1 andy guo business model analysis for the entrepreneur
TRANSCRIPT
1 Andy Guo
Business Model Analysisfor the Entrepreneur
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A business model is the summation of the core business decisions and trade-offs employed by a company to earn a profit.
In general, these elements fall into four groups: Revenue sources Cost drivers Investment size Critical success factors
Source: A Note on Business Model Analysis for the Entrepreneur HBS Note N9-802-048
Business Models
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Cash Profits
Costs
Revenues
Driver 1
Driver 2
Driver 3
Driver 1
Driver 2
Driver 3
Driver 1
Driver 2
Driver 3
Using the tool 1. Draw the key drivers of revenue and cost 2. Identify key drivers and quantify assumptions 3. Test sensitivity to changes in key drivers 4. Identify Key Success Factors for monitoring
Draw The Business Model
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Analyzing the Business Model
Determine revenues, timing and key drivers Determine costs/expenses, timing and key underlying drivers Same for investment Determine the key unit of analysis: a customer / store / unit
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Using The Business Model to Drive a Forecast
Play out the business model over time, looking at P&L and cash flow
How much cash is required to get the business to cash flow breakeven
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Cumulative Cash Flow in $
Time
The Cash Flow Cycle for a Venture
Burn Rate
Date of First Cash Flow Positive
Maximum Financing Needs
Date of Cash Breakeven
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PhysicalAssets
People
Money
Business Model
Market Opportunity
Revenues
Customer Base
Profits
Cash Flow
Intellectual Property
Value Creation via
Inputs Recipe Target OutputsHow Output
Valued
Intellectual Capital
LicenseRevenues
•IPO
•Merger/ Acquisition
•Dividend Stream
Business Model Analysis Framework
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Exhibit 1: Fishbone Diagramfor The Grateful Dead Revenue Model
Total Revenue
ConcertRevenue
MerchandiseRevenue
RecordingRevenue
# Concerts
Revenue/Concert
Albums Recorded
Revenue/Album
# Concerts
Revenue/Concert
# Tickets
Price/Ticket
# Attendees
Revenue/Attendee
# Albums Sold
Revenue/Album
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Exhibit 2: Fishbone Diagramfor Seven-Eleven Japan Cost Structure
Total Cost
Cost of Goods Sold
InformationTechnology
Payroll
Facilities
Marketing/Advertising
Price/SKU
# of Suppliers
Inventory Turns
Development Costs
Implementation Costs
Maintenance
Head Office Payroll
Employees/Store
Daily Wage/Employee
Square Footage/Store
Price/Square Foot
Advertising Cost/Store
Company-wide Spend
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Cumulative Cash Flow ($)
Time
Medical Devices Company Giving Away Instrument
Medical Devices Company Selling Instrument
Exhibit 4: Cumulative Cash Flow Diagramsfor Two Hypothetical Medical Device Ventures