The Business-Model 'Flag': Mapping the Arithmetic of Value Creation

Abstract

Product and Business Model Innovation tends to be iterative and interdisciplinary. This usually requires frameworks with effective visualizations that map not only the decisions, but also their previewed consequences for the business. This paper offers a mapping to complement existing qualitative models. It does so by displaying the quantitative consequences of strategies in a coherent visual framework, aiming to discipline the pitching process. This, by making the basic arithmetic of real or guesstimated profits more transparent to team members and financiers. It brings back the basic Managerial Accounting (i.e. Cost-Volume-Profit analysis) blended with Economics into a convenient Figure for project discussion. Rectangle areas represent sales as well as fixed and variable costs, leaving profits as a residual income. Among various advantages, the framework intuitively visualizes breakeven and demand elasticities. It also helps analyzing different growth strategies. Importantly, the model allows for a visual sensitivity analysis – without derivatives - of how changes in assumptions impact profitability. Beyond the basic static analysis, the paper discusses additional applications. For example, to new ventures focusing on customer equity or other dynamic analysis. It even applies to innovations in marketing and non-profits.

Keywords: project appraisal, pitching, due-diligence, startups, entrepreneurship, visualization, strategizing, business model innovation., design thinking

JEL Classification: G24, G31, H43, L26, L31