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Start-UpFinancialsWheredowegetthenumbers?
ReadF.Wakefield,MBAPresident
BusinessLa8tudes©2017
Cell:440-823-8574un8lMidnight
Start-upCapitalCosts $250,000Business
Concept, LLC AddiAonalWorkingCapital $200,000
FiscalYearEnding 2018 2019 2020
Salesgrowth 88% 53%
Sales $1,990,000 $3,750,000 $5,740,000
CGS%ofSales 50% 49% 48%
CostofGoodsSold $995,000 $1,840,000 $2,760,000
GrossProfit $995,000 $1,910,000 $2,980,000
OpExp%ofSales 46% 34% 30%
Opera8ngExpenses $915,000 $1,275,000 $1,722,000
Earnings $80,000 $635,000 $1,258,000 Earnings/Sales 4.0% 16.9% 21.9%
RevenueStreams
1 2
3
4
5
6
7 8
9RevenueStreamsresultfromvalueproposiAonssuccessfullyofferedtocustomers.Osterwalder&Pigneur2010
WhoistheCustomer?
“Thecustomerisalwaystheonewhopaysyou.”“Clearly,itisimportant…tounderstandboththecustomersandtheend-users.”
KathleenR.Allen2009
CustomerDevelopmentProcess
SEARCH
CustomerDiscovery
CustomerValidaAon
PIVOTSPIVOTSareasubstanAvechangetooneormorebusinessmodelcomponents.ITERATIONSareaminorchangetooneormorebusinessmodelcomponents.
SteveBlank2013
CustomerSegments“TheMarket”
CustomerGroupsrepresentseparatesegmentsif:• Theirneedsrequireandjus8fyadis8nctoffer.• TheyarereachedthroughdifferentDistribu8onChannels.
• Theyrequiredifferenttypesofrela8onships.• Theyhavesubstan8allydifferentprofitabili8es.• Thearewillingtopayfordifferentaspectsoftheoffer.
Osterwalder&Pigneur2010
Howbigisthisopportunity?MarketAnalysis
• Whatisthesizeofthemarket?– NorthAmericanIndustryClassifica8onSystem(NAICS)
hgp://www.census.gov/cgi-bin/sssd/naics/naicsrch?chart=2012
– 2012*or2007EconomicCensusdata:#Establishments,sales,geographyhgp://www.census.gov/econ/
• Isthemarketgrowing,flatordeclining?– Comparethe2012*,2007and2002EconomicCensusdatahgps://www.census.gov/programs-surveys/economic-census/year.2007.html
SteveBlank2013
TotalAvailableMarketIndustryAnalysis
• IndustryandCompe8torAnalysis(College&UniversityLibraryResources):
• BusinessSourceComplete• Gartner• Forrester• IBISWorld• PublicCompanyResearchReports• PublicCompanySECFilingshgp://www.sec.gov/edgar/searchedgar/companysearch.html
SteveBlank2013
HowBigisMyMarketSlice?
• ServedAvailableMarket:– Howmanypeopleneed/canusetheproductand/orservice?
– Howmanyhavethemoneytobuy?– Understandthepaymentsandunitsofsales.
• Requiresprimaryresearchbytalkingtocustomersandcompe8tors.
SteveBlank2013
PhysicalDistribuAonChannels
Sells@$19.95
RawMaterials/Supplies
Manufacturer WholesaleDistributor Retailer
Consumer/EndUser
AgentorManufacturer’sRepresentaAve
Sells@$4
Sells@$6
Sells@$10
Commission
Figure4.3KathleenR.Allen2013
DISINTERMEDIATIONPhysicalChannelInnovaAon
Sells@$18.95
RawMaterials/Supplies
Manufacturer WholesaleDistributor
Consumer/EndUser
AgentorManufacturer’sRepresentaAve
Sells@$4
Sells@$6
Commission
Figure4.3KathleenR.Allen2013
DISINTERMEDIATIONVirtualChannelInnovaAon
Sells@$19.95
RawMaterials/Supplies
Manufacturer WholesaleDistributor Retailer
Consumer/EndUser
AgentorManufacturer’sRepresentaAve
Sells@$4
Figure4.3KathleenR.Allen2013
CanyouinnovatewithintheDistribuAonChannel?
RevenueStreams
• Forwhatvaluearecustomersreallywillingtopay?• Forwhatdotheycurrentlypay?• Howaretheycurrentlypaying?• Howwouldtheyprefertopay?• Howmuchdoeseachrevenuestreamcontributetooverallrevenues?
Osterwalder&Pigneur2010
RevenueModelsaretheStrategyRequiresprimaryresearchbytalkingtocustomers.
REVENUETYPES:• AssetSale• UsageFee• Subscrip8onFee• Lending/Ren8ng/Leasing• Licensing• BrokerageFee• Adver8sing
Osterwalder&Pigneur2010&SteveBlank2013
PricingistheTacAcsRequiresprimaryresearchbytalkingtocustomers.
FIXEDPRICING:• ListPrice(e.g.,costplus)• ProductFeatureDependent• CustomerSegment
Dependent• VolumeDependent
DYNAMICPRICING:• Nego8a8on(bargaining)• YieldManagement• Real-TimeMarkets
Osterwalder&Pigneur2010andSteveBlank2013
3CommonRevenueForecasAngMistakes
• TheLinearForecastMistake
• TheHockeyS8ckForecastMistake
• The20/80versus80/20Mistake (Spendingonly20%of8meontherevenueforecastand80%on
expenses.)
Cornwall,Hartman&Vang2013
TheGrowthCurveRevenueModelCUSTOMERS,UNITSorSALES
Wachtler2005
YEARSl l l l l l l l
CostStructure
1 2
3
4
5
6
7 8
9TheCostStructuredescribesallcostsincurredtooperatethebusinessmodel.Osterwalder&Pigneur2010
IdenAfyingStart-UpResourceRequirements
• Start-upresourcesinclude:– People(foundingteam,employees,advisors,independentcontractors).
– Physicalassets(equipment,inventory,officeorplantspace).
– Financialresources(cash,equity,debt).• Bootstrapping
– Minimizingresourcestokeeplowoverhead.– Crea8nginnova8vecombina8onsofresourcestogeneratecompe88veadvantageandwealth.
KathleenR.Allen2013
StepsinCalculaAngStart-UpCapitalRequirements
Figure8.1
KathleenR.Allen2013
ConstrucAngaBusinessProcessMap
• Ques8onstoanswer:– Whodoestheworkinthisbusiness?– Wheredothesepeoplework?– Whatdotheyneedtodothework?– Whatinforma8onisbeinggenerated?– Wheredoesthatinforma8ongo?– Howmuchdotheseresourcescost?
KathleenR.Allen2013
EsAmatedCosts
• CostofGoodsSold– MaterialCosts(variable)– DirectLabor(variable)– IndirectLabor(fixed)– Overhead(fixed)
EsAmatedOperaAngExpensesSelling,General&Administra8ve
• Marke8ng&SellingExpenses– Website,Adver8sing,Promo8ons,Literature,TradeShows– Salaries,Commissions,Travel
• Research&DevelopmentExpenses• Administra8veExpenses– Payroll,Benefits,Taxes,Rent,U8li8es,Supplies,EquipmentLeases,Insurance,BankFees,CreditCardFees,Shipping,Maintenance,Legal&Accoun8ng
BreakevenAnalysis
.
Cornwall,Hartman&Vang2013
FixedCosts=__________________________________________
(Priceperunit–VariableCostperunit)
“Breakeven Quantity is not an optimum, it is a minimum.”
BreakevenQuanAty
BreakevenSales= BEQxPriceperunit
BreakevenQuanAty
FixedCosts=________________________________________
ContribuAonMargin
Addi8onalWorkingCapital
CoverPre-LaunchStart-UpCostsFundingInventoryandAccountsReceivableCumula8veNega8veCashFlowun8lBreakevenCon8ngencyFactorforaSafetyMargin
Wachtler2005
Start-UpCapitalCosts $250,000Business
Concept, LLC AddiAonalWorkingCapital $200,000
FiscalYearEnding 2018 2019 2020
Salesgrowth 88% 53%
Sales $1,990,000 $3,750,000 $5,740,000
CGS%ofSales 50% 49% 48%
CostofGoodsSold $995,000 $1,840,000 $2,760,000
GrossProfit $995,000 $1,910,000 $2,980,000
OpExp%ofSales 46% 34% 30%
Opera8ngExpenses $915,000 $1,275,000 $1,722,000
Earnings $80,000 $635,000 $1,258,000 Earnings/Sales 4.0% 16.9% 21.9%
References• Allen,KathleenR.(2009),LaunchingNewVentures:AnEntrepreneurialApproach,
FiphEdiAon,Mason,Ohio:South-Western,CengageLearning• Allen,KathleenR.(2012),LaunchingNewVentures:AnEntrepreneurialApproach,
SixthEdiAon,Mason,Ohio:South-Western,CengageLearning• Blank,Steve(2013),hgp://steveblank.com/tools-and-blogs-for-entrepreneurs/
FreeLeanLaunchPadClass,hgps://www.udacity.com/wiki/ep245/downloads• Blank,SteveandDorf,Bob,(2012),TheStartupOwner’sManualVol.1™,Pescadero,
California:KandSRanch,Inc.• Cornwall,JeffreyR.,Hartman,JeanM.andVang,DavidO.(2013),Entrepreneurial
FinancialManagement:AnAppliedApproach,2ndEdiFon,Armonk,NewYork:M.E.Sharpe,Inc.
• Osterwalder,Alexander&Pigneur,Yves(2010),BusinessModelGeneraFon,Hoboken,NewJersey,JohnWiley&Sons
• Wachtler,Paul(2005),Lecture:“BusinessPlanning,MarketAnalysisandPitchingInvestors”,www.prendismo.com