The Business Plan 277the industry and market, entrepreneurs know the competitive players and have
a good understanding of their history. The comparable method models sales
forecasts after what other companies have achieved, adjusting for age of com-
pany, variances in product attributes, support services such as advertising and
promotion, and so forth. In essence, the entrepreneur monitors a number of
comparable competitors and then explains why her business varies from those
models. The one thing we know for certain is that these forecasts will be
wrong, but the question is the degree of error. Detailed investigation of com-
parable companies reduces that error. The smaller the error, the less likely the
company will run out of cash. Also, rigorous comparable analysis builds credi-
bility with your investors.
What happens when the market space you are entering doesn’t have com-
parable companies because they are private or differ significantly on some
other major parameter? In such situations, entrepreneurs may be able to iden-
tify similar business models in other industries, or what I call first-cousin
companies. If that proves difficult, the other avenue is the buildup method.
Starting with each revenue source, the entrepreneur estimates how much of
that revenue type he can generate per day or some other small time period. For
example, if Joey Crugnale was trying to estimate sales for his Naked Fish
restaurant, he might identify the following revenue sources along with the av-
erage ticket price for each: bar, appetizers, entrees, and dessert. Then he might
estimate the number of people to come through the restaurant on a daily basis
and what percentage would purchase each revenue source. Those estimates can
then be aggregated into larger blocks of time (say, months, quarters, or years)
to generate rough estimates, which might be further adjusted based upon sea-
sonality in the restaurant industry.
The buildup technique is an imprecise method for the new startup with
limited operating history, but it is critically important to assess the viability
of the opportunity—so important, in fact, that I advise entrepreneurs to use
both the comparable and buildup techniques to assess how well they converge.
If the two methods widely diverge, go back through and try to determine why.
The deep knowledge you gain of your business model will greatly help you to
articulate the opportunity to stakeholders as well as to manage the business
when it is launched.
EXHIBIT 9.9b Magazine advertisement schedule.
Publication Circulation Ad Price Cost per Thousand
Golf Digest 1,550,000 $35,820 $23.11
Spor ts Illustrated 3,150,000 57,600 18.29
Golf Magazine 1,400,000 26,000 18.57
For t une 775,000 21,600 27.87
Money Magazine 1,400,000 34,900 24.93