About when we remodeled a company to 10x returns
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
Disclaimer: The nature of professional services is to provide tailored advisory based on the facts and circumstances of the case. Advice is never a one-way-fits-all. You may need to approach your advisor to effectuate a plan that suits your business.
You can contact us at [email protected] if you wish to see how this can be executed for your business.