Given that the numbers of star ups with new BM is increasing and the disagreement among researchers. The author proposes to analyse the success of Black Socks’ BM under two different frameworks, BM canvas of (A. e. Osterwalder 2010) and (Demil 2010) in order to identify advantages and disadvantages of using them to analyse internet based BM. It seems logic to think that the author, as CBS student, will soon or later face a situation where he is required to perform BM analysis, thus being aware of the implications when we use one or another it might be extremely valuable
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Business models and frameworks the case of black socks
1. COPENHAGEN BUSINESS SCHOOL 2014
Business models &
frameworks
The case of Black Socks
Enrique de Luis Araque
12/8/2014
Synopsis
141286ENA1 (Araque, Enrique de Luis)
Pages: 7. Characters including spaces: 14756
Innovating Business Models CCMVV4135U
Cand. Merc. Management of Innovation and Business development; MIB
2. 1
Table of Contents
1 Introduction.............................................................................................................................................2
2 Problem statement...............................................................................................................................3
3 Delimitations...........................................................................................................................................4
4 Method .......................................................................................................................................................4
5 Theory ........................................................................................................................................................4
6 Case description.....................................................................................................................................5
7 Analysis......................................................................................................................................................6
8 Conclusion ................................................................................................................................................8
9 References................................................................................................................................................9
10 Appendix I.........................................................................................................................................10
11 Appendix II........................................................................................................................................10
12 Appendix III......................................................................................................................................11
13 Appendix IV ......................................................................................................................................11
3. 2
1 Introduction
In recent years the popularity of Internet has implied a tremendous opportunity for
entrepreneurs to launch their own ventures with new business models. At the same
time, this fact has threatened traditional firm’s business models. While new ways of
doing business have risen in this, decade new frameworks have also come up which
allow entrepreneurs, researchers and managers to analyse not just these new star
ups, but also any other kind of business model, BM hereafter.
By analysing the established business model of the Swiss company BlackSocks.com
under two different frameworks, the so called business model canvas proposed by
(A. e. Osterwalder 2010) and the framework (Demil 2010), the author aims at
bringing some clearness on what are the advantages and disadvantages when it
comes to analyse the success of one particular business model. The author finds
particularly interesting to get to a conclusion on what are the actual implications of
using one framework or the other. This is of extreme importance for those who are
about to assess new entrepreneurial business model. Take for instance potential
investors assessing the possibility of funding a particular start up. Also it is
important for first time entrepreneurs who are about to create, reviewing and
modify business models. Many of CBS students will soon or later face the analysis of
business models, thus the importance of getting to know and discussing different
frameworks is really high.
There are some reasons behind choosing Blacksocks.com as study case. First reason
is that Blacksocks.com was launched in 1999 and according with their official website
(Black Socks 1999) the growth of the firm has been sustainable until nowadays. After
15 years we can say that the company has already established in the market. Second
reason; Black sock’s revolutionary way of attacking the market in what it could be
seen as a mature industry, seems to be interesting to study under two different
frameworks. Finally, there is the fact that the widespread of internet has made
possible the growth and establishment of this venture. Without the popularity of
internet and all the opportunities that this fact has brought, Blacksocks.com would
4. 3
have never been possible. In this sense many new business models from both, new
start up and already established companies, have internet as a common
denominator.
2 Problem statement
Internet has provided a landscape where several entrepreneurs have seen the
perfect opportunity to launch their ventures. There are many examples of this, see
for instance how Skype disrupted the international call industry with its “Free” BM
(A. e. Osterwalder 2010). However this is not a matter for start-ups, see P&G connect
+ development open innovation platform (A. e. Osterwalder 2010) (Procter and
Gamble 2014). It seems that internet has been used in different ways when it comes
to business model design; furthermore internet is an extremely important pillar for
many BMs.
At the same time that new business models patterns arise: Long tail, multi sided
platforms, Open business models etc. (A. e. Osterwalder 2010) Researchers have
begun to pay attention to this phenomena, consequently many frameworks have
been proposed; see for instance (Chesbrough and Rosenbloom 2002) (Teece 2010)
(Demil 2010) or the so called BM canvas (A. e. Osterwalder 2010). One thing is clear,
there is no conceptual agreement about BM and there are no mutual accepted
definitions in frameworks within the literature. (Varne 2014)
Given that the numbers of star ups with new BM is increasing and the disagreement
among researchers. The author proposes to analyse the success of Black Socks’ BM
under two different frameworks, BM canvas of (A. e. Osterwalder 2010) and (Demil
2010) in order to identify advantages and disadvantages of using them to analyse
internet based BM. It seems logic to think that the author, as CBS student, will soon
or later face a situation where he is required to perform BM analysis, thus being
aware of the implications when we use one or another it might be extremely
valuable
5. 4
What are the implications of using (A. e. Osterwalder 2010) BM canvas and (Demil
2010) when it comes to analyze internet based business models?
3 Delimitations
The literature reviewed to develop this synopsis is constrained by the syllabus and
curriculum of the course “Innovating in Business model” (CBS 2014). This is positive
in the sense that, interesting and relevant frameworks have been already selected;
on the other hand it might also not include fresh literature about business model
frameworks. Due to limitations of time a data, only one case company has been
studied, this might have a direct influence on the findings and conclusion lowering
its reliability, analysing more companies that match the requirements explained in
the introduction section could be an efficient way of improvement. Finally,
methodological procedures might also have an influence on the findings; however
this will be explained in the method section.
4 Method
In order to solve the already stated research question it is used a case study method.
As it is commonly known, this is a depth study of a particular situation. Also it is
known that this method does not fully provide an answer to the research question
but it might end up in indications and interesting findings which allow further
elaboration. A common argument against case study is that such a narrow case
cannot provide results to be extrapolated to fit an entire question. On the other hand
the advantage of a case study is that it can focuses on specific interesting cases, and
also, a case study might lead to unexpected findings due to its flexibility. (
Shuttleworth 2013)
5 Theory
BM canvas is widely used by senior executives, intrapreneurs, entrepreneurs,
investors, consultants etc. (A. Osterwalder, Business model generation 2010). The
main goal of this framework is to provide a “common shared language for describing,
visualizing, assessing and changing BMs” (A. Osterwalder, Business model generation 2010)
6. 5
in this book the author defines a BM as “the rationale of how an organization creates,
deliver, and capture value”. The author claims that a BM can be best describe through 9
building blocks that depict the logic of the way firms make money, these blocks cover
four main areas of business: customer, offer, infrastructure and financial viability. (A.
e. Osterwalder 2010).
The other theoretical framework is the one proposed by (Demil 2010). It is based on
the concept that “BM refers to the articulation of firm’s activity designed to produce a
proposition of value” According to Demil, there are two different uses of BM, the static
and the transformational approach. The paper (Demil 2010) attempts to reconcile
these two approaches to find out how BM evolves looking at the dynamic created by
the interactions between its building blocks. The components of this framework are:
resources and competences, value propositions, internal and external organizations,
volume and structure of revenues, volume and structure of costs and margin. (Demil
2010)
6 Case description
Samy Liechti was a former business consultant who was once invited to a Japanese
tea ceremony with Japanese customers, as it is known, in this kind of ceremony
attenders must take off their shoes. Samy’s socks did not match and his big toe was
out of the fabric. In the eyes of his clients, his status declined automatically (Black
Socks 1999). Questions rose right after in his mind, why wasn’t the sock stocked with
matching socks? The concept is quiet simple, customers receive socks through the
letterbox at regular intervals, always the same design, it’s was called “sockscription”.
It is thought as a solution to this set of problems: no one likes buying socks, everyone
constantly need socks, no one likes sorting socks after washing, there will always be
pair for individual socks (Black Socks 1999).Customers subscribe by choosing their
favourite design and choosing the delivery interval.
The company has been able to establish in the market, after 15 years of life this
seems to be a fact as well as its steady growth. In 2000, one year after the launch, it
7. 6
accounted 8000 customers (Black Socks 1999), 4 years later in 2004 the figure had
increased until reaching 25000 from around 30 countries. In 2012 the company had
already launched other products successfully by using the same subscription system.
15 years after their launch, in June 2014 sales had increased by 50% comparing with
the previous year (Black Socks 1999)
7 Analysis
As it has been already mentioned, in this section we draw first on BM canvas in order
to illustrate the firm’s business model and then in (Demil 2010), thereby, the nine
building blocks are described one by one: Value proposition: it solves socks problem,
simplicity and convenience, customization options, quality products, and time
saving. Customer relationships: subscription, social media, customer service.
Channels: online shops mobile app. Customer segment: busy business men who find
annoying to spend time buying socks. Revenue streams: subscription. Key activities:
branding. Key resources: brand, high quality products. Key partners: suppliers,
shipping partners, web developers, payment partners. Cost structure: socks
suppliers, marketing, and shipping. (See Appendix II)
BM canvas provides a clear picture on how Black socks is able to create and deliver
value to the customer segment. It seems to be very useful when it comes to show
interested parts how the business actually works. This is an interesting take away
for entrepreneurs who seek for funds from investors who can draw on the canvas to
illustrate the functionality of the business. In this sense it works like a common
valuable language to discuss and show business models.
Furthermore, BM canvas provides three components: Customer relationships,
customer segment and channels which can be of extreme importance for start-ups. It
is well known by entrepreneurs that often, during early stages, managers try to
attack the market in a trial error process in different ways until achieving the right
one. These three components are the link between the value proposition and the
market. This is a perfect landscape for entrepreneurs to reflect over this trial error
8. 7
process and decide different Channels and Customer Relationships. Actually, BM
canvas provides a set of questions as guidelines to define these two components (i.e.
how are we reaching them now? How are our Channels integrated? Which ones work
best?) (A. e. Osterwalder 2010).
However, while the BM canvas seems to be appropriate to explain how business
creates and delivers value, it seems to be limited if we were to analyse competitive
advantage. BM canvas presents firms as an isolated actor. For instance, if we try to
answer the question, what’s the reason behind the establishment of Black Socks in
the market? Or what stops other companies to act as Black Socks and gain market
share? BM canvas show its limitations. And this is an important implication; the fact
that the canvas can explain how value is created does not imply that can explain how
firms can sustain in the market. Entrepreneurs and investors should pay particular
attention to this implication when it comes to assessing start-ups.
If we use Demil framework, brand would be placed as the main resource of the BM.
Internal and external organization component is formed by branding, marketing,
supply change, payment partners while the value proposition would be the same.
Volume and structure of revenues, and, volume and structure of costs would be
subscriptions and supplies, shipping and marketing respectively (See appendix IV).
First interesting insight is that, in this framework there is no explicit component that
links to the market... Second insight is the interrelation of the framework; this means
that modifying one component would have consequences in the other two. The
implications of this are of particular interest when assessing possibilities of
modifications in BM in order to face an eventual collapse. I.e. hypothetical change in
men fashion taste, appearance of new competitor etc. Black socks has grown
considerable in the last 15 years, in this sense, BM canvas would be better to explain
how value is created and delivered, nevertheless if a rapid change occurs in the
environment threating the BM, then, Demil’s framework, due to its interrelations
implications, offers better possibilities when it comes to think about how to
reinitiate the BM in such a way that it makes sense again.
9. 8
Also Demil’s framework shows iteration between the margin created and the
resources and competences. That link is useful to explain, in this case, how Black
Socks has been able to reinforce its business model by increasing the range of
products. Positive margins have led to more resources and competences which have
had implications in improving the offer, thereby enhancing the value proposition.
This is of extreme relevance when we are about to analyse the scalability of one
particular BM, while BM canvas explains little about how can BMs evolve, (Demil
2010) takes this possibility into consideration.
Moreover, if we were to analyse firm’s BM under the exploration exploitation
dilemma, (O'Reily and Tushman 2004) while both frameworks seem to be useful to
illustrate the exploiting aspect of Black Socks, none of them can be used to analyse
the exploration part. For instance the BM canvas of Black Socks does not tell
anything about firm’s effort to keep on exploring.
Additionally, both frameworks seem to provide a good landscape for comparisons of
BM across firms, for instance, it’s extremely valuable to compare disruptive BM with
traditional firms. I.e. Black socks vs traditional socks retailing. Finally, both
frameworks provide little connection of the BMs with the environment, according
with them; firms are able to create value individually. Hence, it is important to be
aware that, both frameworks do not explicit recognize environmental issues. Thus
BM-frameworks provide explanation about how value is created under certain
defined circumstances.
8 Conclusion
The analysis of the BM of the company Black Socks by using two different
frameworks have clarified that, BM canvas is very useful for some kind of issues like
market and customer relationship management and also that Demil is helpful to
understand interrelations between components, both frameworks are limited to
answer other questions, particularly those relating to the environment.
10. 9
9 References
Shuttleworth, Martyn. “Case Study Research Design.” Explorable. 2013. https://explorable.com/case-
study-research-design (accessed November 20th, 2014).
Black Socks. Blacksocks.com. 1999. www.blacksocks.com (accessed 11 18, 2014).
CBS. “Syllabus of elective Innovating Business Model.” Copenhagen: Copenhagen Business School, 2014.
Chesbrough, Henry, and Richard S. Rosenbloom. “The role of the business model in capturing value from
innovation: evidence from Xerox's corporation technology spinoffs.” Industrial and Corporate
Change 11, no. 3 (2002): 529-555.
Demil, B. & Lecocq, X. “Business Model Evolution: In Search Of Dynamic Consistency.” Long range planning
43 (2010): 227-246.
O'Reily, C, and M Tushman. “The Ambidextrous Organization.” Harvard Business Review, 2004.
Osterwalder, Alexander. “Business model generation.” In Seven faces of business model generation, 6-8.
United States of America: John Wiley & Sons, 2010.
Osterwalder, Alexander. “Business model generation.” In The business model canvas, 12-52. United states
of America: Wiley J. & Sons, 2010.
Osterwalder, Alexander et al. Business model generation : a handbook for visionaries, game changers, and
challengers. 1st. John Wiley & Sons, Inc, 2010.
Procter and Gamble. Connect and development. 2014. http://www.pgconnectdevelop.com/ (accessed
November 20th, 2013).
Teece, David J. “Business Models, Business strategy and Innovation.” Long range planning 43 (2010): 173-
194.
Varne, Claus. “What is a business model?” Slides session 1. Copenhagen: Copenhagen Business School, 16th
September 2014.
11. 10
10 Appendix I
11 Appendix II
(A. Osterwalder, Business model generation 2010)
Business Model Canvas for Blacksocks Source: Author
12. 11
12 Appendix III
13 Appendix IV
(Demil 2010)
Brand
Branding activities
Marketing
Supply chain
Payment partners
Shipping partners
It solves socks problem.
Simplicity &convenience.
Customization options.
Quality product.
Time saving.
Suppliers
Shipping
MarketingSubscription
Adapted from (Demil 2010) Source: Author