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Value Proposition (X). Business models change…

When we design a business model it is reasonable to be open minded. The business model will change several times.

Let´s go to the case example shared with you last Monday. I would like to show you the business model version 2.0 of the Metro Rail San Salvador. I had to split it into two pages.

Metro Rail San Salvador Version 2.0 page 1

San Salvador Metro Rail Business Model  Version 2.0 (page 1)

San Salvador Metro Rail Business Model 2.0 (Click to see PDF File here)

Since this project does not exist yet, I had to think and validate what needs to be done, and describe the project through all the stages, from the concept to studies-evaluations, approvals, bidding, design and construction, operations & maintenance (as you can see it in the figure below, it is a lot of information) and that is why I had to split the business model canvas into two pages too.

rail project lifecycle costsThere are several changes in my business model Version 2.0.

  • I have finished the last three components of the business model: “Key Resources”, “Cost Structure” and “Revenue Streams”.
  • When writing each of the latter three components, I had to differentiate the financing from funding. According to the CPCS-NCRRP Report 1,  “Financing refers to financial mechanisms or tools to access money to pay for a project or services before the project generates the necessary revenue to pay for the investments. Funding refers to the sources of revenue that can be used to pay for the project or services. Sources of funding include future revenue streams after the project is completed and is fully operating. Those revenue streams come from the delivery of rail transportation services”.
  • In addition, I validated the Value Proposition too. Why?, Because I wanted to be sure this component was right enough. When we create good value propositions, we can validate them in several manners. One way to do it is to realize a comparative analysis with similar projects. How? By doing the benchmark with similar projects in other countries with metro railways operations. In Europe, these projects are operating since many years ago. I did a “google” research with several Rail-Sector Specialists articles. I found an interesting article from the Boston Consulting Group or BCG.

    The BCG has designed a Railway Performance Index (RPI) which I found very useful because it shows the main criteria to analyze railway performance.  The Railway Performance Index answers the question: What value does a Railway System deliver to the clients? comparative analysis BCG and Value Propostion 1.0 ssmetroI was content and happy, thanks to the BCG article because, at this stage, it has helped me to validate and to fine-tune and make some small adjustments to my previous Metro Rail San Salvador Value Proposition version 1.0. and you can read the new value proposition in the business model version 2.0.

  • I also did a benchmark or comparative analysis of several successful metro-rail “ownership structures”. I visited the websites of several metros in the world, such as the Metropolitan Transportation Authority (MTA) or New York City Transit Authority (NYCTA) or the Washington Metropolitan Area Transit Authority (WMATA) or Metro de Madrid. The metro-rail projects belong to a Transit Authority Entity which also is owned by City Municipalities or City Governments.  As a result, I have validated it is important to create a new  San Salvador Transit Authority (SSTA) and other entities which do not exist at the moment. Of course, if I were the financial advisor to this project, in order to validate my assumptions I need to hire a legal advisor with a lot of experience in metro railways to help me to do the structured finance design for this project.

This is all for now, I will continue next week.

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