Step1: Understanding the business model - Session 7A
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The background and guidelines for delivering these PowerPoint presentations can be found in the facilitator’s manual: http://www.fao.org/3/a-i7968e.pdf http://www.fao.org/economic/esa/ This session goes in detail on the first step of the IBM approach – understanding the business model. In order to identify opportunities for improvement, it is important to clearly understand the current situation and how actors are doing business. This section will provide practical tools for analysing a business model. © FAO: http://www.fao.org
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Step1: Understanding the business model - Session 7A
- 1. Inclusive business models www.fao.org/economic/esa/ © FAO, 2017 Step1:Understanding the business model SESSION 7
- 2. Inclusive business models 2 Understanding the BM Session 7 From Value Chains to Business Models Value chain map -> High-level view of the system Business model -> Close-up on one organization with a 360° view Business Model Analysis Input supplier Producer Buyer Wholesaler Retailer Consumer
- 3. Inclusive business models 3 Understanding the BM Session 7 Farmers & Cooperatives First buyer How are they doing business?
- 4. Inclusive business models 4 Understanding the BM Session 7 Business Model Analysis 1. What does the enterprise do? 2. How does it do it? 3. Who does business with whom, for whom? 4. How competitive is the business model?
- 5. Inclusive business models 5 Understanding the BM Session 7 How to understand the BM • Open interviews with: – Producers – Buyers – Stakeholders & partners • Speak to more than one person -> variety of answers • Ask broad questions & follow with more detailed ones • Keep discussions friendly and relaxed
- 6. Inclusive business models 6 Understanding the BM Session 7 Business Model Description 1. Product 2. Producers 3. Buyers 4. Activities* 5. Resources* 6. Logistics 7. Suppliers/Partners 8. Pricing and revenue *Analysis for both producers (producer groups) and buyers
- 7. Inclusive business models 7 Understanding the BM Session 7 1. Product • What products are sold? • Do they have any special characteristics that differentiate them? • How are sales performed (individual/aggregated?) • What volumes are traded? • How are products packaged?
- 8. Inclusive business models 8 Understanding the BM Session 7 2. Producers • How are the farmers organized? • Who are the producers: men and/or women? • Where are they located? • Size of the land to grow crops? • Is land owned or rented?
- 9. Inclusive business models 9 Understanding the BM Session 7 3. Buyers • Who buys the products? (e.g. traders, wholesalers, supermarkets, hotels, exporters? • What amount of product do they buy? • Why are they interested in procuring from smallholders? • Whom do they sell the product to (final clients)?
- 10. Inclusive business models 10 Understanding the BM Session 7 4. Key Activities Producer Organization • What activities generate income for the producer organization? • What services does the producer group provide to producers and/or buyers? – Processing, marketing, logistics, quality control, payments Buyers • What activities generate income for the buyer? • What types of services do buyers offer to farmers and/or the producer organization? -Training, seeds, inputs, credit, transportation
- 11. Inclusive business models 11 Understanding the BM Session 7 5. Resources Producer organization • What is the infrastructure needed to perform activities? • What is the knowledge needed to perform activities? Buyers • What is the infrastructure needed to perform activities? • What is the knowledge needed to perform activities?
- 12. Inclusive business models 12 Understanding the BM Session 7 6. Logistics • How are products collected from the farmers? • How are products transported to buyers? • Where are they stored? • For how long can products be stored?
- 13. Inclusive business models 13 Understanding the BM Session 7 7. Suppliers/partners • Who are the direct partners that support the BM (e.g. transporters, input suppliers)? • What services do they provide? • Are there any indirect partners that support the BM (e.g. financial institutions, research centres, NGOs, public organizations)? • How is the relationship with partners?
- 14. Inclusive business models 14 Understanding the BM Session 7 8. Pricing and revenue • What are the pricing mechanisms? • How do the buyers pay? • How stable are sales between producers and buyers? • Is the price fair according to the production costs?
- 15. Inclusive business models 15 Understanding the BM Session 7 Group Work 2 • Four groups, one for the following cases: 1. Seller: … Buyer: …. Product: …. 2. Seller: … Buyer: …. Product: …. 3. Seller: … Buyer: …. Product: …. 4. Seller: … Buyer: …. Product: …. • Describe the business model (except costs)
Editor's Notes
- This session goes in detail on the first step of the IBM approach – understanding the business model. In order to identify opportunities for improvement, it is important to clearly understand the current situation and how actors are doing business. This section will provide practical tools for analyzing a business model. To perform a business model analysis, two tools are included: Option 1: FAO checklist Option 2: Business Model Canvas The facilitator can choose which tool to use based on which would be more useful and easy to use for the participants. Outputs Participants will be able to: List the different business model components Perform a general business model analysis
- Refresh the concept of the IBM. Strengthening business models begins with an appraisal of how target farmers and buyers are doing business. The analysis looks first at the farmers’ groups to understand their organizational structure, members, resources, capacities, suppliers and buyers, commodity characteristics and marketable surpluses of members. The buyers’ business models are similarly analysed to understand their management structure, resources, capacities, product description, operational capacity and clients. In order to identify areas of improvement, the business model analysis should be a reflection of the business reality on the ground, not a desired or ideal situation.
- Give very clear instructions to the groups. Remind them that the business appraisal is an analysis of the actual situation, not of how it should be in an ideal version. Explain that when doing a business model analysis for real, the analysis will go much deeper and will not be limited to desk work but involve interviews with company managers, suppliers, buyers and other actors in the chain. Given that it is not possible to perform interviews during the training, information will be limited to participants’ familiarity with the chosen case. It is possible to make small assumptions, but always while considering the current situation.
- Consideration: When using Option 1 FAO checklist. Consider the following: It is necessary to analyze the activities and resources of both producers and buyers. The logistics mechanisms refer to how products are delivered from producers to buyers. The Suppliers/Partners refer to those actors that facilitate the delivery of products from producers to buyers.
- Clarify that when analyzing activities and resources it is important to focus on one of the actors: producers and buyers. Logistic mechanisms deliver products from producers to buyers. Suppliers/Partners to facilitate the delivery of products from producers to buyers.
- The answers to these questions will give the intermediary a better understanding of the nuanced characteristics of the business model and how activities might be designed to facilitate better linkages between suppliers and buyers.
- The answers to these questions will give the intermediary a better understanding of the scale of impact of the ‘inclusiveness’ of the business model. For instance, the number of produced involved in the production of the produce, how well they are or are not organized. Gender implications, for instance if it’s a food crop it may promote income generation opportunities for women. If the business model, as a result of the crop being sought by the buyer, has the possibility of reaching typically isolated areas, where food insecurity may be prevalent.
- The answers to these questions will provide more evidence on the demand side of the business model, quantity, quality, variety etc, and is vital in order to be able to inform those representing farmers on market opportunities for production.
- These questions will provide more general information about the business model and related services already available.
- These questions are important for understanding the flow of the product from the producer to the farmer organization/trader/wholesaler/retailer/processor. The answer will reveal logistical impediments in the value chain between the producer and buyer.
- This information will provide a clearer understanding on pricing transparency, if farmers have daily access to market prices, how farm-gate prices are calculated, if farm labour and production inputs etc are calculated.
- There needs to be a permanent facilitator at each table to guide the discussion and lead participants to ask the appropriate questions. The facilitator should take care that the group analyses a business and not a sector and that the group sticks to reality when formulating the answers.