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