Business Model Analysisfor the Entrepreneur

Presented by : Group no.4

Manish BalwaniSunil PrajapatAshish Kothari

Prateek SaratheSaket Singhai

Mayank Bhalodia

Few questions in mind of an entrepreneur…

How Likely is the business to turn cashflow positive ? How much time is required to ramp-up the revenue in

order to turn cash flow positive ? How large an investment is required to pursue the

business model ? What are the critical success factors and associated risks ?

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

Analyzing the Business Model

Determine revenues, timing and key drivers Determine costs/expenses, timing and disaggregate

cost data into discrete cost drivers Determine total investment to achieve positive cash

flow Plot cash flow versus time to generate a cash curve Systematic sensitivity analysis to identify critical

success factors

Revenue Sources

Single Stream

Multiple streams

Interdepedent

Loss leader

Revenue models

Subscription/Membership

Volume or unit based

Advertising based

Licensing and syndication

Transaction fee

Revenue model analysis

Revenue streams

Revenue model

Case Example - 1

Cost drivers

FixedSemi-variableVariableNon-recurring

Cost structures

Payroll centered (Direct)Payroll centered (Support) InventorySpace/RentMarketing/Advertising

Using The Business ModelTo 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

Cost driver analysis

Cost Driver

Cost centre

Case Example - 2

Investment size

The total investment size of a business model depends on several factors including the company’s revenue model cost drivers and critical success factors.

Basis of evaluation of a cash flow diagram

Maximum financing needs

Positive cash flow

Cash breakeven

Examples of types of business models

Software

Retail

Small consulting firm

Case Example - 3

Critical success factors

It is an operational function or competency that a company must possess in order for it to be sustainable and profitable.

Study of revenue models

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

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

Cumulative Cash Flow in $

Time

Exhibit 3 :The Cash Flow Cycle For A Venture

Burn Rate

Date of First Cash Flow Positive

Maximum Financing Needs

Date of Cash Breakeven

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

Conclusion

Thank you