the running of the organization, it is essential to fine-tune communication of the offer to get it known and to support the business activity.
▪ Controlling the perception of value
Once consumers have benefited from the offer, it is worth ensuring as a final step that, in their view, it did live up to its promise. Mention ways of surveying consumer or user satisfaction to this effect.
▪ Logistics et distribution
How and where will the consumer be able to get hold of your offer? What is your distribution policy? What are the stages and who are the players in your distribution chain (storage, logistics)?
Will you call in a sales force, or external distributors? Will you run your own distribution?
How will you make your offer known at launch?
What is your communication policy? (which channels, which media/supports, what time period, which messages, etc.)? How will you create notoriety for your offer over time?
Have you thought of building a Web site and developing your visibility on the social networks?
▪ Controlling the perception of value
Are consumers satisfied with your offer? By what means can you verify this downstream?
2.2 Remunerating value
It is very important that the business can benefit from what it has proposed to the market. Remunerating value does not correspond to paying the business’ creator nor its employees, even though it does enable these. It corresponds to the remuneration that the firm pulls in from the value it proposes to its clients. In all cases, the capturing of revenues calls for thought, and then agreement, on three levels: the sources of remuneration (that is, the channels by which Turnover reaches the firm; 2.2.1), the volume of this remuneration (an evaluation of Turnover over the first few years; 2.2.2) and finally the firm’s performances (financial performances and non-financial performances; 2.2.3). This “Remuneration” section can be easily adapted to suit the particular nature of not-for-profit projects.
2.2.1 Revenue sources
The remuneration that we cite in the “R” of the GRP model is not that of the employees nor that of the directors but that which the firm captures in exchange for generating value: the turnover. Partners who invest and those who lend funds appreciate knowing how a firm can pull in turnover. The entrepreneur must identify the sources of this remuneration, for clearly one should obtain something in return for what one brings to the market.
The financing of a project (investment or loan) constitutes a cash inflow, but this does not correspond to a remuneration for the value of the offer as proposed to the market; even though, clearly the investor will release funds based on their assessment of the offer’s potential.
To explain his business, an entrepreneur will resort to combining the categories presented below, relying on tables and/or graphics.
This point can be adapted for certain non-profit-making businesses, for the nature of the remuneration may differ and not be expressed in terms of turnover. It might focus, for example, on the level of user satisfaction or the level of services delivered to the community. This is hence a matter of assessing the sources through which it is possible to collect a remuneration, for example by subsidies directly linked to the organisation’s volume of activity.
The categories cited here as sources of potential turnover are illustrative. There are no doubt others; your advisor will help you identify them.
Sources by sales channel.
There may be various sources of remuneration for one single project. Imagine the entrepreneur who opens a store, then goes ahead and sells his products online via a web site, and also rolls out a sales force targeting, for example, businesses: his firm pulls in turnover from three different sales channels, and this means three sources of remuneration. Describe how your turnover will come in, be it through one sales channel or several.
For non-profit-making projects, aside from the example of members’ subscriptions, non-commercial revenues do exist in the form of subsidies – for example those offered by the local authorities in France (town council, regional council, State) to enable the entity to function. These operating subsidies can take their place as a source of revenue so long as they correspond to a compensation for the volume of value generated for the user. For example, certain institutions that advise on new business creation find themselves fixing targets in terms of the number of businesses they intend to accompany, and the amount of subsidy they touch is reduced if they do not reach their targets. The project leader must identify the sources from which this kind of subsidy might come (eg. European funding, regional authorities that have put out a call for projects, etc.).
On the other hand, a subsidy received by a firm to cover launch costs does not enter into this category (although the word ‘subsidy’ is the same, the meaning differs because here it refers to investment subsidies; we will treat this point later in the “Performances” section).
How will turnover enter the firm? Is the target client the person who pays? Is the offer free for the client but funded by a third party (advertising, subsidy, local community?) Through which channel does payment reach the firm? If there are different sales channels, what are the specificities of each one (linked to direct sales in a store, sales in trade shows or exhibitions, via an intermediary such as an importer, broker or agent, etc.)? Are these intermediaries billed (paying resellers) or on commission? How does each channel organise payment? (in cash, cashier’s check, letter of credit, etc.)? Is there a special price for each channel (wholesale price, retail price, discounts, volume discounts, rebates, free on board)? Are there any contractual obligations (calls for tender, contracts, advances, reservations, consignment stores)?Are there any particular risks (insolvency, exchange rates, payment delays) and protection against these risks (insurance, bank guarantees)? Are there are any operating subsidies? What are the rules for getting hold of them? What are the counterparts? Will the subsidies last?
What weight does each channel have in the distribution you anticipate (your tables should express this as % turnover or in volumes)? Why did you choose these channels?
Does revenue come from contributions made by users or beneficiaries? Does revenue come from subsidies? If you replied positively then from which organizations? Are these revenues recurrent, will they last? What level of activity do they depend upon? On what criteria do they depend (votes, results, number of beneficiaries, number of service contracts, etc.)? How often are the subsidies paid and in what form? If the subsidies are not linked to the volume of activity, do not include them here but keep them for the “Performances” section of the “R.”.
Sources by category of products, services or activities
The range of products or services has already been presented in the Value Proposition. We are concerned here with highlighting revenue sources by – for example – type of product, service or proposed activity (which can of course be mentioned rapidly if there is only one product). For instance, an entrepreneur winemaker may have one wine that constitutes his brand, but also some bulk wine. His sources of remuneration come from the sale of wine in both cases, but it is possible to identify two clear sources of remuneration notably because the commercial strategies differ. This same winemaker may have a business as a wine trader and sell wines from other properties. We must hence separate the revenues linked to his wine production from those linked to his trading business. Of course, a business starting out usually only has one activity, but it can sometimes offer a product and a service for which it is useful to distinguish the flows in terms of remuneration.
Which activities, products and services are billed (emphasize the most important ones)? What proportion of turnover does each one contribute (tables in %)? Is there a brand effect between products? Between products and services? Are the products/services different depending on the distribution channels?
Is production or sales subject to seasonal fluctuations or to any particular hazards (climate, global commodity prices, exchange rates, speculation) that might impact the availability of the offer, and hence cash inflow and turnover?
Sources by client segment
A distribution network can be diversified. For instance, an entrepreneur can work with his own sales boutiques, with hypermarkets and supermarkets, with specialist stores, etc. He might also distinguish between clients in his own geographical territory and clients in other territories (by country, by continents, by whichever zones he considers relevant) and so explain how he counts on achieving a fixed percentage of his turnover abroad.
What different types of clients contribute to your turnover (number, activity, size, generalists, specialists)? What countries or zones are you targeting (your country, export zones and countries)? Do any of the zones have particular operational rules (customs duties, inspections, protectionism, monopolies, regulation) which may impact cash inflow and turnover?
Who are your key clients in terms of turnover (and also in terms of image, etc.)? How stable are they (one off clients, regulars)? How are sales distributed by channel and by client sector (tables in % by channel, client segment, country, depending on the case)?
How easy or difficult is it to access prospects/clients?
2.2.2 Volume of remuneration
Beyond the sources or the channels through which remuneration is captured, the financer of a project is very interested by the volume of inflow. For a business that is commercially active, this is clearly the volume of turnover. The preceding section (sources or remuneration), was concerned with explaining how turnover enters the firm (or how it is captured). This section on volume is concerned with explaining how much turnover will enter. Profit is an important notion, of course, but it cannot exist without turnover (and it will be dealt with in the next section, “performances”).
And so one can proceed to an estimation of turnover, by source, often for the three years following business launch. It is likewise current to present three hypotheses of turnover evolution for the three year period: one which the entrepreneur believes to be most likely, one that is pessimistic, and finally an optimistic one that nevertheless remains realistic. Of course this is no more than a bet, which should be imagined on the basis of reasoned logic, drawing on methods of evaluation. Sometimes a variety of methods can be combined. Your business creation advisor can help you choose the method, and eventually combine them. It is, for example, possible to start with the competition’s turnover and/or that of similar firms, or expectations within the commercial zone, or the number of contracts necessary to cover fixed costs, or production capacity; etc. Be it for a manufacturing business or a service business, the entrepreneur should evaluate what production capacity is need to achieve turnover in line with his most likely hypothesis, by producing the required quantity of products or by achieving the corresponding number of contracts, etc. One must simply be capable of producing what one will sell (this point links the volume of remuneration in “R” to the manufacturing of value in “G” because resources will need to be united so as to manufacture a volume that corresponds to the estimate of turnover decided).
Turnover is often known as estimated revenue. If you have developed various hypotheses, then explain above all the most probable one. As a starting point, when a business has a variety of sources of remuneration, then one presents total turnover and how it was calculated.
What is the total turnover and the turnover by activity (primary activity, secondary activities) over the following three years (for a new business)?
Have you run a pessimistic forecast, a probable one and/or an optimistic one? Have you justified the method used to assess turnover? Justify the likelihood of your estimated revenue (for a new business).
Turnover by remuneration source.
Each volume of remuneration (by source) is explained. The method used is justified (or the methods) and the calculation is displayed. You are welcome to use tables, graphics and diagrams (this applies to all sections of the GRP model).
Using tables and/or graphics, have you broken down turnover by category of product/service (quantity, unit price, amount), or by distribution channel (quantity, unit price, amount), or by client profile? Have you evaluated the risks or advantages particular to your way of organising the client base (concentration of sales on few clients, scattering of sales over lots of clients, channels or countries at risk politically or economically, channels strengthening or slowing down …)?
Capacity to produce turnover.
it is not uncommon to forget this point so we are dealing with it in a separate sub-section so as to insist on the need to produce enough volume to achieve turnover targets (ref. production capacity). This returns to our previous point that the assembled resources and their organisation (ref. Value manufacture in the “G”) enable a firm to produce the quantity on sale (of products or of service agreements).
Do you have the production capacity required to achieve your estimated revenue?
This item can be researched, especially when there is a significant zone identified for capturing market share.
Have you carried out a study in terms of the market share captured (or hoped for)? Have you justified the relevance of your approach? How and why do you realistically think you can capture this share of the market?
Have you thought this through by sector, product, client segment, country?
This item concerns non-profit-organisations when a subsidy (or portion of a subsidy) is directly linked to the service (or product) delivered or made available to users. For example, if the subsidy granted to a public organisation is proportionally linked to the number of users, this item should be detailed. One does not mention subsidies for launching business operations or those intended to finance an investment. Those will be covered in the “Performances” section.
Do you receive subsidies that are linked to your volume of activity? How much for? Is this an imagined prospect or do you have the right to receive subsidies linked to your volume of activity? What are the amounts of money involved? Who are the providers? Have you made the necessary contacts? How frequently is money received from these subsidies? Why might they be recurrent and stable? What are the eligibility criteria for these subsidies? What reporting system will you need to put in place? Will you need to be approved by a committee?
Your advisor will be a precious help here, because this section of the module requires a certain knowledge of accountancy and finance, in which subjects the entrepreneur should, sooner or later, be trained. He does not need to become a specialist, but he will need to deliver and present various information in compliance with current norms. For example, when the project arrives at maturity, it will be appropriate to establish a provisional profit and loss account and an initial financing plan. Providing additional information is, of course, possible but this would not really help facilitate understanding of the Business Model at the moment of launch. It is even possible for a Business Model to take shape without researching the “Performances” section in detail but, for ambitious projects, raising funds will involve meeting players who will want to know how the firm is financed. This point also relates to management issues (hence the “project leaders” section of the “G” and the “Stakeholders” section of the “P”).
These players are essentially bankers, business angels, capital risk investors, or even family members – or any other player who provides capital or lends money. Each of them will analyse and evaluate performances by their own criteria. They want to be reassured that the estimated costs (that is to say the total charges) engaged in undertaking the business are both detailed and controlled (this point returns to the notion of charges and cost structure).
From a purely financial perspective, the entrepreneur will understand that becoming profitable has essentially three objectives: to pay back borrowed funds (loans), to remunerate capital investments (shareholder loans) and to develop the business (or, at least, to ensure its continuity). Other possible uses of profits depend on attaining these three objectives.
The advisor will help research this section as you go along and will develop the required tables with you, depending on the project’s progress. The more mature your project, the more demanding your partners will become on this point.
Two kinds of performance are presented below: financial performance and non-financial performance (this is relevant to all businesses but of particular importance for non-profit-making projects that know how to exploit the concept of the Business Model).
Financial performance brings with it some unavoidable milestones, but the subject is not exclusively quantitative and it can integrate some qualitative elements. Readers interested in the financial aspects will want, for example, to see the desired results presented for different aspects of profitability.
▪ Operating profit
This is a matter of assessing the organization’s ability to generate profits, that is to say, to achieve a turnover – upstream – that is at least able to cover costs (known as break-even point), from which point the business is able to start making money (theoretical result equal to zero). We deduct charges from turnover to estimate the bottom line (profit or loss). In other words the cost structure must be assessed. The reader would need to see the “profit and loss account” (also known as income statement) that presents the sales (essentially the turnover), the costs (charges) incurred to achieve them and the bottom line (the difference between sales and costs, profit or loss). This table can be presented in a very simplified form to start off with. However, you will need to inform the reader how you have estimated your charges (supplying invoices or other documents supplied by actors you have contacted). The reader will likewise be reassured if you can inform him of your accountancy practices (to whom will you eventually outsource this?). This may at first be limited to your ability to draft an invoice (this often gets more complex later).
Forecasts are generally expected for the first 3 years following business launch.The problem is that a business is often only profitable after this period. In this case you need to estimate when break-even point will be reached and show that the firm can manage its treasury (the money in the bank and in the till). To avoid serious cash-flow problems, three pieces of advice: manage your stock well, try to make your clients pay as early as possible and negotiate with your suppliers to pay them as late as possible. This advice will lead your adviser to talk to you about a very important notion when managing a business: working capital requirements. These correspond to the day-to-day financing needs of business operations.
▪ Return on investment
Once you have analysed the operating profit linked to business activity, you need to evaluate, on the one hand, how you intend to finance your needs and, on the other hand, how you will remunerate the actors who have put money into the business capital.
Financiers want to know how long it will take for them to recuperate the capital they will invest in your firm (which is what you are asking them to do). This delay can of course be more than the 3 years, but it is best to show your intentions on the basis of a reasonable forecast (even if it remains a bet, as is the whole project…)
Here, and depending on the maturity of the project, you should also provide a table explaining how the launch needs of the business (machines, store-front, personnel, stock…) can be financed (through a loan, capital investment, shareholder loan and potentially an investment subsidy). This table is called an “initial financing plan”. Still depending on the maturity of the project, this initial financing plan, which concerns the business launch, may be completed with a financing plan for developing the business, that integrates – notably – the business’ capacity to generate surplus: cash-flow with auto-financing capacity. This plan may not be indispensable for understanding the Business Model, but it becomes necessary for understanding the longevity of its economic model (the “R”). Financiers will assess, on this basis, how long it should take for them to get a return on investment (through dividends or resale of shares with added-value) or repayment of their loans. Here again your advisor will be of precious assistance.
▪ Sectoral performance
Whilst it is not indispensable, this sectoral analysis assesses the business’ performance compared to its competitors. Admittedly this technique looks more relevant for existing businesses than for those just starting out, but you could make a projection that bets on the performance of your products or your ranges of products (or services). It is also a way of understanding your competitive advantage and opportunities for acquiring market share.
It is also possible to resort to calculating the intermediate balances of the profit and loss account. Although some partners do not require these calculations, others insist on being able to compare the principal ratios cited (often with the view of comparing them to those of your competitors, or simply to evaluate intrinsic business performance). The intermediate balances reveal in part the different aspects of profitability just discussed. These ratios are: margin, added-value, gross operating income, operating result, bottom line, any extraordinary results, net profit and loss results.
▪ Other revenue
This sub-category enables you to list any other business revenues that are not directly linked to the sale of goods and services (for instance: dividends remunerating shares in other firms, real estate income or rents received from lettings, financial products, extraordinary income, etc.). These revenue sources are admittedly rare when a business launches.
▪ Operating profit
Have charges been estimated on the basis of real market figures (quotations, lease, studies, etc.)? Have changes been anticipated (availability of resources, hazards affecting the price of resources, control capacity of the firm)?
Have you estimated the charges and have you arranged them by category (fixed costs and variable costs, indeed direct and indirect costs)? Does turnover cover all your costs (including fixed costs)? When will this happen (break-even point reached)? In other words, when will the firm become profitable? If the break-even point is not within the next three years, have you shown the potential for subsequent years?
Is the level of stocks relevant? Have you calculated a minimum inventory (minimum stock necessary for functioning correctly) of resources and of finished products? Do you have any “speculative stock” (anticipating the unavailability of resources, price rises, lags in added-value)?
How does your operational financing work? How do clients pay (cash, on credit, over what time period)? How are suppliers paid (cash or credit, time period)? What are the resulting financing needs (working capital requirements)? Does the firm have enough treasury to finance the working capital requirements? What will the volume of resources be in over a year’s time (working capital, shareholder loans, bank loans)? What are the short-term financing arrangements (treasury, discounts…)?
What is the cash flow forecast for the coming years (if the business is seasonal, the cash flow should be worked out monthly)? Are there any periods of the year when the treasury will be insufficient? What are the temporary financing options? What is the cost of financing (financing charges)? Are these acceptable (comparing them to others in the sector)?
Finally what is the bottom line? What is the net income to sales ratio? Is it in line with the sector?
Has cost accounting been envisaged, considered or sub-contracted, as well as effective budget management?
For all the above questions that you do not know how to answer, have you thought of getting training? What is the structure (or who is the accountant) that will help you? Depending on the maturity of your project, have you explained that over time you will be able to provide a more specific answer to these questions?
▪ Return on investment
What are your financing needs at launch (and for financing what: store front, equipment, patent, stock….)? Who will supply these (shareholders, banks, subsidies)? Have you presented an initial financing table and have you anticipated the evolution of this plan over the coming years (3 years) and your self-financing capacity?
Is the firm profitable for the capital invested in it? What is the rate: net income/equity (over 3 years)? Is it enough to make the business attractive?
Over the period studied does the business remunerate its shareholders and by how much?
Have you assessed how dependent the firm is on banks? Is there enough equity in the business? Is the long-term financing sufficient and is the treasury full enough in the short-term to withstand operational hazards (financing stocks, overdrafts, a turnover that is less – and slower – than forecast, etc.)?
▪ Sectoral performance
If figures for the sector are available, have you compared the values of your firm to those of the sector? Is your market share significant? How is it evolving?
What factors differentiate your firm’s offer from others in its sector (quality, pricing, marketing, volume, originality, service, image, etc.)? How are these factors key to commercial success?
How does the economic and financial performance of the firm compare to its sector (turnover, bottom line, working capital, dividends, valuation, personnel, stocks)? See the ratios and the intermediate balances of the profit and loss account. Does the firm have a competitive advantage (sale price, organization, cost control) that enables it to be more profitable than its competitors?
▪ Other revenue
Mention any revenue that is not linked to business operations (dividends, rents, financial products, subsidies). Indicate how they make their money, their longevity? Do they contribute significantly to the bottom line of the firm? Does the firm depend on them?
Non-financial performance can cover the following points: reputation and notoriety, job creation, client or user satisfaction, the performance of products, services or the range, security, ecological performance, human resource management and social climate, etc. As an illustration, notoriety was considered a valuable performance indicator for projects in the online economy which, failing to achieve it, saw clients disappear rapidly to their competitors. Likewise, new market entrants obtained what was considered a “bonus” (actually a temporary advantage for a certain period of time) for being the first to propose a service. To take another example, job creation is considered a performance indicator by local authorities and can lead to the release of subsidies and sometimes to the exoneration of certain taxes, etc. Finally, a firm that develops a particular expertise or a brand is generating a non-financial performance that can then enable it to protect a market or a product.
Non-financial performance often influences financial performance.
This section is concerned with business success, independent of calculations made to present financial performance. Your presentation will essentially be qualitative but can definitely draw on some quantitative elements. For example, one indicator of non-financial performance might come from a questionnaire distributed among a significant number of interested people, whereas the resulting analysis could depend on statistical calculations (this approach will be of less interest to start-up projects).
Non-financial performance will be of particular interest to not-for-profit organisations, for example an association (evaluation of the level and quality of the services delivered, the number of projects accompanied, user satisfaction, etc.).
Do you anticipate any particularly noticeable actions or results in non-financial domains: environmental activity, fair trade, notoriety, employment, human resources, quality of marketing, products etc.?
In the case of not-for-profit organisations, how do you intend to measure performance in accordance with your statutory objectives (actions realised, people involved, projects financed, etc.)? To this end, have any targets been set for you (notably to qualify for subsidies)?
The notion of partnership emphasizes the sharing aspect of the entrepreneurial phenomenon (despite an economic world that favors a stockholder perspective of value). Obviously without forgetting the owners, stock value is here considered as one result of a network that spreads far beyond stockholders alone.
Besides, the GRP model serves the conception of Business Models for projects where stockholding does not exist. A partner-based conception of value considers the whole body of people taking part in a deal. The business creator must take into account the expectations of actors who own the resources he needs to launch and then sustain his business (2.3.1). He must also consider that each participant will often behave in accordance with conventions. This might consist, as an example and certainly through an exaggerated simplification of the word convention, of ways of behaving amidst the shared representation of a specific profession, business sector, culture, etc. (2.3.2). Finally, it is appropriate to be aware of a wider environment and not to restrict one’s outlook to internal stakeholders. A business is launched within an ecosystem that one must understand, through both its architecture and its broad, evolving trends (2.3.3).
Entrepreneurship is fundamentally a partner-based phenomenon because without partners there will be no resources and hence no project.
A business creator (and more generally the project leader) will quickly become aware that he does not have all the resources he needs (tangible and intangible; ref. the “value manufacture” section of the “G”) to launch and then develop his organisation. He will need to approach owners of resources in the hope that they will agree to provide their resources in return for what is offered them (eg. an employee brings his work and his skills for a retribution in the form of a salary, working conditions, etc.; a supplier delivers the merchandise in return for prompt payment; an investor will be influenced by what is known as the return on investment; etc.) The principle is to exchange value: the potential partner provides a resource that has value for the project, and in return the project must be able to provide him with something he values. By providing resources, partners are considered to hold a stake in the firm and it is for this simple reason that they are called “stake holders”.
As for the numerous potential stakeholders encountered (who at the beginning are nothing more than owners of resources to be signed up), what must emerge between them is a shared representation that enables the business to take off, and then to develop. More precisely, according to the GRP Lab team, the entrepreneur leads a convention that builds harmony between the partners. It is inevitable that this representation will take shape as it goes along. Keeping pace with new encounters, the shared representation moulds itself and evolves, and this is how the organisation is propelled into existence, because the partners understand the exchange and bring resources. The organisation of resources is hence turned “on”. And just as the number of partners can evolve, the shared representation can likewise alter (following the “design” of the Business Model, there can also be the “redesign”).
Let us be clear that a rival is not a stakeholder (with some exceptions, for example in the case of a joint-venture). A stakeholder brings resources to the organisation (the entrepreneur, the clients, the employees, the funders, the suppliers, the institutions involved, the certified accountant, eventually the circle of family or friends, etc.).
For the different items presented below, the entrepreneur will distinguish key partners from the other stakeholders. In a story (here, the business you are describing), the reader is above all interested by the main characters (it’s a bit like a film, there are the stars and the extras).
The entrepreneur will eventually distinguish between partners without whom the project cannot launch and those needed for the organisation to run well and to last.
This part can be presented in the form of a table or graphic, but it will nevertheless be useful to comment on it. Sometimes, project leaders put their tables in the appendix, preferring to keep this part for graphics and narrative.
Describe who you would like to work with, in terms of the resources you seek, and name the partners. At first you may not be able to name your potential partners (need a supplier for a certain product, need a financial backer, etc.), in which case, as the product matures, you can develop an identification sheet for each one of them (without necessarily including it here). Emphasise the potential partners you have met, especially those you have transformed into stakeholders. Give your opinion of what they think of the project. If they turned you down, then present their reasons.
Who are your possible partners in terms of the different kinds of resources you need? For each of them, ask yourself the following questions: who is he? What do you know about him? (legal structure, managing director, turnover, personnel)
What is his business reputation?
If there is already a relationship: who is your point of contact? How did the relationship come about?
If the relationship is yet to be established: how will you go about meeting the partner (through which network, by which shared experience, and ideally who can introduce you)?
An initial way of preparing an interview or negotiation consists of anticipating the potential partner’s expectations. Obviously the business creator will often only truly understand what the other party wants as he goes along. Beyond a general or natural expectation (eg. a supplier expecting payment), it is useful to imagine the more specific or exceptional compensations that you can bring the partner (in the case of a supplier, he might be interested in the regularity of your orders, by the delay in payment, by your contribution to his products’ image, etc.). For each category of stakeholders, and even – as the Business Model shapes up – for each stakeholder, these details will incite the partner to do business with you.
In your view and/or according to the information you have gathered, what does this stakeholder expect from their exchanges with your organisation? What “generic” elements does your organisation bring him? What “singular” elements might your organisation bring him?
How will you ensure that exchanges with the stakeholder last?
Is this return enough to make this stakeholder “loyal”?
Justify who you want to work with in terms of the utility of their contribution; why this supplier and not another, why this employee, this financial backer, etc.
What do you expect that exchanges with this stakeholder will do for your organisation? What “generic” elements do they bring you? What “singular” elements do they bring you?
Is this contribution enough for you to maintain the relationship long-term?
Does this stakeholder play a role in establishing relationships with other stakeholders? What is it?
Explain here your assessment of the stakeholder’s attitude towards the formalised project. You will need to do this for each stakeholder you meet. How has s/he behaved since the start of the relationship? If you have not yet exchanged with a stakeholder, it is useful to anticipate his possible attitude so as to negotiate better at your first meeting, and to avoid unpleasant surprises once operations kick off.
Based on what you have learned or observed, how does this partner behave in a business environment? Does this fit with what you had imagined? Is he trustworthy? Is he tough in business? Is the stakeholder interested/not interested in exchanges with your organisation? Why, in your view?
Are the exchanges you propose in line with what this stakeholder habitually puts in place? How are negotiations going with this stakeholder?
To the extent that the stakeholders own the resources the firm needs or can use, they have power over your project. This section can help you choose you partners (as do all the others) so as not to be (too) influenced by any one of them.
What power does this stakeholder have over your organisation? What is the risk if they do not sign up at all or if they back off once the relationship is set up? Is it possible to do without them, to replace them?
Is your organisation in a position of strength in this exchange or, on the contrary, dependent? What can you do to even out the weight of each party?
Is this relationship likely to evolve over time, as in to weaken or strengthen? Why, how?
To put it simply, a convention deals with a way of behaving. This concept of the convention has a lot in common with “habits” and “customs”, ie. ways of doing things. A convention can sometimes be embedded in what one is allowed or not allowed to do (eg. in a car, drive on the right or the left-hand side, depending on the country). But conventional behaviour is not necessarily written in law. In fact, more broadly, a convention is what actors in any social system – big or small (a sports club, a branch of professional activity) share as an idea of how to do things in a given situation (or what not to do because “it’s not done” as people sometimes say). This idea, or rather this representation, influences behavioural choices. In this way, one can often observe a sort of imitation (one does things a bit like other people do, at least one thinks one does, in a given situation). The convention can be a somewhat complicated notion to understand, but once the entrepreneur has grasped it, it proves very useful in the construction of a project.
There is a multitude of possible conventions that surround us and with which we create our identities. They enable us to evolve within society by adopting behaviour that is welcomed, or at least permitted.
The Business Model is one of these conventions. It leads partners to behave in accordance with the envisaged firm, at least for as long as they effectively remain partners.
If the social spheres permit and authorise relationships between individuals based on codes, on norms, on habits, on ways of doing and thinking, that does not mean that it is not possible to contravene them. It is not by the way rare for an entrepreneur to twist them to a greater or lesser extent and it is not unreasonable to consider that innovation arises from a certain kind of change in the conventional register. But one does not change everything … And the more one wishes to change things (eg. an innovation), the more difficult it is to enrol actors because, as a general rule, they don’t like change. But it is not impossible. One must show that the system is the winner, and that the stakeholders win too (this links to the two other components of the “P”).
The items reproduced below are examples of conventions. There are many others. The idea is to highlight the main ones that apply to your project. You will adapt this section to the singularities of the conventions around which you need to build your project. In telling us about them, you are showing that you have understood the working practices of the situations you will encounter on your way.
Each category of stakeholder, sometimes even each individual stakeholder, evolves in one or several conventional registers that are linked to their situation, their business sector, their profession, their organisational culture or their geographic zone, etc. It is easier to maintain good relations when one has understood that the stakeholder also has, in some ways, a professional life beyond the relations he has with you and that he sometimes has his own ways of doing things.
Conventions of the situation
The way one drives a project of business creation differs from how one would take over an existing firm. Even the nature of the project influences the choice of behaviour, for example how the prospective buyer of a firm behaves in front of the seller, and vice versa. The actors accompanying a certain type of project have their own ways of carrying out their mission. It might be interesting to consider what expectations there are of this work, seeing as it takes the creator and their advisor into a relatively intimate relationship where their behaviour must comply with an often procedural conventional register (one must follow protocol, the calendar, hierarchy, etc) For example, it is commonly accepted that a business creator must present a Business Plan. It is therefore useless to kick and shout that the Business Model is more relevant and to forget to draw up the Business Plan if your partner has requested one. It would become difficult to obtain the funds you are hoping for from him. You can use the Business Model method to develop and fine-tune your project.
Although it is useful to consider the conventions of the situation as you develop your project, it is not essential to include them in your story, just sometimes useful and welcome.
In the context of business creation, have you understood what might be qualified as the “rules of the game” laid down by the advisors and guides with whom you will work? Do they insist on certain presentation standards for your project? Have you assessed the risk of not following these conventions? (The same questions can apply for business takeovers).
Conventions of the sector
In certain business sectors, giving one’s word is worth as much as a signed contract, whereas in other sectors everything is formalised in writing.
In all cases, it is not unusual for a business sector to have its own habits and conventions (medicine, construction, the press, …). Certain domains often explicitly lay down how things should be done and behaviour is set by standards, notably to guarantee quality or for security reasons.
Relations between groups within a sector can lead to formal conventions. For example, employer organisations and trade unions can come to agreement on collective conventions that might define, among other things, the professional status of employees in a particular field.
Getting work experience, a job or an internship in an organisation that is evolving in your sector of choice is often useful. This notion of sector is clearly not limited to a particular branch of activity. For example, the domain of associations in France, or the domain of the Social and Solidarity Economy (SSE) or, more generally, that which some specialists classify as “social entrepreneurship”, is structured around a certain number of conventions influenced by the socially-oriented values of the actors evolving within it.
Have you highlighted the specificities of the sector, both economically and socially? Do these specificities deal with relational aspects? Norms? Or, rather, customs? Have you had the chance to see how your rivals or fellow firms operate? Do you contravene these conventions, in part or altogether? If you replied positively then is this due to the innovative nature of your value proposition or is it more because your temperament makes you want to change the way business is done? What have you noticed that seems to indicate that things can be changed?
Conventions of the partner’s profession
Particular professions have their own ways of doing things. For example, financiers, accountants, bankers, etc. concur on using certain forms of representation for the economic feasibility of a project. It would be risky to forget them and to present, for example, a set of financial statements without taking into account the presentations that these actors are used to …
Another example, in a different context, can arise from considering the research profession. If your project leads you into relations with a research laboratory, it is very useful to know how the researchers think and behave, as they are often more interested by a publication in a major international, scientific journal than by transforming their research conclusions into a product.
Have you met up with a certified accountant? Have you had any training, if only for an awareness of accounting practices? Do you know the forms of representation for the accounting and financial section of your project? Do you understand them?
Do you know how bankers study a project to decide whether to accept or refuse to release funds? Likewise other categories of funders, including public ones?
Do some of your suppliers evolve on the basis of conventions particular to their profession? (eg. artisanal professions)?
Have you asked yourself how you can find out whether or not your partners behave in accordance with conventions that are inherent to their profession?
Conventions of the geographic zone
Continuing with the previous example, accountancy norms in the USA are not the same as those in Europe or the UK. If your financer is from a different country, it is appropriate to adopt their forms of representation.
But beyond economic considerations, cultural questions often result in conventions. Not preparing yourself or not respecting them, might have a prejudicial effect on business because the way business is conducted is embedded in the conventions of the local culture.
Have you highlighted any specificities linked to the geographic zone of your firm? Have you assessed the influence of local culture on the ways of doing business there?
It is impossible to live in a vacuum where there is nothing more than the project, surrounded by enlisted or potential stakeholders, plus some competitors. What you are building is part of a society that oversteps the tight perimeter of your activity. It is, in any case, because of this society that your project can become a reality.
Society builds many things too, and has done so for a very long time, well before you first imagined starting in business. Just like your firm that maintains relations with its partners, society is made up of actors who exchange value with each other, either directly or via the institutions they have built. One might speak of “value architecture” (construction of an entire system for exchanging value, be it quantitative or qualitative, rational or emotional, etc. in nature).
Society is not uniquely attached to business, even with all the Business Models set up by all the businesses in the world. An employee of one organisation is also a citizen exchanging with the institutions that should help improve his living conditions, institutions for whom he elects the representatives. He is likewise a customer for a wide range of different sellers. He might play an active part in a sports club, in a parents’ association or write for a daily newspaper or blog. Do you think it reasonable to launch yourself in business without taking into account the construction of society at large? Some day or another, someone might either notice your presence and form expectations of you that you cannot imagine, or take decisions that benefit or impede your firm (for example a department that decides on a road bypass, a new ecological standard, etc.)
Your partners participate in this construction. They are likewise implicated in other Business Models, the grouping of which can be qualified as a “value network” (this is the expression used by experts in the Business Model). This interpretation is very interesting, but it is difficult to grasp. Your advisor can help you understand it, especially with a view to assessing how your Business Model might eventually change the distribution of value in one part of the ecosystem. This also points towards you being able to involve people, legal entities and institutions as you go along who, at first glance, have nothing to do with your firm. However, through an understanding of the value network, they will perhaps become stakeholders. To this effect you should use your creativity and your network to imagine how the value you create might take shape.
Another way, and a complementary one, of conceiving what is here called an “ecosystem” is to consider it as consisting of several dimensions:
- The political dimension
- The economic dimension
- The social dimension
- The technological dimension
- The ecological dimension
- The legal dimension
These dimensions originate from a well-known analysis: PESTEL. They are certainly useful for devising the value proposition as they help one assess demand. Here we propose using them more broadly to understand the ecosystem (all the sections of the GRP model are closely linked, as you will note when telling your business story …). It is a matter of exploring the broad trends that surround your business.
The entrepreneur must be open to his environment and sometimes put in place some observational tools that enable him to stay informed.
This section consists of warning the entrepreneur that his firm is not cut off from the rest of the world. He must show that his Business Model will not shake up society (other firms nor the functioning of any part of society not involved in business). On the other hand, it is useful to explain why the system as a whole is a winner in the end. It’s a little as if you were to analyse today’s ecosystem to assess the value exchanges between its actors and, then, re-do the analysis, this time imagining that your firm had already launched; and assess the impact of your firm on the initial value exchanges. In fact, by their nature, individuals do not like change and will resist any change or anticipated change to their living conditions (personal or professional). As the saying goes, “you can lead a horse to water but you can’t make it drink”.
Do you think you have understood your ecosystem and do you know how to describe it succinctly? Beyond your stakeholders and competitors, have you identified the actors likely to influence your firm (positively or negatively)? Do you think you will be able to interact with them to avoid any negative influences? Will your firm disrupt the ecosystem? If you replied positively, have you assessed how and why your firm will influence the value exchanges between actors in the system? Have you imagined strategies for convincing the ecosystem that your firm will benefit part of society? How might the ecosystem respond to your business launch? Have you understood existing links between the actors, the actors’ games and even the eventual distribution of power? Has your analysis of the ecosystem led you to consider your firm differently? Have you, finally, implicated the actors who led you to the emergence of a new Business Model?
Some dimensions of the ecosystem
▪ The political dimension.
This deals with the political choices made by economic and social territories big and small (the Region, the Nation, Europe, the world). It has an impact on monetary policy, diplomatic relations, etc.
It may be useful to identify the influential actors, be they politicians, press, in the not-for-profit sector, etc.
Do you follow current affairs? Have you picked up on any favourable trends for your firm? How to you plan to take advantage of them? Have you picked up on any discouraging trends for your firm? How do you plan to prevent them having too strong an influence or what is your fall-back position? At what political level would a decision be made? (local, state, national, european)? In what time-frame could a political decision impact your firm? Does the zone where you are setting up your firm offer any aid for new or existing firm? What are they? Do you qualify?
▪ The economic dimension.
General economic conditions might impact the buying power of consumers in the zone concerned, the conditions your suppliers insist on, the subsidies you are hoping for, etc. This is not neutral for your firm.
Do you follow economic developments, particularly in the geographic zone that concerns you? Have you picked up on any favourable trends for your firm? How do you plan to take advantage of them? Have you picked up on any discouraging trends for your firm? How do you plan to prevent them having too strong an influence? Are you setting up in a depressed zone? Or is it expanding? Will you benefit from economic support from the local authorities? Have you met any business leaders based in the zone and did they confirm your impression?
▪ The social dimension.
This refers to the people living in the zone where you are setting up business. You will capture clients, employees, … from amidst this population. To this effect, a sociodemographic perspective is useful (type of population in terms of age, obedience, socio-professional category, family structure, mobility, health, lifestyle, education, …).
Will you recruit your employees from within the zone where you are setting up your firm? Have you checked that this is an employment area that can bring you the skills you expect from your workforce? If not, then are you based in an attractive place for employees? Are your suppliers close by? And your clients? Do you intend to participate in the social life? How? What will you gain from it? Is there a cultural dimensions that you should take into account? Have you shown that you have understood this?
▪ The technological dimension
Keeping an eye on what new technologies are in the pipeline is not only relevant for technology projects (for which it is essential). The Internet wave is a remarkable example of this. This can also concern new payment mechanisms, innovations particular to a business sector (as a whole or in part), etc.
Do you keep an eye on new technologies? In what way and by what means or with which partners? Are any technological changes likely to influence the way you manufacture your products or your service? More broadly, might they influence your “value manufacture”? Are there any other technologies, not directly linked to your service or your product, which you should take into account? Are you sure you are investing in the right technology? Why? Have you identified the research laboratories or the businesses working on the technologies that affect you?
▪ The ecological dimension
This is becoming increasingly important. Respect for the environment (the ecosystem) takes very different forms today. It no longer refers uniquely to condemning primary pollution (eg. products that pollute ground water), but to avoiding any form of unpleasantness for the ecosystem (eg. a noisy activity next door to a retirement home).
Does your firm respect the ecosystem in the broad sense of the term? Does it respect ecology in the narrowest sense of the term? If it causes nuisance, have you taken the right precautions? Do any ecological standards apply to your firm? Have you integrated them?
▪ The legal dimension.
It is never justifiable not to know the law. One knows it is impossible to know everything in jurisprudence, but one cannot claim ignorance to clear oneself of obligations imposed by the legal system.
Society is based on a principle of justice that authorises certain practices and forbids others. Hence, an entrepreneur must take into account employment rights, industrial protection, business law, etc.
The legal dimension can likewise generate business opportunities or threats. Using the example of a project for a solar panels start-up, attractive tax incentives for installing the panels helped convince clients to invest in this energy production technique (opportunity), but the subsequent restriction of these incentives made orders drop for some of the firms that had launched in this space (threats).
Can you call on specialists in employment rights (for hiring), taxation, business law and international law if necessary? Etc. Are any legal elements likely to evolve favourably or unfavourably for your firm? Are there any elements concerning industrial or intellectual protection (cited in the value proposition) that could usefully be developed here? With which advisor are you working on these questions?