5 Important Elements of a Financial Business Model
Have you ever felt stupid?
For pretty much my entire teenage existence I felt like I didn’t understand the world around me.
When I got into business at 17 it was no different.
I’d watch these “businessmen” talk and I had no clue what they were saying….
… but over time I decided to learn.
I put in the time to study books on marketing, finance, leadership, design, etc..
After a while, I could understand what they were saying and actually challenge some of their views.
Once you learn business, it’s really not that complicated.
It comes down to 5 core elements that need to be understood.
Some people call them models, but it’s really just 5 areas.
That’s what I break down in today’s video… the 5 elements of a financial business model.
Any business out there can be described and discussed using these 5 financial models:
1) Revenue Model: Who will buy? How often? How soon? At what cost? How much from each customer.
2) Gross Margin Model: How much revenue will be left after you paid the direct costs of what you have sold?
3) Operating Model: Other than the costs of the goods or services you have sold, what else must you spend money on to support the sale?
4) Working Capital Model: How early can you get customers to pay? Do you tie up money in inventory waiting to be sold? Can you push back paying suppliers till after your customers have paid?
5) Investment Model: How much cash must you spend up front before enough customers give you enough business to cover your operating costs?
What I love about constraints — not having enough money — is that you get creative about how you deliver value to your customers.
That’s what I want to hear from you!
Did you run your operations out of your garage?
Did you partner with local organizations to promote your services? Let me know.
There’s no need to feel stupid in business.
Every day is an opportunity to push our understanding and refine our business to run better.
I hope these models serve you in a big way, and the story I shared (as embarrassing as it was) helped ground them in a way that you could integrate into your thinking.
Have an incredible day!
Dan Martell has advised more startups than his hometown has people and teaches startup founders like you how to scale. (Get the free 3 videos to grow your business here.) He previously created, raised venture funding for and successfully exited two tech startups: Flowtown and Clarity.fm. You should follow him on twitter@danmartell for tweets that are actually awesome.