- 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 | | | | - Internal & External Analysis
| | | | | | | - Capital Budgeting & Cash Flow Assumptions
| | | | | | - 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
- Maximum financing required and cash flow breakeven timing
- Sensitivity analysis
Revenue Analysis - Sources
- Single stream
- Multiple stream
- Interdependent
- Loss leader
- Models
- Subscription/membership
- Unit based
- Advertising
- Licensing
- Transaction fee
Expense Analysis - Cost structures
- Payroll
- Inventory
- Location
- Marketing
- Cost drivers
- Fixed, variable or semi-variable
- Scale of fixed cost base
- Anticipated changes to cost drivers
-
Investment Analysis 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
- Cost forecast
- Income statement and balance sheet
- 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 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
- 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!
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