The Business Model Canvas as a Tool for the Development of Start-Ups: an Application to the Rehabit Case

Abstract
Everyone has heard of the particular form of a business initiative called startup.
This is mainly because of its ability to overwhelmingly enter the markets and
having the ability to revolutionize them. However, while few know how this busi-
ness actually works and how it is possible to implement it. Consequently, some
might ask: how is a startup precisely dened? How does it really works and what
are the requirements to start it and bring it to success? In this thesis, I rst
analyzed the expanding phenomenon of startups, focusing on how this form of en-
trepreneurial activity has historically evolved. The Silicon Valley area dominates
this environment: high productivity of innovators when working in clusters has
been empirically demonstrated and investors are mainly nancing in this area,
where there is a greater probability that a startup, capable of revolutionizing the
market by earning millions of dollars, will be born. I then proceed by examining
the economic and juridical prole of an Italian startup, focusing on dening the
requirements demanded by the Italian regulation to be able to identify a startup
as such. Accordingly, after clarifying the features of a startup, I persist with the
analysis of how it is possible to nance it, which are the tools to do it and what the
timing for a correct nancial contribution to it. I then explore dierent types of
possible investors, from Business Angels to Venture Capitalists, following a logic of
temporal listing based on the economic growth of a startup. However, it turns out
that the refusal of lenders is partially due to an unhealthy set up of the nancing
system for startups, with a critic on Venture Capital Funds. Furthermore, prac-
tical advice is suggested for a correct presentation of a startup idea to investors.
As for the tools necessary for supporting the success of a startup, it is explained
why the xed composition of a predictive Business Plan is no longer adequate in
developing a new category of emerging startups, i.e. those based on the principles
of the Lean methodology. Indeed, startups that prefer more exible management
v
of the business, with greater attention to customer and market feedback, choose
to make use of the Business Model Canvas tool, whose components are illustrated
in detail. Finally, a practical application of this tool to a potential startup of my
invention: Rehabit. I personally try my hand at drafting a Business Model Can-
vas, running it step by step on the revolutionary idea of an e-commerce platform
for the recycling of second-hand clothes, even implementing more traditional cost
and revenue analysis. The whole picture of this work leads to the setting up of a
new business for the development of an attainable lean startup.
vi
Introduction
The global economy is experiencing historic crises that generate great opportuni-
ties and challenges. Mainly for young people. In Italy, where youth unemployment
reaches 30%, the labour market looks like an abstract entity, where a stable job
benets the few. Can startups, i.e. the innovative entrepreneurial initiative, be a
valid alternative? In our country, there are 10,882 innovative startups recorded in
the Business Register. Frequently, these are started by young people, not always
but often located in the north, not always but often in the business services sector
and not always but often in the software, app and IT sectors in general. However,
it must be borne in mind that starting a new initiative is not enough to acquire the
startup status: essential requirements are needed, such as \scalability", \replica-
bility" and \protability" of the same. Are 10,882 startups many or few? This is
a new, beautiful and attractive world. Anyway, compared to other realities, they
are really few. We are far away from levels reached by other countries, and this is
a true shame. Too bad because startups represent a tool that allows the economy
to grow, to nd new solutions to current issues, to improve, to innovate and, last
but not least, to create new jobs for the adults of tomorrow, avoiding the suer
from precarious conditions and promising young people to ee abroad. In essence,
the contribution of startups to the future of our country is crucial.
As just mentioned, the idea that holding an innovative product/service is enough
for launching a startup and that the market is ready to accept the oer is as
baseless as it is risky. Indeed, the most commonly made mistake is to think
that all startups act through the same disruptive plan as Amazon, Airbnb or
Faceboook did. In other words, not all the startups are born from an idea aimed
at revolutionizing an existing sector, using capital injections and accepting very
high risks to grow as quickly as possible. While in Silicon Valley it is achievable
and acceptable to burn capital, the most common innovators are likely to be more
xiii
Contents
sceptic to accept the idea of losing money. Indeed, they tend to avoid high-risky
approach to growth, focusing on both growth and protability, building resilient
business models and charging for the value created from the early beginning, with
a long-term perspective. Consequently, knowledge is the only valid requirement
to avoid silly mistakes, regardless of the sector in which it applies. To be aware
of the functionalities and characteristics of the main tool for setting up a startup,
called the Business Model Canvas, represents the backbone for a successful startup,
and it will be deeply illustrated in this paper. Furthermore, the main intent of
this work is to collect in a single text all the necessary information to launch a
startup, without running into possible errors of assessment. Hence, the reader
will dig deep into the world of startups, starting from the historical overview of
the phenomenon, together with the analysis of its strengths and the critical issues
that this kind of company can entail. In addition, the essential requirements
for a company to acquire the startup status will be explained, together with the
nancing opportunities, the subjects involved and the tools for a proper business
setting.
I personally have been able to learn a lot from the following work. Indeed, the
startup’s idea for which this paper was initially composed has been radically
changed thanks to the knowledge acquired during its writing. Deeply delving
into the mechanisms of startups, I realized that the above initial idea was not
attainable, but a more promising and fascinating one was more likely to be achiev-
able instead. The new startup will be outlined at the end of this thesis. Finally, I
hope the following work can represent a sort of a wide and useful guide for anyone
who wants to launch a startup.
xiv
1 The Startup Phenomenon
1.1 Denition of Startup
There are several potential denitions of startups. In general, the aforementioned
term identies a new company in the form of a temporary organization aimed at
developing a specic business that is repeatable and can grow indenitely. Anyway,
the most universally recognised denition for a startup is \a temporary organiza-
tion in search of a scalable, repeatable, and protable business model."
1
Therefore, it is likely to state that the term \startup" is closely related to
business characteristics such as \scalable", \replicable" and \protable":
 \scalable" is referred to a business that can increase its size exponentially,
in terms of customers and turnover, without utilising proportional resources.
Hence, it is referred to as the capability to implement the economy of scale.
 \replicable" means a business model that can be repeated in dierent places
and periods without being changed.
 \protable" is the aim of every company and therefore also of a startup:
monetize. Nonetheless, monetizing for some startups has nothing to do with
money; mainly for startups in the high-tech sector, the ultimate goal is to
be populous. Facebook drops billions of dollars not for the money it makes,
but for the service, it gives to other companies (sale of information on user
behaviour) [1]
There are back-and-forths about the economic sector of reference in which to
place a startup: many consider that only a company with strong innovation and
1
Denition according to Steve Blank and Bob Dorf, The Startup Owner’s Manual: The Step-
by-Step Guide for Building a Great Company.
1
1 The Startup Phenomenon
growth opportunities in the technological sector can be dened as a startup; others
do not think that the business sector is relevant as a feature for this type of business
while focusing on the potential of the business to be able to grow fast [2] and is
involved in some kind of innovation. Specically, the startup can be innovative
as regards the business model itself, but also for the level of innovation of its
methods of production, its products or services, its cost structures and multiple
other possible innovations. [3] It is not surprising that originally only companies
operating in the high-tech sector were dened as startups. Only later the term
was spread to new innovative companies, performing in additional sectors.
The term should not be confounded with the \startup" phase of a new business.
The verb \to start up" refers to the rst phase of a new business, or of a business
unit within a consolidated company, in which the entrepreneur begins to delineate
organizational processes and investments. [1]
In a broad sense, eventually, making startups also overlaps with the attitude
of innovating and penetrating the market by inventing one’s own work. It is even
for this reason that in recent years the startup phenomenon has come under the
magnifying reector of the media.
1.1.1 A Rare Form of Startup: the Unicorn
A unicorn is a privately owned startup that reaches a valuation of $1 billion in
a relatively short period of time since its founding.
2
The choice to associate this
particular type of startup with the mythological animal is justied by the sharing
of the characteristic of rarity by both of them.
Currently, CB Insight preserves a list of unicorn startups online which has
nearly 500 of them.
3
Among the currently most famous unicorn companies in the
world it is possible to name Uber, Xiaomi and Airbnb, and in the past also Google,
Apple and Facebook were unicorn companies. Via the analysis of this particular
form of business, however, it is discovered that the phenomenon does not only
present positive aspects.
2
The term \unicorn" was coined in 2013 by Aileen Lee, founder of Cowboy Ventures, in a
post published on TechCrunch entitled \Welcome To The Unicorn Club: Learning From
Billion-Dollar Startups"
3
Source: [ https://www.cbinsights.com/research-unicorn-companies]
2
1.1 Denition of Startup
On the one hand, unicorns denitely represent reality with a remarkably strong
innovative charge and an original evolved vision capable of developing unexplored
realities which lead them to be considered as potential companies of outstanding
success. On the other hand, there is a certain degree of instability within these
companies. This is due to the need to approach the capital market already in the
initial stage of the development pathway. Undoubtedly, the leading problem of
unicorn startups is related to the fact that the latter receive quite high quotation
prices without concrete evidence on which to base the estimations; this is because
they are newly born companies, which in most cases still do not enjoy prots and
base their value mainly on intangible assets and projected growth.
Consequently, the situation should not be misjudged because the tendency to
estimate potential growth more than actual protability is very risky: if these
evaluations are not reected in revenues, they will be very dicult to sustain and
could cause a market bubble such as the one already occurred in 2008.
1.1.2 A New Form of Startup: Lean Startups
A considerable number of startups are born with the idea of developing a revolu-
tionary product that people want at all costs. With this belief, startuppers spend
a lot of time preparing and perfecting the project, without ever showing the prod-
uct or service to the potential customer. When they are eventually ready to sell
the product, they come across a stark reality: nobody cares about the product. A
solution to this sort of problem can be the application of the Lean strategy
4
, and
it appears to be signicantly suitable for startups.
Lean startups
5
can be employed in any business context open-minded to inno-
vation. The strategy is inspired by the principles of Lean Manufacturing developed
in the seventies by Toyota to enhance and speed up the company’s production cy-
cle. This singular procedure is based on a scientic analysis to verify, in reduced
times and low costs, whether a product or service works on the market. In fact,
the method in question was designed mainly for startups that hold few resources
4
The ocial website containing the principles on which the Lean strategy is based in the startup
sector is available at the following link: [http://theleanstartup.com/principles]
5
This particular type of startup will be discussed in detail in chapter 3
3