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Business Model

This document discusses business model analysis. It defines a business model as the manager's logic for how a venture will capture market opportunities, mitigate risks, identify resource needs, and create value. The business model bridges the idea and action, answering why the venture will be viable and valuable. It is not burdened with "how" questions, which are addressed in the strategic plan. Business models are formed by addressing questions about value proposition, target markets, team, competitive advantages, and financial implications. The document outlines facets of business model analysis including revenue, expense, investment, and success factor analysis. It also discusses building a financial plan and cash budget to assess the viability and value of a business model.

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Curt Russell Cagaoan
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49 views

Business Model

This document discusses business model analysis. It defines a business model as the manager's logic for how a venture will capture market opportunities, mitigate risks, identify resource needs, and create value. The business model bridges the idea and action, answering why the venture will be viable and valuable. It is not burdened with "how" questions, which are addressed in the strategic plan. Business models are formed by addressing questions about value proposition, target markets, team, competitive advantages, and financial implications. The document outlines facets of business model analysis including revenue, expense, investment, and success factor analysis. It also discusses building a financial plan and cash budget to assess the viability and value of a business model.

Uploaded by

Curt Russell Cagaoan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Business Model Analysis

Professor Glenn A. Okun


NYU Stern School of Business
[email protected]
The venture design process
Business Model Defined
• The business model is the manager’s logic
that will allow a venture to:
– Capture the market opportunity;
– Mitigate risks;
– Identify the required resource set; and
– Create value for investors and founders.
Business Models v.
Business Strategy
• The business model bridges idea and
action.
• It answers the question of why a venture
will be viable and valuable.
• Business models relate to business
strategy as logic relates to the algorithm.
Business Models v. Business Plans
• The business model is not burdened with
the “how” questions.
• These are resolved by the strategic plan.
Business Model Formation
• Business models are formed through a process
of addressing a series of questions:
– What is the value proposition?
– What are the target markets?
– Who are the critical members of the team?
– Where does competitive advantage exist?
– Why is there a competitive advantage?
– When will development, launch and cash flow
breakeven occur?
From Business Model to Financial
Model

Value Financial
Team Advantage
Proposition Implications

Analysis Market Core Competency Internal & Pro Forma


Segmentation External Analysis Analysis

Data Price Expenses Expenses Capital


Units Budgeting &
Timing Cash Flow
Assumptions
Conclusions Risk (k) Risk (k) Risk (k) Viability &
Value
(RAROC)
Business Model Analysis
• Facets of analysis
– Revenues
• Cash flows and their timing
• Revenue drivers
– Expenses
• Cash flows and their timing
– Investment required through cash flow breakeven
• Working capital
– Maximum financing required and cash flow breakeven
timing
– Sensitivity analysis
• Key success factors
Revenue Analysis
• Sources
– Single stream
– Multiple stream
– Interdependent
– Loss leader
• Models
– Subscription/membership
– Unit based
– Advertising
– Licensing
– Transaction fee
Expense Analysis
• Cost structures
– Payroll
• Direct
• Indirect
– Inventory
– Location
– Marketing
• Cost drivers
– Fixed, variable or semi-variable
– Scale of fixed cost base
– Anticipated changes to cost drivers
Investment Analysis
• Maximum financing need
• Timing of cash flow breakeven
• Timing to positive cash flow
Success Factor Analysis
• Identify the business factors with the
greatest impact on the cash flows
– An anticipatory business scorecard
Building a Financial Plan
• Sales forecast
– Two to three years
– Detailed assumptions
• Sales per customer
• Number of customers
• Sales growth rate
• Cost forecast
– Costs of operating and costs per sale
• Income statement and balance sheet
– a/r, a/p
• Cash flow forecast
• Summary statement of sources & uses of cash
Cash Budgeting
• Minimum cash balance
• Sales forecast
• Cash receipts forecast
• Cash disbursements forecast
• Ending cash balance
Sales forecast
• Three scenario approach (results in three
cash budgets)
– Optimistic
– Realistic
– Pessimistic
Cash receipts forecast
• Cash budget must account for delays
between sales and collections (including
write-offs)
Cash disbursements forecast
• Record disbursements in the month of
payment, not when the obligation is
incurred
Building a Financial Plan
• Sales forecast
– Two to three years
– Detailed assumptions
• Sales per customer
• Number of customers
• Sales growth rate
• Cost forecast
– Costs of operating and costs per sale
• Income statement and balance sheet
– a/r, a/p
• Cash flow forecast
• Summary statement of sources & uses of cash
Cash Flow Calculation
• Net income
• + depreciation
• working capital from operations
• - net increase in current assets
• + net increase in current liabilities
• cash flow from operations
• - net increase in gross fixed assets
• + net increase in debt & equity invested
• - dividends paid
• net cash flow
• + beginning cash balance
• - required ending cash balance
• net cash surplus or borrowing required
Okun’s Law
• Never do anything that is not fun at least
80% of the time!

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