A great business model describes your business logic and supports it with meaningful numbers and metrics. However, most business model approaches are very thin (not even lean) when it comes to numbers and metrics. They don't lay out activities to quantify assumptions or even suggest meaningful benchmarks. So, what is a business model? This post proposes a business model framework taking the best elements of a few approaches and allowing you to capture your assumptions in a structured manner. We describe what turns a Business Model into a Business Case and how you can easily quantify your assumptions. Discover a completely new way of how to create a business case.
To get started, we are looking first at three proven business modelling approaches
By combining the best elements of these approaches, we come up with a Business Model Framework which makes it easy to document assumptions. Using this framework, we can hence show to turn a Business model into a Business Case and how to turn your Business Case into numbers
You have probably seen – and most likely used – a Business Model Canvas like the one shown below and the Lean Startup approach driving a validated learning cycle. A Business Model Canvas can show your business model on one page and has become a global standard used by millions of people in companies of all sizes. This is why you can use the canvas to describe, design, challenge, and pivot your business model. The Business Model Canvas helps to structure discussions. It is fast, great for developing a portfolio of ideas, intuitively makes sense and puts the value proposition at the core. However, it does not give equal weight to all elements. When it comes to revenues, cost and metrics it is relatively high level and doesn't clearly lay out activities to quantify assumptions and translate them into numbers.
The "numbers gap" of the Business Model Canvas is closed by the book Lean Analytics - Use Data to Build a Better Startup Faster by Alistair Croll and Benjamin Yoskovitz. It introduces the Business Model Flipbook and describes a Business Model as a Mix of Things:
Lean Analytics introduces five key elements as the Flipbook Business Model Concept:
Lean Analytics also puts a lot of emphasis on the company lifecycle stages. In much detail, it provides a framework to identify the right metric for your respective business model and your company stage.
On a more abstract level than Lean Analytics, Steve Blank – The Lean Launchpad introduces the Customer Lifecycle with its key metrics
The Customer Lifecycle Model is relevant to answer the key question for every business:
Is the Customer Lifetime Value significantly higher than the cost to acquire a customer?
All three approaches are extremely valuable in answering of what is business model. To combine the best of them, we have mapped the structure of the Business Model Canvas, the key elements of the Lean Analytics Approach and the three phases of the Customer Lifecycle into one framework. This allows us to pragmatically capture the assumptions of a Business Model. Our business model framework maps out
This is a nice structure to document any business model assumptions, but still doesn't help much in quantifying them. By linking the key metrics of the Customer Lifecycle to this model (see figure below), we can overcome this issue and truly turn a business model into business case:
This framework is the basis to answer if the Customer Lifetime Value is significantly higher than the cost to acquire a customer. An answer to this questions rarely makes it into any Excel Model submitted to Investors.
Let's illustrate the suitability of this framework with a case study. This is about a SaaS company in the Software Enterprise space which we call SecurUs. This case study is the basis for our free eCourse. In this course, we describe all assumptions in much detail.
After putting numbers behind the assumptions, we can now start to figure out if they make economic sense. How do you do that? You have a the choice. You can start building another Excel model greenfield or you can keep reading and learn how to use Lean-Case. Instead of worrying about formulas, lookups or charts, you can immediately focus on answering the relevant business questions:
In Lean-Case, you can easily map the assumptions for the each of the element of the business model.
In Lean-Case, you can easily map your assumptions to each element of the business model.
Let’s have a quick look at Lean-Case that you get a basic understanding. You find 3 menus revenues, headcount and expenses which we will use in this tutorial. All of them are very similar with 3 submenusel.
- In the Revenue Menu you capture revenue assumptions and all the assumptions regarding revenue related cost.
- In the Headcount Menu you capture salary relevant assumptions for jobs, teams and roles.
- In the Expense Menu you capture relevant expenses for non-direct cost to manage and run the business.
Each of the menus has 3 submenus:
In the Plan Menu you can capture your assumptions and look at high level results, you can browse through the data, and look at it by month quarter and year. In the Check Menu you look at the data of your assumptions in detail, filter is by different revenue streams and metrics and export it. In the Track Menu you will be able to keep Lean-Case working for you and compare your actuals against your plan. In the Dashboard, you find all the results for revenues, headcount, expenses and - of course - the combined results for profitability, cash-flow and unit metrics as well as the Profit & Loss report which actually is a simulation board at the same time. You can filter which revenue streams, teams or expense groups you want to include in your report allowing you to analyse different scenarios.
Our blog post series will cover each of the critical business questions in more depth. For now, we would like to invite you to subscribe to our free eCourse.
Don't hesitate to get in touch with us
CEO and Founder Lean-Case - Eckhard is a Serial Entrepreneur co-founding cyber-security startup accells acquired by Ping Identity and m-payment startup paybox acquired by Sybase/SAP. As a Business Angel, VC Partner and Investment Advisor, he has realized that turning business models into numbers is a major challenge and must professionalize.
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