León Velázquez, Director of Strategy at Tecmilenio University, says the main mistake entrepreneurs make is falling in love with their idea.
A business model is a pre-existing plan to start your business. And it begins with having a defined goal.
According to León Velázquez, Director of Strategy at Tecmilenio University, the main mistake entrepreneurs make is falling in love with their idea, the one they’ve dreamed about and worked on, without being open to other points of view.
“Entrepreneurs have to fall in love with the problem, not with the idea. They should fall in love with the circumstances and what customers experience so they’re able to solve it.”
According to Velázquez, the first thing to do to create a business model is to come up with a defined goal.
“That’s the main part you want to maximize with the business. It makes a difference if the goal is based on people.”
So, when the initial focus is a tangible benefit to a group of potential customers, the business model gets off to a good start.
“This also gives the work team a service goal,” says Velázquez.
The expert also points out that it’s not enough to trust ideas that are expressed in graphs. Ultimately, that’s where laws of addition and subtraction apply, but reality is much more complex.
“A business model can work in Excel and then fail in real life. It needs to be explained as if it were a story, especially when presenting the business case to a group.”
Only when the idea is well articulated, making reference to strengths, weaknesses, the market niche, and competitors, can it be told fluently. Straightaway, this gives you a certain guarantee that it’ll work well in reality.
Even if the story is narrated coherently and gets the approval of partners or investors, the work isn’t over yet. Next comes the rehearsal phase.
“The model must be validated by customers, through offering them an initial version of the product or service. And this should be done with a willingness to accept corrections and the reasons why the prototype might’ve been wrong.”
Once adjustments are made based on customer feedback, then the business model is shown to partners or investors and, if there are no objections, it’s time to put it into practice.
The pandemic had a negative economic impact on Mexico in 2020, with an 8.5% drop in national production. According to estimates from the International Monetary Fund and the Department of Trade, Gross Domestic Product (GDP) is projected to grow by 5% in 2021. Bearing this in mind, how can you recover from an economic crisis?
One ray of sunshine against this gloomy background is that people didn’t go into debt. On the contrary, there was an increase in savings.
The National Survey on Financial Inclusion shows that the percentage of people actively saving increased by 17 points from 51% to 68% of the entire adult population.
“Bank customers preferred to save than to borrow credit from the private sector. At the end of 2020, bank deposits had grown 9.7%, while private sector credit had fallen 1.3% in annual terms,” explains Juan Luis Ordaz, Director of Financial Education at Citibanamex.
Capital flow or capital cash flow is what’s used for normal business or investment operations. Even in financial terms, it has different meanings.
It all begins with your company’s profit and loss. According to Ricardo Rangel, financial analyst and Founding Partner of Thierry Finance, capital flow gives you a snapshot of your administration to evaluate who you owe and what have and haven’t done with the resources you have in your company.
“If you don’t have any cash flow, you can’t make the decision to invest or take certain risks. This was made evident during the pandemic when company cash flow was at its poorest, especially for MSMEs,” explains Rangel in an interview for Tec Review.
This is related to the running of projects and business in which there’s a certain level of borrowing, where the impact of contributions assigned to pay creditors and shareholders is determined later.
It’s the amount of money a company generates in a given period to pay creditors and provide dividends to shareholders.
It includes adjusted net income for expenses that don’t represent cash flow, including changes in working capital and capital expenditure, according to specialists at AD Tec Business Consulting.
This represents the cash flow a company generates regardless of how it’s financed.
Free Cash Flow is defined on an after-tax basis, before deducting financial expenditure such as interest.
“Give your Free Cash Flow as an alternative source, since obviously it’s your financing… because maybe you need to finance working capital to keep the company running, which is what happened during the pandemic,” says financial analyst Ricardo Rangel.
This represents the company’s residual cash flow after interest and taxes have been paid.
According to Aurelio Garcia del Barrio Zafra, Ph.D. and MBA Director at the Institute of Stock Exchange Studies (IEB), it can be obtained by subtracting interest and adding or subtracting the applicable changes in borrowing from Capital Cash Flow.
(Information from Laura Brugés, Jansel Jiménez and Luz Olivia Badillo)