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Business Modelling by Anand Lunia
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Business Modelling by Anand Lunia

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This slide deck was prepared by Anand Lunia for the TiE Institute Knowledge series in Aug 2010, hosted by TiE Mumbai for early stage entrepreneurs.

This slide deck was prepared by Anand Lunia for the TiE Institute Knowledge series in Aug 2010, hosted by TiE Mumbai for early stage entrepreneurs.

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Transcript

  • 1. Business Modeling Simple, Presentable, Defensible
  • 2. What business are we in!
    • Restaurant, Hotel, Hospital- retail services
    • Media- magazine, TV, website etc
    • Retail- grocery, garments etc
    • B2B Services
    • B2B product
  • 3. Starting at Unit level
    • Hotel
    • Capacity
    • Occupancy
    • Capital Expenditure
    • Overheads- Fixed Expenses with no control
    • Fixed Expenses- discretionary, but sticky
    • Variable expenses- per room, per night
    • Room Rate
    • Commissions
  • 4. Building Quick and Dirty model
    • No of rooms
    • X
    • Nights available per month
    • X
    • % Capacity utilization
    • X
    • Charges per night per room
    • ----------------------------------
    • Monthly Revenue Potential
    • Work with simple numbers, so that they stay in your mind
    • Start simple, refine later
  • 5. The model is getting ready! Month 1 Month 2 Month 3 Revenue 100 Variable Expenses 10 Gross Margin 90 Fixed Expenses 50 Net Margin 40 Overheads 50 Profit -10
  • 6. Expand to Multiple Units
    • Adding units across time
    • Applying flows to each unit
    Months 1 2 3 4 5 6 7 8 Unit 1 1 2 2 2 4
  • 7. Detailing the model
    • What should a good model have?
    • List of assumptions
    • Revenue model, and revenue build up per unit
    • Expense model, listing variable and fixed expenses
    • List of overheads, and justifications
    • Capital expense per unit
    • Scaling up - Expansion of units across time
    • Profit projections
    • Cash-flow projections
    • What is not important?
    • 1 helper @ Rs 3500 per month, 1 cleaner @ 3750 per month and 1 cook @ 4000 per month
    • Same as 3 workers @ 3500 per month
    • Averages, round numbers are always more presentable
    • 80: 20 rule- details only of major expenses- anything more than 10% of revenue or gross margin needs elaboration
  • 8. Assumptions
    • Why should this cost structure work?
      • Grounds up studies on manpower, electricity, laundry etc
      • Comparison of other hotels, listed companies in the business
      • Reference books, articles guides
      • Industry Expert help
    • Why should so many customers come to you?
      • Number of tourists in the catchment- current and potential
      • Competing hotels, number, their occupancy levels
      • Number of travel agents you have talked to
      • Research Reports
  • 9. Assumptions
    • Have we answered this question?
    • Why should so many customers come to you?
    • Approach 1
    • India has 40 million, 4 Cr, domestic tourists every year
    • Out of which at-least 2% come to Lonavala
    • Out of this 8 lacs who come to Lonavala, at-least 1% market share will be mine
    • That means I have 8000 customers, on an average stay of 2 nights
    • That means I can sell 16000 room nights at Rs. 5000 per night
    • And that is Rs. 8 cr. Revenue in first year
    • Now if we were to build just 100 hotels in next 5 years, we will be having Rs 800 cr revenue!
  • 10. Assumptions
    • Have we answered this question?
    • Why should so many customers come to you?
    • Approach 2
    • Lets take a break!
  • 11. Key Metrics to evaluate a business plan
    • Profitability – what is the net margin, what is the gross margin
    • Capital Efficiency- ratio of sales to capital invested
    • Scalability- of volumes, costs, capital
    • Generating Returns on Investment
    Year 1- 1 Hotel Year 2- 10 Hotels Year 3- 100 Hotels Capital invested Rs 1 cr Rs 9 cr Rs 105 cr Revenue Rs 50 lacs Rs 500 lacs Rs 5000 lacs Profit - 20 lacs - 200 lacs - 2000 lacs