16 Summary Profit and Harvest Profit is the product of labor plus capital multiplied by management. You can hire the first two. The last must be inspired. Fost Summary How will a new venture generate revenue and achieve positive cash flow? The revenue and profit engines show how the firm will create powerful value for its customers and customers will enable the new firm to profit. Managing revenue growth is important. Also a firm needs a plan to harvest the benefits of its growing venture. *sales model – describing how to generate revenues from customers, then, determine cost model, and how to generate profits from its revenues. Chapter 16: Summary Technology Ventures: From Idea to Enterprise

Profit and Harvest 16 Models for generating revenues. Revenue Model: describes how the firm will generate revenues. Five Revenue Models Sales Product Model Subscription (Member) Fee Model Advertising Revenue Model Transaction Fee Revenue Model Affiliate Revenue Model A firm’s revenues are its sales after deducting all returns, rebates, and discounts. e.g.Visa, ebay e.g. “Redirecting” to amazon Chapter 16: Table 16.1 Technology Ventures: From Idea to Enterprise

Profit and Harvest 16 Cost Model: describes the factors that affect total firm costs Four types of cost drivers Fixed Variable Semivariable Nonrecurring Chapter 16 Technology Ventures: From Idea to Enterprise

The Value of A Product and Profit Profit and Harvest 16 Profit is the net return after subtracting the costs from the revenues. Profit Model: the mechanism a firm uses to reap profits from its revenues. The Value of A Product and Profit Must examine all activities on the value chain. Chapter 16: Figure 16.1 Technology Ventures: From Idea to Enterprise

Profit and Harvest 16 The best conditions for profit occur when the perceived valued value of a product to a customer is high and the cost to produce the product is low. The Revenue and Profit* Flows from the Firm's Operations * The revenue and profit engine. Chapter 16: Figure 16.2 Technology Ventures: From Idea to Enterprise

Profit and Harvest 16 The early losses of a successful startup turn profitable after a time T.

Nine Types of Profit Models Profit and Harvest 16 Nine Types of Profit Models

16 Profit and Harvest Sustainable Growth Where: PM = profit-to-sales ratio L = debt-to-equity ratio T = the ratio of total assets to sales. If a start-up firm has no debt (L=0), we have Chapter 16 Technology Ventures: From Idea to Enterprise

16 Profit and Harvest Incentives for Growth Attracting Capital for Market Expansion Attracting Capable Team Members Economies of Scale Development of a Reputation and Brand Growing Profitability and Financial Rewards for Owners and Employees Chapter 16: Table 16.5 Technology Ventures: From Idea to Enterprise

16 Profit and Harvest Causes and Drivers of Market Value Causes Factors Drivers Market Value Causes and Drivers of Market Value Note: Operating Leverage = Chapter 16: Figure 16.6 Technology Ventures: From Idea to Enterprise

Profit and Harvest 16 A harvest plan defines how and when the owners and investors will realize or attain an actual cash return on their investment. Chapter 16: Harvest Plan Technology Ventures: From Idea to Enterprise

Profit and Harvest 16 Five Methods of Harvesting The Wealth Created by a New Firm The Sale of the Firm to An Acquiring Firm The Sale of the Firm's Stock on A Public Market through An Initial Public Offering Issuance of Cash Dividends to the Owners and Investors The Sale of the Firm to the Managers and Employees Transfer the Firm through Gifts and Sales to Family Successors Chapter 16: Table 16.7 Technology Ventures: From Idea to Enterprise

Profit and Harvest 16 Knowing when to stop or terminate… Sunk Cost is a cost that has already been incurred and cannot be affected by any present or future decisions. e.g. Funds and time invested. Chapter 16: Sunk Cost Technology Ventures: From Idea to Enterprise

A Decision Tree for the Sunk Cost Dilemma Profit and Harvest 16 A Decision Tree for the Sunk Cost Dilemma Invest More Time & Money Continue Decision Total Investment in a New Venture which is failing to achieve positive cash flow Terminate the Venture Learn from the Experience and then consider new opportunities Chapter 16: Figure 16.7 – decision tree for sunk costs Technology Ventures: From Idea to Enterprise

Profit and Harvest 16 A new firm with a powerful revenue and profit engine and a reputation for ethical dealings can achieve strong but manageable growth leading to a favorable harvest of the wealth for the owners. Chapter 16: Principle Technology Ventures: From Idea to Enterprise

Profit and Harvest 16 A new fuel cell has been designed for use in hybrid vehicles. Select a revenue and profit model and determine an achievable sales growth rate for no debt and a low profit margin PM=0.15 when T=1 Chapter 16: Exercise Technology Ventures: From Idea to Enterprise

VENTURE CHALLENGE 16 Describe the revenue model of your venture. Profit and Harvest 16 VENTURE CHALLENGE Describe the revenue model of your venture. Describe the profit model of your venture Using table 16.7, discuss your harvest plan. Chapter 16: Venture Challenge Technology Ventures: From Idea to Enterprise

DVD Video 16 “Reducing Company Costs: PayPal and SpaceX” Profit and Harvest 16 DVD Video “Reducing Company Costs: PayPal and SpaceX” Elon Musk (SpaceX) Chapter 16: DVD Video Technology Ventures: From Idea to Enterprise