technology ventures: from idea to enterprisechapter 16: summary summary how will a new venture...

Technology Ventures: From Idea to EnterpriseChapter 16: Summary

Summary

How will a new venture generate revenue and achieve positive cash flow?

The revenue and profit engines show how the firm will create powerful value for its customers and customers will enable the new firm to profit. Managing revenue growth is important. Also a firm needs a plan to harvest the benefits of its growing venture.

Profit is the product of labor plus capital multiplied by management. You can hire the first two. The last must be inspired.

Fost

Profit and HarvestProfit and Harvest

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*sales model – describing how to generate revenues from customers, then, determine cost model, and how to generate profits from its revenues.

Chapter 16: Table 16.1

Revenue Model: describes how the firm will generate revenues.

Five Revenue Models

Sales Product Model

Subscription (Member) Fee Model

Advertising Revenue Model

Transaction Fee Revenue Model

Affiliate Revenue Model


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Technology Ventures: From Idea to Enterprise

A firm’s revenues are its sales after deducting all returns, rebates, and discounts.

Models for generating revenues.

e.g.Visa, ebay

e.g. “Redirecting” to amazon

Technology Ventures: From Idea to OpportunityChapter 16

Cost Model: describes the factors that affect total firm costs

Four types of cost drivers

Fixed

Variable

Semivariable

Nonrecurring


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Chapter 16: Figure 16.1

Profit Model: the mechanism a firm uses to reap profits from its revenues.

The Value of A Product and Profit

Profit

Cost

Net Value Captured by the Customers

Value of Product to

the Customers

Profit and HarvestProfit and Harvest1616


Profit is the net return after subtracting the costs from the revenues.

Must examine all activities on the

value chain.


Business Model and Strategy

Plans

Resources and Competencies

Innovation

Operations and Processes

Products

Revenue Model

Revenues

Profit Model

Profits and Cash Flow

The Revenue and Profit* Flows from the Firm's Operations


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* The revenue and profit engine.

The best conditions for profit occur when the perceived valued value of a product to a customer is high and the cost to produce the product is low.

The early losses of a successful startup turn profitable after a time T.


Nine Types of Profit Models


Where: PM = profit-to-sales ratioL = debt-to-equity ratioT = the ratio of total assets to sales.

If a start-up firm has no debt (L=0), we have

Chapter 16

)]1([

)1(

LPMT

LPM

S

S

Sustainable Growth

PMT

PM

S

S


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Incentives for Growth

•Attracting Capital for Market Expansion

•Attracting Capable Team Members

•Economies of Scale

•Development of a Reputation and Brand

•Growing Profitability and Financial Rewards for Owners and Employees




Sales

Sales Growth

Rate (%)

Operating Profit Margin (%)

Volume

Economies of Scale

Operating Leverage

Price & Sales Mix

Operating Costs

Cost Efficiencies

Corporate Market Value

Investments

Investment Efficiencies

Incremental Investment Rate (%)

Causes Factors Drivers Market

Value Causes and Drivers of Market Value

Note: Operating Leverage =

ingmanufacturandtdevelopmenproductforCosts

MarginProfit


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Chapter 16: Harvest Plan

A harvest plan defines how and when the owners and investors will realize or attain an actual cash return on their investment.


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Five Methods of Harvesting The Wealth Created by a New Firm

•The Sale of the Firm to An Acquiring Firm

•The Sale of the Firm's Stock on A Public Market through An Initial Public Offering

•Issuance of Cash Dividends to the Owners and Investors

•The Sale of the Firm to the Managers and Employees

•Transfer the Firm through Gifts and Sales to Family Successors



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Chapter 16: Sunk Cost

Sunk Cost is a cost that has already been incurred and cannot be affected by any present or future decisions.


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Knowing when to stop or terminate…

e.g. Funds and time invested.

Chapter 16: Figure 16.7 – decision tree for sunk costs

A Decision Tree for the Sunk Cost Dilemma

Invest More

Time & Money

Continue

DecisionTotal Investmentin a New Venture which is failing to achieve positive cash flow Terminate

the Venture

Learn from the Experience and then consider new opportunities


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A new firm with a powerful revenue and profit engine and a reputation for ethical dealings can achieve strong but manageable growth leading to a favorable harvest of the wealth for the owners.

Chapter 16: Principle


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Chapter 16: Exercise

A new fuel cell has been designed for use in hybrid vehicles. Select a revenue and profit model and determine an achievable sales growth rate for no debt and a low profit margin PM=0.15 when T=1


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Chapter 16: Venture Challenge

VENTURE CHALLENGE1) Describe the revenue model of your venture.

2)Describe the profit model of your venture

3)Using table 16.7, discuss your harvest plan.


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Chapter 16: DVD Video

DVD Video

“Reducing Company Costs: PayPal and SpaceX”

Elon Musk (SpaceX)


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technology ventures: from idea to enterprisechapter 16: summary summary how will a new venture...

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