As a founder and business owner, building out a business model is a very valuable process, not only for the outputs it provides to showcase the potential results of your business but more importantly than that, is the process you go through to arrive at that position.
This model is the blueprint for how your business creates and captures value – a hypothesis you test, and tweak as needed – and it shows how all the pieces fit together and work in unison towards a common goal.
A well thought out forecast model ensures the strategy that drives and aligns various departments within the business and the assumptions around these areas, can support the growth potential that lies ahead to achieve the desired outcome.
Will it be bang on the money in three years’ time? No! Definitely not! But it will ensure that you arrive at a place based on informed decisions. Having learned a lot about how your business performs along the way.
The outputs a robust business model provides are hugely valuable, including:
- Communicating commercials and metrics to investors pre/post fundraise
- Making informed business decisions month to month
- Keeping a keen eye on cashflow
- Knowing when you need to hire and raise capital
- Knowing how you could achieve break even
- Knowing what your business could look like in 2 years’ time.
For me, however, the process and steps required to build it are where the real magic happens.
They take you down into the trenches of your business, prompting you to think critically about every aspect of it and answer some difficult questions along the way, such as:
- What are the key drivers to your success?
- What assumptions are you making about your customers and your market?
- Which channels and distribution strategies will work best for your marketing?
- How could you optimise pricing?
- How do your unit economics start and evolve through the process?
- What knowledge / resource do you need, and what seats do you need to create, to bring the model to fruition?
- What does your sales mix need to look like?
- Will you need external investment and when is this likely to be needed?
And many more.
All of these are crucial to think through, understand and communicate throughout the modelling process. You’ll uncover ‘aha moments’. You’ll spot upcoming hurdles. And you’ll have more time to plan for the journey ahead and react effectively.
Being able to confidently answer those questions is especially important in the early stages of a business, because it will show all your stakeholders that you’re the team who can run this business – and run it well.
Your model is something you’ll continually review and evolve as you test your assumptions in the real world too. It’s important to stay on top of this on a regular basis. If you’re not getting the results you want, use the model to spearhead change and review the impact quickly.
Did you know Cooper Parry has a specialist team dedicated to supporting startups and scale ups? Get in touch.
