Business Model Analysis for the Entrepreneur 1 Andy

Business Model Analysis for the Entrepreneur 1 Andy Guo

Business Models l l 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: w w Revenue sources Cost drivers Investment size Critical success factors Source: A Note on Business Model Analysis for the Entrepreneur 2 HBS Note N 9 -802 -048 Andy Guo

Draw The Business Model Driver 1 Revenues Driver 2 Driver 3 Cash Profits Driver 1 Costs 3 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 Andy Guo

Analyzing the Business Model l l 4 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 Andy Guo

Using The Business Model to Drive a Forecast l l 5 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 Andy Guo

The Cash Flow Cycle for a Venture Cumulative Cash Flow in $ Date of First Cash Flow Positive Time Date of Cash Breakeven Maximum Financing Needs Burn Rate 6 Andy Guo

Business Model Analysis Framework Inputs Recipe Target Outputs How Output Valued People Revenues Customer Base Money Profits Business Model Intellectual Capital Value Creation via Market Opportunity • IPO License Revenues • Merger/ Acquisition Cash Flow • Dividend Stream Intellectual Property Physical Assets 7 Andy Guo

Exhibit 1: Fishbone Diagram for The Grateful Dead Revenue Model Concert Revenue Total Revenue Merchandise Revenue # Concerts # Tickets Revenue/Concert Price/Ticket # Concerts # Attendees Revenue/Concert Revenue/Attendee Recording Revenue Albums Recorded # Albums Sold Revenue/Album 8 Andy Guo

Exhibit 2: Fishbone Diagram for Seven-Eleven Japan Cost Structure Price/SKU Cost of Goods Sold # of Suppliers Inventory Turns Development Costs Information Technology Implementation Costs Maintenance Total Cost Head Office Payroll Employees/Store Daily Wage/Employee Square Footage/Store Facilities Price/Square Foot Marketing/ Advertising 9 Advertising Cost/Store Company-wide Spend Andy Guo

Exhibit 4: Cumulative Cash Flow Diagrams for Two Hypothetical Medical Device Ventures Cumulative Cash Flow ($) Medical Devices Company Giving Away Instrument Time Medical Devices Company Selling Instrument 10 Andy Guo