Business Case
Build an in depth business case to learn the dynamics of your business, determine the Y1 startup cost, and the Y5+ revenue potential.
What is Business Case?
A business case is a comprehensive analytical document that evaluates the commercial viability of your startup idea by examining market dynamics, financial projections, operational requirements, and risk factors. Unlike simple back-of-the-envelope calculations, a thorough business case forces entrepreneurs to dive deep into the mechanics of their business model, validate key assumptions with data, and create realistic timelines for growth and profitability.
This validation technique is particularly powerful because it requires you to research and quantify every aspect of your business, from customer acquisition costs to operational expenses, revenue streams to competitive positioning. By building detailed financial models spanning the first five years, you'll uncover potential challenges, identify critical success factors, and determine whether your startup has the fundamentals to become a sustainable, scalable business. The process often reveals gaps in your business model that need addressing before launching.
When to Use This Experiment
• Before seeking investment - Investors expect detailed financial projections and market analysis • When transitioning from idea to execution - Need concrete numbers to guide resource allocation • After initial market validation - You've proven demand exists and need to assess scalability • When considering pivot decisions - Compare multiple business models objectively • Before quitting your day job - Understand the financial commitment and timeline required • When building a founding team - Align co-founders on business potential and requirements • After completing customer discovery - Transform qualitative insights into quantitative projections
How to Run This Experiment
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Define your business model components - Map out revenue streams, cost structure, key partnerships, and value propositions. Use frameworks like Business Model Canvas to ensure completeness.
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Conduct thorough market research - Analyze market size (TAM, SAM, SOM), growth rates, customer segments, and competitive landscape. Use industry reports, surveys, and competitor analysis.
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Build detailed financial projections - Create monthly cash flow projections for Year 1 and annual projections for Years 2-5. Include revenue forecasts, operating expenses, capital requirements, and break-even analysis.
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Calculate key business metrics - Determine Customer Acquisition Cost (CAC), Customer Lifetime Value (CLV), Monthly Recurring Revenue (MRR), churn rates, and unit economics for your specific business model.
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Assess operational requirements - Detail staffing needs, technology infrastructure, manufacturing/service delivery costs, and scaling requirements. Include organizational chart and hiring timeline.
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Analyze risks and mitigation strategies - Identify major risks (market, technical, financial, operational) and develop contingency plans. Include sensitivity analysis showing how changes in key variables affect outcomes.
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Create multiple scenarios - Develop best-case, worst-case, and most-likely scenarios to understand the range of possible outcomes and required funding under different conditions.
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Validate assumptions with stakeholders - Present findings to potential customers, advisors, and industry experts to pressure-test your assumptions and refine projections based on feedback.
Pros and Cons
Pros
• Comprehensive understanding - Forces deep analysis of all business aspects and market dynamics • Investor-ready documentation - Creates professional materials needed for fundraising conversations • Risk identification - Uncovers potential challenges and failure points before they become critical • Resource planning - Provides clear roadmap for hiring, funding, and operational scaling • Decision-making framework - Enables data-driven choices about strategy and resource allocation
Cons
• Time-intensive process - Requires significant research and analysis, potentially delaying execution • Analysis paralysis risk - May lead to over-planning instead of testing assumptions in the market • Assumption-dependent - Projections are only as good as underlying assumptions, which may prove incorrect • Static nature - Business cases can become outdated quickly as market conditions change • False confidence - Detailed projections may create illusion of certainty in inherently uncertain startup environment
Real-World Examples
Airbnb's Series A Business Case (2009): Before raising their Series A, Airbnb developed detailed projections showing how they could scale from thousands to millions of listings. Their business case included unit economics per booking, host acquisition costs, and international expansion timelines. This helped them secure $7.2M by demonstrating the massive market opportunity and path to profitability through their platform model.
Warby Parker's Direct-to-Consumer Analysis: The founders built a comprehensive business case comparing traditional eyewear retail margins to their proposed direct-to-consumer model. They calculated potential savings from eliminating intermediaries, projected customer acquisition costs through digital marketing, and modeled the economics of their home try-on program. This analysis validated their ability to offer designer-quality glasses at fraction of retail prices while maintaining healthy margins.
Slack's Enterprise Pivot Business Case: When Stewart Butterfield's team decided to pivot from gaming to enterprise communication, they developed a detailed business case analyzing the enterprise software market, SaaS pricing models, and viral adoption patterns within organizations. Their projections showed how freemium model could drive organic growth while premium features generated recurring revenue, ultimately validating the $27 billion market opportunity they captured.