Partnerships and Operations! Revenue and
Costs This Week This Week This Week What are the most important assets required to make the business model work?! What are the costs to operate the business model?! What are the most important metrics for the business?
Key Resources Physical Resources Financing
Company location, ofﬁce space, products/services, data (virtual) Friends & family, angels, grants, institutional venture, corporate partners, debt ﬁnancing Intellectual Resources Human Resources Trademarks, copyrights, trade secrets, contracts, patents Qualiﬁed employees, mentors, coaches, teachers, advisory board Physical products/supplies and patents are often less relevant in digital health
BIG IDEA: Risks, Milestones, &
Capital Seed <$2MM from friends/ family, angels, micro VCs, grants! Series A $3-7MM from institutional VCs, corporate partners! Series B $5-15MM from institutional VCs, growth equity, and corporate! ! ! ! Searching for product/market ﬁt Supporting initial customer base Scaling customers and products Investors provide venture capital to create “enterprise value” and reduce risks
Value Creation Milestones Product /
Technology Customer Traction Revenue and Costs Alpha, beta versions! 1st vs. 10th customer per segment! Revenue Sources! ! Value-relevant functions! ! Health-economic, ROI, and outcomes data ! Repeatable sales process! Revenue (monthly/ annual) & forward projections! ! ! MUVs, % MoM Growth rate COGS & margin ! These factors among others (team, opportunity, etc.) help deﬁne a company’s value and risk proﬁle
How Much To Raise? Identify
Key Milestones Calculate Funding Needs Project Time and Costs 2014% 2015% Q1% Q2% Q3% Q4% Q1% Q2% Milestones) % % % % % % Alpha%Version% % % % % % % % % % % % % % % Execu=ve%Leadership% $50K% $50K% $50K% $50K% $125K% $125K% Engineering/Development% $75K% $75K% $75K% $150K% $150K% $200K% Sales,%Customer%Service,%etc.% K% K% K% K% $25K% $25K% Other)Expenses) % % % % % % Rent,%U=li=es,%Etc.% $10K% $10K% $10K% $10K% $10K% $10K% Equipment% $10K% $10K% $10K% $10K% $50K% $50K% % % % % % % $145K% $145K% $145K% $220K% $360K% $410K% Beta%Version% First%10%customers% Headcount) Total)Opera6ng)Expenses) OpEx% Leave yourself a 6+ month cushion! ! Balance cost of capital with security It takes time to fundraise and even the best laid plans… so leave yourself a cushion!
Fixed & Variable Costs Examples
Insight Fixed Costs (Don’t change with volume) Salaries, leases, insurance, utilities, hosting, etc. Fixed > variable costs for virtual goods/ services Variable Costs (Tied to volume) Product materials/ delivery costs, shipping, hosting usage, etc. Calculate unit costs by dividing total variable costs by volume Important Costs Metrics: Burn Rate = R-C = Negative Monthly Cash Flow! Runway = Cash Balance / Burn Rate! Cash Out Date = Today + Runway
BIG IDEA: Value-Driven vs. Cost-Driven
Product Life Cycle Value-Driven Focused on delivering on customer needs/expectations and establishing brand; non-competitive environment Cost-Driven Value-Driven Cost-Driven Aggressively manage costs (via outsourcing, automation, supplier leverage, etc.); highly competitive Erecting barriers to competition and leveraging technology to reduce costs help keep companies proﬁtable over the long term
Key Metrics and Being Data-Driven
Comprehensive Collection of Metrics Importance of Metrics-Driven Culture ! Identifying meaningful metrics (“The metrics that matter”): actionable metrics > vanity metrics! ! What’s often meaningful is the ratio of metrics (i.e., LTV/CAC)! ! Recognize that what’s relevant changes with time !
BIG IDEA: One Metric That
Matters Tie it to the most important question you have ? ? ? ? ? ? Clearly deﬁne what success and failure mean ? ? ? Shared widely to focus your company OMTM Inspire a culture of experimentation
For Next Week Identify the
Metrics that Matter (+OMTM) and Resources Needed What are you going to do next? Diagram the Finance and Ops Timeline 2014% Resources Needed 2015% Q1% Q2% Q3% Q4% Q1% Q2% Milestones) % % % % % % Alpha%Version% % % % % % % % % % % % % % % Execu=ve%Leadership% Rationale Deﬁne Success $50K% $50K% $50K% $50K% $125K% $125K% Engineering/Development% Beta%Version% First%10%customers% Metric A Headcount) … $75K% $75K% $75K% $150K% $150K% $200K% Sales,%Customer%Service,%etc.% K% K% K% K% $25K% $25K% Other)Expenses) Metric B % % % % % % Rent,%U=li=es,%Etc.% $10K% $10K% $10K% $10K% $10K% $10K% Equipment% $10K% $10K% $10K% $10K% $50K% $50K% % % % % % % $145K% $145K% $145K% $220K% $360K% $410K% Total)Opera6ng)Expenses) OpEx% a) Is entrepreneurship for you? b) Is your idea worth pursuing? c) What will you do next?