A Business Plan? Or a Journey to Plan B$?$

taking the leap

To address your leaps of faith, you$$ll have to leap.

Identify your key leaps of faith and then test your

hypotheses that you believe hold the answers. That

may mean opening a smaller shop than you aspire

to operate, just to see how customers respond. It

may mean trying different prices for your newly de$-$

veloped gadget to see which price makes sales pop.

By identifying your leaps of faith early and devising

ways to test hypotheses that will prove or refute

them, you are in a position to learn whether or not

your Plan A will work before you waste too much

time, and money, too!

But what do you actually need to consider when

developing your business model? What is it that you

hope your analogs, antilogs and some judiciously cho$-$

sen hypothesis tests will tell you? Every business model

needs to quantitatively address five key elements. $($See

$$Ready to Embark? A Business Model Framework.$)$

$$ your revenue model: Who will buy? How often?

How soon? At what acquisition cost? How much

money will you receive each time a customer buys?

How often will they send you another check?

$$ your gross margin model: How much of your

revenue will be left after you have paid the direct

costs of what you have sold?

$$ your operating model: Other than the cost of

the goods or services you have sold, what else must

you spend money on to keep the lights on$?$

$$ your working capital model: How early can you

encourage your customers to pay? Do you have to tie

up money in lots of inventory waiting for customers

to buy? Can you pay your suppliers later, after the

customer has paid?

$$ your investment model: How much cash must

you spend up front before enough customers give

you enough business to cover your costs?