1. 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

2. 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

3. 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

4. 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

5. 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

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

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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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