Business Model Analysis for the Entrepreneur

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Business Model Analysisfor the Entrepreneur
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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
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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
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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

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Using The Business ModelTo Drive A Forecast

• Play out the business model over time, looking at
  PL and cash flow
• How much cash is required to get the business to
  cash flow breakeven

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The Cash Flow Cycle For A Venture
Cumulative Cash Flow in
Time
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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
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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
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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
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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