How it began
Quattro Private Limited is a 4 year old company providing hardware development services with a team of over 100 employees. Prequate was brought in to help Quattro remodel the business for proposed investments.
Quattro had just developed a great product with good interest for introduction to rural markets. They were aiming to manufacture the products with a EBIT of 27% of USD 10Mn in 5 years. They had been approached by investors who had asked them to perform a scalability assessment.
Image credits: http://dilbert.com/strip/2015-05-09
Getting to work
Quattro started a limited engagement that allowed Prequate to develop the renewed business model within the IBM&A offering and strategize investments.
Prequate started off with looking into the product that was developed. In the course of such delivery, Prequate noticed that:
- Product had been designed with abilities to remotely manage the software backend
- Model was built on a product sale model that netted cash on each product sold
- Working capital requirement bloated due to lead time payments
- Profit needed scale which needed continuous inflow of money
While the product delivered ongoing benefit, the revenue model was one-time only.
Prequate deduced that the fundamental business model was a value-in-use as compared to value-on-sale. It meant that the business model needed to address:
- Is the model rewarding usage while de-risking delivery?
- Who gains from using the product – the buyer or someone else?
- Are we profiting from the continuing value of the product?
- Can contracts become onerous someday due to support?
⇒ A new approach to the business was necessary to highlight value.
Perform a scalability assessment: Identify the key variables that provide sustaining value to the business
Fit an ecosystem fundamental: Develop a new business model to boost the NPV of the business and create an eco-system
Redesign the revenue model: Developing continuing revenue streams based on usage
Re-design the fund raise strategy: Create new raise plan in a tranched manner using off balance sheet funding arrangements to increase IRR and decrease dilution
Prequate redesigned the business model that:
- was based on a dynamic franchise + sale model of the devices and had a revenue model was based on per use basis
- strategized delivery of training manuals online over displays in different vernaculars for faster adoption
- created avenue for performance incentives for promotion and use
- split cash flow to
- equity infusion: development of content, marketing
- debt: device roll-out
- off-balance sheet: working capital
- Win 1 | Cumulative EBIT increased by 1000% over a 5 year horizon
- Win 2 | Net jumped to 47% from existing 17%
- Win 3 | Adoption risk brought down to 25% from 80%
- Win 4 | Cash requirement reduced from USD 10Mn to USD 4Mn
- Win 5 | Big Data opportunities opened up in 3 years
What happens when Finance understands your product
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