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Business Model Analysis for the Entrepreneur

Business Model Analysis for the Entrepreneur. Business Models. 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

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Business Model Analysis for the Entrepreneur

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  1. Business Model Analysisfor the Entrepreneur

  2. Business Models • 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

  3. Draw the business model Driver 1 Driver 1 Driver 2 Driver 3 Revenues Driver 2 Driver 3 Cash Profits 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 Driver 1 Costs Driver 2 Driver 3

  4. 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

  5. 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

  6. Date of First Cash Flow Positive Date of Cash Breakeven Maximum Financing Needs Burn Rate The Cash Flow Cycle For A Venture CumulativeCash Flow in $ Time

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

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

  9. Square Footage/Store Price/Square Foot Advertising Cost/Store Company-wide Spend Exhibit 2: Fishbone DiagramFor 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 Payroll Employees/Store Daily Wage/Employee Facilities Marketing/ Advertising

  10. Exhibit 4: Cumulative Cash Flow DiagramsFor Two Hypothetical Medical Device Ventures Cumulative Cash Flow ($) Medical Devices Company Giving Away Instrument Time Medical Devices Company Selling Instrument

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