This is an extract from our Galactic Guide to Space Entrepreneurship.
Entrepreneurs traditionally introduce innovation or exploit a new market niche. They strive to offer greater value for customers than rivals, either by providing better products or better value for money. In order to be competitive and successful, there are two important aspects to consider. One is the activities of the firm and how they add value to the final product or service, also known as the value chain view. The second aspect is the satisfaction of customer needs or needs-based positioning. In recent years, a new methodology has emerged based on the concept of business models that combines these two elements to map out how a firm can create and deliver value to its clients.
Business models are defined using four main elements—customer value proposition, profit formula, resources and assets, and processes—which can be further broken down. The customer value proposition is how the product or service creates value for specific customer segments. The profit formula explains how a firm makes money. Resources and assets describe how the company’s resources contribute to the creation and capture of value. The business model also includes the processes to explain how these resources are applied to create value. This perspective bridges both the internal activities of the firm and the customer requirements, connecting them to profit generation. Startup companies may find it particularly useful as they look to satisfy customer demand while building up the resource base of their company through partnerships, sales channels, staff, and funding.
The Business Model Canvas
Once a business idea starts developing, the business model definition is essential to assess and enhance the feasibility and solidity of the idea. The tool proposed below, which is complete and well-known by investors, is the BMC defined by Osterwalder and Pigneur in 2010.
1) Customer Value Proposition
This section comprises the description of the customers, their needs, how these needs will be met, and how the customers will be reached by the company. It contains four sub-elements: customer segments, value propositions, channels, and customer relationships.
- Customer Segments
An astropreneur needs to define whether their company will be catering to end users (business-to-consumer or B2C), other businesses (business-to-business or B2B),or towards government or institutional actors (business-to-government or B2G). In the space sector, a market could often span multiple different types of customers. For example, launch services could be geared towards both B2B and B2G customers, whereas downstream services could be offered for both B2C and B2B situations. Startups may have to make a conscious decision about which customer segments they can realistically reach with their business model and target it accordingly. Some may need multiple business models which will become more apparent in the remainder of the business model definition. For each category of users, we recommend to further break them down in segments as finely as possible according to the most distinctive criteria such as market, needs, revenue, size, geographical region, and sales channels.
- Value Propositions
Startups should define their customer needs as precisely as possible. If they can establish a relationship with clients, they can use strategies like design thinking or customer co-creation. Even a more informal interaction—through phone calls, face-to-face meetings, questionnaires, or other outreach —with prospective customers can be vital in matching the product or service to their needs. There are different ways to respond to customer needs, all of which must be evaluated in relation to competitors. Below are some examples from space companies.
– Novelty: Virgin Galactic provides the possibility for the public to access space for tourism purposes.
– Performance: Planet offers Earth Observation data with much shorter re-visit times than government-based satellite constellations.
– Customization: MadeInSpace offers the possibility to produce tools and objects at any time in space.
– Getting the job done: Astrome plans to offer internet from space in rural areas, enabling people to connect and work from anywhere.
– Design: Space Worldwide offers creative branding and marketing for aerospace companies.
– Status: Elysium Space delivers funeral ashes into space or potentially to the Moon to remember a departed loved one.
– Price: Open Cosmos brings down the total price of a cubesat mission by one order of magnitude.
– Cost reduction: SpaceX’s Dragon capsule successfully reduced the costs for NASA to access the ISS.
– Flexibility: NovaWurks proposes a modular platform for creating spacecraft builtaround the payload that can be built up in a flexible manner.
– Convenience and usability: Nanoracks provides easy-to-use platforms to integrate payloads in space.
The channels are initially used to inform prospective clients of the existence of the service offering, as well as allowing comparisons to competition. Once the decision to purchase is made, the sales channels should enable the payment and the receipt of the service. Sales channels can incorporate a large amount of the costs and should be carefully tailored to be as efficient as possible. In B2C and B2G settings they may involve a large portion of sales or lobbying staff.
- Customer Relationships
Direct relationships involve interaction between the sales and the customers. It can also involve customer input in creating new products. Indirect relationships can involve operating through intermediaries, creating online tools, and community-building.
2) Resources and Assets
This section includes all the internal and external resources that the company must deploy to satisfy customers while making a profit. It includes three sub-sections: key resources, key activities, and key partnerships.
- Key Resources
– Material: May include office space to production facilities, raw materials to machinery, and computers or servers.
– Human: It is paramount to work with people who believe in the vision and have an entrepreneurial spirit.
– Financial: The capital required for setting up and running the business.
– Intellectual: Intellectual property (IP) and the protection of know-how developed by the startup can be fundamental to attract clients and investors as it contributes to giving credibility to the technical solutions proposed.
- Key Activities
– Production: All the activities required to obtain the final product starting from raw materials and parts.
– Processes: All the sequences of activities undertaken to support both production and service provision.
- Key Partnerships
A partnership is an agreement between at least two parts that agree to undertake actions towards a common goal, especially in a business or firm with shared risks and profits. The space sector often uses public private partnerships (PPP) between public and private actors, and typically involve long-term projects (Hodge and Greve, 2007). A few other types of partnerships are:
– Alliances: Agreements between two or more companies to perform activities together to reach a common goal.
– Joint ventures: The creation of a company co-owned by two or more companies.
– Coopetition: Cooperation between competing companies.
– Supplier: An entity that provides a critical resource or resources.
– Open Innovation: Looking for new ideas and technologies in the marketplace through community-driven idea generation.
3) Profit Formula
The profit formula indicates how a firm will ensure financial sustainability by balancing revenue streams and cost structure.The revenue streams indicate what the customers are willing to pay and how, for example, goods or services, usage fees, subscription and renting fees, and licensing.
The cost structure shows which key resources are most expensive and how the cost varies with the number of products. A company should perform cost estimates considering the entire lifecycle, including eventual decommissioning or post-sales costs and insurance.
Below is an example of how Planet has combined all these elements into a complete business model.
The business model canvas is a very useful tool for firms to distill which are the priorities to concentrate on to become profitable on the market, however it misses one key aspect which is the analysis of the competition. Any product or service, no matter how innovative, will face either competition from either similar products or from substitute products that could replace theirs although they are of a different nature. This means that your companies business model should be compared to that of customers in order to be able to pinpoint the correct differentiation levers that will drive your success.