Business model analysis

Business model analysis

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Description: The business model is the managerís logic that will allow a venture to: Capture the market opportunity, Mitigate risks, Identify the required resource set, and Create value for investors and founders. Business Models v. Business Strategy: The business model bridges idea and action, It answers the question of why a venture will be viable and valuable, Business models relate to business strategy as logic relates to the algorithm.

Business Models v. Business Plans: The business model is not burdened with the ďhowĒ questions, These are resolved by the strategic plan.

 
Author: Glenn A. Okun  | Visits: 350 | Page Views: 505
Domain:  Business Category: Entrepreneurial 
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Short URL: https://www.wesrch.com/business/pdfBU1QYB000EFTA
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Contents:
Business Model Analysis
Professor Glenn A. Okun
NYU Stern School of Business
gokun@stern.nyu.edu

The venture design process

Business Model Defined
• The business model is the manager’s logic
that will allow a venture to:
– Capture the market opportunity;
– Mitigate risks;
– Identify the required resource set; and
– Create value for investors and founders.

Business Models v.
Business Strategy
• The business model bridges idea and
action.
• It answers the question of why a venture
will be viable and valuable.
• Business models relate to business
strategy as logic relates to the algorithm.

Business Models v. Business Plans
• The business model is not burdened with
the “how” questions.
• These are resolved by the strategic plan.

Business Model Formation
• Business models are formed through a process
of addressing a series of questions:







What is the value proposition?
What are the target markets?
Who are the critical members of the team?
Where does competitive advantage exist?
Why is there a competitive advantage?
When will development, launch and cash flow
breakeven occur?

From Business Model to Financial
Model
Value
Proposition

Team

Advantage

Financial
Implications

Analysis

Market
Segmentation

Core Competency

Internal &
External Analysis

Pro Forma
Analysis

Data

Price
Units
Timing

Expenses

Expenses

Capital
Budgeting &
Cash Flow
Assumptions

Conclusions

Risk (k)

Risk (k)

Risk (k)

Viability &
Value
(RAROC)

Business Model Analysis
• Facets of analysis
– Revenues
• Cash flows and their timing
• Revenue drivers

– Expenses
• Cash flows and their timing

– Investment required through cash flow breakeven
• Working capital

– Maximum financing required and cash flow breakeven
timing
– Sensitivity analysis
• Key success factors

Revenue Analysis
• Sources





Single stream
Multiple stream
Interdependent
Loss leader

• Models






Subscription/membership
Unit based
Advertising
Licensing
Transaction fee

Expense Analysis
• Cost structures
– Payroll
• Direct
• Indirect

– Inventory
– Location
– Marketing

• Cost drivers
– Fixed, variable or semi-variable
– Scale of fixed cost base
– Anticipated changes to cost drivers

Investment Analysis
• Maximum financing need
• Timing of cash flow breakeven
• Timing to positive cash flow

Success Factor Analysis
• Identify the business factors with the
greatest impact on the cash flows
– An anticipatory business scorecard

Building a Financial Plan
• Sales forecast
– Two to three years
– Detailed assumptions
• Sales per customer
• Number of customers
• Sales growth rate

• Cost forecast
– Costs of operating and costs per sale

• Income statement and balance sheet
– a/r, a/p

• Cash flow forecast
• Summary statement of sources & uses of cash

Cash Budgeting






Minimum cash balance
Sales forecast
Cash receipts forecast
Cash disbursements forecast
Ending cash balance

Sales forecast
• Three scenario approach (results in three
cash budgets)
– Optimistic
– Realistic
– Pessimistic

Cash receipts forecast
• Cash budget must account for delays
between sales and collections (including
write-offs)

Cash disbursements forecast
• Record disbursements in the month of
payment, not when the obligation is
incurred

Building a Financial Plan
• Sales forecast
– Two to three years
– Detailed assumptions
• Sales per customer
• Number of customers
• Sales growth rate

• Cost forecast
– Costs of operating and costs per sale

• Income statement and balance sheet
– a/r, a/p

• Cash flow forecast
• Summary statement of sources & uses of cash

Cash Flow Calculation














Net income
+ depreciation
working capital from operations
- net increase in current assets
+ net increase in current liabilities
cash flow from operations
- net increase in gross fixed assets
+ net increase in debt & equity invested
- dividends paid
net cash flow
+ beginning cash balance
- required ending cash balance
net cash surplus or borrowing required

Okun’s Law
• Never do anything that is not fun at least
80% of the time!