ValuePickr Forum

Business Model Canvas: A step before Self-Reinforcing business Model

I asked folks to engage with me on Hester Bio and Godrej Properties, as examples to take things forward. Instead, I have been flooded with emailed requests on simplifying this process of getting to grips with my latest passion - Business Model scrutiny: Looking for re-inforcing/de-inforcing aspects of moving parts of the business - for a range of businesses - completely unfamiliar to me.

Unfortunately I am not a genius like Ayush and Hitesh who know 100s of emerging/established businesses deeply, I know only 10-15 businesses; so could not respond effectively to individual emailed queries on favourite businesses of folks.

The next best thing I could do I reasoned, is to take my passion in my own way forward - illustrate the simplicity and utility of this model using my own examples, in any discussion that I indulge in - with Industry sources, Investors, Domain Specialists, and/or Business owners.

So let’s have a thread dedicated to the first thing needed in this effort - a Picture for the Moving Parts of the business - the Business Model Canvas.

I will keep plugging in my efforts here. So can you.
I can guarantee you only this. If you can DRAW this Picture for your favourite business, it will do 2 things for you

  1. You will gain CONFIDENCE, that you UNDERSTAND this business, somewhat
  2. It will help you expose/examine inter-related forces that propel business execution - very effectively and objectively with OTHERS WHO KNOW THE BUSINESS BETTER (than You :slight_smile:)
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Attached is the DRAFT: Business Model Canvas Picture we drew up for CCL.

We think we captured it quite crisply (in this picture, drawn last week) what we understood as the moving parts of a business like CCL, some 2 years back, when we invested in it (all that was in our heads, really).

We used this picture - very very effectively to spur discussion on HOW THE PICTURE HAD CHANGED In last 2 years (become STRONGER or WEAKER, added more vulnerabilities or mitigated more). As the discussion went for over 2.5 hours with domain experts, last week, sometimes the conversation would drift away, but we could easily & gently steer it back on course, courtesy, the picture again :slight_smile:

I am a convert and a big fan of this latest “toy” in my investor hands; maybe this picture may convey much better than 1000s of words I might have used to share my enthusiasm on topic - in much more tangible terms.

For anyone who claims to know his/her business well :wink:, this should be easy to draw, right?
Let me know. Better still, I hope this inspires more and more folks to challenge themselves to put up a simple picture like this of their favourite business - and its moving parts!!

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This a great topic and something which I feel very important. There is a book which can give you various templates to depict your favourite business’s business model it is called “Business Model Generation”

With the help of the book - I started putting together my understanding of GRUH finance

You can use similar template or many others illustrated in the book.
My biggest learning - Only when I put this together I realised how less I knew about ‘GRUH’

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Hi guys to start off I am just a guy with a passion for equities, trying to learn and a big-fan of this forum and its members. I am no-where close to being as accomplished as you guys are. Infact many a times I am just blown by the skills that most of the people here have. I was not even sure if I could do this.

This post is my attempt to try and put together what ever I have read and thought to be relevant regarding Godrej Properties Limited (GPL). The information here is referred from all the annual reports, all the concall transcripts, some articles and investor presentations.

Even though I have tried my best, this might not be upto the valuepickr level. Request you to guide and let me know if I can make this better.

GPL - business model key moving parts - kitam.xlsx (47.9 KB)

Regards,
Kitam

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in addition to this, We can note external factors affecting business model, this will immensely help in understanding the environment surrounding business and fair valuation of business.

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Donald, that CCL canvas which you uploaded - if students and many members of this forum see it - I would bet that would think “OMG this is so complex!” while in reality it isn’t.

This is what is called the “curse of knowledge.” As Chip Heath and Dan Heath write in their excellent book, Made to Stick: Why Some Ideas Survive and Others Die

Once we know something, we find it hard to imagine what it was like not to know it. Our knowledge has ‘cursed’ us. And it becomes difficult for us to share our knowledge with others, because we can’t readily re-create our listeners’ state of mind.”

So my advice is to break this project into small chunks. And focus on one chunk at a time. The canvas is a great way to understand a business model. But to get to the output (the canvas), the inputs have to be tiny, and deliberate, and time consuming.

In his masterpiece, The Little Book of Talent: 52 Tips for Improving Your Skills, Daniel Coyle, writes:

BREAK EVERY MOVE DOWN INTO CHUNKS From the time we’re small, we hear this good advice from our parents and teachers: Take it a little bit at a time. This advice works because it accurately reflects the way our brains learn. Every skill is built out of smaller pieces—what scientists call chunks. Chunks are to skill what letters of the alphabet are to language. Alone, each is nearly useless, but when combined into bigger chunks (words), and when those chunks are combined into still bigger things (sentences, paragraphs), they can build something complex and beautiful. To begin chunking, first engrave the blueprint of the skill on your mind [NOTE: THE BUSINESS MODEL CANVAS IS THE BLUEPRINT HERE]. Then ask yourself:

  1. What is the smallest single element of this skill that I can master?
  2. What other chunks link to that chunk?

Practice one chunk by itself until you’ve mastered it—then connect more chunks, one by one, exactly as you would combine letters to form a word. Then combine those chunks into still bigger chunks. And so on.

Musicians at Meadowmount cut apart musical scores with scissors and put the pieces in a hat, then pull each section out at random. Then, after the chunks are learned separately, they start combining them in the correct order, like so many puzzle pieces. “It works because the students aren’t just playing the music on autopilot—they’re thinking,” says one of the school’s violin instructors, Skye Carman. No matter what skill you set out to learn, the pattern is always the same: See the whole thing. Break it down to its simplest elements. Put it back together. Repeat.

EACH DAY, TRY TO BUILD ONE PERFECT CHUNK In our busy lives, it’s sometimes tempting to regard merely practicing as a success. We complete the appointed hour and sigh victoriously—mission accomplished! But the real goal isn’t practice; it’s progress. As John Wooden put it, “Never mistake mere activity for accomplishment.” One useful method is to set a daily SAP: smallest achievable perfection. In this technique, you pick a single chunk that you can perfect—not just improve, not just “work on,” but get 100 percent consistently correct. For example, a tennis player might choose the service toss; a salesperson might choose the twenty-second pitch he’ll make to an important client. The point is to take the time to aim at a small, defined target, and then put all your effort toward hitting it. After all, you aren’t built to be transformed in a single day. You are built to improve little by little, connection by connection, rep by rep. As Wooden also said, “Don’t look for the big, quick improvement. Seek the small improvement one day at a time. That’s the only way it happens—and when it happens, it lasts.”

So, just to illustrate, take just one chunk: Value Proposition. Perhaps, before one even thinks about the canvas, members on this forum should just spend some time thinking about the value proposition of this business and answer key questions such as:

What need of the customer does this business serve? How durable is that need? How does one get objective data to measure this durability? Why do customers want to do business with this company? Why have they not moved to other competitors, or have they?

I list the above questions as part of the “Value Proposition Chunk” but by no means those are the only ones that should be asked. In fact, members should just spend time making a list of things and questions that come to their mind about just this one chunk and go about seeking answers to those questions.

One more thing: For anyone to understand the business model using the Canvas or any other approach, one has to truly enjoy the process of spending time on this. For many, that’s not the case because their focus is on making money not seeking knowledge. Therefore, if you create a thread for discussing one chunk at a time, for any business, then only those who truly enjoy the process will participate in the discussion because most chinks wont’ even refer to market valuation and how cheap the stock etc etc.

So my advice is that break it up. Create a separate thread for each chunk and don’t be in a rush to put it all together on the canvas. The canvas will emerge on its own once the “chunky discussions” have evolved.

I think this is a wonderful initiative (something you pounded the table about on in Goa- I can’t forget the “chakravyu” :grinning:) and worth pursuing!

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Nietzsche would agree.:

Don’t talk about giftedness, inborn talents! One can name all kinds of great men who were not very gifted. They acquired greatness, became “geniuses” (as we put it) through qualities about those who lack no man aware of them likes to speak: all of them had that diligent seriousness of a craftsman, learning first to construct the parts properly before daring to make the great whole. They allowed themselves time for it, because they took more pleasure in making the little, secondary things well than in effect of a dazzling whole.

:slight_smile:

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Prof Bakshi,

Thank you. For the Public Endorsement of utility of drawing up Business Canvas Model Picture
First things first. It’s matter of pride for all of us learners at VP to get a chance at engaging with you directly - it’s like a dream come true :slight_smile:. Really hope we can keep the standards up and attract more beautiful minds like you to VP - to help us question, refine, learn, and get continuously guided in our quest - for raising the bar - every 6 months, every year.

You wouldn’t know how much this means to this fledgling pet project of ours at VP. This public endorsement of the “ends” (if not the “means”, ha ha) provides a lot for the encouragement this project deserves - for achieving the next level in business dissection thinking - more importantly on learning how to put all things on the table

Apologies for responding late. Your post made many important points. Really honoured at your writing at length on subject, so I could appreciate better the perspective this comes from. I deliberately slept over this for a few days, to consider this from many different perspectives. The way I see it now, clearly our “destination” is the same, think our approaches are radically different. I have a very different take on the “Means” to be adopted.

Since there are quite a few issues that needs addressing, allow me to build a counter-thesis to the meaty-chunk discussion process outlined above - issue by issue.

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What are VP Objectives. And what is beyond!!
I would hazard Sir - (OMG, so complex) this is not Your reaction :slight_smile:
You are trying to put yourself in the shoes of an amateur investor/learner at VP, and justifying the most common response.

From VP Perspective, that reaction is justified, but misplaced. VP is not a Coursera, or a Flame. We have limited resources and bandwidth. Our objectives are completely different. We believe in inspiring, and getting inspired - much like the Charlie Munger way - where nothing is ever spoon-fed, things are deliberately kept a few notches away (anyone remember Poor Charlies Almanack) - enough to inspire, enough to catch one’s imagination, but just that tad difficult to get your grips around, immediately.

We surely have the resources and the bandwidth to build a Meritocracy- and that’s a key guiding objective. So those who get inspired and persevere (it never takes more than 3-6 months), Boy - what a level jump that is!!
We think this is at the heart of VP TopContributors steep learning curve some of them do achieve; each year, without fail we keep getting surprised by some of our extreme over-achievers.

We have strived to capture back our incremental learnings each year - in that same spirit - right from 2011 - Success Patterns, Failure Patterns, Capital Allocation, BQ, MQ, Art of Valuation, and the like. Our objectives are simple - even if we can get 10% of the TopContributors to incorporate the incremental breakthrough learnings, each year - we are doing a good job!

Mr D had ingrained in us a painful lesson early on - very few folks will walk the less beaten path - even when fully appreciating the disproportionate rewards that brings (seeing others creating bigger and bigger distances with peers); it’s far easier for everyone to play the lazy commoditised game - again & again & again!! He said in 2011 itself, your objective is simple - expose, inspire and convert 10% of Team VP to processes and structured business dissection!! If achieved, that’s something to be happy about. That’s another law of nature, we unfortunately live with.

Having said that - there is a wealth of “live” case material here at VP by the 100s. Anyone who has the resources and the bandwidth, is most welcome to try and address this lacunae - breaking these up into small but meaty chunks, and guide the discussion flow - its a herculean task - but can be done by the passionately/crazily incentivised.

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Now to illustrate further :slight_smile:
The CCL Business Model Canvas - is the simplest of things!!
It’s far easier to break this picture up into smaller chunks - show people why this isn’t complex at all - in fact the simplest of things to achieve - once one thinks one knows decently about a business.
{Unlike the self-reinforcing business model virtuous circles - can be chakravyuhs to get entangled in ha ha for sure - which is NOT for the faint-hearted}

So what do we have. Lets bring up that picture again.

A business model canvas describes only two things - Product-Market Fit? How do they make money?
Lets take up the first half - the Market and start from the extreme Right. What are we showing there ?

Describing the MARKET - Customers, Customer Reach, Players
Top half RHS

  1. Which Countries - Switzerland, Russia, EU, Japan, US
  2. What do they buy - Bulk Coffee
  3. How does CCL reach them - Through Country-Agents (unlike Distributors, Field Staff, etc.)
  4. Who are these Agents - 3 to 4 prominent ones - LM Zuckerman, Bremer, et al
  5. Who are the Suppliers - CCL, DEK, SUPER, OLAM, et al (Nestle supplies its captive market)

Bottom half RHS

  1. Retail Customers - 7 states going up to 10 states
  2. What are they buying - CCL branded Instant Coffee - Freeze dried (Higher quality) and Spray dried
  3. How does CCL reach them - In-store demos at big retailers (Distribution)
  4. Pvt Label Customers - HUL, ITC, FUTURE group
  5. What are they buying - Custom-branded (for each customer) Instant Coffee (freeze, spray, and chicory mix)
  6. How does CCL reach them - Direct Marketing

We have to agree - there is nothing tough or complex in this :smile: :smile:
Anyone interested/tracking/investing in CCL MUST have this much knowledge about the business - who are the customers, what do they buy, how does CCL reach them - can anything be more basic, to ask???

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Now let’s take the Other half. The Product.
LHS Top Half. Lets again start from the extreme left.

  1. Instant Coffee is positioned as a Premium product - for the Affluent. Price Leader - NESTLE - sets the Benchmark. Others like CCL are happy to follow
  2. Cost Leader is CCL. They aspire to re-position Instant Coffee as a Mass Product someday :wink:
  3. Quality - CCL claims they have the superior freeze dried technology (not yet introduced into India by Nestle; all my friends wives I have forced-tested concur :smile: :smile:)
  4. Supplier Capacities - CCLbiggest (after Nestle) ~35000T, DEK 25000T, SUPER 10000T, OLAM 10000T; Top 10 suppliers have ~15000T capacity or higher; Top 20 suppliers have 10000T capacity or higher; rest completely unorganised with 1000s of 300T-3000T capacities; Coffee Selling is one of the most organised businesses in the world.

LHS Bottom Half
5. What are the Raw Material Sources - BRAZIL 35% share (90% Arabiaca); COLUMBIA 20% share (99% Robusta); VIETNAM 18% share (90% Robusta); AFRICA 15% share; INDIA 3% share
6. Since this has to be imported, what duties does it attract - ZERO import duties - for reprocessing exporters
7. Technology - CCL had this Swiss Technology Collaborator - settled in Brazil - who passed away in 2009. The swiss guy showed how the right blending of primarily lower quality beans with some high quality beans (right aroma,texture, etc) can re-create required country-specific flavors - using run-of-mill machines.

And that is it!!
Again any neutral observer will have to grant - there is nothing complex at all in this description. Again they are MUST HAVE information pieces (all available in public domain) for anyone interested in understanding CCL business - isn’t it???

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Now we come to the crux of the matter - really - why bother with a complex Picture?

Why not keep things simple? Why make things complicated man, such a complex picture (though by now, I should have converted at least 10% of the folks who might have thought otherwise, ha ha :smile: :smile: ). Why not just describe it in text - just show folks how to ask the right questions???

There is a very simple answer. STRUCTURE.
Structure FORCES us to put ALL things on the Table.
The human mind (as Daniel Kahneman so brilliantly drilled into us, what we all knew probably) is extremely lazy in deliberate systemic thinking. The smarter the guy, the more prone he is to seducing (himself) and others with a coherent story built on important, but usually incomplete facts. Human Mind is always prone to taking the easier short-cuts - Is this really necessary? To understand the Business?? Who are you Kidding???

We find PICTURES like above extremely useful to shock us out of our complacence; This is deliberate System2 thinking making a very good start. I have seen extremely competent, extremely hard-working folks (and obviously also our smartest folks :wink: ) take the easier way out all the time; they are rather content to write a free-flowing (what they call simple) 2 page report (or even a detailed 5-10 page free-flowing report, that don’t bind them to any structure). But wont help me sit with them and help them create this simple Product-Market picture for themselves. Even when I say it will take at most an hour - if you know this business decently well :wink:

Now that we have a simple deliberate way for System2 thinking, let me illustrate why we at VP increasingly feel very strongly about this, and are insisting this has to be a back-to-basics exercise for everyone. Try and get Prof Bakshi to attest that hey, everyone wake-up, and do this. If you are an aspiring investor, this is bread-and-butter you start with. Invaluable tool to get rid of error-prone System1 thinking (that all of us are generously blessed with!!, and that includes me, first).

1.KITEX GARMENTS
I couldn’t make it to the KItex AGM this year, due to completely unavoidable personal circumstances. I asked for a detailed write-up from the folks who attended.

Surprisingly, the moment I read the detailed notes, I was very very apprehensive. I just knew something is wrong - Kitex is losing domestic business, big time. Almost everyone disagreed, and I was absolutely sure - even without the immediate benefit of competition data. Pretty soon Ashwini Damani obliged with Jay Jay Data, and other data followed; everybody had to acknowledge - hey there is another grim side to the (erroneous) rosy picture being laid out.

What were the short-cuts?
Seduced by the glamour of the US Retail Story. That of a B2B business shepherd taking concrete steps towards becoming a B2C business, and hey don’t we know how good that can be??? While that is great, one completely overlooked updating on the basics - Competition data - capacities - and Sales???

But suppose you had a SIMPLE (that debate is settled right? :wink:) PICTURE like CCL’s above for KITEX (and you updated it before going to Kitex AGM) would you have come to much more grounded observations? Would you have got more much more out of the AGM interaction? Can there be any two opinions on that???

2.AMBIKA COTTON
Again folks who have not created a simple picture like above for Ambika in their minds, seem prone to ignoring (because of Ambika’s obvious superlative strengths) tangible evidence on the Growth mindset issue??

Most folks draw the conclusion that once expansion comes in place, things will be hunky-dory again. These guys are ambitious, their production teams are all geared up; this story has to play out. But probably a crucial aspect gets ignored - again because NOT ALL FACTS ARE ON THE TABLE.

What would force all facts to be out on the Table? You got it, that SIMPLE PICTURE - which you need to update every year. Let this be a quiz question for those interested in the Business Canvas Model picture. No spoon-feeding, right?

I rest my case. I know there are enough skeptics out there who can’t be converted. But hey, if I have managed to create a few doubts in most folks minds, and could inspire one in 10 folks reading this thread (which is a herculean task by the way), I have done my job, Mr D :smile:

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Sir,

Coming back to smaller chunks. Such as Value proposition.
Thank you for bringing this up. It will be great if someone can find the time to drive discussions on this crucial aspect- make folks see the right questions to ask on the durability of the business. I for one want to focus FIRST on getting folks to answer the most basic questions about the business - which most of us hard workers THINK WE KNOW - but faced with a STRUCTURE as the simple CCL Business Canvas Model Picture - and when Someone who drew the picture explains it as it is - we are forced out of our complacency to admit hey, there are things about this business that ARE NOT IMPRINTED IN MY DECISION-MAKING MODELS …and hey probably these 1 or 2 FACTORS might SWING THE NEEDLE THE MOST.

Our take is not any different. We are showing the dazzling whole (only) to Inspire, but actually forcing everyone to acknowledge that they might not even be constructing the basics diligently - If one focuses on getting the basics of the business model canvas in first - identify the moving parts, that is - that should automatically prompt more thinking - on the inter-related forces among the moving parts, including the meatier Value Proposition chunk. Without the moving parts nailed in, it would be very difficult (except for the very gifted) to do deliberate System2 thinking on the business. In the current VP view, this is where many (otherwise) competent practitioners are found wanting today.

Not sure what should come first, and what should come later. We at VP are practical guys - have always sort of groped our ways around - first with common sense, and then sort of reflected and captured back what seemed to work for us. We had directly jumped to BQ model some 2 years back - and found that most folks found it very difficult to grapple with and persevere. Now I know for sure that the Business Canvas Picture should come before, and then evidence check for Self-reinforcing Virtuous Circles presence/absence, and then probably we will be much much more competent to deliver on the BQ Template for any new business, that we get interested in.

The above posts (some will rightly call it a laboured Monologue) are my honest attempts to show from the VP Perspective why we want to influence true continuous learners on the less beaten, more difficult, but certainly more rewarding System2 structured business thinking toolkits that some of us at VP swear by. There is no right or wrong way. This is what works majorly majorly for some of us. Does not mean everyone has to adopt these. Its a free market :smile: If it doesn’t resonate with many of us who still think these are unnecessary deep dives, for sure, so be it.

Look forward to your continued guidance. And hoping we can get some more encouragement from you for always drawing simple pictures (not the chakravyuhs :smile:). At least I know I can transfer my CONFIDENCE about a business swiftly to you (or other senior practitioners) in less than 5-10 minutes, if I have such a picture to take you through with.

Folks who try this will also realise - such pictures are the fastest, most productive way to get more out of industry domain experts/company managements/senior practitioners -in limited time - where we can re-state/cross-check our previous understanding of the business/industry and quiz on how the picture might have changed in the last 1 or 2 years, since. How priceless is that ?? Ha Ha :smile: :smile:

Sorry forgot, I was done selling :slight_smile:

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Creating a Business Model Canvas is a great way to structure ones understanding of the business.

The following website contains thousands of such canvases for those who are interested

Thanks
Bheeshma

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