Hi again! My name is Arrad Mostafa and I will be a senior at Sir Wilfrid Laurier next school year. On Thursday, July 15th, I had the pleasure to attend Illuminate Leadership Academy Lecturer Raaj Chatterjee’s presentation on the "Core Money Model". His presentation allowed me to gain a further understanding of how to manage business finances and how to start up a business. Underneath, I highlighted some of the key topics that I have learned.
One of the main aspects that I enjoyed about Raaj’s presentation was the interactive start. He began with a brief introduction of who he is and an overview of his journey. Rather than continuing with his lecture, he asked if we had any questions about his journey or any parts we wanted to know in detail. As a high school student, I am preparing for post-secondary. I asked some questions about some of the co-ops he did and how he found his passion. He was able to give me the guidance I needed and helped me look at my career path in a different way.
He continued to explain some highlights of his academic career and some of the problems that we might face in the years to come. He emphasized the importance of opportunities or open doors provided to you and reflecting upon them. My mind instantly related back to my experience with Dannielle Sakher. In her presentation on "Leadership Skills and Sales" (you can read my blog about her presentation here) she also talked about the importance of taking an opportunity provided to you.
Continuing with his advice, Raaj spoke about "Imposter Syndrome". Imposter syndrome is when you believe you are not as qualified for a certain position or event and believes that everyone else knows much more about the topic than you. I never knew that there was a name for this type of syndrome, and I am also surprised to believe that I might have it. I find myself sometimes not taking initiative or going for a specific opportunity when I believe that there are better candidates. Raaj explained that in reality, that's not the case. Everyone has something different to bring to the table. This is not something that I can get rid of in a day, but something I will need to continue to work towards.
After building a comfortable environment, he continued with his presentation on the core money model. Raaj explained that every business is built on a money model. The model includes pricing, costs, market values, future projections, and much more. He shared 7 steps to create a Core Money Model. At the end of his presentation, he gave us a task to plan our own money model for a business. So today, I will be sharing the 7 steps along with the key ideas I have for each step.
Key Values & 7 Core Money Model Steps:
One last thing before we start diving into the money model steps. There are a couple of Key Values that you should keep in mind while and after you finish your model. The first key value you should keep in mind is something that I like to call "the artist approach". The artist approach is essentially how an artist draws their pieces. It is always best to start off with a rough idea and then refine it with further details as you move on. The next key value is after the money model is completed. Make sure the model is realistic. It is best to develop a hypothesis and do tests to see if your model really will work out before starting your business in real-time. The final key value is storytelling. Storytelling is an effective skill that is critical in almost every field. Being able to sell your business plan and your strong money model to investors will help you make your business a reality. Now, let's finally get into the 7 steps.
1. Unit Economics
Raaj explained that the first step in a money model is to picture a single transaction. The transaction will include the revenue, direct costs, and gross margin. He gave us an example of the first transaction for a Premium Kombucha Company (I didn’t even know what Kombucha was until Raaj explained it to me. Inspired by this new drink, this is also the business that I will use for these 7 steps.)
2. Repeatable Opportunity
The second step is to make the single transaction repeatable, recurring, and replicable. There are many different methods that businesses can use to achieve all three aspects. As I am in the persona of a kombucha company owner, I will implement monthly subscriptions to our recurring customers. They will pay a decreased price from the original. Along with this system, I will also create a points system that all customers can use to earn a free drink.
3. Positive Earnings / Cash-Flow
In the third step, you are determining your revenue targets (aka customers), the number of sales you can make over a specified period of time as well as estimating how long it will take to break even. Another important factor in this step is the "Beachhead Market". Beachhead Market is the place where you first start your business or your target placement where you will further expand from. There are 3 variables you need to consider to wisely choose your beachhead. They are TAM, SAM, and SOM.
Total Available Market (TAM)
Serviceable Available Market (SAM)
Serviceable & Obtainable Market (SOM)
TAM is the consideration of the demographic of the area to determine the number of potential customers there will be. The number of potential customers available multiplied by the profit gained represents the Total Available Market. From TAM, you will filter down towards SAM. The serviceable available market is the total (realistically) reachable customers multiplied by the profit gained. SOM is a percentage of SAM that you can reach in a specific timeframe. As the owner of my kombucha company, I know that people who are 21+ can drink kombucha. With this in mind, I will try to locate my business in an area with large demography of those who are 21+ or will soon become 21.
4. Growth Multiplier / Scaling Mechanisms
Now we come to company growth. What are some ways that we can strategically increase growth in our market? My inspiration to tackle this problem came from my own ignorance of kombucha. I realized that there may be people like myself who don't know a drink like a kombucha even exists. With this in mind, I will implement a "grow your own kombucha" program where people can make their own kombucha. Those who are regular customers will be delighted to make their own drink with their preferences. With word of mouth, they can inform their friends about this opportunity and influence them to check it out. With more customers making their own kombucha, there will be a decrease in manual labor costs and I can use the extra money to increasing the technological capabilities of my business.
5. Capacity Considerations
Capacity considerations are keeping well observed of your current constraints. These constraints could be the price