Business Models; Financial Projections

1 www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in BOB JONES AT HIS OTHER JOB Bob Jones at Work with the Back Beat Blues Band. Bob was a Founder of the MIT Sloan School Consumption Function http://www.backbeatblues.com WWW.BSSVE.IN www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in 2 www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in Bob Jones Bob Jones is President and CEO of Vitasoy USA, Inc. Vitasoy is the nation’s largest marketer and manufacturer of tofu, and one of the leading providers of soymilk. Prior to joining Vitasoy, Bob launched several start-ups in the nutrition field. He was President of Medical Foods, Inc., then President of Functional Foods, Inc., and most recently was President of Advanced Functional Foods International, Inc. At Advanced Functional Foods International, Bob built strategic alliances with Procter & Gamble and CVS Pharmacy, and led the creation and launch of a nutrition bar for weight management that is now selling in every CVS in the country. Prior to the start-ups, Bob was Vice President of Sales and Marketing at NCI Medical Foods (in California), and also managed the clinical nutrition business at McGaw, Inc. He has also held sales and marketing positions at Abbott Laboratories and at Baxter International. He has two awarded patents. Bob has an A.B. in biology from Princeton University, and an M.S.M. from the Sloan School at M.I.T. After hours, Bob plays in a blues band in the Boston area, and is an enthusiastic motorcyclist. He lives with his wife and three children in Belmont. WWW.BSSVE.IN Page 1 of 1 www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 3 Building Financial Projections January 22, 2004 WWW.BSSVE.INCharlie Tillett SM ‘91 www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 4 Agenda Business Plan Financials • The Business Model • Building Financial Projections WWW.BSSVE.IN • People, People, People www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 5 Background 1991 Sloan SM – Entrepreneurial Finance Third Place 1990 $10K Contest Summer Intern - Boston Capital Ventures ‘91 to ‘00 CFO - NetScout Systems (NTCT) WWW.BSSVE.IN- VC financings of $6MM and $45MM - IPO in August 1999 Current CFO – Reveal Imaging - Bomb Detection for checked baggage - Completed $10MM VC funding in July ‘03 www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 6 Business Plan Financials Charlie’s Rules-of-Thumb: Disclaimer • Focused on making attractive to investors • Most relevant for technology companies WWW.BSSVE.IN• May not apply to your industry • Most common Business Plan errors: ¾ Revenue too high in year 4 ¾ Profit too high in year 4 www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 7 Business Model Example Wi-Fi Planet – April 5, 2005 • RoomLinX has finally come up with a business WWW.BSSVE.INmodel that actually works • Market had been dominated by discredited MobilStar business model • RoomLinX “forced” a new business model on their customers www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 8 RoomLinX: Wi-Fi for Hotels Mobilstar Business Model ¾ Companies built & supported systems ¾ Took 10% of guest fees for in-room use WWW.BSSVE.IN RoomLinX Business Model ¾ Sell system to hotel ¾ Monthly fee for management ¾ Free to guests for in-room use ¾ 50% of the fee for conference room use www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 9 What is “The Business Model” • An explanation of how your business will MAKE MONEY • A Profit & Loss Statement that details financial WWW.BSSVE.INperformance in percentage terms • Assumes you reach critical mass www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 10 Profit & Loss (P&L) Statement Also called Income Statement Sample • Revenue (after discounts) Revenue$ 50.0 100% • Cost of Goods Sold (COGS) • Direct product cost Cost of Goods Sold$ 20.0 40% • Mfg but NOT R&D Gross Margin$ 30.0 60% WWW.BSSVE.IN• Gross Margin or Gross Profit Sales & Marketing$ 15.0 30% • Departmental Expenses R&D$ 5.0 10% •Operating Profit / Loss G&A$ 2.5 5% • Profit before taxes (PBT) • EBITDA (Earnings before Total Expenses$ 22.5 45% interest, taxes, depreciation, amortization) Operating Profit$ 7.5 15% www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 11 Business Model Example “Typical” Data-Com Company Sales 100% Cost of Goods Sold (20% to 50%) 40% Gross Margin 60% WWW.BSSVE.INSales & Marketing (20% to 35%) 30% R&D (10% to 15%) 10% G&A (4% to 6%) 5% Total Expenses 45% Operating Profit (15%-25%) 15% www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 12 Actual Business Models Q3 ’98 vs. Q3 ’00 vs. Q3 ‘03 NetScout NetScout NetScout Cisco Cisco Cisco IBM IBM IBM Q3 '98 Q3 '00 Q3 '03 Q3 '98 Q3 '00 Q3 '03 Q3 '98 Q3 '00 Q3 '03 Revenue 100% 100% 100% 100% 100% 100% 100% 100% 100% Cost of Goods Sold 32% 28% 25% 35% 36% 30% 60% 64% 63% Gross Margin 68% 72% 75% 65% 64% 70% 40% 36% 37% WWW.BSSVE.INSales & Marketing 29% 35% 45% 19% 21% 26% 17% 14% 17% R&D 13% 13% 21% 12% 14% 16% 7% 6% 6% G&A 6% 8% 9% 3% 3% 21% 4% 3% 5% Total Expenses 48% 56% 75% 34% 38% 63% 28% 23% 28% Operating Profit 20% 16% 0% 31% 26% 7% 12% 13% 9% Annual Revenue/Emp. $ 350,000 320,000$ 600,000$ 675,000$ 315,000$ www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 13 Actual Business Models Q3 ’98 vs. Q3 ’00 vs. Q3 ‘03 Yahoo Yahoo Yahoo Amazon Amazon Amazon Q3 '98 Q3 '00 Q3 '03 Q3 '98 Q3 '00 Q3 '03 Revenue 100% 100% 100% 100% 100% 100% Cost of Goods Sold 11% 13% 13% 78% 74% 75% Gross Ma rgin 89% 87% 87% 22% 26% 25% WWW.BSSVE.IN Sales & Marketing 53% 36% 41% 23% 22% 12% R&D 15% 9% 13% 8% 11% 5% G&A 7% 6% 7% 3% 4% 3% Total Expenses 75% 51% 61% 34% 37% 20% Operating Profit 14% 36% 26% -12% -11% 5% Annual Revenue/Emp. $ 250,000 $ 400,000 400,000$ 300,000$ www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 14 Building YOUR Model • Start with what you “know” ¾ Your Cost of Goods Sold ¾ R&D should end up at 10% to 20% WWW.BSSVE.IN¾ G&A should end up at 5% to 15% • Target an operating profit of 15% to 20% • Only remaining variable is S & M • Verify by looking at comparable companies www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 15 First Major Decision: How will you sell your product? Direct Sales Force Revenue $100 100% Cost of Goods Sold $40 40% WWW.BSSVE.INGross Margin $60 60% Sales & Marketing $23 23% R&D $12 12% G&A $5 5% Total Expenses $40 40% Operating Profit $20 20% www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 16 First Major Decision: How will you sell your product? Direct Sales Force Distributor Revenue $100 100% $80 100% Cost of Goods Sold $40 40% $40 50% WWW.BSSVE.INGross Margin $60 60% $40 50% Sales & Marketing $23 23% $8 10% R&D $12 12% $12 15% G&A $5 5% $4 5% Total Expenses $40 40% $24 30% Operating Profit $20 20% $16 20% www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 17 Building Financial Projections Rules-of-Thumb • Average employee salary will be $70K to $80K • Employee benefits will add just 15% WWW.BSSVE.IN• Salaries will be 60% to 75% of non-COGS ¾ Remainder will be rent, utilities,phones, travel ¾ UNLESS you have extraordinary marketing!!! ¾ Will reduce to 50% to 55% over time • Staffing DRIVES departmental expenses www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 18 Building Financial Projections Rules-of-Thumb • Sales Projections ¾ $50MM to $100MM in year 5 •Market Size WWW.BSSVE.IN¾ Between 5% and 25% • Revenue per Employee ¾ Between $125K and $300K • Revenue per Salesperson ¾ Between $1MM and $3MM www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 19 Cash Flow Projections Happiness is a positive cash flow • Burn Rate ¾ Monthly operating loss plus capital expenditures • Cash Flow Projection WWW.BSSVE.IN¾ Cumulative operating losses excluding depreciation ¾ Plus cumulative capital expenses • To determine the total cash required ¾ Cumulative operating losses PLUS ¾ Cumulative capital expenses ¾ On the month that you turn cash positive www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in 20 VC Observations • Don’t expect

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