Buissness model analysis

 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.

 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.

 The business model is not burdened with
the “how” questions.
 These are resolved by the strategic plan.

 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?

Analysis Market
Segmentation
Core Competency Internal &
External Analysis
Pro Forma
Analysis
Data Price
Units
Timing
Expenses Expenses Capital
Budgeting &
Cash Flow
Assumptions
Conclusions Risk (k) Risk (k) Risk (k) Viability &
Value
(RAROC)
Value
Proposition
Team Advantage
Financial
Implications

 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

 Sources
› Single stream
› Multiple stream
› Interdependent
› Loss leader
 Models
› Subscription/membership
› Unit based
› Advertising
› Licensing
› Transaction fee

 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

 Maximum financing need
 Timing of cash flow breakeven
 Timing to positive cash flow

 Identify the business factors with the
greatest impact on the cash flows
› An anticipatory business scorecard

 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

 Minimum cash balance
 Sales forecast
 Cash receipts forecast
 Cash disbursements forecast
 Ending cash balance

 Three scenario approach (results in three
cash budgets)
› Optimistic
› Realistic
› Pessimistic

 Cash budget must account for delays
between sales and collections (including
write-offs)

 Record disbursements in the month of
payment, not when the obligation is
incurred

 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

 Never do anything that is not fun at least
80% of the time!

Buissness model analysis

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Buissness model analysis