The Venture Economics�Framework
FNCE 143 · Week 2
Assessing business opportunities before building the financial model
Devon Coombs, CPA, MBA�Leavey School of Business · Santa Clara University�Fall 2026
Week 2 topic & practice guide
Customers, revenue, and unit economics
Topic
Concept
Worked example
Practice
Problem–solution and product–market fit
Revenue models and charging methods
Cost structure and operating leverage
Pricing methods
Margin, break-even, and price sensitivity
Contracts and contribution economics
Customer acquisition and payback
Customer churn
Devon Coombs CPA, MBA | Santa Clara University | FIN143
Guide 1 of 2
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Week 2 topic & practice guide
Growth, market evidence, and survival
Topic
Concept
Worked example
Practice
Net revenue retention
Lifetime value and LTV:CAC
TAM, SAM, and SOM
Competitive strategy and forecasts
Network effects
Profit, cash, and runway
Default alive and the fatal pinch
Burn multiple and venture viability
Devon Coombs CPA, MBA | Santa Clara University | FIN143
Guide 2 of 2
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Venture economics
A financial model is only as credible as the business assumptions behind it.
Test six sources of fragility:
Technology creates an opportunity. The economics determine whether the business can capture it.
Course synthesis. These are diagnostic categories, not a ranked or exhaustive failure study.
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Learning objectives
By the end of this lesson, you can:
For each conclusion, identify the evidence, assumption, and next test.
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The seven-layer framework
Layer | Core question |
1. Problem and market fit | Do customers value and repeatedly choose the solution? |
2. Revenue model | Who pays, for what, and how? |
3. Pricing | Does the price capture value and cover costs? |
4. Channel and go-to-market | Can the business acquire customers economically? |
5. Unit economics | What does a customer or transaction contribute? |
6. Market and competition | How much opportunity is accessible and defensible? |
7. Cash and sustainability | Can cash fund the next milestones? |
Course framework combining established concepts; not a validated scoring model.
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The problem–solution diagnostic
Layer 1 · Establish the customer problem.
Pain matters. Budget, alternatives, and switching costs also shape willingness to pay.
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Problem–solution fit and product–market fit
Problem–solution fit: Evidence that a defined customer has an important problem and that the proposed solution addresses it.
Product–market fit: Evidence that a specific product creates value and gains sustained adoption in a specific market.
For a recurring-revenue product, examine paid usage, renewal, expansion, and referrals across cohorts.
Neither label alone establishes profitable unit economics or a financeable business.
Strategyzer: Three kinds of fit (2014) · Operational definitions for this course; evidence varies by business model.
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The evidence ladder: Interest and commitment
Level | Evidence | What it supports |
1 | Assumptions | A hypothesis to test |
2 | Customer discovery | Problem, context, and alternatives |
3 | Waitlists, signups, nonbinding letters of intent | Stated interest |
4 | Paid pilot, preorder, or early purchase | Willingness to make a payment commitment |
Check the customer, price, discount, and refund terms. One payment does not establish repeat demand.
Course evidence ladder. Interview quality and sample relevance matter; there is no universal 20-interview threshold.
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The evidence ladder: Repeatability and economics
Level | Evidence | Next analytical question |
5 | Repeat purchase or renewal | Does the customer choose the product again? |
6 | Retention across comparable cohorts | Does demand persist as the business grows? |
7 | Positive unit contribution at a defined scale | Do repeat customers support an economic model? |
Model assumptions at every stage and update them as evidence improves.
This ladder organizes evidence; it does not certify product–market fit or investment readiness.
Course heuristic. Adapt the evidence to purchase frequency, payer, and business model.
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AI underwriting: The missing purchase case
Test the buyer’s benefit against the price and the cost of switching.
An AI underwriting tool saves hours on each deal, but the purchase case differs by customer:
A $5 million ARR forecast therefore needs evidence about the target buyer, achievable price, and number of purchases.
The revenue assumption is unproven. A better segment, offer, or price could still work.
Illustrative case adapted from the original course deck. ARR = annual recurring revenue.
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Question: Evidence of product–market fit
Which observation provides the strongest evidence that a recurring-revenue startup has moved beyond early interest toward product–market fit?
A. A large waitlist follows a widely shared social-media post, but few prospects have been asked to pay.
B. Interviews consistently describe a painful problem, but the company has not launched a paid offering.
C. A discounted launch generates many signups, but usage falls sharply after the promotion ends.
D. A competitor raises a large financing round, suggesting investor interest in the category.
E. Paid cohorts renew, usage remains strong, customers expand, and referrals bring additional paying customers.
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W2-S010
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Easy (1/8)
Answer: Evidence of product–market fit
E. Repeated paid behavior provides the strongest evidence.
Case: The question compares attention, stated interest, promotional signups, competitor financing, and sustained customer behavior.
Why: Renewal, continued use, expansion, and paid referrals show that customers keep receiving value after the initial purchase. Check whether this pattern holds across representative cohorts.
Other choices: A and B establish attention or problem relevance. C raises a retention concern. D describes someone else’s financing. None supplies the same evidence of persistent demand.
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W2-S010
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Easy (1/8)
Question: Product-market fit
KNOWLEDGE CHECK
Two teams sell the same�type of monthly workflow�software to comparable�small businesses. Both have�operated for nine months.
An investor wants to assess�whether customers find�enough value in the product�to continue paying for it.
Which conclusion is best�supported by the evidence?
Evidence | Team North | Team South |
Initial paying customers | 400 accounts at heavily�discounted prices | 90 accounts at the�intended price |
Customers still paying�after three monthly�renewal opportunities | 60 | 72 |
Other evidence | A 2,400-person waitlist�and much larger�social-media reach | Sustained product use�and unsolicited referrals�that brought in paying�customers |
A. South shows stronger evidence that customers will keep paying, while North shows broader reach. Neither�result establishes profitable growth across new customer groups or channels.
B. North shows stronger evidence that customers will keep paying because its larger initial customer group offsets�weaker retention. South mainly demonstrates interest among early enthusiasts.
C. Both teams show similar evidence that customers will keep paying because similar numbers remain. Different�starting customer counts and initial discounts do not affect comparability.
D. South shows stronger demand and more efficient customer acquisition because customers renew at the�intended price. North's broader reach provides weaker evidence of acquisition efficiency.
E. North shows stronger evidence of scalable demand because its waitlist contains more prospective customers.�South's renewals mainly confirm service delivery rather than willingness to pay.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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W2-S012
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Hard (6/8)
Answer: Product-market fit
KNOWLEDGE CHECK
A. South shows stronger evidence that customers will keep paying, while North�shows broader reach. Neither result establishes profitable growth across new�customer groups or channels.
Why A is right
South shows sustained paid�behavior at its intended price,�supported by usage and�paying referrals. That is�stronger evidence than a�waitlist or subsidized�acquisition.
The conclusion is comparative�and conditional, rather than a�claim that South has proven�profitable scalability.
Why the other choices are wrong
B. Larger initial acquisition does not offset weak retention�when assessing durable paid demand. South shows actual�payment and renewal, not just interest.
C. The retained counts come from very different starting�cohorts and price conditions: 60 of 400 versus 72 of 90.�Those differences matter.
D. South has stronger demand evidence, but the case gives�no acquisition costs or channel efficiency. Paying the�intended price does not establish efficient acquisition.
E. A waitlist is interest. Renewing at the intended price�directly informs willingness to pay, although it does not�prove scalable acquisition economics.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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W2-S012
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Hard (6/8)
Six revenue-model archetypes
Layer 2 · Identify what the business sells.
Archetype | Economic activity |
Product | Sell a physical or digital item |
Services | Perform work for a customer |
Intellectual property | License rights, software, or content |
Marketplace | Facilitate transactions and earn fees |
Financial services | Earn fees, spreads, or risk-related returns |
Advertising | Sell access to an audience |
A business can combine several archetypes.
Course taxonomy: overlapping categories, not an exhaustive classification. Financial models also require credit, funding, and regulatory-cost analysis.
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Revenue model and charging method
A revenue model identifies who pays and for what. The charging method defines the unit and timing.
The same software business can combine subscriptions and usage fees. Specify the payer, price metric, billing terms, and delivery obligation.
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Question: Identifying the revenue model
A platform acts as an agent connecting buyers and providers. It earns a percentage of completed booking value, and major transaction costs include payment processing and insurance. Which revenue-model archetype best fits?
A. Product sales.
B. Intellectual-property licensing.
C. Advertising.
D. Services delivered directly by the company.
E. Marketplace / commission.
Simplified agent arrangement. Actual gross-versus-net revenue reporting depends on control and contract terms.
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W2-S016
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Easy (0/8)
Answer: Identifying the revenue model
E. Marketplace / commission.
Case: The platform earns a fee for facilitating completed transactions between other parties.
Why: Fee revenue equals completed booking value multiplied by the take rate in this agent example. Transaction costs then reduce that fee revenue.
Other choices: Product and direct-service models sell the company’s own output. Licensing sells rights. Advertising charges for access to an audience. Total bookings are not automatically platform revenue.
Simplified agent arrangement. Actual gross-versus-net revenue reporting depends on control and contract terms.
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W2-S016
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Easy (0/8)
Alphabet: Revenue mix
Historical case · Q2 2025 · USD billions
Revenue category | Revenue |
Google Search & other | $54.190 |
YouTube ads | $9.796 |
Google Network | $7.354 |
Subscriptions, platforms, and devices | $11.203 |
Google Cloud | $13.624 |
Other Bets | $0.373 |
Hedging losses | −$0.112 |
Total | $96.428 |
The three advertising categories total $71.340 billion, approximately 74.0% of revenue.
Alphabet: Q2 2025 earnings release, July 23, 2025 · Company figures in millions converted to billions; share calculated.
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Gross profit, contribution, and fixed costs
Gross profit = revenue − cost of revenue.
Contribution = revenue − variable costs. It differs from gross profit when the included costs differ.
Contribution per unit = price − variable cost per unit.
Total contribution = units sold × contribution per unit.
Operating profit = total contribution − fixed operating costs.
Example: $100 price − $40 variable cost = $60 contribution toward fixed costs, then profit.
The profit formula assumes all operating costs are included and the cost behavior remains valid within capacity.
OpenStax, Managerial Accounting §3.1: Contribution margin · Operating profit excludes interest and tax. Cash timing is considered separately.
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Operating leverage
Operating leverage comes from fixed costs relative to variable costs within a relevant activity range.
With a positive contribution margin, higher volume spreads fixed costs. Lower volume leaves those commitments in place.
Inspect cost behavior; the industry label is insufficient.
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Question: Revenue growth and cost structure
A software company and a consulting firm each grow revenue 50%. Software supports much of the extra volume without proportional hiring; consulting adds professionals roughly with new client work. With comparable remaining cost behavior, which concept best explains the difference?
A. Software has greater operating leverage because its fixed-cost base supports additional revenue before headcount must rise proportionally.
B. Consulting has greater operating leverage because adding labor with client work keeps costs closely aligned with revenue.
C. Software has stronger product–market fit because lower staffing requirements imply better customer retention.
D. Consulting necessarily has stronger overall economics because variable labor reduces unused-capacity risk.
E. Software has a network effect because revenue grows faster than headcount, even when other users do not change customer value.
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W2-S021
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Easy (1/8)
Answer: Revenue growth and cost structure
A. The software cost structure provides greater operating leverage.
Case: Both firms grow revenue 50%, but software uses more existing capacity while consulting adds delivery labor.
Why: Fixed costs do not rise proportionally with revenue within the stated range. That makes additional sales contribute more toward operating profit. It also creates exposure when sales fall.
Other choices: B describes cost flexibility, not greater leverage. C infers customer behavior from staffing. D overstates one advantage of variable costs. E confuses cost scaling with participant-created value.
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W2-S021
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Easy (1/8)
Question: Operating leverage
KNOWLEDGE CHECK
Atlas Software and Beacon Consulting each report�quarterly revenue of $1.50 million, operating profit of�$150,000, and cash of $800,000. Their cost structures�differ:
Cost | Atlas�Software | Beacon�Consulting |
Variable operating costs as�a percentage of revenue | 20% | 60% |
Fixed operating costs per�quarter | $1.05�million | $450,000 |
Next quarter, revenue falls by 10% at both companies.�Prices, sales mix, variable-cost percentages, and total�fixed costs remain unchanged.
What operating profit will each company report, and�which company's operating profit is more sensitive to�the revenue decline?
A. Atlas: $90,000; Beacon:�$30,000; greater profit�sensitivity: Beacon.
B. Atlas: $120,000;�Beacon: $60,000; greater�profit sensitivity: Beacon.
C. Atlas: $135,000;�Beacon: $135,000; greater�profit sensitivity: neither.
D. Atlas: −$120,000;�Beacon: −$60,000;�greater profit sensitivity:�Atlas.
E. Atlas: $30,000; Beacon:�$90,000; greater profit�sensitivity: Atlas.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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W2-S023
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Hard (6/8)
Answer: Operating leverage
KNOWLEDGE CHECK
E. Atlas: $30,000; Beacon: $90,000; greater profit sensitivity: Atlas.
Work the calculation
New revenue = $1.50m × 90% =�$1.35m. Atlas profit = $1.35m × 80%�− $1.05m = $30,000. Beacon profit�= $1.35m × 40% − $450,000 =�$90,000.
Atlas's profit falls 80%, versus 40%�at Beacon. The larger fixed-cost�exposure makes Atlas more�sensitive under the stated�assumptions.
Why the other choices are wrong
A. Reverses the results. Atlas has the�higher contribution margin and larger�fixed-cost commitment.
B. Reports the dollar profit reductions as if�they were the ending operating profits.
C. Reduces profit by the 10% sales decline�as though operating margins remained�constant.
D. Subtracts the profit reductions from�zero instead of from each company's�starting $150,000 profit.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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W2-S023
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Hard (6/8)
Three pricing approaches
Layer 3 · Use costs, alternatives, and customer value.
Approach | Starting point | Main limitation |
Cost-plus | Cost plus a chosen markup | May miss willingness to pay |
Competition-based | Prices of relevant alternatives | May copy another firm’s economics |
Value-based | Benefits relative to alternatives | Value and willingness to pay require evidence |
Select a price metric customers understand. Test actual purchase behavior; perceived value is not a fixed pricing formula.
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Question: A founder’s pricing method
A founder prices a differentiated product using fully loaded cost plus a 25% markup. The product solves an expensive customer problem, and customers may pay substantially more. Which pricing approach is being used, and what is its main limitation?
A. Competition-based pricing; competitors’ price reductions may trigger a price war.
B. Value-based pricing; uncertain customer benefits may lead to overstated willingness to pay.
C. Penetration pricing; a low introductory reference price may be difficult to increase.
D. Cost-plus pricing; ignoring willingness to pay may leave substantial value uncaptured.
E. Freemium pricing; free users may never convert to a profitable paid tier.
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W2-S026
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Medium (4/8)
Answer: A founder’s pricing method
D. Cost-plus pricing can miss the customer’s willingness to pay.
Case: The founder starts with fully loaded cost and adds 25%, even though the customer’s benefit may support a higher price.
Why: Cost and markup describe the seller’s target return. They do not measure the customer’s alternatives, switching costs, or willingness to buy.
Other choices: A starts from competitors. B starts from customer value. C requires an introductory-price strategy. E requires a free tier. Those features are absent from the stated pricing rule.
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Medium (4/8)
Markup and margin
The denominator changes the answer.
With unit cost of $100:
State which costs are included. A margin measured after fully loaded costs is not automatically gross margin.
Illustrative arithmetic; amounts rounded only at the final step.
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Break-even and capacity
Break-even units = fixed costs ÷ contribution per unit.
Example: $10,000 fixed monthly costs ÷ ($50 price − $30 variable cost) = 500 units per month.
For operating cash break-even, use cash costs and matching receipts/payment timing. Include other cash obligations in the broader cash forecast.
OpenStax, Managerial Accounting §3.2: Break-even · Constant price, unit variable cost, and fixed costs within the modeled activity range.
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Pricing sensitivity: Contribution margin
Monthly illustration · Variable cost stays $30 per customer.
Measure | Base | Price +20% |
Price per customer | $50 | $60 |
Customers | 5,000 | 4,500 |
Contribution per customer | $20 | $30 |
Contribution margin | 40% | 50% |
Total contribution | $100,000 | $135,000 |
Fixed operating costs | $100,000 | $100,000 |
Operating profit | $0 | $35,000 |
Customer count falls 10%; contribution per customer rises 50%.
Illustrative assumptions: constant variable cost, unchanged fixed costs and product mix, no other operating costs; excludes interest and tax.
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Question: Pricing and contribution
KNOWLEDGE CHECK
A company currently sells 1,000 units per month at $75 each. It set�that price using a 25% markup on a fully loaded unit cost of $60,�consisting of $42 in variable cost and $18 in allocated fixed�overhead.
Management is comparing three pricing plans:
Plan | Price per unit | Expected monthly�sales |
Current plan | $75 | 1,000 units |
Higher-price plan | $90 | 800 units |
Lower-price plan | $68 | 1,250 units |
All three sales volumes are within existing capacity. Total fixed costs�remain unchanged, and variable cost stays at $42 per unit.�Customers report saving about $900 annually by using the product.
Using these sales estimates, which price produces the highest�monthly contribution, and how much does contribution change�from the current plan?
A. Price: $68; change in�monthly contribution:�+$10,000.
B. Price: $75; change in�monthly contribution:�$0.
C. Price: $90; change in�monthly contribution:�−$3,000.
D. Price: $90; change in�monthly contribution:�+$5,400.
E. Price: $90; change in�monthly contribution:�+$9,000.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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W2-S031
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Hard (6/8)
Answer: Pricing and contribution
KNOWLEDGE CHECK
D. Price: $90; change in monthly contribution: +$5,400.
Work the calculation
Current contribution = ($75 −�$42) × 1,000 = $33,000. At�$90: ($90 − $42) × 800 =�$38,400. At $68: ($68 − $42)�× 1,250 = $32,500.
The $90 price produces the�most contribution, $5,400�above the current plan.�Unchanged total fixed costs�cancel in the comparison.
Why the other choices are wrong
A. Uses the increase in revenue, $85,000 −�$75,000, rather than the change in contribution.
B. The current plan produces $33,000, less than�the $38,400 contribution at the $90 price.
C. Uses the revenue decline, $72,000 − $75,000,�while ignoring the lower variable costs at lower�volume.
E. Treats the allocated $18 fixed cost as variable:�(90 − 60) × 800 − (75 − 60) × 1,000 = $9,000.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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W2-S031
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Hard (6/8)
B2B and B2C buying behavior
Layer 4 · Match the selling process to the buyer.
Dimension | B2B: selling to businesses | B2C: selling to consumers |
Decision | May involve users, buyers, and procurement | Individual or household |
Cycle | Can involve evaluation, security, and contracting | Can be immediate or considered |
Acquisition | Self-serve, sales, content, or partners | Retail, digital channels, brand, or referrals |
Retention | Results, integration, and switching costs | Results, habits, convenience, and trust |
Contract size and sales cycles vary widely in both markets.
Illustrative tendencies, not fixed dollar ranges or universal buying rules.
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What a contract can support
Annual contract value (ACV) is recurring contract revenue per year in this course.
Illustrative ACV | Candidate motion | Main cost risk |
Below $1,000 | Self-serve, efficient digital acquisition | Manual selling and support |
$1,000–$24,999 | Inside sales, webinars, founder sales | Repeated customization |
$25,000+ | Enterprise sales, pilots, account support | Long cycles and commitments |
ACV alone does not set an acquisition budget. Check contribution, retention, expansion, and the time available to recover spending.
Illustrative course bands, not industry cutoffs. Self-serve can work at higher ACV; high-touch selling requires supporting economics.
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Define the unit and the period
Layer 5 · Make costs and revenue comparable.
Cost of revenue can contain fixed costs. A monthly allocation does not show when cash was spent. Separate recurring costs from upfront acquisition and onboarding; reconcile totals without subtracting costs twice.
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CM1 and CM2: State the cost boundary
Course convention for a one-time purchase
Example: $100 revenue − $50 delivery/service = $50 CM1.�Then $50 − $55 acquisition = −$5 CM2.
Delivery contributes positively; acquisition more than consumes that contribution.
For subscriptions, evaluate the expected relationship. An upfront acquisition expense cannot be judged against one month alone.
CM1 and CM2 are course conventions, not standardized accounting terms. The example is a one-time purchase; subscription acquisition requires a lifetime analysis.
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Question: Gross margin and the customer relationship
A startup has positive gross margin after delivery costs. Over the expected customer relationship, however, contribution becomes negative after all additional variable sales, marketing, onboarding, and customer-success costs. What does this indicate?
A. The economics are attractive because acquisition and onboarding costs sit outside the relevant contribution analysis.
B. Delivery economics are necessarily broken because variable sales and service costs should all be classified as product COGS.
C. Fixed overhead must be causing the loss, rather than acquisition or customer-service costs.
D. The problem is mainly cash timing because acquisition spending occurs before recurring customer payments.
E. Delivery leaves gross profit, but variable acquisition and additional service costs make the full customer relationship unattractive.
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W2-S037
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Medium (4/8)
Answer: Gross margin and the customer relationship
E. Positive gross margin does not establish attractive full-customer economics.
Case: Delivery creates gross profit, but expected lifetime contribution becomes negative after additional variable acquisition and service costs.
Why: The relationship fails to recover the stated costs even across its expected life. That is an economic shortfall, not merely an early cash outlay.
Other choices: A excludes relevant costs. B confuses accounting classification with cost behavior. C blames fixed overhead even though the loss occurs before it. D addresses timing rather than the negative lifetime total.
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Medium (4/8)
Question: Gross margin and contribution
KNOWLEDGE CHECK
An equipment-accessory startup completes 500�one-time customer orders during a month and charges�$160 per order. Its records show the following costs:
Cost item | Amount |
Variable cost of revenue | $100 per order |
Variable customer-acquisition�spending | $45 per order |
Variable payment, onboarding,�and service costs | $20 per order |
Fixed overhead | $18,000 per month |
The acquisition spending and the payment, onboarding,�and service costs are additional to the $100 cost of�revenue. All orders are collected in cash, and no repeat�purchases are assumed.
What are the month's gross margin percentage and�total contribution before fixed overhead?
A. Gross margin: 37.5%;�total contribution: −$2,500.
B. Gross margin: 37.5%; total�contribution: $20,000.
C. Gross margin: 37.5%;�total contribution: $30,000.
D. Gross margin: 60.0%;�total contribution: −$2,500.
E. Gross margin: 37.5%; total�contribution: −$20,500.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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W2-S039
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Hard (6/8)
Answer: Gross margin and contribution
KNOWLEDGE CHECK
A. Gross margin: 37.5%; total contribution: −$2,500.
Work the calculation
Gross profit per order = $160�− $100 = $60. Gross margin =�$60 ÷ $160 = 37.5%.�Contribution per order = $160�− $100 − $45 − $20 = −$5.�Total contribution = 500 ×�−$5 = −$2,500.
Operating profit would be�−$20,500 after fixed�overhead. More identical�orders worsen contribution�under these assumptions.
Why the other choices are wrong
B. Deducts cost of revenue and the $20 service�costs but omits the $45 variable acquisition cost�per order.
C. Uses gross profit as contribution and omits�variable acquisition, payment, onboarding, and�service costs.
D. Divides gross profit by cost of revenue, $60 ÷�$100, producing a 60% markup rather than a�margin on revenue.
E. Deducts the $18,000 fixed overhead from�contribution, producing operating profit instead.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
42
W2-S039
143
Hard (6/8)
CAC and gross-profit payback
Customer acquisition cost (CAC) = acquisition spending ÷ new customers acquired.
Use fully loaded new-customer costs: people, programs, tools, and allocated overhead. Match spending to the resulting customer cohort and sales-cycle lag.
Gross-profit payback in months = CAC ÷ monthly gross profit per customer.
Paid-channel CAC and blended CAC can differ. Name the channel, cost scope, and customer denominator.
This simple payback assumes steady gross profit and no churn during recovery; it is not company break-even.
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Question: Payback from revenue and gross margin
An early-stage SaaS company spends $25,000 in complete acquisition costs to acquire 50 customers. Each generates $100 monthly revenue at 40% gross margin. Revenue and margin stay constant, and customers do not churn during recovery. What is gross-profit CAC payback?
A. 5.0 months, because CAC is recovered using monthly revenue.
B. 8.0 months, because gross margin reduces the acquisition cost to recover.
C. 12.5 months, because CAC is $500 and monthly gross profit is $40 per customer.
D. 20.0 months, because every customer must recover the entire acquisition campaign.
E. 25.0 months, because acquisition cost is deducted from monthly revenue first.
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W2-S042
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Medium (4/8)
Answer: Payback from revenue and gross margin
C. 12.5 months on a gross-profit basis.
Case: Acquisition costs $25,000 for 50 customers. Each earns $100 monthly revenue at 40% gross margin.
Why: CAC = $500. Monthly gross profit = $100 × 40% = $40. Payback = $500 ÷ $40 = 12.5 months.
Other choices: A includes revenue needed to deliver the service. B adjusts the wrong input. D mixes campaign and customer units. E subtracts a one-time investment from a monthly flow.
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Medium (4/8)
Question: CAC payback
KNOWLEDGE CHECK
A SaaS company spends $78,000 on sales and marketing during a quarter. Its�records separate that spending into two activities:
Each new customer generates $125 of monthly recurring revenue at a 64% gross�margin. There are no other acquisition costs.
Assume no churn, expansion, discounting, or collection delays. Use only the�acquisition costs attributable to the new customers.
How many months of gross profit from a new customer are needed to recover�that customer's acquisition cost?
A. 1.50 months.
B. 4.80 months.
C. 5.25 months.
D. 7.50 months.
E. 9.75 months.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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W2-S044
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Medium (4/8)
Answer: CAC payback
KNOWLEDGE CHECK
D. 7.50 months.
Work the calculation
Cohort CAC = $60,000 ÷ 100 =�$600. Monthly gross profit per�new customer = $125 × 64% =�$80. Payback = $600 ÷ $80 =�7.50 months.
Spending attribution and the�customer denominator must�refer to the same acquired�cohort.
Why the other choices are wrong
A. Divides $60,000 by all 500 ending�customers instead of the 100 acquired�customers, giving $120 CAC.
B. Divides the correct $600 CAC by $125�revenue rather than $80 monthly gross profit.
C. Subtracts the $18,000 renewal cost twice,�using $42,000 rather than $60,000 of�acquisition spending.
E. Uses all $78,000, including $18,000�explicitly attributed to renewals: $780 ÷ $80�= 9.75.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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W2-S044
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Medium (4/8)
Customer churn
Monthly customer churn = starting customers lost during the month ÷ customers at the start of the month.
Measure departures from the starting cohort. New customers do not offset those losses.
State the period. A monthly churn percentage cannot be treated as an annual percentage.
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Question: Customer churn with new signups
A subscription business begins the month with 200 customers. Ten of those starting customers cancel. Thirty new customers join and remain active. What is monthly customer churn?
A. 5%.
B. 10%.
C. 15%.
D. 20%.
E. 90%.
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W2-S047
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Medium (3/8)
Answer: Customer churn with new signups
A. 5% monthly customer churn.
Case: Ten customers leave a starting cohort of 200, while thirty new customers join.
Why: Churn = 10 ÷ 200 = 5%. Ending customers increase to 220, but acquisition does not erase departures from the original cohort.
Other choices: B measures net customer growth. C measures new signups relative to starting customers. D and E do not measure the stated loss rate. Keep acquisition and retention measures separate.
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Medium (3/8)
Net revenue retention
NRR = (starting recurring revenue + expansion − contraction − churn) ÷ starting recurring revenue.
Use the same starting customer cohort. Exclude revenue from newly acquired customers.
Example, using monthly recurring revenue (MRR):
($100,000 + $20,000 − $5,000 − $10,000) ÷ $100,000 = 105%.
The cohort’s revenue grew 5% despite downgrades and cancellations.
NRR above 100% can coexist with customer losses. Check customer retention too.
ChartMogul: Retention metric definitions · Example assumes no reactivations or currency effects; define their treatment in actual reporting.
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Question: Revenue from the starting cohort
A company begins the month with $100,000 monthly recurring revenue (MRR). Existing customers add $15,000 through expansion, lose $5,000 through downgrades, and lose $20,000 through cancellations. New customers add $30,000 MRR. With no other changes, what is net revenue retention (NRR)?
A. 75%.
B. 90%.
C. 95%.
D. 110%.
E. 120%.
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Medium (3/8)
Answer: Revenue from the starting cohort
B. 90% net revenue retention.
Case: Starting MRR is $100,000. Expansion adds $15,000, downgrades remove $5,000, cancellations remove $20,000, and new customers add $30,000.
Why: NRR = ($100,000 + $15,000 − $5,000 − $20,000) ÷ $100,000 = 90%. Only the starting cohort belongs in this calculation.
Other choices: A excludes expansion. E includes new customers and measures ending company MRR relative to starting MRR. C and D do not follow the stated changes. Company MRR grows 20% to $120,000 while starting-cohort MRR shrinks 10%.
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Medium (3/8)
Estimated customer lifetime value
Simple gross-profit LTV approximation
Expected lifetime ≈ 1 ÷ monthly customer churn.
LTV ≈ monthly revenue per customer × gross margin ÷ monthly customer churn.
Assume constant positive churn, stable revenue and margin, no expansion, and no discounting.
This estimates lifetime gross profit before CAC and other costs outside gross profit. It is not company net profit.
Use cohort contribution forecasts when customer behavior varies. Very low churn makes the shortcut unstable.
a16z: Understanding SaaS (2014) · Simplified teaching model; periods must match. Round only the final result.
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Question: Estimating gross-profit LTV
A SaaS customer pays $120 monthly. Gross margin is 75%, and monthly customer churn is a constant 3%. Assume stable revenue and margin, no expansion, and no discounting. Using the simple gross-profit LTV approximation, what is estimated LTV?
A. $1,200.
B. $3,000.
C. $3,600.
D. $4,000.
E. $4,800.
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Easy (2/8)
Answer: Estimating gross-profit LTV
B. $3,000 expected gross profit before CAC and other excluded costs.
Case: Monthly revenue is $120, gross margin is 75%, and monthly churn is 3%.
Why: Monthly gross profit = $90. LTV ≈ $90 ÷ 0.03 = $3,000, corresponding to an expected lifetime of about 33.3 months under the constant-churn model.
Other choices: D uses revenue instead of gross profit. A, C, and E do not follow the supplied inputs. Acquisition, onboarding outside gross profit, overhead, and financing needs still matter.
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Easy (2/8)
Churn and LTV:CAC
Same $200 monthly revenue, 80% gross margin, and $2,000 CAC.
Measure | 2.8% monthly churn | 6.0% monthly churn |
Expected lifetime | 35.7 months | 16.7 months |
Gross-profit LTV | $5,714 | $2,667 |
LTV:CAC | 2.86:1 | 1.33:1 |
Simple gross-profit payback | 12.5 months | 12.5 months |
Churn rises 3.2 percentage points; estimated lifetime value falls 53.3%.
The simple payback formula omits churn. Actual cohort recovery can deteriorate.
Illustrative sensitivity: constant churn, $160 monthly gross profit, no expansion or discounting; round only final results.
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Question: LTV and churn
KNOWLEDGE CHECK
A subscription business is testing how higher churn would�affect the value of a customer. The following inputs remain the�same in both scenarios:
The base case assumes constant monthly customer churn of�3.5%. The downside case increases that rate to 5.25%.�Management still expects strong growth in new customers,�but that growth does not change the retention or spending of�the customer being valued.
Use the gross-profit lifetime value (LTV) approximation.�Assume no expansion, reactivation, discounting, or other�customer cash flows.
What are LTV and LTV/CAC in the downside case? Round�LTV to the nearest dollar and the ratio to two decimal places.
A. LTV of $1,500 and�LTV/CAC of 1.67×.
B. LTV of $1,800 and�LTV/CAC of 2.00×.
C. LTV of $2,400 and�LTV/CAC of 2.67×.
D. LTV of $3,429 and�LTV/CAC of 3.81×.
E. LTV of $3,600 and�LTV/CAC of 4.00×.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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Medium (4/8)
Answer: LTV and churn
KNOWLEDGE CHECK
C. LTV of $2,400 and LTV/CAC of 2.67×.
Work the calculation
Monthly gross profit = $180 ×�70% = $126. Downside LTV =�$126 ÷ 0.0525 = $2,400.�LTV/CAC = $2,400 ÷ $900 =�2.6667×, or 2.67×.
Higher churn reduces estimated�lifetime value even if total�company revenue grows through�new acquisitions.
Why the other choices are wrong
A. Subtracts the $900 CAC inside LTV even�though the requested measure is lifetime�gross profit before acquisition cost.
B. Treats the 50% increase in churn as a 50%�fall in LTV: $3,600 × 50% = $1,800. With�inverse proportionality, divide base LTV by 1.5,�giving $2,400.
D. Divides $180 revenue by churn without�applying the 70% gross margin.
E. Uses the 3.5% base-case churn instead of�the specified 5.25% downside churn.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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Medium (4/8)
SaaS benchmarks need a comparison group
Metric | Useful reference or interpretation |
LTV:CAC | Bessemer’s 2021 cloud guidance uses 3:1 or higher |
Gross-profit CAC payback | Historical guidance: under 12 / 18 / 24 months for SMB / mid-market / enterprise |
Gross margin | Compare similar delivery and accounting models |
NRR | Above 100% means starting-cohort revenue expanded |
Customer churn | Compare the same period and customer segment |
These are references, not investment gates. Even LTV:CAC above 1:1 leaves overhead, uncertainty, and financing needs to cover.
Bessemer: Scaling to $100 Million (2021) · Historical investor guidance, not 2026 market-wide medians.
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TAM, SAM, and SOM
Layer 6 · Define the opportunity in consistent units.
Start with eligible customers × realistic annual spending. State product, payer, geography, year, and price.
Industry activity is not automatically spending on your product.
OpenStax, Entrepreneurship §8.2: Market research and target market · Terminology varies; these definitions are used consistently in this course.
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Question: Sizing a construction-software opportunity
A founder presents $12 trillion of global construction activity as the market for specialized software sold only to large U.S. commercial contractors. What is the main analytical correction?
A. Keep global construction spending as software TAM because the product could influence activity throughout the industry.
B. Use only the current prospect pipeline as total market size because unidentified buyers should not count.
C. Multiply eligible contractors by software spending and treat the entire amount as obtainable revenue without testing reach or sales capacity.
D. Define eligible buyers, relevant geography, and annual software spending, then distinguish total, serviceable, and obtainable opportunity.
E. Replace market sizing with unit economics because positive contribution makes market scale unimportant.
Hypothetical pitch. The $12 trillion figure is the founder’s assertion, not a verified industry statistic. TAM definitions depend on the product and scope.
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Medium (4/8)
Answer: Sizing a construction-software opportunity
D. Size spending on the product, then separate market scope from execution.
Case: The pitch uses global construction activity to size software sold to large U.S. commercial contractors.
Why: Construction project spending is a different revenue pool from software purchases. Eligible buyers × realistic annual software spending defines the relevant opportunity; access and acquisition capacity narrow it further.
Other choices: A uses the wrong spending pool. B confuses pipeline with total demand. C skips serviceability and execution. E ignores whether the accessible market supports the venture’s objectives.
Hypothetical pitch. The $12 trillion figure is the founder’s assertion, not a verified industry statistic. TAM definitions depend on the product and scope.
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Medium (4/8)
Question: TAM, SAM, and SOM
KNOWLEDGE CHECK
A software company is estimating its market opportunity and the revenue�scale it could reach over the next 12 months. It has the following information:
Input | Estimate |
Eligible U.S. contractors in the total addressable market | 18,000 |
Annual subscription price per contractor | $6,000 |
Share of eligible contractors the current product can�serve | 30% |
Qualified sales opportunities within that serviceable�market | 600 |
Expected win rate on those opportunities | 30% |
Maximum number of new customers the team can�onboard | 120 |
The company has no existing customers, expects no churn, and faces no other�constraints. Its pitch also cites $600 billion of annual construction activity.
For this question, measure SOM as year-end annual recurring revenue (ARR)�from customers actually onboarded, not revenue recognized during the year.
Which combination of TAM, SAM, and SOM follows from these assumptions?
A. TAM: $108.0 million;�SAM: $32.4 million;�SOM: $0.36 million of�year-end ARR.
B. TAM: $108.0 million;�SAM: $32.4 million;�SOM: $0.72 million of�year-end ARR.
C. TAM: $108.0 million;�SAM: $32.4 million;�SOM: $1.08 million of�year-end ARR.
D. TAM: $108.0 million;�SAM: $32.4 million;�SOM: $3.24 million of�year-end ARR.
E. TAM: $108.0 million;�SAM: $108.0 million;�SOM: $0.72 million of�year-end ARR.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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Hard (7/8)
Answer: TAM, SAM, and SOM
KNOWLEDGE CHECK
B. TAM: $108.0 million; SAM: $32.4 million; SOM: $0.72 million of year-end�ARR.
Work the calculation
TAM = 18,000 × $6,000 =�$108m. SAM = $108m × 30%�= $32.4m. Expected sales�wins = 600 × 30% = 180, but�only min(180, 120) = 120�customers can be onboarded.
Modeled year-end ARR = 120�× $6,000 = $720,000. These�are conditional planning�estimates, not guaranteed�outcomes.
Why the other choices are wrong
A. Halves the annual recurring amount as if�estimating partial-year recognized revenue. The�requested measure is year-end ARR.
C. Uses 600 × 30% = 180 wins without applying�the 120-customer onboarding constraint.
D. Applies an unsupported 10% share of SAM and�ignores the operating capacity constraint.
E. Treats all eligible contractors as currently�serviceable despite the stated 30%�product-coverage limit.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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Hard (7/8)
Three competitive lenses
Use each framework for a different question.
Framework | Analytical focus |
Porter’s Five Forces | Industry structure and pressures on profitability |
Barney’s VRIO | Resources and capabilities that may sustain an advantage |
Kim and Mauborgne’s Blue Ocean Strategy | Reconfiguring customer value and cost to create new demand |
A promising industry, a distinctive resource, and an innovative offer are different claims. Each needs its own evidence.
Porter: Five Forces, Harvard Business School; Barney (1995), Looking Inside for Competitive Advantage; Kim & Mauborgne: Four Actions Framework
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Porter’s Five Forces
Michael Porter · First introduced in 1979
Force | Pressure to examine |
Rivalry | Price competition and the cost of winning customers |
New entrants | Barriers protecting existing returns |
Substitutes | Other ways customers meet the same need |
Supplier power | Control over essential inputs and terms |
Buyer power | Ability to demand lower prices or more service |
The framework assesses structural pressure on industry profitability. It does not determine the outcome of every individual firm.
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Barney’s VRIO framework
For a specific resource or capability, ask:
Evidence is needed for each condition. A patent, dataset, license, network, or talented team does not automatically pass.
Barney (1995), Looking Inside for Competitive Advantage · Barney (1991) develops the earlier resource-based / VRIN foundation: Barney (1991), Firm Resources and Sustained Competitive Advantage.
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VRIO outcomes and evidence
Assessment | Competitive implication |
Not valuable | Disadvantage |
Valuable, not rare | Parity |
Valuable and rare, readily imitated | Temporary advantage |
Valuable, rare, costly to imitate, not organized | Potential advantage not fully captured |
All four supported | Potential for sustained advantage |
Evaluate proprietary technology, data, networks, licenses, and customer relationships case by case.
“We work harder” is an assertion. A team can be a valuable capability, but rarity and imitation barriers need evidence.
Barney (1995), Looking Inside for Competitive Advantage · “Sustained” is conditional on competitive circumstances; it does not mean permanent.
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Blue Ocean Strategy: The four actions
Kim and Mauborgne · Reconsider value and cost together.
Action | Design question |
Eliminate | Which accepted features or activities no longer justify their cost? |
Reduce | Where does the offering exceed what customers need? |
Raise | Which valued benefits are undersupplied? |
Create | What new benefit could attract customers or noncustomers? |
The goal is differentiation with a better cost structure. New demand and attractive economics still require testing; competitors can respond.
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Question: From strategy to a forecast
A software startup claims a durable advantage because it uses the same commercial�AI model as its rivals. One data supplier can raise prices at renewal, and customer�interviews suggest demand for a simpler workflow. Which next step best connects the�strategy frameworks to financial assumptions?
A. Model supplier pricing power, test whether capabilities are hard to copy, and�validate willingness to pay.
B. Model supplier costs as fixed, treat the shared model as rare, and project an�immediate price premium.
C. Model market growth as demand, use the shared model as a moat, and hold�acquisition costs constant.
D. Model a permanent premium, treat workflow interest as payment, and exclude rival�responses from risk.
E. Model only cloud cost savings, treat scale as exclusivity, and use interview counts�as contracted sales.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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Hard (6/8)
Answer: From strategy to a forecast
A. Model supplier pricing power, test whether capabilities are hard to copy, and�validate willingness to pay.
Why: Porter directs attention to supplier power. VRIO asks whether a valuable�capability is also rare, difficult to imitate, and supported by the organization. Blue�Ocean thinking proposes a different value offering; customers still must validate it.
Other choices: B assumes rarity and fixed costs without support. C substitutes�market growth for company demand. D treats interest as a paid commitment. E�confuses lower cost with an exclusive advantage.
Use the findings to test price, service cost, acquisition cost, and retention.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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Hard (6/8)
Two types of network effects
Same-side: Additional relevant users change value for other users on that side. A messaging service becomes more useful when your contacts join.
Cross-side: Participation on one side changes value for another. More suitable providers can improve choice and availability for customers.
Examples to investigate: WhatsApp, Slack, and LinkedIn for connection value; Uber, Airbnb, and app stores for interactions across groups.
The effect may be local or segment-specific. More participants can also create congestion or competition.
Harvard Business School: Same-side and cross-side network effects (2024) · Examples illustrate mechanisms; they do not imply every additional user benefits every other user.
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Testing a network-effect claim
Identify the participant group, relevant market, and benefit.
The “remove 30% of users” thought experiment can prompt discussion, but is not a pass/fail test. Redundant users or unrelated regions may have little effect.
Measure the mechanism; growth alone is insufficient.
Course diagnostic, informed by Harvard Business School: Same-side and cross-side network effects (2024). No validated 30% cutoff is asserted.
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Question: Providers and customer value
A digital platform connects customers with independent service providers. More providers bring greater selection, shorter wait times, and better availability. Customer value rises even though the number of customers stays unchanged. Which mechanism explains this?
A. Direct network effect: customers benefit primarily from more customers joining.
B. Economies of scale: average operating cost falls as transaction volume increases.
C. Cross-side network effect: growth on the provider side improves value for customers.
D. Switching costs: customers become more reluctant to move to another platform.
E. Economies of scope: several services share production resources.
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Easy (1/8)
Answer: Providers and customer value
C. A cross-side network effect.
Case: Additional providers improve selection and availability for the customer side, while customer count remains unchanged.
Why: Participation on one side changes the benefit received by the other side. The mechanism concerns customer value, not simply the platform’s cost per transaction.
Other choices: A names the wrong participant group. B concerns internal cost efficiency. D concerns leaving the platform. E concerns shared production. Each is distinct from the stated provider-to-customer benefit.
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Easy (1/8)
Question: Network effects
KNOWLEDGE CHECK
A marketplace runs three tests while�keeping prices, promotions, and advertising�intensity unchanged:
The marketplace continues to subsidize�delivery.
Which conclusion correctly identifies�what these results show about network�effects, cost efficiency, and contribution?
A. More participants improve value across the marketplace's�two sides; the cloud change improves processing efficiency.�Together, these improvements establish positive contribution�after subsidized delivery costs.
B. More participants improve value within the marketplace's�individual sides; the cloud change improves processing�efficiency. Contribution still depends on delivery subsidies and�other variable costs.
C. More participants improve value across the marketplace's�two sides; the cloud change improves processing efficiency.�Lower processing costs establish that marginal delivery costs�also decline.
D. More participants improve processing efficiency; the cloud�change improves value across the marketplace's two sides.�Contribution still depends on delivery subsidies and other�variable costs.
E. More participants improve value across the marketplace's�two sides; the cloud change improves processing efficiency.�Contribution still depends on delivery subsidies and other�variable costs.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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Hard (6/8)
Answer: Network effects
KNOWLEDGE CHECK
E. More participants improve value across the marketplace's two sides; the cloud�change improves processing efficiency. Contribution still depends on delivery�subsidies and other variable costs.
Why E is right
More sellers improve buyer�outcomes, and more buyers�improve seller outcomes. Those�are cross-side value effects.
A cheaper cloud stack reduces�costs without the same�participant mechanism. Delivery�subsidies still must be�incorporated when judging�contribution and cash needs.
Why the other choices are wrong
A. Better participant outcomes and lower processing�costs do not show that revenue exceeds all variable�costs, including delivery subsidies.
B. The benefits cross platform sides: more sellers help�buyers, and more buyers help sellers. A same-side effect�concerns participants on the same side.
C. Processing and delivery are different costs. A cloud�migration does not establish how marginal delivery�costs change with volume.
D. Reverses the mechanisms. Participant growth�improves the other side’s outcomes; the cloud change�reduces costs without changing participation.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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Hard (6/8)
Profit and cash
Layer 7 · Track when money arrives and leaves.
A profitable business can run short of cash when customer collections lag payroll, inventory, acquisition spending, or capital investment.
Example: Deliver a profitable order today, pay suppliers now, and collect the customer’s invoice in 30 days. The business must fund that gap.
Growth can widen the gap when costs precede collections. It can improve cash when customers prepay.
Model payment terms and investment needs separately from accounting profit.
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Runway: Three views of cash
Current runway ≈ usable cash ÷ monthly net cash burn, when positive burn stays constant.
No-receipts stress case ≈ usable cash ÷ gross cash outflows, assuming outflows stay unchanged. This is one scenario, not a guaranteed worst case.
Projected runway: Forecast monthly inflows, outflows, and closing cash under base and downside assumptions.
Include committed obligations, capex, debt service, and timing. When the business generates cash, the simple positive-burn formula is not meaningful.
Cash ÷ burn is a steady-state approximation. Distinguish operating-only examples from a complete cash forecast.
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Question: Current cash runway
A startup has $900,000 usable cash, $180,000 monthly operating cash outflows, and $105,000 monthly operating cash inflows. Both flows remain constant, with no financing or other cash flows. What is current runway?
A. 12 months.
B. 8.6 months.
C. 7.5 months.
D. 5 months.
E. 15 months.
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Easy (2/8)
Answer: Current cash runway
A. 12 months.
Case: Cash is $900,000. Monthly outflows of $180,000 exceed inflows of $105,000.
Why: Net burn = $75,000 per month. Runway = $900,000 ÷ $75,000 = 12 months under the constant-flow assumptions.
Other choices: B divides cash by receipts. D assumes receipts disappear. C and E do not use the stated net burn. Hiring, collection delays, or capital spending would require a revised cash projection.
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Easy (2/8)
Default alive or default dead
Paul Graham’s test: With expenses held constant and recent revenue growth continuing, does the business reach profitability before its remaining cash runs out?
It is a conditional forecast, not a verdict. A default-dead company can change course; a default-alive forecast can fail.
For cash planning, also include collection timing and investment needs.
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The fatal pinch and the financing clock
The fatal pinch combines default dead, slow growth, and too little time to fix the business. Locked-in costs can make it harder to respond.
Plan cash through the next evidence milestone, the financing process, and a buffer.
Illustration: 6 months to a milestone + 6 months to finance + 6 months of contingency = 18 months.
Set a cash trigger and a fallback cost plan before financing becomes urgent. Fundraising is uncertain.
Paul Graham: The Fatal Pinch (2014); Paul Graham: Default Alive or Default Dead? (2015) · The 18-month schedule is an illustration, not a universal target.
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Question: Growth, commitments, and runway
A startup raises capital, hires aggressively, and signs a long office lease. Six months later, growth is below plan, cash will run out before profitability, and committed costs cannot fall quickly. Which course concept best describes the situation?
A. Default alive, because a previous capital raise establishes access to future financing.
B. Product–market fit, because management was confident enough to hire ahead of profitability.
C. Operating leverage, because committed fixed costs automatically improve margins as time passes.
D. The fatal pinch: slow growth and short runway leave little time to respond, while locked-in costs limit flexibility.
E. Affordable loss, because using investor money establishes that the expansion’s downside was tolerable.
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Easy (1/8)
Answer: Growth, commitments, and runway
D. The fatal pinch.
Case: Growth disappoints, cash runs out before profitability, and hiring and lease commitments make a quick cost adjustment difficult.
Why: The venture is on a default-dead path with limited time to improve growth or reduce spending. Fixed commitments worsen the response constraint.
Other choices: A assumes another financing round. B treats spending as customer evidence. C ignores insufficient sales. E requires a deliberate tolerable-loss limit, not merely outside funding.
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Easy (1/8)
Question: Default dead and the fatal pinch
KNOWLEDGE CHECK
A startup raised capital eight months ago. Its current plan shows the following:
An investor has requested a presentation but has not committed any money. The founder argues that�the previous financing round and the investor's interest make the company default alive.
Which assessment best describes the company's position and the implication for its financing plan?
A. Default dead: cash runs out before projected profitability. Slower growth and fixed commitments�increase fatal-pinch risk, so planning must allow for the raise to fail.
B. Default alive: the prior financing shows that external capital supports the operating plan. Current�investor interest justifies including another round when calculating the remaining runway.
C. Default dead: current costs exhaust cash too soon. The forecast should recognize lower spending�when management announces reductions, even if payroll and lease commitments remain.
D. Default dead: the forecast shows a temporary cash gap. Management should retain current�commitments and include the prospective round because the investor has requested information.
E. Default alive: projected revenue eventually covers expenses. The gap before profitability is a�financing issue that should be assessed separately from the company's default-alive classification.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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Medium (4/8)
Answer: Default dead and the fatal pinch
KNOWLEDGE CHECK
A. Default dead: cash runs out before projected profitability. Slower growth and fixed�commitments increase fatal-pinch risk, so planning must allow for the raise to fail.
Why A is right
The current path uses up cash before�profitability, making the company default�dead under the stated assumptions.
Slow growth and limited time to respond�create fatal-pinch risk, which locked-in�commitments intensify.
A request for a presentation is not�committed cash, and the forecast is not an�inevitable outcome.
Why the other choices are wrong
B. Past financing and a presentation request do not�establish another raise. Default alive requires�reaching profitability before cash runs out under�the stated trajectory.
C. Announcing cuts does not release committed�cash. Cash savings must reflect feasible timing,�including payroll and lease obligations.
D. Investor engagement is not committed�financing. The plan must address a downside in�which the prospective round does not arrive.
E. The timing of profitability relative to cash�exhaustion is part of the classification, not a�separate issue that can be ignored.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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Medium (4/8)
Burn multiple
David Sacks · Capital efficiency for recurring-revenue businesses
Burn multiple = net cash burn during a period ÷ net new ARR added during that period.
Example: $2 million quarterly net burn ÷ $1 million increase in ARR = 2.0×.
Use the ARR change, not quarterly recognized revenue. Define the cash-burn scope consistently.
Lower generally means less cash consumed per dollar of added ARR. Near-zero or negative net new ARR makes the usual interpretation unreliable.
David Sacks: The Burn Multiple (2020) · 2020 investor heuristic; stage, investment timing, collections, and margins affect interpretation.
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Question: Burn multiple and cash needs
During one quarter, a SaaS venture consumes $900,000 of net cash under a�consistently defined burn measure. ARR rises from $2.4 million to $3.0 million.�Recognized revenue is $720,000, and a financing round adds $2 million of cash.�What is the quarter’s burn multiple and the strongest interpretation?
A. 0.30×; each dollar of ending ARR required thirty cents of quarterly net burn.
B. 1.25×; each dollar of recognized revenue required $1.25 of quarterly net burn.
C. 3.33×; each dollar of added ARR required $3.33 of financing proceeds.
D. 1.50×; each dollar of net new ARR required $1.50 of quarterly net burn.
E. 6.00×; each dollar of quarterly revenue growth required six dollars of net burn.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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Medium (3/8)
Answer: Burn multiple and cash needs
D. 1.50×; each dollar of net new ARR required $1.50 of quarterly net burn.
Calculation: Net new ARR = $3.0m − $2.4m = $0.6m. Burn multiple = $0.9m /�$0.6m = 1.50×. Use burn and the ARR change over the same quarter.
Other choices: A uses ending ARR; B uses recognized revenue; C substitutes�financing proceeds for burn; E divides the ARR change by four, changing the�metric.
This measures capital efficiency under the stated definition. It does not establish�profitability or the cash required to reach the next milestone.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
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Evidence investors may seek by stage
Stage | Illustrative evidence focus |
Pre-seed | Team capability, customer problem, market thesis |
Seed | Early adoption, paid demand where relevant, customer learning |
Series A | Repeatable acquisition, retention, credible customer economics |
Series B and beyond | Scalable operations, capital efficiency, durable advantage |
Requirements vary by investor, sector, business model, and market conditions. Deep-tech and pre-revenue ventures may use technical or regulatory milestones.
Tie the financing plan to the next verifiable milestone.
Course synthesis, not fixed fundraising requirements or a guarantee of financing.
FNCE 143 · Week 2
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The venture viability decision
Before increasing commitment, explain:
Choose a commitment that fits the evidence: proceed, test, redesign, or stop.
Course decision aid. Positive contribution or LTV:CAC above 1:1 alone does not establish overall profitability.
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Question: Founder capability and opportunity economics
Why does the Venture Economics Framework assess the opportunity separately from the founder?
A. Founder quality stops mattering when the market is large.
B. Even a strong founder needs evidence that demand, unit economics, and cash can support the opportunity.
C. Investors evaluate businesses and never consider founders.
D. The Founder Archetype Matrix already establishes that the opportunity is sound.
E. Opportunity assessment removes the need for financial modeling.
FNCE 143 · Week 2
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Easy (0/8)
Answer: Founder capability and opportunity economics
B. Founder capability and opportunity economics require separate evidence.
Case: A founder can have relevant skills and experience while the proposed business still has unproven demand or unsustainable economics.
Why: A capable founder may improve the model, but their profile does not demonstrate that the current price, costs, market, or cash plan works.
Other choices: A and C dismiss founder capability. D asks the Week 1 framework to establish something it does not measure. E removes the financial analysis needed to quantify the opportunity.
FNCE 143 · Week 2
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The Venture Economics Scorecard
For each layer, record evidence, uncertainty, and the next test.
Layer | Final check |
Problem and market fit | Demand and repeat behavior |
Revenue model | Payer, value, charging method |
Pricing | Willingness to pay and contribution |
Channel | Acquisition cost the contract can support |
Unit economics | Defined costs, retention, LTV, and payback |
Market and competition | Credible scope and defensible advantage |
Cash and sustainability | Monthly cash path and financing alternatives |
Build the financial model from these explicit assumptions.
FNCE 143 · Week 2
96
Appendix - Extra Practice Questions & References
Question: Problem–solution fit and product–market fit
What distinguishes problem–solution fit from product–market fit?
A. Problem–solution fit supports a meaningful problem and a workable solution; product–market fit adds sustained demand for the specific product.
B. The terms describe the same stage and are interchangeable.
C. Product–market fit must be established before understanding the customer’s problem.
D. Problem–solution fit requires net revenue retention above 120%.
E. A landing-page signup establishes product–market fit.
Appendix A · Additional practice
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Easy (0/8)
Answer: Problem–solution fit and product–market fit
A. A workable solution and sustained product demand are different claims.
Case: The distinction concerns evidence about the customer’s problem and solution versus evidence of continuing adoption of a specific product.
Why: A product can address an important problem without yet having repeat customers. Paid adoption and continued use strengthen the market-fit claim.
Other choices: B removes the distinction. C reverses the learning logic. D invents a universal threshold. E treats a statement of interest as continuing demand.
Appendix A · Additional practice
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Easy (0/8)
Question: Evidence from interviews and a waitlist
A founder has completed 30 discovery interviews and built a 400-person waitlist, but no one has paid. What is the highest demonstrated level on the course evidence ladder?
A. Level 5: Repeat purchase is demonstrated.
B. Level 1: The founder has assumptions only.
C. Level 4: A paid pilot has demonstrated willingness to pay.
D. Level 3: Customers have expressed interest, but payment is unproven.
E. Level 7: Positive unit economics have been demonstrated.
The numbered evidence ladder is a course heuristic, not an investment-readiness certification.
Appendix A · Additional practice
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Easy (1/8)
Answer: Evidence from interviews and a waitlist
D. Level 3: Interest without a payment commitment.
Case: Thirty interviews and 400 waitlist signups provide discovery and stated-interest evidence. No purchase has occurred.
Why: The observations support the problem and initial interest. A paid pilot or purchase would test willingness to pay at a stated price.
Other choices: B ignores the discovery already completed. C requires payment. A requires repeat purchase. E requires cost and revenue evidence beyond signups.
The numbered evidence ladder is a course heuristic, not an investment-readiness certification.
Appendix A · Additional practice
101
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Easy (1/8)
Question: Customer traction versus market interest
An early-stage software company is trying to determine whether it has customer traction rather than simply market interest. Which evidence provides the strongest support?
A. Eight large companies sign nonbinding letters of intent, but none purchases the product.
B. Three customers complete paid pilots, but none chooses to continue afterward.
C. Twelve customers pay for the product, nine have renewed, and four have expanded their purchases.
D. Website traffic increases 50% after favorable media coverage, but few visitors become paying customers.
E. Thirty prospects say in interviews that they would probably purchase at the proposed price.
Appendix A · Additional practice
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Easy (1/8)
Answer: Customer traction versus market interest
C. Payment, renewal, and expansion show the strongest traction.
Case: Twelve customers have paid, nine have renewed, and four have expanded. The number eligible to renew is not given.
Why: Customers demonstrate continuing value through purchases, rather than statements of intent alone. The evidence is promising but still comes from a small group.
Other choices: A and E describe intent. D measures attention. B proves initial payment but weak continuation. Do not infer a renewal percentage without the eligible-customer denominator.
Appendix A · Additional practice
103
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Easy (1/8)
Question: What unpaid demand establishes
A startup completes 40 customer interviews and collects 600 waitlist signups. Target customers consistently describe the problem as important, but none has paid. Which conclusion is best supported?
A. The large number of interested prospects establishes product–market fit for an early-stage company.
B. Problem relevance and customer interest have support, while willingness to pay and repeat demand remain unproven.
C. Joining the waitlist establishes willingness to pay because it is a meaningful commitment.
D. The waitlist establishes repeatable demand if it exceeds the first-year paying-customer forecast.
E. Unpaid demand establishes viable unit economics because it should reduce future acquisition costs.
Appendix A · Additional practice
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Medium (4/8)
Answer: What unpaid demand establishes
B. The problem and interest have support; purchasing behavior remains untested.
Case: Forty interviews and 600 signups indicate interest, but the startup has no paying customers.
Why: A forecast must still test conversion at an actual price, continued use, and the cost of acquiring and serving buyers.
Other choices: A and D infer continuing demand from a count of prospects. C substitutes a signup for payment. E assumes future acquisition costs and margins that have not been measured.
Appendix A · Additional practice
105
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Medium (4/8)
Question: Scaling software and consulting
In this case, a SaaS firm can double revenue using existing capacity with modest incremental staffing. A consulting firm adds delivery professionals roughly in proportion to client work. What explains the difference?
A. SaaS necessarily operates at a lower gross margin.
B. Consulting firms have no fixed costs.
C. The software firm can spread its fixed-cost base across additional revenue.
D. Consulting revenue is recurring, while software revenue cannot be recurring.
E. SaaS businesses never require capital investment.
Appendix A · Additional practice
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Easy (1/8)
Answer: Scaling software and consulting
C. Existing fixed capacity supports additional software revenue.
Case: Software can serve more demand within its current capacity; consulting adds delivery labor with each increment of client work.
Why: The software model has greater operating leverage under these cost assumptions. Extra contribution can cover fixed costs and then increase operating profit.
Other choices: The case does not imply lower SaaS margin, zero consulting fixed costs, or universal rules about recurring revenue and capital investment. Inspect actual costs and capacity.
Appendix A · Additional practice
107
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143
Easy (1/8)
Question: The cost-based pricing rule
A founder starts with fully loaded cost and adds an amount to achieve a target margin. Which pricing approach is this, and what is its main risk?
A. Value-based pricing; communicating the customer benefit may be difficult.
B. Cost-plus pricing; customer willingness to pay may be ignored.
C. Competition-based pricing; matching rivals may trigger a price war.
D. Freemium pricing; a generous free tier may weaken paid conversion.
E. Penetration pricing; premium customer segments may be overlooked.
Appendix A · Additional practice
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Easy (0/8)
Answer: The cost-based pricing rule
B. Cost-plus pricing, with willingness to pay still untested.
Case: The founder calculates a price from cost and a chosen return target.
Why: The rule remains cost-based whether the return is expressed as markup on cost or margin on revenue. Neither approach establishes what customers will pay.
Other choices: A and C start with different information. D needs a free tier. E needs an intentional low-price entry strategy. The cost-based price can be either too high or too low relative to demand.
Appendix A · Additional practice
109
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Easy (0/8)
Question: Monthly operating cash break-even
A venture sells for $65 per unit, incurs $25 variable cash cost per unit, and pays $24,000 fixed monthly cash operating costs. Sales are collected and costs paid that month. With no other cash flows, how many units cover the monthly operating cash costs?
A. 369 units.
B. 480 units.
C. 600 units.
D. 800 units.
E. 960 units.
Appendix A · Additional practice
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Easy (2/8)
Answer: Monthly operating cash break-even
C. 600 units per month.
Case: Price is $65, variable cash cost is $25 per unit, and fixed monthly operating cash costs are $24,000.
Why: Contribution is $40 per unit. Break-even volume = $24,000 ÷ $40 = 600. Receipts of $39,000 cover $15,000 variable costs plus $24,000 fixed costs.
Other choices: A divides by price rather than contribution. E divides by variable cost. B leaves a shortfall; D exceeds the minimum. Other cash obligations would require a broader forecast.
Appendix A · Additional practice
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Easy (2/8)
Question: A price increase with fewer customers
Customers pay $50 per month for a product serving 5,000 customers. Variable cost is $30 per customer, and fixed monthly costs are $100,000. Price rises 20% to $60 and customer count falls 10%. With unit variable cost and fixed costs unchanged, what is monthly operating profit?
A. Profit falls because losing customers always reduces profit.
B. Profit stays at zero, the original break-even level.
C. The business records an $8,000 operating loss.
D. Operating profit rises to $35,000 per month.
E. Profit cannot be estimated without a separate churn rate.
The constant $30 unit variable cost is essential. Holding the old 40% contribution margin constant instead would produce a different answer.
Appendix A · Additional practice
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Medium (4/8)
Answer: A price increase with fewer customers
D. $35,000 monthly operating profit.
Case: After repricing, 4,500 customers each pay $60, incur $30 variable cost, and share $100,000 fixed monthly costs.
Why: Contribution = 4,500 × ($60 − $30) = $135,000. Subtract fixed costs to get $35,000. The contribution per customer rises enough to outweigh the lower count.
Other choices: A ignores the higher unit contribution. B and C do not follow the stated costs. E is unnecessary because the post-change customer count is provided.
The constant $30 unit variable cost is essential. Holding the old 40% contribution margin constant instead would produce a different answer.
Appendix A · Additional practice
113
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Medium (4/8)
Question: A $900 annual contract
A product has a $900 annual contract value, with no unusual expansion opportunity. Which go-to-market motion is the strongest initial candidate to test on economic grounds?
A. Self-serve adoption, product-led growth, and efficient paid acquisition.
B. Field enterprise sales with lengthy procurement cycles for each account.
C. Outbound representatives who spend substantial time personally closing each deal.
D. Six-month pilots with custom implementation for each customer.
E. A dedicated customer-success manager assigned to every account.
Appendix A · Additional practice
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Medium (4/8)
Answer: A $900 annual contract
A. Begin by testing a low-touch acquisition and service model.
Case: The contract provides $900 annual revenue per customer, and the case supplies no unusually large expansion opportunity.
Why: Delivery costs consume part of that revenue before acquisition and service effort can be recovered. A low-touch model is the most plausible starting point among the alternatives.
Other choices: B–E add substantial per-account effort. They would need higher prices, strong retention or expansion, or a much more efficient cost structure. ACV alone does not prove any channel is viable.
Appendix A · Additional practice
115
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Medium (4/8)
Question: Gross-profit CAC payback
A startup spends $48,000 in complete sales and marketing acquisition costs to acquire 80 new customers. Each customer produces $60 monthly gross profit. Ignoring churn, expansion, discounting, and other cash flows, what is gross-profit CAC payback?
A. 6 months.
B. 8 months.
C. 10 months.
D. 12 months.
E. 15 months.
Appendix A · Additional practice
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Easy (2/8)
Answer: Gross-profit CAC payback
C. 10 months.
Case: The cohort costs $48,000 to acquire, contains 80 customers, and earns $60 monthly gross profit per customer.
Why: CAC = $48,000 ÷ 80 = $600. Payback = $600 ÷ $60 = 10 months. Both numerator and denominator are measured per customer.
Other choices: Six or eight months recovers too little; twelve or fifteen exceeds the required recovery period. This simplified customer calculation does not establish company break-even.
Appendix A · Additional practice
117
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Easy (2/8)
Question: The effect of higher churn
Two SaaS firms have $200 monthly revenue per customer, 80% gross margin, and $2,000 CAC. Their only difference is constant monthly churn: 2.8% versus 6%. Under the simple LTV model, what is the main effect of higher churn?
A. Simple CAC payback automatically lengthens to 24 months.
B. Gross margin falls to 40%.
C. Expected lifetime roughly halves, and LTV:CAC falls from about 2.9:1 to 1.3:1.
D. Nothing material changes because price and CAC stay unchanged.
E. The higher-churn firm becomes default alive.
Appendix A · Additional practice
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Medium (4/8)
Answer: The effect of higher churn
C. Higher churn sharply reduces expected lifetime gross profit.
Case: Both firms earn $160 monthly gross profit and spend $2,000 per acquired customer. Only churn changes.
Why: $160 ÷ 2.8% ≈ $5,714 LTV; $160 ÷ 6% ≈ $2,667. Dividing by CAC gives 2.86:1 versus 1.33:1. Expected lifetime falls from 35.7 to 16.7 months.
Other choices: A assigns churn to a simple payback formula that omits it. B changes a fixed input. D ignores retention. E cannot be concluded from customer economics alone.
Appendix A · Additional practice
119
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Medium (4/8)
Question: Positive CM1 and negative CM2
For a one-time purchase, CM1 subtracts variable delivery and service costs from revenue. CM2 also subtracts variable selling and acquisition costs. A business has positive CM1 but negative CM2. What does this mean?
A. Delivery loses money, but customer acquisition is economically sound.
B. The company is already profitable.
C. Accounting gross margin must be negative.
D. Churn is necessarily the only problem.
E. Delivery contributes positively, but variable selling and acquisition costs consume more than that contribution.
CM1 and CM2 are course conventions. Subscription acquisition must be assessed across the expected customer relationship, not one month alone.
Appendix A · Additional practice
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Easy (1/8)
Answer: Positive CM1 and negative CM2
E. The acquisition and selling layer turns the purchase negative.
Case: The defined contribution is positive after delivery and service, then negative after variable selling and acquisition.
Why: For example, $100 revenue − $50 delivery gives $50 CM1; another $55 acquisition cost produces −$5 CM2. Additional orders with these economics do not fund fixed overhead.
Other choices: A reverses the result. B ignores both negative contribution and overhead. C equates contribution definitions with accounting gross margin. D supplies an unsupported cause.
CM1 and CM2 are course conventions. Subscription acquisition must be assessed across the expected customer relationship, not one month alone.
Appendix A · Additional practice
121
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Easy (1/8)
Question: A broad industry figure in a software pitch
A founder cites $12 trillion of global construction activity as the opportunity for construction software, without identifying buyers or software budgets. What is the main credibility problem?
A. The pitch substitutes broad industry activity for spending on the defined software product.
B. Software SOM must always exceed TAM.
C. The number must understate the software opportunity.
D. Investors should always receive the largest available market figure.
E. Market size becomes irrelevant once unit economics are positive.
Hypothetical pitch. Broad industry spending is not automatically the product’s TAM.
Appendix A · Additional practice
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Easy (1/8)
Answer: A broad industry figure in a software pitch
A. The pitch has not defined a credible software revenue opportunity.
Case: The $12 trillion figure measures asserted construction activity, while the proposed business sells software.
Why: Identify eligible purchasing accounts and realistic annual software spending. Then estimate the portion the offering can serve and the customers it can plausibly win.
Other choices: B reverses the market subsets. C makes an unsupported size claim. D favors a large number over a defensible definition. E ignores the scale of attainable demand.
Hypothetical pitch. Broad industry spending is not automatically the product’s TAM.
Appendix A · Additional practice
123
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Easy (1/8)
Question: Evidence for a marketplace network effect
A two-sided marketplace argues that it has a cross-side network effect. Which evidence most directly supports that claim?
A. Higher transaction volume lowers infrastructure cost per transaction as fixed technology costs are spread more widely.
B. Brand awareness lowers paid acquisition costs for both buyers and sellers.
C. More transaction history improves internal processing algorithms, reducing processing time and operating expense.
D. More users increase total activity, while individual participant value remains roughly unchanged.
E. More qualified sellers attract buyers, while more buyers attract sellers and improve the value of participation on both sides.
Appendix A · Additional practice
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Easy (1/8)
Answer: Evidence for a marketplace network effect
E. Participation on each side improves the value received by the other.
Case: The claim concerns a two-sided marketplace, rather than internal efficiency from processing more transactions.
Why: Useful supply can improve buyer choice; demand can improve sellers’ opportunity to transact. The described feedback directly supports a cross-side mechanism.
Other choices: A is cost scale. B concerns acquisition efficiency. C describes internal operating improvements. D offers no change in participant value. Further testing is needed to establish causation and scope.
Appendix A · Additional practice
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Easy (1/8)
Alphabet: Revenue categories versus segments
Q2 2025 · USD billions
Segment / reporting group | Revenue | Operating income |
Google Services | $82.543 | $33.063 |
Google Cloud | $13.624 | $2.826 |
Other Bets | $0.373 | −$1.246 |
Google Services includes advertising plus subscriptions, platforms, and devices.
Company totals also include −$0.112 billion revenue hedging and −$3.372 billion Alphabet-level operating activities.
Different businesses have different cost structures. Analyze them separately.
Alphabet: Form 10-Q, quarter ended June 30, 2025 · Segment reporting; Other Bets aggregates multiple operating segments.
Appendix B · Financial reference examples
126
Alphabet: Revenue to operating income
Q2 2025 · USD billions
Income-statement bridge | Amount |
Revenue | $96.428 |
Less cost of revenues | −$39.039 |
Calculated gross profit | $57.389 |
Less research and development | −$13.808 |
Less sales and marketing | −$7.101 |
Less general and administrative | −$5.209 |
Operating income | $31.271 |
Gross profit excludes operating expenses. Revenue growth alone does not establish operating profitability.
Alphabet: Form 10-Q, quarter ended June 30, 2025 · Gross profit calculated as revenue less cost of revenues.
Appendix B · Financial reference examples
127
Alphabet: Operating income to net income
Q2 2025 · USD billions
Income-statement bridge | Amount |
Operating income | $31.271 |
Plus other income, net | +$2.662 |
Income before taxes | $33.933 |
Less income taxes | −$5.737 |
Net income | $28.196 |
Application: For another public company, use its 10-K or 10-Q to identify revenue sources, assign course archetypes, and explain the largest cost drivers.
Alphabet: Q2 2025 earnings release, July 23, 2025 · Historical figures, not a current-quarter update.
Appendix B · Financial reference examples
128
A profitable project that needs cash
Illustrative custom-equipment order · USD
Contract revenue is $100,000; all project costs total $70,000. Project profit is $30,000 before company overhead.
Cash event | Project cash flow | Cumulative project cash |
Day 0: Buy materials | −$40,000 | −$40,000 |
Day 30: Pay delivery labor | −$30,000 | −$70,000 |
Day 60: Collect customer payment | +$100,000 | +$30,000 |
The project needs $70,000 of interim funding. A customer deposit or staged billing can reduce the gap.
Hypothetical project; no other receipts or payments. Cumulative project cash starts at zero and excludes financing. This is a cash schedule, not a revenue-recognition schedule.
Appendix B · Financial reference examples
129
TablePilot: Customer and offer
Fictional example · Restaurant planning software
TablePilot sells waste and labor-planning software to independent restaurant operators with 2–10 locations.
The purchase case depends on whether better decisions save enough money or time to justify the price and switching effort.
All TablePilot figures and business assumptions are fictional. Point of sale (POS) = the system used to record sales.
Appendix C · Optional TablePilot walkthrough
130
TablePilot: Customer economics
Fictional monthly subscription · USD per operator
Input or calculation | Amount |
Monthly revenue − recurring service cost | $200 − $40 |
Monthly gross profit / margin | $160 / 80% |
Upfront acquisition + separate onboarding | $2,000 + $200 |
CAC payback: $2,000 ÷ $160 | 12.5 months |
Recovery including onboarding: $2,200 ÷ $160 | 13.75 months |
The $40 includes all cost of revenue and recurring variable service costs. Payback assumes customers remain active throughout recovery.
At constant 3% monthly churn, estimated gross-profit LTV is $160 ÷ 3% ≈ $5,333, before acquisition, onboarding, and company overhead. LTV:CAC is approximately 2.67:1.
Fictional, stable price and costs. Simple LTV assumes no expansion or discounting. A lifetime estimate is not cash available today.
Appendix C · Optional TablePilot walkthrough
131
TablePilot: Total and serviceable market
Fictional national software market · Annual USD
Assume 50,000 independent operators with 2–10 locations, at $200 per operator monthly = $2,400 annually.
Scope and sequential filter | Operators | Annual revenue opportunity |
TAM: all eligible operators | 50,000 | $120 million |
Supported POS systems: 40% of TAM operators | 20,000 | — |
SAM: launch regions contain 50% of supported operators | 10,000 | $24 million |
TAM describes the defined total opportunity. SAM narrows it to customers the offering and launch geography can serve.
Validate counts, filters, and price. Count operator contracts, not individual locations.
Hypothetical buyer population and conditional filters, not estimates of the actual restaurant-software market.
Appendix C · Optional TablePilot walkthrough
132
TablePilot: Obtainable revenue needs a capacity plan
Fictional Year 3 plan · $2,400 annual contract per operator
Execution assumption | Result |
Opening active accounts | 400 |
4,000 qualified opportunities × 8% conversion | 320 potential wins |
8 ramped salespeople × 10 wins per quarter × 4 quarters | 320 sales capacity |
Customer losses during the year | 170 |
Ending active accounts: 400 + 320 − 170 | 550 |
Exit ARR: 550 × $2,400 | $1.32 million |
The 550 accounts fit within a 700-account support capacity.
Obtainable revenue depends on demand, selling capacity, and retention. Exit ARR is the ending recurring run rate, not revenue recognized during the year.
All figures are hypothetical. The 170 losses are rounded from 3% monthly churn with evenly distributed wins; the execution assumptions still require evidence.
Appendix C · Optional TablePilot walkthrough
133
TablePilot: Strategy changes financial assumptions
Framework and focus | Case application | Financial implication to test |
Porter: industry pressure | POS vendors bundle competing tools; data access depends on suppliers | Achievable price, acquisition cost, and service cost |
VRIO: resources and capabilities | Permissioned operating data may improve recommendations | Customer outcomes and retention; advantage requires rarity, imitation barriers, and organizational support |
Blue Ocean: customer value and cost | Replace bespoke reports with a clear daily action list | Willingness to pay and effort required to serve each account |
Use evidence before changing the forecast. A framework identifies a hypothesis; it does not validate it.
Fictional restaurant-planning software · Hypotheses to investigate�Illustrative applications of Porter, Barney (1995), and Kim & Mauborgne.
Appendix C · Optional TablePilot walkthrough
134
Question: TablePilot expansion and cash
TablePilot has $300,000 usable cash. Expansion costs $75,000 immediately. Current monthly receipts are $24,000 and total outflows are $49,000; expansion adds $15,000 monthly outflows. With no incremental receipts, financing, or other cash flows, and constant monthly flows, what runway remains after the upfront payment?
A. 12.0 months.
B. 7.5 months.
C. 5.6 months.
D. 4.6 months.
E. 20.0 months.
Fictional scenario. Current total outflows already include delivery, acquisition, onboarding, and overhead; the expansion amounts are additional.
Appendix C · Optional TablePilot walkthrough
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Answer: TablePilot expansion and cash
C. About 5.6 months.
Case: Cash begins at $300,000; expansion costs $75,000 upfront. Monthly outflows rise from $49,000 to $64,000 while receipts remain $24,000.
Why: Remaining cash = $225,000. Net burn = $64,000 − $24,000 = $40,000 monthly. Runway = $225,000 ÷ $40,000 = 5.625 months.
Other choices: A describes current-plan runway. B ignores the upfront payment. D divides remaining cash by current gross outflows. E divides opening cash by only incremental monthly spending. Expansion receipts and collection timing need a separate projection.
Fictional scenario. Current total outflows already include delivery, acquisition, onboarding, and overhead; the expansion amounts are additional.
Appendix C · Optional TablePilot walkthrough
136
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TablePilot: Margin, recovery, and cash answer different questions
Fictional software business · Constant-flow illustration
An attractive recurring margin does not settle acquisition recovery or fund expansion. Test willingness to pay, retention, and acquisition efficiency; project cash before increasing commitments.
Hypothetical inputs. Customer recovery and company runway measure different things; the 13.75-month calculation does not prove that cash will run out before a customer pays back.
Appendix C · Optional TablePilot walkthrough
137
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