Business Models MGT 709 New Venture Creation. Business Model Analysis (Hammermesh) A business model...
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Transcript of Business Models MGT 709 New Venture Creation. Business Model Analysis (Hammermesh) A business model...
Business ModelsBusiness ModelsMGT 709 New Venture CreationMGT 709 New Venture Creation
Business Model AnalysisBusiness Model Analysis(Hammermesh)(Hammermesh)
A business model is a “profit engine” or A business model is a “profit engine” or cash generating machinecash generating machine Revenue driversRevenue drivers Cost driversCost drivers Investment sizeInvestment size Critical success factorsCritical success factors
Also think about:Also think about: Value creation/capture/protectionValue creation/capture/protection
Economics of One Unit (EOU)Economics of One Unit (EOU)
Take one unit (can be a good or service)Take one unit (can be a good or service) Selling price per unitSelling price per unit lessless Cost Of Goods Sold per unit Cost Of Goods Sold per unit
MaterialsMaterials LaborLabor
=Gross Profit per unit=Gross Profit per unit
Can you drill down and defend your Can you drill down and defend your assumptions?assumptions?
RevenueRevenue TypesTypes
Single stream, multiple streams, interdependent, loss Single stream, multiple streams, interdependent, loss leaderleader
ModelsModels Subscription (gym, magazine)Subscription (gym, magazine) Volume or unit-based (typical retail)Volume or unit-based (typical retail) Advertising-based (google, TV)Advertising-based (google, TV) Licensing/syndication (biotech)Licensing/syndication (biotech) Transaction fee (realtors, brokers)Transaction fee (realtors, brokers)
Fishbone modelFishbone model
Fishbone Revenue ModelFishbone Revenue Model
COBRevenue
Tuition
Endowments
Grants
Rate of return
Size of endowments
Avg. tuition rate
# of students
Student mix
Executive education
Curriculum
Reputation
Grant applications
Quality of faculty
CostsCosts
TypesTypes Fixed, variable, semi-variable, non-recurringFixed, variable, semi-variable, non-recurring
StructuresStructures Payroll-centered (direct)Payroll-centered (direct) Payroll-centered (support)Payroll-centered (support) InventoryInventory Space/rentSpace/rent Marketing/advertisingMarketing/advertising
Fishbone Cost ModelFishbone Cost Model
COBExpenses
Faculty Salaries (80%)
Support Salaries (10%)
Operating Expenses
(10%)
# of faculty Productivity
# of staff
Salary rates
Teaching resources
Research resources
Market rates
Support ratio
Faculty mix
Investment SizeInvestment Size
Maximum financing needs (lowest point)Maximum financing needs (lowest point) Positive cash flowPositive cash flow Cash breakevenCash breakeven Cash flow diagram is useful Cash flow diagram is useful
cash balance over timecash balance over time
Cash is needed for infrastructure, salary, Cash is needed for infrastructure, salary, inventories etc.inventories etc.
Critical success factorsCritical success factors
Which factors have the greatest impact on Which factors have the greatest impact on profitability?profitability?
Sensitivity analysisSensitivity analysis
Discovery Driven PlanningDiscovery Driven Planning(McGrath)(McGrath)
The Reverse Income StatementThe Reverse Income Statement Total Figures Total Figures
Required profits to add 10% to total profits = $4mRequired profits to add 10% to total profits = $4m Necessary revenues on 10% net profit margin = $40mNecessary revenues on 10% net profit margin = $40m Allowable costs to deliver 10% sales margin = $36mAllowable costs to deliver 10% sales margin = $36m
Per Unit Figures Per Unit Figures Required unit sales at $160 per unit = 250,000 unitsRequired unit sales at $160 per unit = 250,000 units Necessary percentage of world market share of OEM Necessary percentage of world market share of OEM
unit sales = 25% unit sales = 25% Allowable costs per unit for 10% sales margin: $144Allowable costs per unit for 10% sales margin: $144
Building assumptionsBuilding assumptions
Assumption Measurement1. Profit margin 10% of sales2. Revenues $40 million3. Unit selling price $160 4. Size of OEM market 1 million drives5. Fixed asset investment to sales 1:16. Effective production capacity per line 25 drives per minute7. Effective life of equipment 3 years8. Average OEM order size 100 drives9. Sales calls per OEM order 4 calls per order10. Sales calls per salesperson per day 2 calls per day11. Selling days per year 250 days12. Annual salesperson's salary $ 100,000 13. Containers required per order 1 container14. Shipping cost per container $10,000
15. Quality level needed 50% fewer flaws
16. Production days per year 348 days17. Workers per production line per day 30 per line18. Annual manufacturing worker's salary $50,000 19. Materials costs per disk $20 20. Packaging costs per 10 disks $40
Revisit Income StatementRevisit Income Statement
Allowable costsAllowable costs Sales-force salaries $2.0 millionSales-force salaries $2.0 million Manufacturing salaries $3.0 millionManufacturing salaries $3.0 million Disk materials $5.0 million yen Disk materials $5.0 million yen Packaging $1.0 millionPackaging $1.0 million Shipping $2.5 millionShipping $2.5 million Depreciation 13.3 million Depreciation 13.3 million Allowable administration and overhead costs Allowable administration and overhead costs
$9.2 million yen$9.2 million yen
MilestonesMilestones
Each milestone allows for sets of Each milestone allows for sets of assumptions to be tested and adjusted.assumptions to be tested and adjusted. Stage 1: Preliminary – salaries, shipping costs, Stage 1: Preliminary – salaries, shipping costs,
market size, competitor pricesmarket size, competitor prices Stage 2: Prototyping – materials costs, Stage 2: Prototyping – materials costs,
customer feedback on quality/featurescustomer feedback on quality/features Stage 3: Beta testing – price/qualityStage 3: Beta testing – price/quality Stage 4: Production – sales/production metricsStage 4: Production – sales/production metrics
Expectations for Feasibility Expectations for Feasibility PresentationsPresentations
Exercise 3 (p. 178)Exercise 3 (p. 178) Exercise 4 (p. 184)Exercise 4 (p. 184)
Case StudyCase Study
ZipcarZipcar