CASE STUDY 14/01
Good Business modeling
can drive 10x more income
with 40% less investments.
About the client
Quattro * Private Limited (Quattro) is a 4-year-old company providing hardware development services with a team of over 20 employees. Quattro had just developed a great product which was a healthcare product aimed at making available basic health-care related services to hard to reach areas in rural & semi-urban across the world.
The devices were to be contract manufactured and hence capital required would be lesser there.
Size: 20+ employees
Disclaimer: Considering the nature of work, client names & organizational specifics have been changed to protect client confidentiality.
The initial plan of the company:
EBIT of 27% of $10Mn by Year 5
EBITDA positive from Year 3
Raise amount of ~$10Mn to finance their inventories, continue product R&D and deploy a good sales team for a pan India launch
They had begun approaching investors for scaling the reach but had faced slow progress.
Prequate was brought in to help Quattro remodel their business for proposed PE/VC investments.
Developing a deep understanding
Prequate started off with a deep-dive into the fundamentals of the product, its possible utilities – today and 3 years from now, its potential uses and type of data it was capturing.
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
The product could, over time potentially deliver various benefits, but the revenue model was built on one-time transaction only – revenue on sale.
Because something worked well in the past does not mean it will work well today. Every few years, a company needs to look inward at everything they're doing and evaluate 'why'. Here, an external team can be the difference between knowing and actually doing something about it.
Pradyumna Nag, Partner
Asking the right questions
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 be able to address key questions such as >
Is the model rewarding usage while de-risking delivery?
Who gains from using the product?
Are we profiting from the continuing value of the product?
Can contracts become onerous someday?
Getting to brass tacks
Prequate worked with all key stakeholders over a period of 2 months including engaging with key investor fraternity & advisors. The work, covering the breadth of the business, included:
▴ Perform a scalability assessment
Identify the key variables that provide sustaining value to the business
▴ Fit an ecosystem fundamental to test
Develop a new business model to boost the NPV of the business using an eco-system approach
▴ Redesign the revenue model
Developing continuing revenue streams based on usage
▴ Develop a new fundraise strategy
Create a new raise plan in a tranched manner with different financing methods using balance sheet strength for shorter-term capital needs and project financing
The Prequate Difference
Getting to brass tacks
Prequate derived a:
▴ a new business model:
of a local entrepreneurship model based on the principles of franchising with a revenue share arrangement with local partners (primarily, those who run local stores) who would look at it as an investment opportunity; and
▴ Re-strategized their product roadmap:
to include vernacular support and 100% self-service using visual aids require little to no human interference in operation and maintenance & complete self-service modules.
Business modeling was able to drive 10x more returns with 40% less in
▴ Shortlisted for a coveted technology grant of ▴ $400k
▴ Projected Y5 EBITDA grew by over ▴ 1,000%
▴ PAT% increased from 17% to ▴ 37% in Y5
▴ Cash required as equity dropped from $10M to ▾ $6M
▴ Big data opportunities unlocked in Y3
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