BOLD THINKING

ROBERT H. HACKER
CINCINNATI, OH
OCTOBER 24-25, 2009
 M O R N IN G T H E M E S
1.DEVELOPING A BUSINESS CONCEPT
2.NUMBERS & INFORMATION
3.BUSINESS MODEL
4.CAPITAL REQUIREMENTS
5.TESTING CAPITAL EFFICIENCY,
RETURNS AND MARKET
OPPORTUNITY
BUSINESS MODEL
BUSINESS MODEL
 BUSINESS MODEL

• REVENUE MODEL (GROWTH

DRIVERSS)
• PRICE MODEL
• SALES & DISTRIBUTION
• CAPEX
• HEADCOUNT
THE PROCESS
 NUMBERS TALK !
 When you can measure what
you are speaking about, and
express it in numbers, you
know something about it; but
when you cannot measure
it, when you cannot express
it in numbers, your
knowledge is of a meager
and unsatisfactory kind: it
may be the beginning of
knowledge, but you have
scarcely, in your thoughts,
advanced to the state of
science
- Lord Kelvin
 BUSINESS MODEL

• REVENUE MODEL
• PRICE MODEL
• SALES &DISTRIBUTION
• CAPEX
• HEADCOUNT
 WHAT IS GROWTH?

• Sales increases improve productivity

with no increase in resources (not
sustainable)
• Growth requires the addition of
significant resources (sales people,
locations, “capacity”) and initially
reduces productivity
• Growth drivers determine where the
additional resources are required
F O C U S O F T H E B U S IN E S S
M O D EL
• BUSINESS MODEL--WHAT DRIVES THE
BUSINESS AND CREATES THE GROWTH


SANDS
 BUSINESS MODEL LOGIC


• GROWTH DRIVERS EXPLAIN

BUSINESS MODEL


• REVENUE ASSUMPTIONS
EXPLAIN GROWTH DRIVERS
–

 REVENUE ASSUMPTIONS
1.DEMONSTRATE HOW TO REACH
THE CUSTOMER
2.DEMONSTRATE KNOWLEDGE OF
THE BUSINESS/INDUSTRY
3.MAKE IT EASY TO CONFIRM
BUSINESS LOGIC AND DETAIL
4.REINFORCE BUSINESS MODEL
5.HIGHLIGHT BUSINESS RISKS

 REVENUE ASSUMPTIONS
IN DETAIL

Assumptions J anuary-07 February-07March-07 April-07 May-07 J une-07

Revenue
Applications Processed 240 240 240 240 240 480
%Approved 85% 85% 85% 85% 85% 85%
Applications Approved 204 204 204 204 204 408
Fee Per Application $ 45 45 45 45 45 45
Application Revenue $ 9,180 9,180 9,180 9,180 9,180 18,360
 REVENUE ASSUMPTIONS
IN DETAIL

Assumptions January-07 February-07 March-07 April-07 May-07 June-07

Revenue
Total Locations Available 37 37 37 37 37 37
% Locations Awarded 15% 15% 15% 15% 15% 15%
Locations Awarded 1 1 1 1 1 2
Coordinators perLocation 3 3 3 3 3 3
Applications Proc./Coordinator 80 80 80 80 80 80
Applications Processed 240 240 240 240 240 480
%Approved 85% 85% 85% 85% 85% 85%
Applications Approved 204 204 204 204 204 408
Fee Per Application $ 45 45 45 45 45 45
Application Revenue $ 9,180 9,180 9,180 9,180 9,180 18,360
 REVENUE ASSUMPTIONS
IN DETAIL
Assumptions Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07
Revenue
Total Locations Available 37 37 37 37 37 37
% Locations Awarded 15% 15% 15% 15% 15% 15%
Locations Awarded 6 6 6 6 6 6
Locations Operating 1 1 1 1 1 2
Visitors Per Location per Month 50,000 50,000 50,000 50,000 50,000 100,000
Customers % 0.07 0.07 0.07 0.07 0.07 0.07
Customers 3,500 3,500 3,500 3,500 3,500 7,000
Coordinators per Location 30 30 30 30 30 60
App. Proc./Coordinator 80 80 80 80 80 80
Applications Processed 2,400 2,400 2,400 2,400 2,400 4,800
%Approved 85% 85% 85% 85% 85% 85%
Applications Approved 2,040 2,040 2,040 2,040 2,040 4,080
FeePer Application $ 45 45 45 45 45 45
Application Revenue$ 91,800 91,800 91,800 91,800 91,800 183,600
REVENUE MODEL
SPECIFIC COSTS
REVENUE MODEL
SPECIFIC COSTS
15 - PRICING MODELS
 4 KEY CONCEPTS
• CUSTOMER NEED
• VALUE PROPOSITION
• DIFFERENTIAL ADVANTAGE
• CUSTOMER ACQUISITION COST
 SALES AND DISTRIBUTION
• NOT TAUGHT IN SCHOOLS
• SO WE IGNORE IT
• SO WE FAIL!!
 SALES STRATEGY
•
• CUSTOMER ACQUISITION=SALES
• SALES NOT MARKETING
• CUSTOMER ACQUISITION COST NOT
MARKETING
• NOT MARKETING!
 SALES STRATEGY
•
• CUSTOMER ACQUISITION COST NOT
MARKETING
• LIFETIME VALUE OF CUSTOMER
GUIDES CUSTOMER ACQUISITION
COST
• ROI DETERMINES CUSTOMER
ACQUISITION COST (MINIMUM 25%)
CAC
CAC
CAC MODEL
 DISTRIBUTION STRATEGY
• PHYSICAL DELIVERY OF GOODS OR
SERVICES
• WEB SERVICES/TELECOM/SOCIAL
MEDIA HAVE PHYSICAL
COMPONENT—IT INFRASTRUCTURE
• DISTRIBUTION CONSTRAINTS KILL
BUSINESSES
 BUSINESS MODEL SUMMARY


1 2
Sales People 3 10
Revenue/Sales PersonAnnualized 1,500,000 1,200,
Sales PersonEBITDA Contribution 450,000 330,

Revenue 1,200,000 7,200,

Gross Margin$ 480,000 3,024,
Gross Margin% 40%

OperatingExpense 900,000 2,700,

 BUSINESS MODEL SUMMARY
BETTER

1 2
Sales People 3 10
Revenue/Sales PersonAnnualized 1,500,000 1,200,
Sales PersonEBITDA Contribution 450,000 330,

Revenue 1,200,000 7,200,

Gross Margin$ 480,000 3,024,
Gross Margin% 40%

OperatingExpense 900,000 2,700,

 BUSINESS MODEL SUMMARY
BEST

1 2
Sales People 3 10
Revenue/Sales PersonAnnualized 1,500,000 1,200,
Sales PersonEBITDA Contribution 450,000 330,

Revenue 1,200,000 7,200,

Gross Margin$ 480,000 3,024,
Gross Margin% 40%

OperatingExpense 900,000 2,700,

 WILL -- IN CLOSING
 Sure signs of a thoughtful
management team are:

• The ability of the

management team to
articulate the material
business drivers in the
model
• To test the impact of the
variables on material
financial metrics
• To sanity check the
assumptions with
market comps - i.e. not to
base the business on a W ill P rice H u m m e r W in b la d
black swan outcome April 24, 2007
http://willprice.blogspot.com

• To focus the management

team and company KPIs
http://willprice.blogspot.com
SOURCES AND USES
 CLOSING COMMENTS


 Plans are useless, but

planning is
indispensable.
 Dwight Eisenhower
 REFERENCE MATERIAL
•
• http://faculty.fuqua.duke.edu/~pecklund/ExcelReview/ExcelRe
• http://SOPHISTICATEDFINANCE.TYPEPAD.COM



MY CONTACTS AND
ON - LINE RESOURCES


ROBERT H. HACKER
rhhfla@mindspring.com

305-742-8222

•
After here slides are just
backup
 SOURCES OF
STARTUP CAPITAL

TYPES OF CAPITAL P
BANK DEBT CHEAP
DEEP POC
NO EXIT I
FRIENDS &FAMILY CHEAP
NO BUSIN
 HOW MUCH MONEY TO RAISE

Year 1 Y
R evenue 1 , 0 0 0 , 0 0 03
E B IT D A (7 5 0 ,0 0 0 )
C a p ita l R e q u ir e d ( 1 , 0 0 0 , 0 0 0(
C u s h io n ( 5 0 0 , 0 0 0 ()
T o ta l C a p ita l ( 1 , 5 0 0 , 0 0( 01
HOW MUCH MONEY TO RAISE

•“INFLECTION POINTS”
•EBITDA > 0
•AMOUNT INVESTOR WANTS TO INVEST
•STAGED INVESTMENT
CAPITAL EFFICIENCY
 CAPITAL CALCULATOR
• S=IxR/ExMxO


S=SALES YEAR 5
I= INVESTOR AMOUNT

R=INVESTOR RETURN (MULTIPLE OF

INVESTMENT)
E=EBITDA %

M=EXIT MULTIPLE

O=INVESTOR OWNERSHIP


 GREAT MINDS THINK ALIKE

 A standard part of
the investment
process is to
identify a business
model's key
variables and to
generate scenarios
that test their
W ill P rice H u m m e r W in b la d
impact on revenue April 24, 2007
and cash. http://willprice.blogspot.com