While the business model canvas is a great way to look at your new venture or analyze an existing business, lately, after talking to startup after startup, I have come to the conclusion that it does not help bridge the gap between theory and reality enough. Especially at an early stage of the business. I say this being a big believer in not wasting time on ideas which are doomed from the start – for which the canvas helps to avoid.

One way that I have used a lot in the past and have noticed not a lot of founders use is a simplified spreadsheet with an overview of the businesses’ core numbers – number and formulas that help you get to grips with the realities of what you are proposing.

Cold, hard, numbers.

How does it work? Put simply, it is a customer acquisition driven (demand) spreasheet where you put down how much you expect user acquisition to cost and then simulate the main numbers of your business in a one page spreadsheet, preferably in a way that all of the cells fit on your screen at the same time.

Typically, the spreadsheet will contain numbers such as:

  • CPA (average cost per acquisiton)
  • LTV (average lifetime revenue per customer)
  • 3, 7, 30 day retention rates
  • Average actions per user per time period
  • Fixed costs
  • Variable costs

The actual numbers used vary from business to business, reflecting the nature of their operations. For example – a SaaS (Software as a Service) business will be most interested in LTV-CPA as that is the core of the business. The infrastructure and personel costs take a back seat. In contrast, a product company, that has inventory, will have to be very concerned about inventory and cashflow.

The most value I get from this exercise is identifying a few key situations:

  1. What are some possible scenarios where I could break even, what does the CPA range look like, what does the LTV range look like – are these numbers realistic?
  2. If I already have an existing company, how far away is it from break-even? Which numbers are the easisest to improve – and by how much – to get to a better financial standing?
  3. I might be losing money now, but if I had a cash injection and scaled the number of customers, could I, with the same average metrics, become profitable?
  4. Reality check: how far away from market values is the company? For example: is CPA / CPI of 0.50 euros viable in the real-estate in Germany? If not, adjust and then see how the LTV would need to rise accordingly.

Basically a good way to stop dreaming and start thinking about the realities of creating a new venture.

Anyway, I have decided to share here a made up spreadsheet for two imaginary businesses – one SaaS and another E-commerce with inventory. The numbers are not real, but I hope it can serve as a starting point to analyse which marketing efforts would work for your case, how low your costs would need, how high your revenue , etc.

Download Financial Overview Spreadsheet

 

 

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