SECTION #1: FUNDAMENTALS

Intro and Summary

The Big Spreadsheet opens up with some instructions on the first sheet. The left hand side is a navigation menu that's consistent thoroughout the entire worksheet.

We'll walk through a most of the sheets to give you a preview of how it works and what you can get out of it. The spreadsheet itself follows the same methodology as the course.

Section #1 gives us one sheet for each of the Four Building Blocks. You can draft out your initial personal business model by simply modifying the default values in Blocks 1 through 4 and then viewing the "model output" sheet.

SECTION #1: FUNDAMENTALS

Block #1: Net Revenue Target

On this sheet, we apply the methodology taught in the course to establish a net revenue target by using a "salary equivalent" as a starting point. This is how most of us comfortably assess the "value" of a job. An easy mistake for first time entrepreneurs to make is failing to account for the differences between the revenue their business might produce and the "salary" they might make. To compound this further, they may also fail to account for the benefits the salaried job provides them.

This creates two-way risk for the entrepreneur. They might fail to account for self-employment taxes on business side, while failing to account for things like healthcare benefits or vacation time on the typical job side. So if you're going to leave a job paying you $100k, how much "net revenue" (cash AFTER business expenses are paid) do you need to have to match an equivalent salaried job?

SECTION #1: FUNDAMENTALS

Block #2: Time Targets

A typical "person-year" is 2,080 hours. That's 40 hours per week X 52 weeks per year. An easy mistake to make is to assume that your rates are built around this many hours. The first thing you need to do is adjust that total for holidays and vacation. That re-baselines the number of hours you actually have available to work, and this is what our baseline model should be built around.

Next, we have to break up our time into three different buckets: (1) revenue generating time (2) business development time and (3) overhead time. You're going to have lots of tasks you need to do that don't generate revenue. Ignoring this in your model simply means you have to work more than 40 hours per week simply to hit your baseline. We don't want that. 

So this is where we budget the time you do have across those three buckets and build our business model accordingly.

SECTION #1: FUNDAMENTALS

Block #4: Customer Acquisition

Here we estimate our key variables for customer acquisition. We forecast an ACV (Average Client Value) and then estimate the "costs" associated with landing that client as a percentage of the ACV. So for example, if we spend $250 in order to acquire a client valued at $2,500, then our CAC (Client Acquisition Cost) is modeled at 10%. 

We also estimate a "conversion rate", which we define as the percentage of qualified leads that turn into paying clients. So imagine that every lead you generate starts with a phone call or zoom meeting. If your "conversion rate" is 20%, that means 2 out of 10 leads turn into paying clients. We can use these numbers to estimate all sorts of things when tie it back into our time models in block #2.

SECTION #1: FUNDAMENTALS

Model Output

This is where start to analyze the viability of our model. I consider this a "bottom up" approach to modeling. We specify what we want the business to look like in terms of time, revenue, and client profile - and we calculate all the resulting details. 

We discover what our "gross revenue" figure needs to be, how many clients we'll need to land to hit the number, and how many leads we'll have to qualify to land that number of clients. Similarly, we can quantify how our time gets spent. We've allocated a percentage of our time towards "business development" - combined with the number of leads we need, we can allocate a set amount of time per lead.

This is where we can discover a model breaking down. For example, if you plan to offer a 45 minute free consultation to each lead, but the spreadsheet points out that you've only allocated 30 minutes per lead - you've got an issue.

SECTION #2: STRESS TESTING

Several Methods

So you have a baseline model plugged in that you like. Now it's time to see what happens when things don't quite go according to plan. There's several sheets here to test the model in unique ways. For example, you've set ACV at some value. What happens if the actual ACV is lower than you planned, holding everything else constant? 

The idea here isn't to build a bullet-proof business. Instead, the idea is to condition your brain to understand how these variables relate to each other. Adjust ACV and watch other values re-calculate in real time. Try to assess your business over a range and see how how stable it is. Does a 20% reduction in ACV still leave you with a viable business model? What tweaks might that drive? 

Evaluating your business model like this make you the singular expert in YOUR model. You understand how your key variables drive the flow of time and cash through your business. When reality "punches you in the mouth", you'll be ready because your brain has already seen that scenario.