Cosi102

* **Video**: [Funding Stragegies](https://youtu.be/MuTdS29M1o4?si=bQ0966sYoRrKa9qx&t=6)

*Reminder: Readings and videos are your responsibility. You will be expected to come to class prepared, having read or viewed the material, and ready to participate in the discussion*

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<h3 id="overview">Overview</h3>

<ul>
  <li>Information is organized logically into several sheets</li>
  <li>Columns are units of time - usually months</li>
  <li>Overall span is 1 (or more) years</li>
  <li>Rows are variables of various kinds</li>
  <li>Use color to distnguish between input vs computed cells</li>
</ul>

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<h2 id="operating-model-for-your-business">Operating Model for your business</h2>

<ul>
  <li>The core model (spreadsheet) that pulls it all together</li>
  <li>Goal is to bring out the Key Metrics and Key Assumptions</li>
  <li><a href="https://docs.google.com/spreadsheets/d/1dLQWhfuQCiGa7nYHdHX9zI8r-X9JVPbhlLmXN4X7BZY/edit#gid=657268627">Examples of different growth models</a></li>
</ul>

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<h3 id="financial-model">Financial model</h3>

<ul>
  <li>A model is a simulation of the future</li>
  <li>It is not the same as an analysis of the past</li>
  <li>Although they are closely related</li>
</ul>

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<h3 id="building-a-financial-model">Building a financial model</h3>

<ul>
  <li>Not a universal recipe (none can exist!)</li>
  <li>These notes provide one set of guidelines and rules of thumb</li>
  <li>Your mileage may vary!</li>
  <li>Use common sense in your thinking.</li>
  <li>You are not google or facebook so your model should reflect that.</li>
</ul>

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<h3 id="what-do-you-want-out-of-the-model">What do you want out of the model?</h3>

<ul>
  <li>You can think of your financial model as an MVP</li>
  <li>What are the hypotheses that are being tested?</li>
  <li>How much money do we need and when?</li>
  <li>How many people do we need, and when?</li>
  <li>How many customers do we need, and when?</li>
</ul>

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<h2 id="general-structure-of-a-financial-model">General Structure of a Financial Model</h2>

<ul>
  <li>Use google sheets (excel is ok too)</li>
  <li>Columns will be time.</li>
  <li>It depends, but a good start is to have 1 year in months (and perhaps additinal years in quarters)</li>
  <li>Rows will be various kinds of metrics</li>
</ul>

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<h3 id="cells-types-of-information">Cells: Types of information</h3>

<ul>
  <li>Some are inputs to the model (“assumptions) and some are outputs (“results”)</li>
  <li>Don’t be uncomfortable about very broad generalizations for your assumptions (mere guesses)</li>
  <li>Most of the time the best you can do is an educated guess</li>
  <li>Assumptions should be clearly set off</li>
  <li>Color coding can be helpful</li>
</ul>

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<h3 id="assumptions---input-parameters-or-independent-variable">Assumptions - Input parameters or independent variable</h3>

<ul>
  <li>Input to the model (e.g. Cost to make one unit)</li>
  <li>Basis of testing scenarios</li>
  <li>Sometimes an input parameter is a number, a percentage, an amount of money</li>
  <li>Sometimes its a varies over time (i.e. Number of employees in Q1, Q2, Q3, Q4)</li>
  <li>The key is that it is not computed by the model, it is supplied by you</li>
</ul>

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<h3 id="output-parameters-dependent-variables-or-results">Output parameters, dependent variables or results</h3>

<ul>
  <li>Output from the model (e.g. Operating Profit in Q2)</li>
  <li>There will be lots of assumptions.</li>
</ul>

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<h3 id="customers-or-units-and-the-growth-engine">Customers or units and the Growth Engine</h3>

<ul>
  <li>A very typical “driver” for your model will be the number of customers served or units sold</li>
  <li>Your assumptions there will have a big effect on the overall model</li>
  <li>Consider where your new customers will come from</li>
  <li>Is it through search in which case you will spend money on google or facebook ads?</li>
  <li>Is it inherent in the use of the product, then you should be able to explain how that would work</li>
</ul>

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<h3 id="pricing">Pricing</h3>

<ul>
  <li>As you know, pricing models can become complicated</li>
  <li>You need to make a judgement call about how much of it you try to model at this stage</li>
  <li>Annual vs. Monthly subscription</li>
  <li>Single purchase (what about repeat purchase?)</li>
</ul>

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<h3 id="people-costs">People Costs</h3>

<ul>
  <li>It is very common that salaries and overhead are the biggest costs for a startup</li>
  <li>You can choose to enter number of people “by hand” for each month</li>
  <li>Or make it a function of something else, like units sold or number of customers</li>
</ul>

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<h3 id="milesones">Milesones</h3>

<ul>
  <li>Most startups go through a few phases from Day 1 to having customers and/or having funding</li>
  <li>E.g. Pre-revenue, Post-revenue, Pre-Funding, Post-funding</li>
  <li>It is useful to build your model with that in mind</li>
</ul>

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<h3 id="charts-graphs">Charts (graphs)</h3>

<ul>
  <li>The classic chart shows time in months (like the model) against:</li>
  <li>Money in the bank</li>
  <li>Number of customers</li>
  <li>Number of units</li>
  <li>Revenue</li>
  <li>Expenses</li>
  <li>Profits</li>
</ul>

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<h2 class="shadow p-3 bg-white rounded">Thank you. Questions?<img class="img-fluid w-100" src="https://picsum.photos/800/100.jpg" /> <small> (random Image from picsum.photos)</small></h2>