Startup Financial Model

Description
"During my senior year of college, I created a college basketball website called Littyhoops.com. This was back in the dark ages before blogs were popular so it took a considerable amount of effort to get the website up and running and then maintain it. I learned a ton about the web from the experience. One thing that quickly became apparent was that it’s damn hard to make money off of a website unless you are super focused on driving revenue.

Recently, I’ve been helping a few friends think through there digital business ideas. One way to more fully comprehend a business opportunity is to create a simple pro forma income statement or business model. It’s practically impossible to predict what is going to happen with a new business so a model is used more for a framework to understand key drivers and help make informed decisions.

Most digital businesses derive revenue through E-Commerce (including affiliate fees), subscription products, or advertising revenue. Each of these revenue streams has a few key metrics that help project revenue. Once these drivers are recognized it helps clarify what exactly needs to happen to be successful. For example, digital advertising revenue is a product of visits, page views and CPM rate. A business model also provides a realistic projection of how long, and how much money, it will take to reach certain milestones (most notable profitable). This allows for better planning and cash flow management which is essential in the early stages before a business is profitable.

(...) While this model might not hold up in a meeting with a venture capitalist, it gets to the fundamentals of any website.

If you are in the process of creating a website, or are even thinking about it, play around with this and hit me up if you want to chat through it."

- Brian Litvack, 2010, www.blog.littyhoops.com