Defining and Validating the Businessgsm.ucdavis.edu/.../day_2.4_faea17_business_validation.pdfYour...
Transcript of Defining and Validating the Businessgsm.ucdavis.edu/.../day_2.4_faea17_business_validation.pdfYour...
2017 Food + Ag Entrepreneurship Academy 2/7/17
(c) UC Davis Institute for Innovation and Entrepreneurship 1
DefiningandValidatingtheBusiness
ClevelandJustisExecutiveDirector
MarketIsitfeasible?Isitdesirable?Isitviable?
BusinessIsitfeasible?Isitdesirable?Isitviable?
TechnologyIsitfeasible?Isitdesirable?Isitviable?
YourVenture
DefiningandValidatingtheBusiness
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(c) UC Davis Institute for Innovation and Entrepreneurship 2
Day2 Day3Day1
TheProblem(and Solution)
TechnologyHypotheses
MarketHypotheses
BusinessHypotheses
TheDeliverables
TheTeam
TheMilestones
TheInvestment
TheSummary&NextSteps
TheIdea(asapitch)
TheExperiments
AcademyScheduleMeetsCurriculum
LearningObjectives
Understandhowto:
• Defineyour(current)visionofyourventureintermsofitsbusinessattributes;
• Validateyourvisionbyrecognizingandresolvingitsbiggestuncertainties.
• Basedonyourvisionandvalidation,settherightmilestonestopursuenext.
2017 Food + Ag Entrepreneurship Academy 2/7/17
(c) UC Davis Institute for Innovation and Entrepreneurship 3
Overview
Fourquestions(fornow)1. Howwillyoumakemoney?
2. Howmuchwillyoumake?
3. Howmuchwillitcost?
4. Whenwillithappen?
Practiceapplyingwhatyou’velearned
RefertotheBusinessValidationportionofyourcoursebook.
The Business Hypothesis
“Thebusiness,ascurrentlydefined,isviable(andprofitable).”
go?
nogo?
2017 Food + Ag Entrepreneurship Academy 2/7/17
(c) UC Davis Institute for Innovation and Entrepreneurship 4
MarketIsitfeasible?Isitdesirable?Isitviable?
BusinessIsitfeasible?Isitdesirable?Isitviable?
TechnologyIsitfeasible?Isitdesirable?Isitviable?
YourVenture
DefiningandValidatingtheBusiness
1.HowWillYouMakeMoney?(RevenueModels)
UnitSales Sellaproductorservicetocustomers(wholesale,retail,ordirect).
AdvertisingFees Sellopportunitiestodistributemessages(viewers,readers,listeners,orothers)
FranchiseFees Sellandsupportareplicablebusinessforotherstoinvestin,grow,andmanage
UtilityFees Sellgoodsandservicesonaper-usebasis
SubscriptionFees Chargeafixedpriceforprovidingaccesstoyourgoodsorservices
TransactionFees Chargeafeeforreferring,enablingorexecutingatransaction
LicenseFees Selltherights(exclusiveornon-exclusive)tousepatent- orcopyright-protectedIP
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2.HowMuchMoneyWillYouMake?3.HowMuchWillItCost?
BackoftheEnvelope(BOTE)
Remember$5,$50,$500– thisisn’trocketscience:youjustwanttobeintherightballpark.
–Thekeyistodefineaclearvision,testyourassumptions,andlearnfromit.
2.HowMuchMoneyWillYouMake?3.HowMuchWillItCost?Howmuchwillyoumake?(revenue)
– Price/unit– #unitssold/year(volume)
– PricexVolume=annualrevenue
Howmuchwillitcost? (expenses)– Costperunit(COGS)(variablecosts)– Operatingexpenses(fixedcosts)*– Capitalexpenses(one-timecosts)*
Revenue– Expenses=Income(profit)*ignoreforcalculatingapprox.profitability)
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(c) UC Davis Institute for Innovation and Entrepreneurship 6
Let’sDoOneTogether…
Cost/unit
Price/unit
#unitssold/year
Revenue/yr
AnnualProfit/yr
NowIt’sYourTurn…
Cost/unit
Price/unit
#unitssold/year
Revenue/yr
AnnualProfit/yr
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AllRevenueModels(seeyourworkbook)
Adprice
#ofads
#ofviewers
AdRevenue/yr
Costofoperations
AnnualProfit/yr
Franchisefee
#offranchises
Costofoperations
AnnualProfit/yr
Capitalcost
Cost/unit
Price/unit
Unitsconsumed
Revenue/yr
AnnualProfit/yr
Cost/unit
Price/unit
Unitssold
Revenue/yr
AnnualProfit/yr
UnitSales AdvertisingFees FranchiseFeesUtilityFees
Cost/goodsorserviceprovided
Price/timeperiod
Subscribers
Revenue/yr
AnnualProfit/yr
Subscription FeesCost/hrworked
Price/hrworked
Hrs/project
#ofprojects
Revenue/yr
AnnualProfit/yr
ProfessionalFeesFee/transaction
#oftransactions
Costofoperation
Revenue/yr
AnnualProfit/yr
TransactionFeesCostof
development
Licensingfee
Royalties
UC
LicenseFees
DevelopmentGrants
(e.g.SBIR)
AppliedResearch
BasicResearch Stages ofventuredevelopment
NetCashFlow
StagesofventurefundingResearchGrants
4.WhenWillItHappen?
ValleyofDeath
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4.WhenWillItHappen(andHow)?
Financialprojections(akapro-formas)- Adynamicviewofwhatdeterminesyourventure’s
revenue,expenses,andhenceincome(profit)
- “BestGuess” predictionsdesignedtoshowtheimpactofthechoicesyoumakeaboutthetechnology,market,andrevenuemodels.
$5, $50, $500
RevenueProjections
** All $ are in 000
Year1 Year2 Year3 Year4 Year5
revenue(000s) $62.5 $129.6 $336 $960 $1,600
expenses(000s) $85 $650 $250 $335 $750
netincome(000s) ($22.50) ($479.6) $ -85 $ 625 $850
2017 Food + Ag Entrepreneurship Academy 2/7/17
(c) UC Davis Institute for Innovation and Entrepreneurship 9
3X5Whatarethe3mostimportantdriversofyourrevenueandexpensesoverthenextfiveyears?
Howwilltheygrow(orshrink)overthenext5years?
RevenueProjections
** All $ are in 000
Year1 Year2 Year3 Year4 Year5
revenue(000s) $62.5 $129.6 $336 $960 $1,600
customers 500 1200 3000 4000 5000
units/customer 5 6 7 15 20
price $25 $18 $16 $16 $16
expenses(000s) $85 $650 $250 $335 $750
headcount 10 14 15 27 34
COGS $18 $17 $15 $14 $14
CAC $325 $250 $200 $100 $50
netincome(000s) ($22.50) ($479.6) $ -85 $ 625 $850
2017 Food + Ag Entrepreneurship Academy 2/7/17
(c) UC Davis Institute for Innovation and Entrepreneurship 10
RevenueProjections
** All $ are in 000
Year1 Year2 Year3 Year4 Year5
revenue(000s) $62.5 $129.6 $336 $960 $1,600
customers 500 1200 3000 4000 5000
units/customer 5 6 7 15 20
price $25 $18 $16 $16 $16
expenses(000s) $85 $650 $250 $335 $750
headcount 10 14 15 27 34
COGS $18 $17 $15 $14 $14
CAC $325 $250 $200 $100 $50
netincome(000s) ($22.50) ($479.6) $ -85 $ 625 $850
Whatarethe3factors(max)thatwilldrivechangesinyourrevenueandexpensesoverthenextthreeyears?Canyoucontrolthem?
ANote
Thekeytothisapproachistokeepyourfeet on the ground....no top-down estimates!
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(c) UC Davis Institute for Innovation and Entrepreneurship 11
HowDoIPutThisIntoMyPlan?
Putdownyourbestguess• Remember…bettertobespecificallywrongthan
vaguelyright!
• Quicklycomparealternativerevenuemodels,placesinthesupplychain,orcustomersegmentsbeforepickingonetoexploreinmoredetail.
• Notsurewhatnumberstoputdown?Asksomeoneforhelp.
ApplyWhatYou’veLearned
Identifythecriticaluncertaintiesaroundyourbusinessandbusinessmodel:
1. Ordertheuncertainties.2. Inyourcurrentvision,identifywhich
“experiments” toruninthenextstage.3. Listtheresources (people,equipment,$)you
thinkyou’llneedtoreachthosemilestones.
RefertoDueDiligence:TheBusinessexerciseinyourcoursebook.